Milagro Energy Inc.
TSX : MIG

Milagro Energy Inc.

May 07, 2007 19:37 ET

Milagro Energy Inc. Announces Filing of Final Prospectus and Pricing of Public Offering

CALGARY, ALBERTA--(CCNMatthews - May 7, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Milagro Energy Inc. (TSX:MIG) ("Milagro" or the "Company") is pleased to announce that it has filed a final short form prospectus with the securities regulatory authorities in the provinces of Alberta, British Columbia, Manitoba and Ontario with respect to the offering of securities announced on February 27, 2007 (the "Offering"). The prospectus qualifies the distribution of up to 153,846,154 common shares (the "Common Shares") of the Company at a price of $0.13 per share on a "commercially reasonable efforts" basis, for minimum gross proceeds of $10 million and maximum gross proceeds of $20 million. Of the Common Shares to be issued, up to 30,000,000 Common Shares may be sold on a "flow-through" basis (the "Flow-Through Shares") under the Income Tax Act (Canada) at a price of $0.15 per Flow-Through Share. The Offering is subject to a number of conditions, including receiving proceeds of the Offering in the minimum amount of $10 million, receipt of all necessary regulatory approval, and the completion of the refinancing of the Company's existing bridge credit facility. The Offering is expected to close on or about May 15, 2007, but in no event later than May 25, 2007.

Westwind Partners Inc. (the "Agent") is acting as exclusive agent for the Offering and has advised Milagro that, to date, it has successfully solicited offers in excess of the minimum offering amount. For its services in connection with the Offering, the Agent will receive a cash commission and warrants (the "Agent's Warrants") to purchase a number of common shares equal to 6.0% of the number of Common Shares sold in the Offering. Each Agent's Warrant will entitle the Agent to purchase one common share of the Company at any time within 24 months from the closing of the Offering, at a price of $0.13 per share. The Company has also granted to the Agent an option (the "Over-Allotment Option") to purchase up to an additional 10% of the number of Common Shares sold through the Offering at $0.13 per Common Share, to cover over-allotments, if any, and for market stabilization purposes. The Over-Allotment Option is exercisable, in whole or in part, for a period of 15 days following the closing date.

If the Offering is fully subscribed, assuming that all of the shares are sold as Common Shares (rather than Flow-Through Shares), a total of 178,461,538 new Common Shares will be issued or issuable through the Offering, (taking into account the Over-Allotment Option and the Agent's Warrants), representing approximately 300% of Milagro's current issued and outstanding common shares.

To Milagro's knowledge, no shareholder currently owns or exercises control over a number of common shares of Milagro representing more than 10% of the outstanding common shares of the Company and following the closing of the Offering, no shareholder will own or exercise control over a number of common shares representing more than 10% of the outstanding common shares of the Company. The following directors and officers of the Company intend to subscribe for Common Shares pursuant to the Offering: each of Jeffrey Rekunyk, President and Chief Executive Officer, Aaron Lane, Operations Manager, Peter Graham, director, and Derek Batorowski, Director, intends to subscribe for approximately 333,333 Flow-Through Shares, each in case representing 0.6% of the common shares outstanding before giving effort to the Offering and 0.3% of the common shares outstanding after giving effort to the minimum offering of $10 million (assuming that the maximum number of Flow-Though Shares are issued).

The prospectus also qualifies the distribution of $7.5 million aggregate principal amount of 8.5% secured convertible debentures due two years from their issue date (the "Convertible Debentures") to the Company's principal lender, Brookfield Bridge Lending Fund Inc. (the "Fund"). The Convertible Debentures will be convertible at any time prior to their maturity date into common shares of Milagro at a conversion price equal to $0.1495. The $7.5 million of Convertible Debentures are being issued in connection with a refinancing of the corporation's existing $20.5 million bridge credit facility (the "Existing Facility"). The balance of the amount outstanding under the Existing Facility will be replaced by: (a) a new non-revolving senior secured facility of up to $12 million, with interest at a rate of prime plus 1.75%, calculated daily and payable monthly, maturing on December 31, 2007 (the "New Facility"), and (b) the payment of cash from the proceeds of the Offering, with a portion of additional proceeds to be applied to the repayment of the Existing Facility as follows:



Gross Proceeds from Offering Repayment Amount

$10,000,000 to $11,000,000 $1,000,000

$11,000,001 to $12,500,000 $1,500,000

$12,500,001 to $14,000,000 $2,000,000

$14,000,001 to $16,000,000 $3,000,000

$16,000,001 to $20,000,000 $4,000,000


Completion of the refinancing of the Existing Facility is subject to a number of conditions, including the Company raising gross proceeds of a minimum of $10 million through the Offering.

The net proceeds of the Offering, after paying the Agent's fees and the expenses of the Offering, and repaying a portion of the debt under the Existing Facility as described above, will be used by the Company for exploration and development on the Company's properties, reduction of working capital deficit and for general working capital purposes.

The Toronto Stock Exchange (the "TSX") has exercised its discretionary power pursuant to the TSX Company Manual to apply certain private placement rules of the TSX Company Manual to the Offering. This is a result of: (a) the number of Common Shares and Flow-Through Shares exceeding the maximum permitted number of securities issuable, and (b) the price per Common Share and Flow-Through Share exceeding the maximum permitted discount, in each case under the applicable private placement rules of the TSX Company Manual. These rules would generally require shareholder approval of the Offering. Milagro has obtained an exemption from the TSX from the requirement to seek shareholder approval pursuant to Section 604(e) of the TSX Company Manual on the basis of its financial hardship.

A special committee of the Board of Directors of Milagro (the "Board") composed of Derek Batorowski, Peter Graham and John Land, each of whom is free from any interest in the Offering and is unrelated to any of the parties involved in the Offering, recommended the Offering and that, as a result of the deadline to restructure the Existing Facility by May 25, 2007, Milagro make an application to the TSX for an exemption from the requirement to seek shareholder approval based on a determination of financial hardship. Based on this recommendation, the Board has determined that Milagro is currently in serious financial difficulty, that the Offering is designed to improve its financial position and is reasonable in the circumstances, and has approved the Offering.

Milagro is relying on the financial hardship exemption provided in Section 604(e) of the TSX Company Manual pursuant to the requirements of that section. Upon completion of the Offering and the proposed restructuring of the Existing Facility, the Company will no longer be in default under its principal debt facility. The Company feels that the extended term and reduced principal amount of the New Facility, along with the two year term of the Convertible Debentures, will give the Company the necessary financial flexibility to execute its 2007 drilling program. The exchange of a significant portion of the existing credit facility into the Convertible Debentures also offers the Fund and the Company a mechanism to exchange much of Milagro's current debt into additional common equity in the near term to further strengthen the financial position of the Company.

There is no assurance that the transactions described in this press release will be completed on the terms described herein or at all. In the event that the Offering and the restructuring of the Existing Facility are not completed, the Company may not be able to obtain other financing to address its current defaults under the Existing Facility.

These securities have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and may not be offered or sold in the United States unless an exemption from registration is available. This press release does not constitute an offer to sell or the solicitation of an offer to buy these securities in the United States.

Milagro is an exploration and production company engaged in the acquisition, exploration, development and production of oil and natural gas reserves in western Canada.

READER ADVISORY

Statements in this press release may contain forward-looking information including expectations of funds to be raised in a financing, production, and future capital expenditures and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the company. These risks include, but are not limited to, the risks associated with the oil and gas industry, commodity prices, general economic conditions, conditions in the capital markets in Canada and elsewhere and exchange rate changes. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The reader is cautioned not to place undue reliance on this forward-looking information.

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

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