2013/06/16 Estrella announces proposed acquisition of San Antonio ...

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Warren Levy, CEO of Estrella states “Estrella is pleased to announce the acquisition of SAIC. The acquisition will dramatically increase revenues and cash flow from the combined companies which should provide greater visibility to institutional investors and access to capital markets The acquisition will also make the combined entity the largest single rig operator in Colombia offering a broad range of services with critical mass. The combination of SAIC’s long and successful operating history, Estrella’s management expertise and technical knowhow, together with the strengthening of the Company’s balance sheet, will help Estrella achieve its goal of being the standard of excellence for operations in Latin America.” Terms of the Purchase Agreement Under the terms of the Purchase Agreement, Estrella will acquire all of the issued and outstanding shares of SAI for a purchase price of approximately US$122.5 million which will be paid in cash at closing. The company will be purchased cash and debt free. Additionally an anticipated US$30.5 million will be injected into the company to repay indebtedness for working capital and other general corporate purposes. The Purchase Agreement contains representations, warranties and covenants of each of the Company, the Sellers and SAI Colombia that are customary in transactions of this nature. Closing of the Acquisition is subject to the approval of the TSX Venture Exchange and certain other conditions precedent customary in transactions of this type all as more specifically set forth in the Purchase Agreement, a copy of which has been filed on SEDAR. The transaction is expected to close on or about July 31, 2013. Financing Arrangements In connection with the completion of the Acquisition the Company has entered into a secured loan agreement dated June 16, 2013 (“Loan Agreement”) with Ringo Holding L.P. (“Ringo”), the Company’s controlling shareholder, whereby Ringo has agreed to loan the Company up to US$97 million (the “Shareholder Loan”) and to grant the Company an additional US$56 million loan in the event that the Company is unable for any reason to obtain the Colombian Bank Loans referred to below (the “Additional Shareholder Loan”). The Shareholder Loan will bear interest at the rate of 12% per annum from the Effective Date (as such term is defined in the Loan Agreement) until 6 months from the Effective Date, and thereafter at the rate of 14% per annum. The Shareholder Loan will be due and payable on the date that is one year from the Effective Date. Concurrently with the Shareholder Loan, the Company has been offered financing by Colombian banks of an amount in the range of US$50 to 58 million (“Colombian Bank Loans”). It is anticipated that the Colombian Bank Loans will be seven year fully amortizing term loans, with the first two years being interest only. The proceeds of the Shareholder Loan and the Colombian Bank Loans or Additional Shareholder Loan, as applicable, will be used as follows: (i) approximately US$122.5 million to satisfy the purchase price for the Acquisition and (ii) approximately US$30.5 million to repay indebtedness, and for working capital and other general corporate purposes. In the event that the Company completes a sale of equity securities or incurs any additional indebtedness (excluding bank financing sourced in connection with the Acquisition) the Shareholder Loan will, up to the amounts raised by the Company in connection with the forgoing, become immediately due and payable. The Loan Agreement contains representations, warranties and covenants of each of the Company and Ringo that are no more onerous than those the Company could obtain from commercial lenders, and are customary in loans of this type. A copy of the Loan Agreement has been filed by the Company on SEDAR. www.estrellasp.com Page 2 of 4
Proposed Private Placement Estrella is also pleased to announce that Ringo has executed a definitive investment agreement with the Company dated June 16, 2013 (the “Investment Agreement”). Pursuant to the Investment Agreement, Ringo has agreed to purchase by way of private placement Series B Preference Shares (“Preference Shares”) of the Company based on a pre-‐consolidated share price of CAD$0.05 (the “Subscription Price”), for gross proceeds to the Company of up to CAD$130 million (“Private Placement”). The gross proceeds of the Private Placement will be reduced by the amount, if any, of the proceeds raised in a Concurrent Financing (as defined below). It is anticipated that the Series B Preference Shares will carry a fixed preferred dividend at the rate of 6% per annum, a liquidation preference equal to the paid up capital on such shares together with all accrued and unpaid dividends, and would be convertible at the option of the holder into post-‐consolidated common shares of the Corporation on a one for one basis. Closing of the Private Placement is subject to, among other things, disinterested shareholder approval, the approval of the TSX Venture Exchange and certain other conditions precedent customary in transactions of this type all as more specifically set forth in the Investment Agreement, a copy of which has been filed on SEDAR. The Company will request the approval of the disinterested shareholders of the Company at the Company’s upcoming annual general and special meeting of shareholders (the “AGM”). The parties intend to complete the Private Placement as soon as practicable following the AGM, subject to receipt of final approval from the Exchange. The Company expects to use of the proceeds of the Private Placement to repay the outstanding indebtedness on the Shareholder Loan specified above. Concurrent Financing In addition to the Private Placement, the Company may also complete a concurrent financing of Preference Shares at the Subscription Price or other equity securities to subscribers other than Ringo through a brokered or non-‐brokered private placement or public offering (the "Concurrent Financing"). The Company expects to use of the proceeds of the Concurrent Financing, if any, in the same manner as the Private Placement. Closing of a Concurrent Financing would be subject to, among other things, the approval of the TSX Venture Exchange and certain other conditions precedent customary in transactions of its type and would be expected to take place at the same time as the closing of the Private Placement. Annual General and Special Meeting Currently the AGM is scheduled for July 8, 2013. The Company wishes to announce that in light of importance of the Acquisition, the Company will changing the date of the AGM to a later date to be determined by the directors. In addition to the approval of the Private Placement it is expected that the shareholders will also be asked to consider and approve as a special resolution to consolidate the existing common shares on a ratio to be determined by the directors. About Estrella Estrella is an oil and natural gas, geothermal and mining service company with operations throughout Latin and South America. It provides conventional drilling services; directional drilling services; tools and equipment sales and rentals; work-‐over and finishing services; and consulting and engineering services. www.estrellasp.com Page 3 of 4
Page 1: Draft June 16, 2013 ESTRELLA I

2013/06/16 Estrella announces proposed acquisition of San Antonio ...

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