Iroquois Capital Opportunity Fund Selected to Recapitalize Mega West

MegaWest Energy has signed agreements with investors led Iroquois Capital Opportunity Fund, L.P., ("ICO Fund") as the lead investor and with Mega Partners 1, LLC ("MP1") of which ICO Fund is a member for a multi-faceted plan to recapitalize the Company and enable the restart of oil production at its Missouri enhanced recovery projects.

The Investors will become significant shareholders in the Company through the purchase of US $2.2 million of Series A Convertible Preferred Shares and MP1 will become a 10% working interest partner in the two existing Missouri projects which have a combined design capacity of 1,000 barrels of oil per day, and up to a 20% working interest partner in future development on 15,313 acres of the Company's oil and gas leases located in Missouri and Kansas (the "Deerfield Area"). The proceeds from the initial funding and working interest sale will be used to restart both projects and restore production. This is a strategic, long-term relationship between the Investors, MP1 and the Company involving options for future financing, options for future working interest participation, and cooperation with Iromad LLC ("Iromad"), a world-class technology company. It is expected that this technical cooperation will lead to process and technical improvements that will result in higher economic return and increased recovery of oil from these leases. Restoration of production at the existing plants, continued high oil prices, and access to additional capital will lead to the construction of additional plants in the area.

The Company signed agreements with the Investors and MP1, the significant terms of which are as follows:

  • The Company sold a 10% working interest in the Deerfield Area for US $2,000,000 to MP1.
  • MP1 has the option to acquire up to an additional 10% interest in future projects within the Deerfield Area.
  • The Company issued to the Investors 22,000 Series A convertible preferred shares, with a stated value of $100 each (the "Series A Preferred Shares"), for gross proceeds of US $2,200,000. Based on their stated value, the Series A Preferred Shares are convertible into common shares at US $0.07 per common share. A quarterly cumulative dividend based upon the stated value of the Series A Preferred Shares is payable, at the Company's election, as to either 5% cash or 7.5% in additional Series A Preferred Shares. The Series A Preferred Shares also have a provision whereby upon liquidation, dissolution, winding up or sale of the Company any outstanding Series A Preferred Shares will be paid out ahead of the common shares at a rate of two times the stated value of the Series A Preferred Shares. After 12 months from the date of issue, the Company may force the conversion of the Series A Preferred Shares provided: i) production from the Deerfield Area is 15,000 barrels of oil in a 30 day period; ii) the common shares have traded at or above US $0.25 per share for the preceding 20 consecutive trading days; and iii) the daily average dollar trading volume has been in excess of US $75,000 per day for the same 20 day period.
  • In conjunction with the Series A Preferred Share issuance, the Company has also issued to the Investors 15,400,000 warrants. Each warrant allows the holder to purchase a common share at US $0.25 per share until August 28, 2014. After May 28, 2010 a cashless conversion option is provided only with respect to warrant shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given to the Company.
  • Until twelve months following the first occasion upon which the Company produces 3,000 barrels over a 30 day period (100 barrels per day average) from the Deerfield Area, the Investors have the option to purchase up to 20,000 Series B convertible preferred shares with a stated value of $100 each (the "Series B Preferred Shares"), for up to US $2,000,000 on similar terms to the Series A Preferred Shares except the conversion price is US $0.10 per common share. After 12 months from the date of issue, the Company may force the conversion of the Series B Preferred Shares provided: i) production from the Deerfield Area is 30,000 barrels of oil in a 30 day period; ii) the common shares have traded at or above US $0.35 per share for the preceding 20 consecutive trading days; and iii) the daily average dollar trading volume has been in excess of US $150,000 per day for the same 20 day period. In conjunction with the Series B Preferred Share issuance, the Company will issue to the Investors up to 10,000,000 warrants. Each warrant allows the holder to purchase a common share at US $0.35 per share for a period of five years from issuance. After nine months from the date of issuance, a cashless conversion option is provided only with respect to warrant shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given to the Company.

"ICO Fund brings a great deal to the table, including a strong technical team in Iromad, who will be providing consulting services to MegaWest. Iromad's team is well known for its expertise in the delivery of technologies for the enhanced development of mature assets and non-conventional oil and gas projects, providing cutting edge solutions to issues faced by national oil companies and independent petroleum producers such as MegaWest. We are pleased to have arrived at a refinancing solution which is significantly less dilutive to our shareholders than a pure equity raise, and are excited about getting back to the business of producing oil," said MegaWest President Bill Thornton.

ICO Fund Managing Partner Scot Cohen said, "We are excited at the potential from restarting and ramping production at the Marmaton River and Grassy Creek projects in Missouri and building additional production plants throughout the Deerfield Area leases in the future."
 

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