Cloudbreak Regulatory News (CDL)

30 Oct 2007 09:42

Cardinal Resources plc30 October 2007 CARDINAL RESOURCES PLC SIGNS FRAMEWORK AGREEMENT FOR SALE OF UKRAINIAN ASSETS LONDON - Tuesday, 30 October 2007 Cardinal Resources plc (AIM:CDL) ("Cardinal" or "the Company"), the independent oil and gas exploration and production company operating in Ukraine, has entered into a framework agreement ("the Agreement") for the potential sale of its Ukrainian assets, subject to contract, to Kuwait Energy Company K.S.C.C. ("Acquirer") for total consideration of US$71 million (the "Transaction"). As contemplated the Transaction will consist of a sale of 100% of the share capital of Carpatsky Petroleum Inc., Raget Commercial Ltd and Mitre Resources Limited each owned 100% by Cardinal Resources Finance, Ltd. ("Finance"), a 100% owned subsidiary of Cardinal. Cardinal's shares were suspended from trading on AIM on 1 October 2007 pending conclusion of refinancing discussions. As reported on 18 September 2007 and again on 16 October 2007, Cardinal has been in ongoing discussions with one or more potential funding providers to obtain a viable financial solution. The Directors of Cardinal have reviewed all the options available to obtain the most value for shareholders of the Company and have now agreed the principal terms and conditions on which Cardinal would enter into a binding sale and purchase agreement ("SPA"), subject to shareholders approval and other conditions, to sell its Ukrainian assets. The parties to the Agreement have agreed to use reasonable endeavours to enter into the SPA no later than 9 November 2007, with closing of the Transaction currently expected to occur by 10 December 2007. Transaction highlights: ----------------------- • Cardinal to sell, subject to shareholder approval, 100% of its Ukrainian assets for a total consideration of US$ 71 million; • US$ 52 million to be applied in full discharge of all indebtedness owed by Cardinal to an affiliate of Silver Point Capital LLP, the current holder of the PIK Notes issued by Cardinal (Silver Point Capital LLP and their respective affiliates together, "SPC"); • All warrants held by SPC in Cardinal and Finance and the special share held by SPC in Finance to be cancelled at closing; • The balance of US$19 million to be available at closing of the Transaction to Cardinal for satisfaction of other creditors, including transaction expenses and expenses incurred by SPC and its affiliates. The strategy for the Company going forward will be outlined in a forthcoming circular; • A Cardinal subsidiary entering into forward sale contracts and agency agreements with an affiliate of the Acquirer for the sale of gas and gas condensate to fund Cardinal's short term working capital needs through to closing of the Transaction, with the amounts payable by the Acquirer under such contracts being deducted from the balance of the US$19 million portion of the total consideration allocated to Cardinal (to the extent gas is not delivered prior to closing). Key terms of the Transaction: ----------------------------- US$52 million of the consideration, on closing of the Transaction, will be paid to SPC in discharging irrevocably all the indebtedness owed by Cardinal and its subsidiaries and affiliates to SPC with respect to the notes issued by Cardinal under the terms of an instrument dated 23 December 2006 (as amended on 28 February 2006 and as amended and restated on 22 December 2006) (the "PIK Notes") and with respect to any other creditor arrangements between Cardinal and SPC (subject to Cardinal settling the out of pocket expenses of SPC including, without limitation, all legal, financial and other advisory costs and expenses of SPC). SPC will also transfer to Cardinal for no or nominal consideration, and Cardinal will cancel, all warrants held by SPC in Cardinal and Finance, and the special share in Finance. The balance of US$19 million of the consideration (less amounts received from forward gas sales to the Acquirer to the extent not settled prior to closing) will be available at closing of the Transaction to Cardinal for satisfaction of its other creditors, including transaction expenses and expenses incurred by SPC in connection with Cardinal's default condition. The strategy for the Company going forward will be outlined in a forthcoming circular. In addition to its portion of the Transaction consideration, post-closing, Cardinal's only material assets will be its 6.75% shareholding in Condor Exploration, Inc. ("Condor") and its administrative and technical services agreement with Condor pursuant to which it is entitled to a minimum of US$1 million per year in revenue as announced on 9 August 2007. It is contemplated that the definitive SPA will be entered into by the parties no later than 9 November 2007. Cardinal would provide customary warranties to the Acquirer in the SPA, subject to Cardinal's liability thereunder being limited to a six month period post-closing and a financial cap of US$10 million. SPC has agreed, subject to certain termination events, not to enforce its rights under the Notes in respect only of existing defaults until the SPA has been signed andit is contemplated that a similar agreement will be entered into for the period between signing and closing of the SPA, for the period up to closing of the Transaction. The consent of shareholders of Cardinal to the proposed transaction is required pursuant to AIM Rule 15 and will be sought at an Extraordinary General Meeting ("EGM") held in accordance with the AIM Rules. A circular convening the EGM, and which will set out Cardinal's investing strategy going forward, will be posted to shareholders shortly after signing of the SPA. In the event that Cardinal does not obtain shareholder approval to the Transaction, it will be required to pay to the Acquirer an amount equal to its out of pocket expenses incurred in connection with the Transaction not exceeding US$1.25 million (plus VAT). In the event that shareholder approval is not obtained and the Transaction does not complete, it is also highly probable that Cardinal would need to implement an insolvency procedure which would be highly unlikely to provide any return to Cardinal's shareholders. The Transaction is currently expected to close on 10 December 2007, subject (amongst other things) to: • Successful completion by the Acquirer of confirmatory legal, financial and technical due diligence; • Successful negotiation and execution of an SPA by 9 November 2007; • Shareholders approval being obtained at the EGM in accordance with AIM rules; and, • The approval of the Transaction by the Ukrainian anti-monopoly authorities. If closing of the Transaction has not occurred by 10 December 2007, the amount of consideration to be allocated for the repayment of indebtedness to SPC shall be increased to reflect a portion of the interest that continues to accrue on the amounts owed to SPC from 1 December 2007, at a rate of 10% per annum, if closing occurs by 20 December, or at a rate of 21% per annum if closing occurs after 20 December 2007. In any such case a corresponding reduction shall be made to the US$19 million portion of the consideration amount to be otherwise allocated for the use of Cardinal. Under the Agreement Cardinal undertakes and agrees that it shall not directly or indirectly solicit or invite enquiries, proposals or offers relating to a relevant Transaction from any third party. Short-term financing: --------------------- The Acquirer agreed to fund the short term working capital commitments of Cardinal by entering into a forward sale contract ("The First Gas Sales Contract") and an agency agreement for the sale of gas and gas condensate and shall pay to a subsidiary of Cardinal the sum of US$600,000 in accordance with the terms of such contracts ("The Second Gas Sales Contract" and "The Third Gas Sales Contract"). Thereafter, it is expected to enter into two further forward sale contracts to the value of US$600,000 and US$1,450,000 respectively with delivery and agency sale to be effected as soon as Cardinal shall be in possession of available volumes of gas/condensate to satisfy such contracts in priority to any other third party but no earlier than February 2008. Cardinal undertakes to deliver gas/condensate at the following fixed prices under the First Gas Sale Contract: • Natural gas at US$140.20 per 1,000 cubic meters (exclusive of VAT) • Gas condensate at US$455.00 per metric tonne (exclusive of VAT) The entering into of the Second Gas Sales Contract and the paying of the cash consideration due under it shall be subject to the execution of the SPA. The entering into, by the Acquirer of the Third Gas Sales Contract and the paying of the cash consideration due under it shall be subject to execution of the SPA and Cardinal having obtained shareholders approval for the Transaction. Should Cardinal fail to deliver the agreed volume of natural gas/ condensate with a value corresponding to the advance payments under The First Gas Sales Contract or/when entered into The Second Gas Sales Contract or The Third Gas Sales Contract, it shall reimburse such portion of the relevant advanced payment no later than by 45 days after the agreed delivery date together with a penalty in the amount of interest accruing at the rate of 15 percent per annum. The amounts paid by the Acquirer under the forward sale contracts (to the extent they remain outstanding or unfulfilled) will be deducted from the portion of the total consideration payable to Cardinal at closing of the Transaction. Directors' Fairness Opinion on SPC Settlement: ---------------------------------------------- SPC may be considered to be a related party under the AIM Rules by virtue of the special share it holds in Finance. Taking into account the fact that SPC would on closing of the Transaction agree to a full discharge of all indebtedness owing to them, the cancellation of the warrants in Cardinal and Finance and the Finance special share, in consideration for an amount which is less than the full amount of principal and interest which will be owed to SPC at closing, and that entering into the Transaction is the only reasonable strategy currently available to Cardinal other than an insolvency procedure, a majority of the Directors of Cardinal consider that the terms of the Transaction are fair and reasonable insofar as shareholders are concerned. Due to the fact that Cardinal is currently without a nominated adviser following the resignation of Nabarro Wells & Co. Limited as its nominated adviser on 23 October 2007, the Directors are not able to consult their nominated adviser in reaching this opinion, as contemplated by the AIM Rules. However, shareholders will be able to make their own decision on whether or not to approve the Transaction at the EGM in due course. For further information please contact: Cardinal Resources Conduit PR Ltd Charles Green / Natalia Egorova Jonathan Charles +44 (0) 20 7936 5250 +44 (0) 20 7429 6666 investor.relations@cardinal-uk.com Jonathan@conduitpr.com Notes to Editor Cardinal Resources plc is an independent oil and gas company engaged in the acquisition, development, production and exploration of oil and natural gas properties in Ukraine. Cardinal is an experienced operator in the country focused on expanding its existing operations through the farm-in or acquisition of additional upstream oil and gas assets that can be further developed through the application of modern technology and expertise. This information is provided by RNS The company news service from the London Stock Exchange