Circle Oil Plc Regulatory News (COP)

12 February 2015

Circle Oil Plc

("Circle" or the "Company")

Proposed Amendment and Extension of Convertible Loan AgreementandNotice of Extraordinary General Meeting

Circle Oil Plc (AIM: COP), the Middle East and North Africa focused oil and gas exploration, development and production company, is pleased to announce that it has agreed terms with a subsidiary of KGL Investment Company ("KGL") over proposed amendments to the terms of the Convertible Loan Agreement dated 8 June 2007 (as amended and restated on 23 May 2012) (the "Convertible Loan Agreement") under which US$30 million is due for redemption by 19 July 2015 (the "Proposal").

The Proposal is subject to, inter alia, shareholder approval at an Extraordinary General Meeting ("EGM") to be held at 11.00 am on Tuesday 10 March 2015 at DoubleTree by Hilton Dublin, Upper Leeson Street, Dublin 4. A circular containing a Notice of EGM, Resolutions and accompanying proxy ("Circular") will today be posted to shareholders regarding the Proposal and will be available on the Company's website: www.circleoil.net.  

Chairman Steve Jenkins commented:

"We are pleased to be able to announce the refinancing of the convertible with KGL, it will provide Circle with increased operational and financial flexibility in what is a difficult industry backdrop. In conjunction with this refinancing and mindful of ongoing oil price volatility, Circle is reviewing its cost base and capital commitments to ensure it is optimally placed to navigate market challenges".

For further information contact:

Circle Oil Plc (+44 20 7638 9571)

Stephen Jenkins

Investec (+44 20 7597 5970)Chris SimGeorge Price

James Rudd

Liberum Capital Limited (+44 20 3100 2222)Clayton Bush

Citigate Dewe Rogerson (+44 20 7638 9571)Martin JacksonShabnam Bashir

Murray Consultants (+353 1 498 0300)Joe Heron

Pat Walsh

Notes to Editors

Circle Oil Plc (AIM: COP) is an international oil & gas exploration, development and production Company holding a portfolio of assets in Morocco, Tunisia, Oman, and Egypt with a combination of low-risk, near-term production, and significant upside exploration potential. The Company listed on AIM in October 2004.

Internationally, the Company has continued to expand its portfolio over the past years and now has assets in the Rharb Basin, Morocco; the Ras Marmour Permit in southern Tunisia; the Mahdia Permit offshore Tunisia, and the Zeit Bay area of Egypt. Circle also has the largest licensed acreage of any company in Oman. In addition to its prospective Block 52 offshore, Circle has an ongoing exploration programme in Block 49 onshore.

Circle's strategy is to locate and secure additional licences in prospective hydrocarbon provinces and, through targeted investment programmes, monetise the value in those assets for the benefit of shareholders. This could be achieved through farm-outs to selected partners who would then invest in and continue the development of the asset into production, or Circle may opt to use its own expertise to appraise reserves and bring assets into production, generating sustained cash flow for further investment.

Further information on Circle is available on its website at www.circleoil.net.

Extraordinary General Meeting in connection with authorisation to facilitate the

amendment and extension of the Convertible Loan Agreement

1. Introduction

The Board of Circle Oil plc ("Circle" or the "Company") announced today that it has reached agreement with a subsidiary of KGL Investment Company (otherwise "KGL") regarding proposed amendments to the terms of the convertible loan agreement dated 8 June 2007 (as amended and restated on 23 May 2012) (the "Convertible Loan Agreement") under which US$30 million is due for redemption by 19 July 2015. Under the Heads of Terms it is proposed that Circle repay US$10 million before 19 July 2015 whilst extending the remaining US$20 million until 19 July 2017 at a revised conversion price of £0.136 per ordinary share. The amendments are conditional on, inter alia, Shareholder approval, through the passing of appropriate resolutions (the "Resolutions") at the Extraordinary General Meeting.

2. Background

Pursuant to the terms of the Convertible Loan Agreement, Kuwait-based, KGL (through its subsidiary Circle Link S.ar.l) on 8 June 2007 provided an unsecured convertible loan of US$30 million ("Convertible Loan") for a period of 5 years, convertible into ordinary shares in Circle at a price of £0.25 per ordinary share and which carried a 6 per cent. coupon per annum. The term of the loan was extended on 23 May 2012 by a further three years and the conversion price amended dependent on the year of conversion, the conversion price in 2015 is £0.30 per ordinary share.

Given the dramatic fall in oil price from US$115 per barrel in June 2014 to less than US$60 per barrel in December 2014 and the uncertain market backdrop, Circle, considers it prudent to amend and extend the terms of the Convertible Loan Agreement which is due for redemption on 19 July 2015.

3. Proposal

Following discussions between Circle and KGL the Board is pleased to report that Heads of Terms have been agreed with Circle Link S.ar.l (a subsidiary of PetroLink Holding Company, itself a subsidiary of KGL) (the "Proposal") in connection with the amendment and extension of the Convertible Loan Agreement including revised terms on which the Convertible Loan may be converted, early repayment of part of the Convertible Loan and the extension of the date by which the remaining amount of the Convertible Loan must be repaid.

The Proposal also recognises that a number of consents and authorisations are required before Circle may amend the Convertible Loan Agreement to give effect to the new terms. These conditions include any necessary approvals pursuant to the Reserve Based Lending facility with International Finance Corporation and all necessary approvals and authorisations from Shareholders. 

The Proposal includes the following key provisions:

i. Repayment: Circle will repay US$10 million in three tranches by 19 July 2015;

ii. Extension: the term of the remaining US$20 million Convertible Loan ("Loan Amount") will be extended until 19 July 2017 (the "Amended Final Redemption Date") with a right to Circle to further extend the date as outlined in (viii) below. Upon expiry of the amended loan term, the Loan Amount would be due for repayment in cash or KGL have the right to convert the loan to ordinary shares in Circle;

iii. Coupon Rate: the coupon rate will increase from 6 per cent. to 8 per cent. accruing daily and payable quarterly in arrears;

iv. Conversion Price: under the new conversion formula, KGL will have the right to convert the Loan Amount into ordinary shares in Circle at a price of £0.136 pence per ordinary share, which represents a premium of 15 per cent. on Circle's average closing share price of £0.118 pence per ordinary share over the 20 trading days prior to 31 January 2015;

v. Loan Extension Fee: a loan extension fee in the amount of US$250,000 (the "Loan Extension Fee") shall become due on the Amended Final Redemption Date. This may be satisfied by either cash or ordinary shares in the Company at Circle's option. The formula for calculating the price at which ordinary shares in Circle may be issued to settle the Loan Extension Fee shall be by reference to the average closing price of Circle's shares over the 20 trading days prior to the Amended Final Redemption Date;

vi. Options: Circle will grant to KGL options over 30 million ordinary shares in Circle at an exercise price of £0.136 pence per ordinary share (such options to cease/lapse on the expiry of the Convertible Loan Agreement, as extended under the terms of the Proposal) (the "Options"). These Options will replace the existing options over 30 million shares in Circle which KGL currently has in place.

vii. PiK Fee: a payment-in-kind fee, payable in either cash or Circle shares ("PiK") at Circle's option will apply to the Loan Amount. The PiK Fee will be calculated at a rate of 1.5% per annum of the Loan Amount in respect of the period up to 19 July 2017 and satisfied as soon as reasonably practical after the Amended Final Redemption Date. The formula for calculating the price at which ordinary shares in Circle may be issued to discharge the PiK shall be by reference to the average closing price of Circle's shares over the 20 trading days prior to the Amended Final Redemption Date; and

viii. Further Extension: Circle has the option to further extend the Convertible Loan maturity until 19 July 2018 and 19 July 2019 respectively on amended terms. If Circle exercises its right to extend the Convertible Loan maturity date until 19 July 2018 then the PiK Fee will increase to the rate of 4.5% for the period from 20 July 2017 until the earlier of the 19 July 2018 or the date when the Loan Amount is repaid in full. If Circle exercises its option to extend the Convertible Loan maturity date until 19 July 2019 a PiK Fee of 7.5% per annum will apply from 20 July 2018 until the earlier of the date when the loan is repaid in full by Circle or 19 July 2019. During the period of each such extension the PiK Fee shall be payable quarterly in arrears.

Although Circle has no plans at this time to extend the Convertible Loan Agreement beyond July 2017, nor settle any PiK payments or the Loan Extension Fee in shares, the Board believes it is appropriate to maintain a degree of flexibility and to ensure the Company is in a position to meet its commitments. Accordingly, the Board is requesting that Shareholders approve the authorisation of the full number of shares issuable should all extensions be exercised and payments be made in shares.

As a result, Circle is seeking Shareholder approval to issue up to 143,342,474 ordinary shares in the Company. This equates to an additional 49,636,033 ordinary shares under the Proposal when compared to the maximum number of shares to be issued under the existing Convertible Loan Agreement, inclusive of KGL's existing options;

· 33,374,906 of the additional 49,636,033 ordinary shares represents the increase in the number of ordinary shares issuable on conversion of the Loan Amount, which represents a dilution of 5.03 per cent. on the fully diluted share capital of the Company under the existing Convertible Loan Agreement, (being 663,053,080 ordinary shares); and

· 16,261,127 of the additional 49,636,033 ordinary shares represents the ordinary shares to be issued on the basis the PiK Fees and Loan Extension Fee are settled in shares1 which represents a dilution of 2.45 per cent. on the fully diluted share capital of the Company under the existing Convertible Loan Agreement, (being 663,053,080 ordinary shares).

The Shareholder approval is strictly for the purpose of the extension and variation of the Convertible Loan Agreement and grant of associated options and may not be used for any other purposes. The passing of the Resolutions is an essential prerequisite to any binding contractual commitment by Circle to the revised Convertible Loan Agreement and the grant of options as contemplated by the Proposal.

4. Financial and Operating Update

Circle today released a financial and operating update, a copy of this is included at page 9 of the Circular.

5. Extraordinary General Meeting

Set out at the end of this document is the notice convening an Extraordinary General Meeting to be held at 11.00 am on Tuesday 10 March 2015 at DoubleTree by Hilton Dublin, Upper Leeson Street, Dublin 4 at which Resolution 1 and Resolution 2 will be proposed for the purposes of implementing the Proposal.

Resolution 1, which will be proposed as an Ordinary Resolution to authorise the Board to exercise the powers of Circle to allot up to 143,342,474 relevant securities. Relevant securities are shares in Circle (other than shares shown to have been taken by subscribers to the memorandum of Circle or shares allotted in pursuance of an Employee Share Scheme) and any right to subscribe for or to convert any security into shares of Circle; and

Resolution 2, which will be proposed as a Special Resolution, to dis-apply pre-emption rights over 143,342,474 ordinary shares (which equates to the maximum number of ordinary shares in Circle to be allotted on the conversion of the Convertible Loan, exercise of the Options and settlement of PiK and Loan Extension Fees).

6. Action to be Taken

At the Extraordinary General Meeting, the Resolutions set out in the Notice of Extraordinary General Meeting will be proposed. A Form of Proxy for use at the Extraordinary General Meeting is enclosed. Whether or not you wish to attend the Extraordinary General Meeting, you should complete and sign the Form of Proxy and return it to Circle's Registrars, Capita Asset Services, Shareholder solutions (Ireland), P.O. Box 7117, Dublin 2 or by hand to 2 Grand Canal Square, Dublin so as to arrive no later than 11.00am on 8 March 2015. The return of the Form of Proxy will not prevent you from attending and voting in person at the Extraordinary General Meeting, or any adjournment thereof, should you wish to do so.

IMPORTANCE OF APPROVAL OF THE RESOLUTIONS:

On the basis that the Resolutions are approved, Circle will have enhanced overall operational and financial flexibility to fund the Company's operational plans going forward. If Shareholders fail to support either of the necessary Resolutions Circle must repay the US$30 million due pursuant to the Convertible Loan Agreement on its maturity on 19 July 2015. Circle will require additional financing in order to meet this obligation. 

7. Recommendation

The Board, with the exception of Mr Mohammad Sultan, who is the representative of KGL on the Board and has absented himself from consideration of this Proposal due to a conflict of interest, believes that the Proposal including amendments to the Convertible Loan Agreement and to grant the associated Options is in the best interests of Circle and its Shareholders as a whole and accordingly, recommend that Shareholders vote in favour of the Resolutions. The directors of Circle intend to vote in favour of the Resolutions in respect of their own respective beneficial holdings, which amount, as at the date of this Circular, to an aggregate 856,177 ordinary shares, representing approximately 0.15% of the existing issued share capital of the Company.

Yours sincerely,

STEPHEN JENKINS

Chairman