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Decklar closes $7.5-million financing with San Leon
2022-01-27 07:59 ET - News Release
Mr. Duncan Blount reports
DECKLAR RESOURCES INC. ANNOUNCES CLOSING OF FUNDING TRANSACTION WITH SAN LEON ENERGY
Decklar Resources Inc. has closed a financing agreement with San Leon Energy PLC whereby the previously announced subscription agreement will be completed for gross proceeds of $7.5-million (U.S.) (of which $750,000 (U.S.) was previously paid as a refundable deposit) with $4.75-million (U.S.) paid immediately and $2-million (U.S.) to be paid by April 30, 2022.
As detailed below, in 2020, the company announced that San Leon had conditionally agreed to advance $7.5-million (U.S.) by way of a loan to Decklar's wholly owned subsidiary, Decklar Petroleum Ltd. San Leon also announced that it was subscribing for a 15-per-cent equity interest in Decklar Petroleum in order to participate in the Oza oil field in Nigeria. San Leon advanced an initial deposit of $750,000 (U.S.) at the time of the agreement, with $6.75-million (U.S.) of San Leon's proposed loan remaining in escrow and to be released upon satisfaction (or waiver) of certain conditions precedent. Delays were experienced in concluding conditions precedent to the San Leon transaction, and Decklar proceeded to complete the re-entry and testing of the Oza-1 well. Based upon the Oza-1 well test, which indicated positive oil results from two zones and gas in a third zone, San Leon has agreed to advance the additional funds and to proceed with its investment in Decklar Petroleum. Decklar has agreed to modified terms to proceed with the arrangement with San Leon and to involve San Leon in future development planning.
Accordingly, the parties have agreed to amendments by way of a binding letter of intent (LOI) and have committed to implement the amendments to the definitive documents. The principal terms of the binding LOI are as follows:
- San Leon has agreed to proceed with its 15-per-cent equity investment in Decklar Petroleum, waiving the remaining conditions precedent.
- Of the $6.75-million (U.S.) of funds currently held in escrow, $4.75-million (U.S.) will be advanced to Decklar and the remaining $2-million (U.S.) will be returned to San Leon. San Leon is obligated to either advance a further $2-million (U.S.) in Decklar by April 30, 2022, or, alternatively, accept a pro rata reduction in its shareholding in Decklar Petroleum.
- San Leon has agreed to waive its option to invest in an additional 15-per-cent equity interest of Decklar Petroleum and will also no longer provide the second planned loan of $7.5-million (U.S.) in Decklar.
- Decklar Petroleum has agreed that San Leon will be fully involved in the planning and determining the location of the first new well to be drilled on the Oza oil field.
Subscription agreement
As previously announced in 2020 Decklar entered into a subscription agreement with San Leon, an Alternative Investment Market-listed public company focused on Nigerian production and development assets, which is arm's length to the company (within the meaning of the policies of the TSX Venture Exchange). The subscription agreement entitles San Leon to purchase $7.5-million (U.S.) of 10-per-cent unsecured subordinated loan notes of Decklar Petroleum and 1,764,706 ordinary shares of Decklar Petroleum (representing 15 per cent of the share capital of Decklar Petroleum) for a cash consideration of $7.5-million (U.S.) and 1,764,706 Nigerian naira, respectively. In addition, Decklar Petroleum and San Leon had the right to enter into an option agreement that would have entitled San Leon to purchase an additional $7.5-million (U.S.) of loan notes and 2,521,008 Decklar Petroleum shares (resulting in an additional 15 per cent of the share capital of Decklar to San Leon) for cash consideration of $7.5-million (U.S.) and 2,521,008 Nigerian naira, respectively. San Leon has now agreed to terminate the right to enter into the option agreement.
The subscription agreement provided for certain conditions precedent to be confirmed prior to finalizing and issuing of the loan notes and Decklar shares, including entering into an agreed form of shareholder agreement in respect of Decklar and the restructuring of certain historical indebtedness by the owner/operator of the Oza field, Millenium Oil and Gas Company Ltd., to the satisfaction of San Leon at its sole discretion. Concurrently with entering into the subscription agreement, San Leon advanced $750,000 (U.S.) as an initial deposit with the release of the balance of the $7.5-million (U.S.) being subject to the satisfaction (or waiver) of the conditions precedent contained in the subscription agreement. All of the conditions precedent have now been satisfied or have been waived by San Leon. The terms of the shareholder agreement provide San Leon with the right to nominate up to two nominees to the board of directors of Decklar Petroleum, with Decklar having the right to nominate up to four nominees to the Decklar Petroleum board. The shareholder agreement provides that certain fundamental decisions in respect of Decklar Petroleum require the approval of 75 per cent of the votes eligible to be cast at a director meeting, including approval of the annual business plan and budget and the incurrence of any expenditure outside of the ordinary course in excess of $200,000 (U.S.).
Loan notes
The terms of the loan notes provide for an interest rate of 10 per cent per annum, which accrues on a quarterly basis and will have a maturity date that is five years from the date of issuance. No payments (whether on account of interest or principal) are required under the loan notes unless there are available funds from operations of the Oza oil field (after taking into account any required debt servicing payments, general and administrative expenses, approved joint venture capital and operating costs required to be financed by Decklar Petroleum under the terms of agreements with Millenium, taxes, and other statutory payments). Seventy-five per cent of available funds shall be applied to the payment of interest and principal in respect of the loan notes until they are repaid in full. Decklar Petroleum also has the right to voluntarily prepay the loan prior to maturity without penalty. The loan notes are unsecured, subordinated and contain customary events of default. The loan notes do not contain any financial or other maintenance covenants.
The transactions contemplated by the subscription agreement and binding LOI are subject to final approval by the TSX Venture Exchange.