IOG.L Regulatory News (IOG)

7 Aug 2009 10:26



Island Oil & Gas plc

("Island" or "the Company")

Placing and Directors Loan Agreements

Highlights:

Placing to raise £762,417 before expenses; funds will provide further working capital

US$833,334 of loans gained from Longreach and Celtex to cover certain bank guarantees and secure Island's position in the Sidi Moussa and Foum Draa Exploration Licenses, Morocco

Further loan of £300,000 from Mr Benitz, Chairman of Island

The Board of Island is pleased to announce the completion of a placing to raise ₤762,417, before expenses ("the Placing"). The Board is also pleased to announce that it has agreed terms with Longreach Oil and Gas Ventures Limited ("Longreach") and Celtex Exploration Services Limited ("Celtex") (together "the Lenders") for the provision of funds (together "the Loans") to cover certain bank guarantees given to the government of the Kingdom of Morocco to secure Island's position in the Sidi Moussa and Foum Draa Exploration Licenses (the "Licences"), which have recently been awarded to Island International Exploration B.V. ("IIEBV"). In addition, Mr. Benitz, Chairman of the Company, has agreed to provide a further loan of £300,000 to the Company.  

The Placing

The Placing of 15,248,350 new ordinary shares of €0.01 each ("Placing Shares") at a price of £0.05 per ordinary share ("Placing Price") has raised £762,417, before expenses. The principal purpose of the Placing is to provide working capital to the Company.  Alexander David Securities Limited acted as broker to the Placing.

Mr. Benitz, Chairman of the Company, has subscribed for 4,000,000 shares in the Placing. Following the Placing, Mr Benitz's interests in the share capital of the Company will total 4,401,350 ordinary shares or 3.2 per cent. of the issued share capital of the Company.

Directors Loans

Longreach has agreed to advance a loan of US$208,334 to IIEBV, a wholly owned subsidiary of Island ("the Longreach Loan"). The principal terms of the detailed loan agreement are summarized below. The Longreach Loan shall bear interest at 4 per cent. over LIBOR accruing daily. In the event of the Longreach Loan not being repaid out of a Company sale of assets or fundraising within 6 months, or a change of control in Island, Longreach may, at its absolute discretion, elect to have the Longreach Loan converted into ordinary shares in Island at a conversion price calculated as the volume weighted average of the closing price of Island's ordinary shares on the AIM market of the London Stock Exchange for the 20 days prior to service of notice by Longreach. Island and IIEBV will hold a 42.5 per cent. interest in each of the Licences in trust for Longreach and Celtex as security for the loans which interests or part thereof are transferable to the Lenders if IIEBV defaults under the terms of the Licence agreement with ONHYM. Island and IIEBV will hold additional 7.5 per cent. interests in the Licences in trust for Longreach in respect of an agreement to assign such interests to Longreach. Mr. Benitz, who has a beneficial interest in Longreach, absented himself from board consideration of the Longreach Loan. 

Celtex has also agreed to advance a loan of US$625,000 to IIEBV ("the Celtex Loan"). The principal terms of the detailed loan agreement are summarized below. The Celtex Loan shall bear interest at 4 per cent. over LIBOR accruing daily. In the event of the Celtex Loan not being repaid out of a sale of assets or fundraising within 6 months, or a change of control in Island, Celtex may, at its absolute discretion, elect to have the balance outstanding of the Celtex Loan converted into ordinary shares in Island at a conversion price calculated as the volume weighted average of the closing price of Island's ordinary shares on the AIM market of the London Stock Exchange for the 20 days prior to service of notice by Celtex. Island and IIEBV will hold a 42.5 per cent. interest in each of the Licences in trust for Longreach and Celtex as security for the loans which interests or part thereof are transferable to the Lenders if IIEBV defaults under the terms of the Licence agreement with ONHYM. In the event of non repayment of the Celtex Loan, Celtex shall also be entitled to convert its loan into shares in IEBV at a valuation agreed by an independent chartered accountant. Mr. Griffiths the Chief Executive of the Company, who has a beneficial interest in Celtex, absented himself from Board consideration of the Celtex Loan. 

In accordance with the terms of the Celtex Loan, Celtex has agreed to immediately convert a £150,000 portion of the Celtex Loan into 3,000,000 ordinary shares ("Conversion Shares") in the Company at the Placing Price ("the Conversion"). Following the Conversion, Celtex's interest in the share capital of the Company will total 5,225,456 ordinary shares or 3.8 per cent. of the issued share capital of the Company.  

In addition to the above loans, Mr Benitz has also agreed to provide a loan to Island of £300,000 on terms and conditions to be agreed. A further announcement regarding this loan will be made in due course.

Related Party Transactions

The participation by Mr Benitz in the Placing is considered a related party transaction pursuant to the AIM Rules for Companies. The Directors of the Company (with the exception of Mr Benitz), having consulted with its nominated adviser, Davy, consider that the terms of the Placing to Mr Benitz, to be fair and reasonable insofar as its shareholders are concerned.

The Loans are considered related party transactions pursuant to the AIM Rules for Companies. The Directors of the Company with the exception of Mr. Griffiths and Mr Benitz having consulted with its nominated adviser, Davy, consider that the terms of the Loans are fair and reasonable insofar as its shareholders are concerned. In forming their opinion the Directors have taken into account that the Company has not been able to obtain sufficient funding from other sources within the time available and without these Loans the Company would have been unable to secure the Licenses.

The conversion by Celtex of a portion of the Celtex Loan is considered a related party transaction pursuant to the AIM Rules for Companies. The Directors of the Company (with the exception of Mr Griffiths), having consulted with its nominated adviser, Davy, consider that the terms of the conversion, is fair and reasonable insofar as its shareholders are concerned.

Admission 

Application has been made to the London Stock Exchange for the 15,248,350 Placing Shares and the 3,000,000 Conversion Shares to be admitted to trading on AIM. Dealing is expected to commence in these shares at 8:00 a.m. on 21 August 2009. The Placing Shares and Conversion Shares will rank pari passu in all respects with the existing issued ordinary share capital of the Company. Following admission of the Placing Shares and Conversion Shares, there will be 135,926,678 ordinary shares in issue.

7 August 2009

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