Challenger Energy Regulatory News (CEG)

7 March 2022

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

Restructuring Update:

Board Changes; Change of Broker; Option Plan Implementation

Challenger Energy (AIM: CEG), is pleased to update on milestones as it moves to complete its restructuring process, following the Extraordinary General Meeting of shareholders held on 4 March 2022 ("EGM").

Results of EGM and Completion of Placing

As advised on 4 March 2022, the three resolutions put to shareholders at the EGM were all duly passed.

The Company will thus proceed to issue a total of 6,601,216,434 new ordinary shares of 0.02p each ("Ordinary Shares") in respect of the Conditional Placing and Broker Option, as well as 1,531,058,641 Settlement Shares. As previously advised, the Placing Shares, Broker Option Shares and Settlement Shares will be issued and admitted to trading on AIM in two tranches:

(1) 3,480,645,475 new Ordinary Shares will be issued and admitted to trading on AIM at 8.00 a.m. today, Monday, 7 March 2022 (the "First Tranche Shares"), in respect of that portion of the Conditional Placing Shares and Broker Option Shares that have been settled directly through CREST or by direct subscribers who had prepaid their subscriptions; and

(2) a further 3,120,570,959 new Ordinary Shares in respect of the Conditional Placing and Broker Option, along with 1,531,058,641 Settlement Shares (together, the "Second Tranche Shares"), will be issued and admitted to trading on AIM on or around Friday, 11 March 2022. These new Ordinary Shares are in respect of direct settlements to be received by the Company under the Conditional Placing and Broker Option, but which funds were only to be remitted consequent on passing of the resolutions at the EGM. The issue and admission to trading on AIM of the Second Tranche Shares will thus occur on receipt of cleared funds by the Company which, as noted, it expected to be by Friday, 11 March 2022.

The Conditional Placing and Broker Option, when coupled with the Firm Placing of £0.7 million (comprising 691,401,490 new Ordinary Shares that were admitted to trading on AIM on 31 January 2022) will result in a total fundraising of approximately £7.3 million before expenses. Net proceeds of the fundraising will be used to enable the Company to complete all remaining payments agreed as part of the previously announced creditor restructuring process, and to pursue a production and cashflow focused work program through the balance of 2022.

The Company will also proceed to issue the Fee Warrants contemporaneous with the admission of the Second Tranche Shares. As indicated in the Notice of EGM, these consist of 576,559,486 warrants to subscribe for Ordinary Shares at any time in the four years from the date of issue, at a subscription price of 0.1p. If the Fee Warrants were all to be exercised, the Company would receive approximately an additional £0.6 million.

It is noted that the Notice of EGM indicated that up to up to 1,903,058,641 Settlement Shares would be issued, whereas, as indicated above, the total number of Settlement Shares to be issued is a lesser number, of 1,531,058,641. This reflects a better-than-expected outcome in terms of final settlement agreements reached with various parties.

Change of Board

As a result of the various resolutions at the EGM, and as communicated in the Notice of EGM sent to shareholders and posted to the Company's website on 10 February 2022, the following changes to the Company's Board of Directors took effect on 5 March 2022:

· Mr William Schrader, Non-Executive Chairman, and Mr James Smith, Non-Executive Deputy Chairman, have both stepped down from the Board,

· Mr Iain McKendrick has joined the Board as Non-Executive Chairman, and

· Mr Tim Eastmond, the Company's Chief Financial Officer, has joined the Board as an Executive Director.

As a result, the Board of the Company now consists of Mr Iain McKendrick (Non-Executive Chairman), Mr Stephen Bizzell (non-executive), Mr Simon Potter (non-executive), Mr Eytan Uliel (CEO and MD), and Mr Tim Eastmond (CFO and executive).

Information as required in accordance with paragraph (g) of Schedule Two of the AIM Rules in respect of each of Mr Iain McKendrick and Mr Tim Eastmond was set out in the Company's announcement of 10 February 2022.

As was communicated in the Notice of EGM, it is Mr Simon Potter's intention to step down from the Board within the next three months. The Company will seek to recruit a suitable replacement independent non-executive Director in due course.

Change of Broker

Effective 5 March 2022, the Company's joint brokers, Shore Capital Stockbrokers Limited and Investec Bank Plc, have stepped down from their roles, and Arden Partners Plc has been appointed as sole broker to the Company. This development is in furtherance of the rigorous cost saving initiatives that have been implemented by the Company as part of the overall restructuring and recapitalisation of the Company.

Option Plan Implementation

In the Notice of EGM, the Company advised of its intention to implement revised incentive arrangements on completion of the company's restructuring and recapitalisation, as follows:

"As the Company embarks on the above-noted process of Board and operational/ management change, the Board, on the recommendation of the Remuneration Committee, considers it appropriate that incentive arrangements for the new Board members and ongoing executive/employee team of the Company be appropriately refreshed. The largely new management team was recruited on the basis of the ability to offer fair, market-based incentive arrangements that align management with the creation of shareholder value once the Restructuring and Fundraising is complete.

The new options to be issued will initially relate to 10 per cent. of the Company's Enlarged Share Capital. This level of incentive ownership is consistent with that in place at several companies similar to the Company and has been benchmarked accordingly by the Remuneration Committee and the Company's advisors.

New options will be granted in four tranches, with vesting and exercise conditions for each tranche linked directly to material share price appreciation as compared to the price of the Fundraising - that is, linked directly to growth of shareholder value following completion of the Restructuring and Fundraising.

The implementation of these revised option arrangements will be conducted under the Company's general share issuance authority (as proposed pursuant to Resolution 3 at the EGM). As such, these revised option arrangements, which will be fully disclosed once allocated, do not require specific approval of Shareholders outside of the approval of the general share issuance authority."

Therefore, consistent with the intentions identified above, the Board has endorsed the following option arrangements and allocations, to be implemented under the Company's general share issuance authority contemporaneously with the issue and admission of the Second Tranche Shares (as noted above, expected to be on or about 11 March 2022):

· Tranche A Options: up to 275,000,000 options over ordinary shares, with an exercise price of 0.1 pence per share and an exercise period of 5 years from grant. These options will vest 12 months from the date of grant, or earlier only if all of the Tranche B, C and D options have vested in accordance with their terms.

· Tranche B Options: up to 275,000,000 options over ordinary shares with an exercise price of 0.15 pence per share and an exercise period of 5 years from grant. These options will vest once the share price hurdle of 0.15 pence per share has been achieved and sustained for a period of 10 consecutive trading days. The exercise price of this tranche of options represents a value equivalent to 150% of the capital raising price - that is, the options will only be of value once the Company's share price materially exceeds both its current share price and the capital raising price

· Tranche C Options: up to 275,000,000 options over ordinary shares with an exercise price of 0.225 pence per share and an exercise period of 5 years from grant. The options will vest once the share price hurdle of 0.225 pence per share has been achieved and sustained for a period of 10 consecutive trading days. The exercise price of this tranche of options represents a value equivalent to 225% of the capital raising price

· Tranche D Options: up to 275,000,000 options over ordinary shares with an exercise price of 0.3 pence per share and an exercise period of 5 years from grant. The options will vest once the share price hurdle of 0.3 pence per share has been achieved and sustained for a period of 10 consecutive trading days. The exercise price of this tranche of options represents a value equivalent to 300% of the capital raising price.

The performance criteria and vesting requirements established are designed with a view to directly aligning the value of the options to a simple and measurable metric: future shareholder value creation. The total options to be allocated represents approximately 10% of the Company's fully diluted share capital, which is consistent with the statements made in the Notice of EGM. If all options were exercised, the Company would receive subscription funds of £1,650,000.

Initially, 240,000,000 options will be allocated from each of Tranche A, B, C and D, totalling 960,000,000 options, as follows:

Note 1: these will be distributed to approximately 6 key members of the executive and operating staff base, to secure retention and incentivisation.

The issue of the options to each of Mr Iain McKendrick, Mr Eytan Uliel and Mr Tim Eastmond, as set out above, is deemed a related party transaction under the AIM Rules for Companies. Mr Simon Potter and Mr Stephen Bizzell, as independent non-executive directors, having consulted with Strand Hanson Limited, the Company's Nominated Adviser, consider the issue of these options to be fair and reasonable insofar as the Shareholders are concerned.

As was noted in the Notice of EGM, approximately 87 million options over ordinary shares in issue ("Pre-existing Options") - approximately 73 per cent. held by prior and existing executives and former and current Board members of the Company, and approximately 25 per cent. held by various advisers and financiers. All of these Pre-existing Options have exercise prices in either the range of 3.5-5p, or 24-28p - that is, all Pre-existing Options are significantly "out of the money". The Company had reached agreement with certain of the Pre-existing Option holders (including all current and former Directors and all continuing and some former executives) to cancel approximately 73 per cent. of Pre-existing Options for nil consideration on completion of the restructuring and fundraising. Given the completion of the restructuring and fundraising, and consistent with the agreements reached, the Company will now proceed to cancel the relevant Pre-existing Options. The balance of the Pre-existing Options that are not subject to agreement to cancel (approximately 23 million in total) will remain in issue in accordance with their terms. However, given their deeply "out of the money" exercise prices, for all intents and purposes these residual Pre-existing Options have little value to their holders, and the Company expects therefore that these remaining Pre-existing Options will eventually lapse unexercised in accordance with their terms. 

Admission and Total Voting Rights

Following admission to trading on AIM of the First Tranche Shares on Monday, 7 March 2022, Challenger Energy's issued share capital will consist of 4,968,569,879 Ordinary Shares, with each Ordinary Share carrying the right to one vote. The Company does not hold any ordinary shares in treasury; therefore, this figure may be used by shareholders in the Company, as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FCA's Disclosure Guidance and Transparency Rules.

Following admission to trading on AIM of the Second Tranche Shares, expected to be on or around Friday, 11 March 2022, Challenger Energy's issued share capital will consist of 9,620,199,479 Ordinary Shares, with each Ordinary Share carrying the right to one vote.

Defined terms have the same meaning as in the Company's Notice EGM posted to shareholders on 9 February 2022.

For further information, please contact:

Notes to Editors

Challenger Energy is a Caribbean and Atlantic margin focused oil and gas company, with a range of exploration, appraisal, development and production assets and licences, located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay. In Trinidad and Tobago, Challenger Energy has five (5) producing fields, two (2) appraisal / development projects and a prospective exploration portfolio in the South West Peninsula. In Suriname, Challenger Energy has on onshore appraisal / development project. Challenger Energy's exploration licence in each of Uruguay and The Bahamas are highly prospective, and offer high-impact value exposure within the overall portfolio value.

Challenger Energy is quoted on the AIM market of the London Stock Exchange. 

https://www.cegplc.com 

ENDS