TIDMCAZA
RNS Number : 0654J
Caza Oil & Gas, Inc.
15 December 2015
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES
December 15, 2015
CAZA OIL & GAS ANNOUNCES US$45.5 million EQUITY
FINANCING
WITH Talara OPPORTUNITIES V, LP
AND DEBT RESTRUCTURING
HOUSTON, TEXAS (Marketwire - December 15, 2015) - Caza Oil &
Gas, Inc. ("Caza" or the "Company") (TSX: CAZ) (AIM: CAZA)
announced today that it has entered into an agreement (the
"Subscription Agreement") with Talara Opportunities V, LP
("Talara") pursuant to which the Company will issue and sell to
Talara (the "Private Placement") common shares ("Common Shares") in
the capital of the Company for gross proceeds of US$45.5 million.
Immediately following the Private Placement, Talara will own 97.16%
of the outstanding Common Shares, assuming (a) the intended
exchange by certain members of management of the Company
("Management") and certain members of the board of directors of the
Company (the "Board") of all of their exchangeable shares of Caza
Petroleum, Inc., a majority-owned subsidiary of the Company, for a
total of 26.502 million Common Shares in accordance with that
certain Share Exchange and Shareholders Agreement (the "Exchange
Agreement") dated September 22, 2006, as amended, to which the
exchangeable shares are currently subject (the "Exchange"), and (b)
the return and cancellation of approximately 29.9 million Common
Shares held or controlled by the Yorkville Parties (as defined
below) (the "Cancellation"), being all of the Common Shares held by
them. The transaction was negotiated with Talara at arm's length
and unanimously approved by a special committee of the Board
composed solely of independent directors (the "Special Committee").
Talara, which is a private investment fund advised by Talara
Capital Management, LLC, does not hold any Common Shares or other
securities of the Company.
Based on the current number of Common Shares outstanding, the
Company estimates that Talara will acquire approximately
9,467,400,000 Common Shares (the "Issued Shares") and that there
will be approximately 9,744,154,000 Common Shares outstanding. The
Private Placement will result in estimated dilution for the
existing holders of Common Shares of approximately 3520% and
materially affect the control of Caza. Upon Closing of the Private
Placement, Talara and Management will hold approximately 97.38% of
the outstanding Common Shares (assuming completion of the Exchange
and the Cancellation). The Issued Shares will be issued at an
effective price (the "Effective Price") of approximately US$0.0048
per share (equivalent to approximately 0.32 pence per Common
Share). Such price represents a 34% discount to the five day volume
weighted average price of the Common Shares on the TSX on December
14, 2015 and a premium of 23.2% to the five day volume weighted
average price of 0.26 pence per Common Share on AIM on December 14,
2015.
The Private Placement is expected to close on or about December
23, 2015 (the "Closing"), subject to satisfaction of certain
conditions, including the conditional approval of the Toronto Stock
Exchange (the "TSX") and receipt of certain exemptions sought from
the TSX under the financial hardship exemption as described below
(collectively, the "TSX Approvals"). The Issued Shares will be
subject to a four-month hold period under Canadian securities laws.
Application will also be made to London Stock Exchange plc for
admission of the Issued Shares to trading on AIM.
The Company has also entered into settlement agreements (the
"Lender Settlement Agreements") with Apollo Investment Corporation
("Apollo") and with YA Global Master SPV Ltd. and GSC SICAV p.l.c.
(the "Yorkville Parties") whereby all debts and obligations owing
to Apollo and the Yorkville Parties, including those under certain
secured credit facilities, together with all oil and gas interests
previously granted by Caza Petroleum in favor of Apollo, will be
extinguished in consideration for aggregate payments by the Company
of approximately US$43.5 million upon Closing. The Lender
Settlement Agreements were entered into in contemplation of the
Private Placement and will terminate if the Company does not make
the payments thereunder by December 31, 2015, in the case of
Apollo, and January 15, 2016, in the case of the Yorkville Parties.
The remaining proceeds will be allocated to working capital for
general corporate purposes, including reasonable out-of-pocket fees
and expenses related to the Private Placement. The Company has also
entered into settlement agreements with certain trade creditors in
order to significantly reduce its outstanding payables (the "Trade
Creditor Settlement Agreements").
Completion of the Private Placement and, with the proceeds
thereof, fulfilling settlements with the Company's lenders and
trade creditors, will substantially and materially reduce the
Company's working capital deficiency and improve its cash flow
through the elimination of monthly interest payments to Apollo of
approximately US$450,000 and of the existing overriding royalty
revenues currently in Apollo's favour. These significant
improvements in the Company's financial position will materially
improve its ability to continue as a going concern and eliminate
the significant uncertainties associated with its covenant breaches
under the Apollo credit facility and inability to repay that debt,
and should also allow it to obtain lower cost capital, which may be
used to implement its business plan when commodity prices
improve.
In addition, the Board will be reconstituted at Closing, subject
to certain customary background clearances, so that it will include
David Zusman, David Young, Andrew Heyman and Sharon O'Shea, being
Talara nominees, J. Russell Porter, Cornelius Dupré II and W.
Michael Ford. Messrs Porter and Dupré currently sit on the Board as
non-executive directors, and Mr. Ford currently serves as the
Company's Chief Executive Officer and sits on the Board. Further
information regarding the Board and Management changes will be
announced in due course.
Members of Management have also entered into new employment
contracts and other agreements relating to compensation and
incentive matters (collectively, the "Management Compensation
Arrangements") which will become effective at Closing.
Description of Private Placement
As disclosed above, the Company will issue and sell to Talara
for gross proceeds of US$45.5 million, such number of Common Shares
as results in Talara owning, immediately following the Private
Placement, 97.16% of the outstanding Common Shares, assuming the
completion of the Exchange and the Cancellation. Based on the
number of Common Shares currently outstanding, this would represent
the issue and sale of approximately 9,467,400,000 Common Shares at
an effective price of approximately US$0.0048 per share (equivalent
to approximately 0.32 pence per Common Share).
Closing of the Private Placement is subject to the satisfaction
or waiver of the conditions set forth in the Subscription
Agreement, which include the receipt of the TSX Approvals, the
reconstitution of the Board, and the Lender Settlement Agreements,
Trade Creditor Settlement Agreements and Management Compensation
Arrangements all being in full force and effect, as well as other
customary conditions to closing.
The Private Placement is not subject to a financing condition
and Talara has represented that it has cash funds sufficient to
fund the purchase of the Issued Shares under the Private
Placement.
In the event Talara proposes a business combination transaction
or a take-over bid with respect to the Company following Closing,
pursuant to which it or any of its affiliates would acquire,
directly or indirectly, all shares of the Company that it does not
already hold, it has agreed that: (i) all holders of affected
Common Shares (including members of Management) will receive,
directly or indirectly, pursuant to completion of such transaction,
the same consideration on a per share basis (and, for the avoidance
of doubt, all Common Shares owned or issuable to members of
Management prior to such transaction, other than any Issued Shares,
will be acquired, converted or cancelled in such transaction for
such same consideration); (ii) if such transaction is completed
within six months of Closing, the consideration per share payable
to holders of Common Shares pursuant to such transaction will be
not less than the Effective Price per Issued Share pursuant to the
Private Placement; and (iii) if such transaction is completed
thereafter, a formal valuation will be prepared in respect of such
transaction in accordance with Multilateral Instrument 61-101,
regardless of whether a formal valuation would otherwise be
required to be prepared thereunder, and the consideration per share
payable to holders of affected shares, directly or indirectly,
pursuant to the completion of such transaction, will be not less
than any minimum value determined in the valuation.
Debt Restructuring
The Company has entered into a Lender Settlement Agreement with
each of Apollo and the Yorkville Parties whereby all debts and
obligations owing to them (including all obligations under the
Yorkville Parties' existing convertible note and Common Share
purchase warrants), together with all oil and gas interests
previously granted by Caza Petroleum in favour of Apollo, will be
extinguished in consideration for payments by the Company in an
aggregate amount of approximately US$43.5 million upon Closing. The
Lender Settlement Agreements were entered into in contemplation of
the Private Placement and will terminate if the Company does not
make the payments thereunder by December 31, 2015, in the case of
Apollo, and January 15, 2016, in the case of the Yorkville Parties.
The Yorkville Parties have also agreed, in their Lender Settlement
Agreement, to return to the Company all Common Shares held or
controlled by them for cancellation for no additional consideration
upon Closing. Such agreements also contain terms and conditions
which
(MORE TO FOLLOW) Dow Jones Newswires
December 15, 2015 03:00 ET (08:00 GMT)
are customary for transactions of this nature.
The Company has also entered into Trade Creditor Settlement
Agreements with certain trade creditors in an effort to
significantly reduce its outstanding payables. A remaining number
of unpaid Trade Creditor Settlement Agreements require payment by
December 31, 2015.
Completion of the Private Placement will substantially and
materially improve the Company's financial position, and materially
improve its ability to continue as a going concern and eliminate
the significant uncertainties associated with its covenant breaches
under the Apollo credit facility and inability to repay that debt,
and should also allow it to obtain lower cost capital, which may be
used to implement its business plan when commodity prices
improve.
Management Compensation Arrangements
Management has entered the Management Compensation Arrangements,
which will become effective at Closing. Pursuant to such
arrangements, Management has waived all rights and entitlements
under existing employment agreements and incentive plans, including
all existing rights to change of control or severance payments and
all grants and options awarded to them under the Company's
incentive plans. The new employment contracts contain customary
terms and conditions and provide that Management may be entitled to
receive severance payments equal to three months' base salary in
certain circumstances. Certain members of the Board (W. Michael
Ford and John McGoldrick) and Management (Jim Markgraf, Rich Albro
and Tony Sam) have also indicated that they intend to complete the
Exchange in accordance with the Exchange Agreement concurrently
with Closing. All other holders of incentive compensation options
have agreed to surrender them for cancellation. As part of the
Management Compensation Arrangements, it is also expected that
Management will agree to purchase (the "Management Purchase")
approximately 1.87% of the Issued Shares from Talara on a
post-Closing basis at the Effective Price for an aggregate
subscription price of US$850,000 in order to satisfy Talara's
equity ownership requirements and policies applicable to the
management teams of Talara's portfolio companies.
Pursuant to the Exchange Agreement, certain members of
Management and one non-executive director have the right at any
time to exchange the shares they hold in the capital of the
Company's subsidiary, Caza Petroleum, for an aggregate of
26,502,000 Common Shares based on an exchange ratio of 2,800 Common
Shares for each Caza Petroleum share held. The exchange ratio was
established when the Exchange Agreement was entered into in 2006.
All such individuals have indicated that they intend to complete
the Exchange in accordance with the terms of the Exchange Agreement
in conjunction with the completion of the Private Placement.
The following table shows the number of Common Shares
anticipated to be acquired by members of the Board and Management
pursuant to the Management Purchase and pursuant to existing rights
under the Exchange:
Common Shares Total Common
Common Shares Common Shares to be Acquired Shares Held
Currently to be Acquired Pursuant After Private
Name Held from Talara to Exchange Placement
----------------- -------------- ---------------- ---------------- ---------------
W. Michael
Ford 575,968 62,422,549 6,790,000 69,788,517
----------------- -------------- ---------------- ---------------- ---------------
James Markgraf 344,019 10,403,758 840,000 11,587,777
----------------- -------------- ---------------- ---------------- ---------------
Rich Albro 303,848 10,403,758 5,292,000 15,999,606
----------------- -------------- ---------------- ---------------- ---------------
Tony Sam 437,543 62,422,549 6,790,000 69,650,092
----------------- -------------- ---------------- ---------------- ---------------
Randy Nickerson 469,833 31,211,275 - 31,681,108
----------------- -------------- ---------------- ---------------- ---------------
John McGoldrick 312,500 - 6,790,000 7,102,500
----------------- -------------- ---------------- ---------------- ---------------
Following the Private Placement, assuming the completion of the
Management Purchase, the Exchange and the Cancellation, it is
anticipated that Management will collectively hold approximately
198,700,000 Common Shares, representing approximately 2.04% of the
outstanding Common Shares and that Talara will hold approximately
9,290,556,000 Common Shares, representing 95.38% of the outstanding
Common Shares.
TSX Financial Hardship Exemption
The Private Placement would normally be subject to shareholder
approval pursuant to the TSX Company Manual because the transaction
will materially affect control of Caza and the transaction will
result in the issuance of a number of Common Shares that is greater
than 25% of the number of Common Shares which are outstanding, at a
price per share that is less than the market price. Caza is,
however, in serious financial difficulty as a result of the severe
decline in commodity prices over the past 12 months and has
immediate capital needs and no ability to fund its current
obligations. In particular, Caza's cash flows, revenues and
financial condition have all been materially and adversely impacted
by the decrease in oil and natural gas prices over the past year.
This has led to declining production, negative cash flows and the
cessation of substantially all drilling operations.
The Company's financial position has deteriorated, with material
liabilities that include approximately US$45 million owing to
Apollo, US$3.9 million owing to the Yorkville Parties and accounts
payable outstanding for more than 120 days of US$5.1 million and a
continuing monthly interest payment to Apollo of US$450,000. In
addition, trade creditors have begun to initiate claims against the
Company and to threaten insolvency actions. Given the situation,
unless new financing is imminently arranged under the Private
Placement, the Company cannot meet its current obligations and will
not be able to meet its recurring and future obligations as they
fall due, which may also lead its lenders or other creditors to
file an involuntary bankruptcy petition against the Company.
In particular, the Company has breached its covenants and
obligations under its secured Note Purchase Agreement (the "Note
Agreement") dated May 23, 2013 with Apollo. As a result of these
breaches, Apollo is entitled to accelerate maturity of the debt and
the Company was directed by its auditors to reclassify the
outstanding balance as a current liability (inserting a going
concern note in its quarterly financial statements) as of December
31, 2014. In February 2015, Apollo waived the financial covenants
under the Note Agreement until September 30, 2015. Apollo has
subsequently agreed on three separate occasions to forbear from
exercising certain rights under the Note Agreement thru December
31, 2015. The forbearance arrangement permits Apollo to terminate
the forbearance period on three days' notice if it determines that
the Company and Talara are not diligently pursuing a transaction
substantially similar to the Private Placement. Apollo has no
affiliation with Talara.
Although the Private Placement will require Apollo to accept a
reduced settlement, it has determined to support the Private
Placement in light of the lack of other alternatives. However,
Apollo has indicated that it will be supportive of the Private
Placement only for a limited time, and the Lender Settlement
Agreement with Apollo will terminate if the Company does not make
payment thereunder by December 31, 2015.
Accordingly, an application has been made to the TSX pursuant to
Section 604(e) of the TSX Company Manual to be exempted from the
requirement to obtain shareholder approval for the Private
Placement. Caza is seeking this exemption from the TSX on the basis
that the Company is in serious financial difficulty and the
immediacy of its capital needs and the requirements of its lenders
do not afford it sufficient time to seek shareholder approval prior
to the issuance of the Issued Shares pursuant to the Private
Placement.
In accordance with TSX requirements, the Board and Special
Committee have each reviewed and considered the Company's financial
position, commitments, prospects and funding requirements and the
terms of the proposed Private Placement, and under the existing
circumstances, each has unanimously determined that the financial
hardship application should be made to the TSX, that the Company is
in serious financial difficulty in light of its immediate capital
requirements, and that the proposed Private Placement, if
completed, should improve the Company's financial situation, is
reasonable for Caza under existing circumstances, and represents
the only solution practicably available to the Company that will
enable it to continue as a going concern. The completion of the
Private Placement is subject to receipt of the exemptions sought
from the TSX under the financial hardship exemption
application.
(MORE TO FOLLOW) Dow Jones Newswires
December 15, 2015 03:00 ET (08:00 GMT)
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