22nd Dec 2006 12:51
Cardinal Resources plc22 December 2006 LONDON - 22 December 2006 Cardinal Resources plc (AIM:CDL) ("Cardinal" or "the Company"), an independentoil and gas production and exploration company operating in Ukraine, todayannounces that Cardinal and Silver Point Finance ("Silver Point") have amendedand restated the existing US$38 million bridge financing facility entered intoin December 2005 ("Bridge PIK Notes") and have increased the facility by US$17.5million to US$55.5 million. The revised Bridge PIK Note financing transaction will allow the Company toaccess additional finance to continue its drilling and workover programme inUkraine in line with its business plan, which the Directors believe shouldenable the Company to meet its stated production targets and fulfil itsfinancial obligations, thereby increasing shareholder value. The Directors believe that shareholder value will be maximised throughachievement of two key objectives:- 1. Completion of the Rudis workovers and drilling programme together with the tie in of the new and renewed wells to the new gas plant and existing Ukrainian pipeline; and 2. Re-instatement of the Company's net profit interest in the Rudivsko-Chernovozavodske Field ("RC Field") to 45% ("RC re-instatement"). Cardinal aims to achieve these two objectives within the next 6 to 12 months. The Company has expanded the engagement of its nominated adviser, Nabarro Wells& Co. Limited, to assist the Company in considering strategic alternatives tomaximise shareholder value. This exercise is expected to conclude after theCompany's work towards its two key objectives has progressed significantly. Purpose of New Funding The new funding will be used to: • Accelerate the work programme on the 3 Rudis licence areas, on which Cardinal owns the licences and controls operations; • Re-instate the US$5 million recently drawn from the RC re-instatement facility and restore the full $14.1 million facility for the RC re-instatement; and • Settle fees and expenses relating to the transaction and provide for general corporate and capital expenditure purposes. The work programme on the Rudis properties for 2007 includes drilling four new wells and completing seven well workovers. In addition, the Company remains onschedule to start the gas processing facility now being built to process gas from the Rudis properties. Commenting on today's announcement, Robert J. Bensh, Cardinal's Chairman andChief Executive Officer said, "The work programme on the Rudis properties isprogressing well. The additional funding from Silver Point enables Cardinal toincrease the pace of the work there to meet our production targets by the end of2007. We are pleased Silver Point is willing to finance our developmentprogramme and has confidence in supporting Cardinal in its growth plans inUkraine." Background The Company announced on 27 November 2006 its need to access additional capitalboth to fund its development of the Rudis properties and for the RCre-instatement. In early December 2006, Cardinal drew down US$5 million of theUS$14.1 million facility which had previously been set aside for the RCre-instatement, on payment of a fee to Silver Point. The US$5 million drawn downhas been reinstated as part of the revised Bridge PIK Note in order thatCardinal will still have the funds to proceed with the RC re-instatement if thisbecomes possible in 2007. As part of the US$5 million draw down, the Company andSilver Point agreed to waive certain financial covenants under the Bridge PIKNotes until 31 December 2006. Covenant waivers were necessary because Cardinalhas not yet been able to consummate the RC re-instatement during the course of2006 as envisaged in December 2005 when the Bridge PIK Notes were announced.With the agreement of Silver Point and as announced in March and May 2006,Cardinal has been developing the Rudis assets acquired in September 2005 (whichCardinal controls), rather than the RC Field assets, for the benefit ofshareholders. The Directors were of the view that failure to access additional finance tocontinue the drilling programme in December 2006 would prevent the Company fromexecuting its business plan which would damage shareholder value. Further, theDirectors were concerned that, if the revised Bridge PIK Note financingtransaction had not been entered into or if covenant waivers were not grantedbeyond 31 December 2006, this could have resulted in the Company not being ableto meet its financial obligations as they fall due. Summary of the proposed new and restated financing agreements Cardinal today issued US$17.5 million in additional Payment-in-Kind (PIK) Notesto Silver Point ("New PIK Notes"). Subject to potential adjustment mentionedbelow, the New PIK Notes will carry a coupon of 15% per annum with interestpayable on a quarterly basis by issue of further PIK Notes (on the same terms)or in cash, at Cardinal's option. The existing Bridge PIK Notes and the New PIKNotes (together the "Bridge Notes") will have to be redeemed in full by 31 March2008, three months later than the original redemption date of 23 December 2007. Cardinal Resources Finance Limited ("Cardinal Finance") - Cardinal's UKsubsidiary that holds the Company's assets - has issued a further 38.5 millionwarrants to Silver Point to subscribe for further shares in Cardinal Finance("New Warrants"). 7.7 million of these New Warrants became exercisable today andthe remaining 30.8 million New Warrants will become exercisable as to 20% (i.e.7.7 million shares) every 91 days after today until all 38.5 million areexercisable. If a refinancing of the Bridge Notes takes place prior to the rightto full exercise of the warrants having occurred, unexercised warrants will beautomatically cancelled. The right to exercise will occur in entirety on achange of control of the Company, on an event of default, or on the RCre-instatement. This provision allows Cardinal to access required funds tocontinue the drilling programme whilst maximising flexibility for the Company topursue other financing alternatives. The right to exercise the warrants instages is designed to allow for any refinancing proposal completed within areasonable time frame to reduce the number of outstanding warrants arising fromthe New PIK Note financing. The New Warrants will have a term of five years fromtoday at a subscription price equivalent to 20p. When combined with the existing75.9 million Cardinal Finance warrants issued in December 2005 ("ExistingWarrants"), the New Warrants, if fully exercisable, will increase Silver Point'srights to subscribe from approximately 32.2% of Cardinal Finance toapproximately 40.6% of Cardinal Finance on a fully diluted basis. In tabular form, the position is as follows: Before 22 December After 91 days A year later signature 2006 or on change of financing of control transaction or the RC reinstatement Shares in issue 114,554,108 114,554,108 114,554,108 114,554,108 Existing non PIK Noterelated options andwarrants outstanding(investors andmanagement) 46,331,300 46,331,300 46,331,300 46,331,300 Cardinal Resources 4,389,875 (at 6,289,875 (of 6,289,875 (of 6,289,875 (ofplc warrants 27.5p) which 1,900,000 which 1,900,000 at which 1,900,000issued to Silver at 20p) 20p) at 20p)Point Fully dilutedtotal atCardinalResources plclevel 165,275,283 167,175,283 167,175,283 167,175,283 Cardinal Finance 75,948,391 (at 83,648,391 (of 91,348,391 (of 114,448,391 (ofWarrants at 27.5p) which 7,700,000 which 15,400,000 which 38,500,000subsidiary level at 20p) at 20p) at 20p) Fully dilutedtotal as ifCardinalFinancewarrants hadbeen issued asCardinalResources plcwarrants 241,223,674 250,823,674 258,523,674 281,623,674 Taken together, the new and the amended and restated financing agreementsprovide inter alia the following: . The term of the Bridge Notes is extended from 23 December 2007 until 31 March 2008. • The coupon for the Bridge Notes will remain at 15%, unless regulatory and shareholder approval to convert the Existing Warrants and the New Warrants to Cardinal warrants is not obtained by 31 July 2007, in which event the coupon increases from 15% to 20% per annum and the 20% coupon will be retroactive on the Bridge Notes from today; charged by way of a fee to Silver Point equivalent to that retroactive interest; and the coupon will then be increased by a further 1% per annum for every quarter after July 2007 until maturity. • In addition, Cardinal has issued 1.9 million new warrants in the parent company ("New PLC Warrants") to Silver Point at an exercise price of 20p. This exercise price represents a premium of 8.1% to the closing price of Cardinal shares on 21 December 2006 and a premium of 60% to the closing price of Cardinal shares on Friday 24 November 2006, the last business day before Cardinal's announcement of 27 November 2006. The New PLC Warrants will have a five year term from today. Silver Point will also retain the 4,389,875 warrants over Cardinal shares granted on 1 December 2005 ("PLC Warrants") which remain at a price of 27.5p. The term of such warrants shall remain unchanged at 5 years from 23 December 2005. In total therefore, Silver Point will have warrants to 5.2% of Cardinal's undiluted share capital. • Both the subscription price for the Existing Warrants, at 27.5p, and the term, 5 years from 23 December 2005, will remain unchanged. • If all Existing Warrants and New Warrants (assuming all 38.5 million New Warrants were exercisable) were converted into Cardinal warrants, Silver Point's interest in the Company - together with the PLC Warrants and New PLC Warrants - would amount to approximately 42.9% of the Company's fully diluted share capital. The equivalent figure at 23 December 2005, before adjustment, was approximately 34%. • As with the Existing Warrants, the New Warrants will have pre-emption rights over new share issues by Cardinal Finance and tag along rights in the event of any sale of Cardinal Finance. The New Warrants will also carry the same put option as carried by the Existing Warrants allowing sale of the New Warrants to Cardinal in the event of a change of control of Cardinal or on the expiry of the applicable five year warrant term, at a price equal to the percentage of the Company's value that the warrants represent (assuming full exercise) less an amount equal to the subscription price payable upon exercise. In the case of a change of control, to the extent that consideration is non-cash, Cardinal is entitled to satisfy amounts due under the put option with a proportionate share of such consideration. The change of control provisions of the Existing and the New Warrants are designed to place the Existing Warrants and the New Warrants in a similar position to a holder of PLC Warrants; however, they do not represent any barrier to a change of control. Silver Point has the right to transfer Cardinal Warrants without restrictions and Cardinal Finance warrants subject to Cardinal's pre-emption rights. • Silver Point will now have the right to appoint one Observer to each of the Boards of Cardinal and Cardinal Finance; but no longer has a right to two Board seats. The right to appoint an Observer will cease when Silver Point holds less than 25% of the Cardinal Finance warrants. • On Admission the Company stated that it would seek capital growth through reinvestment of cash flows and that dividends would be unlikely in the early years. The Directors have not recommended a dividend since flotation and both the Company's distributable reserves and the terms of the PIK Note preclude it. Cardinal will have the right to redeem the Bridge Notes and New PIK Notes beginning 23 December 2006,(i) at a price of 120% until 21 December 2007; and (ii) thereafter,on payment of an early redemption fee of 50% of remaining annual interest due at the time of the redemption. • The arrangement fee for the New PIK Notes is 4% of the facility amount. The commitment fee on the US$14.1 million for the RC re-instatement has risen to 2.45% from 1%. As a result of a term of the Silver Point Bridge PIK Note which confers a votingright but no economic interest in Cardinal Finance, Silver Point is regarded asa related party of Cardinal for the purposes of AIM Rule 13. After exploring available alternatives and taking into account the forthcomingcovenant waiver deadline of 31 December 2006, the Directors of Cardinalconsider, having consulted with its nominated adviser, that the terms of thetransaction are fair and reasonable insofar as its shareholders are concerned. ### For further information please contact: Cardinal Resources Brunswick GroupCharles Green / Franziska Stahlknecht +44 (0) 20 7404 5959+44 (0) 20 7936 5250 [email protected]@cardinal-uk.com Nabarro Wells & Co. LimitedJohn Wilkes / Marc Cramsie+44 (0) 20 7710 [email protected] Notes to Editor Cardinal Resources plc Cardinal Resources plc is an independent oil and gas production and explorationcompany with assets in Ukraine. Cardinal is an experienced operator in thecountry focused on expanding its existing operations through the farm-in oracquisition of additional upstream oil and gas assets that can be furtherdeveloped through the application of modern technology and expertise. Silver Point Finance Silver Point Finance structures and provides custom financing for large andmiddle market companies across all industries. ### This release may contain certain forward-looking statements. These statementsrelate to future events or future performance and reflect management'sexpectations regarding Cardinal's growth, results of operations, performance andbusiness prospects and opportunities. Such forward-looking statements reflectmanagement's current beliefs, are based on information currently available tomanagement and are based on reasonable assumptions as of this date. Noassurance, however, can be given that the expectations will be achieved. Anumber of factors could cause actual results to differ materially from theprojections, anticipated results or other expectations expressed in thisrelease. While Cardinal makes these forward-looking statements in good faith,neither Cardinal, nor its directors and management, can guarantee that theanticipated future results will be achieved. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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