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The proposed amendments (the “Amendments”) to the Debentures will:
- Extend the maturity date of the Debentures from June 30, 2018 to June 30, 2021;
- Increase the interest rate of the Debentures from 6.75% to 7.25% per annum effective June 30, 2018;
- Reduce the conversion price in effect for each common share in the capital of the Corporation (“Common Share”) to be issued upon the conversion of the Debentures from $19.70 per Common Share to $1.00 per Common Share;
- Permit the Corporation to redeem all or a part of the Debentures, upon notice as provided in the Indenture, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the Debentures redeemed, to the applicable date of redemption, if redeemed during the 12-month period beginning on June 30 of the years indicated below:
- Make such other consequential amendments as required to give effect to the foregoing.
At the Meeting, Debentureholders will be asked to approve the Amendments by an extraordinary resolution authorizing Toscana and the trustee of the Debentures to enter into a supplemental indenture (the “Supplemental Indenture”) to give effect to the Amendments. For the Amendments to be approved, holders of not less than 25% of the principal amount of the Debentures outstanding must be represented in person or by proxy at the Meeting, and the extraordinary resolution must be passed by Debentureholders’ votes representing no less than 66 2/3% of the principal amount of the Debentures represented at the Meeting. In addition, pursuant to the policies of the Toronto Stock Exchange (“TSX”), the Amendments, as they relate to amending the conversion price, must also be approved by a simple majority (50% plus 1) of the holders (“Shareholders”) of Common Shares.
A form of proxy and management information circular has been mailed to Debentureholders in connection with the Meeting to approve the Amendments. In addition, a form of proxy and management information circular has been mailed to the Shareholders in connection with a meeting of Shareholders to be held concurrently with the Meeting to approve the Amendments to the extent that such amendments relate to the amendment of the conversion price.
Sequeira Partners Inc. (“Sequeira”) has provided the independent committee of the Board of Directors of Toscana (the “Toscana Board”) with an opinion (the “Fairness Opinion”) that, as of the date of the Fairness Opinion and subject to the scope of review, assumptions, limitations and qualifications contained therein, if adopted in its entirety, the Amendments are fair, from a financial point of view, to the Debentureholders.
The Toscana Board believes the Amendments are in the best interests of all stakeholders including Debentureholders and Shareholders and recommends that Debentureholders and Shareholders (in so far as the Amendments relate to the amendment of the conversion price) vote in favour of the Amendments for the following reasons:
- The extension of the maturity date will afford Debentureholders a longer period of time during which to receive interest at a more favourable rate. The extended term also creates additional value in the form of a significantly lower conversion price and will allow the Corporation to defer the repayment of principal to a time when the commodity markets may be improved.
- The Corporation believes that the 7.25% interest rate represents an attractive yield, especially in the current low-interest rate environment and when considering alternative reinvestment opportunities.
- The decrease in the conversion price of the Debentures from $19.70 per Common Share to $1.00 per Common Share increases the number of Common Shares underlying each $1,000 of principal amount of Debentures from approximately 50 Common Shares to 1,000 Common Shares, providing Debentureholders with a better opportunity to benefit from potential future increases in the Corporation’s share price.
- Sequeira provided the Fairness Opinion which provided that, as of the date of the Fairness Opinion and subject to the scope of review, assumptions, limitations and qualifications contained therein, if adopted in its entirety, the Amendments are fair, from a financial point of view, to the Debentureholders.
About Toscana Energy Income Corporation
Toscana Energy Income Corporation is a conventional oil and gas producer with the mandate to acquire high quality, long life oil and gas assets including royalties, non-operated working interests and unitized production for yield and capital appreciation.