Semcan Inc. Announces $2 Million in New Financing and a Restructure of its Existing Indebtedness

TORONTO, ONTARIO--(Marketwire - March 7, 2011) - Semcan Inc. (TSX VENTURE:STT) ("Semcan or the "Company") today announced the terms of a new financing and debt restructuring expected to close, subject to negotiation of final documentation, certain other conditions precedent, shareholder approval and TSX Venture approval, in early April, 2011.

Financing

The Company has agreed to borrow, subject to the conditions noted above, a minimum of $2,000,000 through a private placement to accredited investors of a secured convertible loan (the "Loan"). The interest rate is 10% per annum, paid quarterly in cash. The term is 3 years, with the Company having the right to repay the Loan in cash after the first twelve (12) months of the term upon providing investor with forty-five (45) days' written notice. Any such early repayment must apply to the full outstanding balance of the Loan. The early repayment privilege will be available to the Company only if the Company's common shares have traded at or above $0.25 per share (after giving effect to the share consolidation noted below) for the twenty (20) business days prior to the date of the Company providing notice to Lender of its intent to repay the Loan. The Loan is convertible at any time until maturity into Units, at the option of the Lender. Each Unit is comprised of one (1) common share and one-half (½) of a warrant. The conversion price is based on the closing price of the Company's shares on March 4, 2011 which, after consolidation, is $0.14 per Unit. After the conversion, the Lender may exercise each full warrant received on conversion to receive one (1) common share at a price of $0.14 per share, with the warrants expiring at the original maturity date of the Loan. 

The Loan will be used to repay $100,000 of existing debt, with the balance of a minimum of $1,900,000 net of expenses to be used for working capital purposes. As a condition of the Loan, a minimum of $3,300,000 of the Company's existing debt and trade accounts payable will be converted to equity at between $0.34 and $0.40 per share (post-consolidation) at closing, and repayment of approximately $2,000,000 of other term debt currently in default will be deferred until the Company's senior debt has been repaid. The effect of the Loan, conversion of existing debt to equity and the deferral of existing debt will improve the Company's working capital position by approximately $7,100,000.

As a condition of the Loan, the Company will consolidate its common shares on the basis of one (1) new share for each two (2) existing shares, subject to shareholder approval.

Among other things, the Loan is subject to regulatory and shareholder approval. The Company has scheduled a special meeting of shareholders for March 31, 2011 to seek shareholder approval for the transaction. The transaction is expected to close shortly thereafter, after receipt of shareholder approval and the satisfaction of the other conditions.

Based on an assumed raise of the minimum $2,000,000, related parties are investing approximately $1,293,000 into the Loan, of which approximately $460,000 will be obtained through the sale of Common Shares by related parties to third parties on the open market. In aggregate, third parties are providing $1,167,000 of the funds comprising the Loan. 

The conversion of debt to common shares, private placement of the Loan, and repayment of $100,000 of principal are related party transactions for purposes of MI-61-101 "Protection of Minority Security Holders in Special Transactions." The transactions are exempt from the formal valuation requirements of MI-61-101 as the Company is listed on the TSX Venture Exchange and not listed on the specified markets of s. 5.5(b) of MI-61-101. The transactions have been reviewed and recommended by a committee of independent directors and approved by the board of directors, subject to majority of the minority shareholder approval. The interest in the transactions and anticipated effect on securities holdings of related parties are as follows, with "Pre" referring to pre-transaction and "Post" referring to post-transaction:

Name and Relationship to the Company	Common Shares	Estimated Term Debt at March 31, 2011	Convertible Debt	Common Shares on a Partially Diluted Basis(2)
David Campbell, Shareholder	Pre: 4,059,858 (13.06%), indirectly through: (1) Tricaster as to 2,278,108; and (2) Combined as to 1,781,750 Sale Prior to Closing: Sell 3,780,000 to hold 279,858 Post, after Consolidation: 139,929	Pre: $903,560 Transaction: Nil Post: $903,560	Pre: Nil Transaction: Invest $600,000 plus proceeds from sale of 3,780,000 Common Shares, total estimated at $845,700. Post: $845,700, convertible into 9,061,072 Common Shares(1)	9,201,001 (28.59%)
Ian L. T. Conn, Director	Pre: 1,063,000 (3.42%) Sale Prior to Closing: Sell 300,000 to hold 763,000 Post, after Consolidation: 381,500	Pre: Nil Transaction: Nil Post: Nil	Pre: Nil Transaction: Invest $30,000 plus proceeds from sale of 300,000 shares, total estimated at $49,500. Post: $49,500, convertible into 530,357 Common Shares (1)	911,857 (3.51%)
Randy Fowlie, Director	Pre: Nil Sale Prior to Closing: Nil Post, after Consolidation: Nil	Pre: Nil Transaction: Nil Post: Nil	Pre: Nil Transaction: Invest $60,000. Post: $60,000, convertible into 642,857 Common Shares (1)	642,857 (2.47%)
Philip M. Jamieson, Chairman, CEO and Director	Pre: 2,362,041 (7.6%) Sale Prior to Closing: Sell 2,000,000 to hold 362,041 (pre-consolidation), 181,021 (post-consolidation) Receive 4,009,593 upon conversion of debt. Post, after Consolidation: 4,190,614	Pre: $1,653,837 Transaction: Receive $50,000 of principal Convert remaining $1,603,837 to Common Shares at $0.40 Receive 4,009,593 Common Shares Post: Nil	Pre: Nil Transaction: Invest proceeds from sale of 2,000,000 shares, estimated at $130,000. Post: $130,000, convertible into 1,392,857 Common Shares. (1)	5,583,471 (20.82%)
Ronald F. O'Hearn, Director	Pre: 2,086,991 (6.71%) Sale Prior to Closing: Sell 1,000,000 to hold 1,086,991 Post, after  Consolidation: 543,496	Pre: Nil Transaction: Nil Post: Nil	Pre: Nil Transaction: Invest $30,000 plus proceeds from sale of 1,000,000 Common Shares, total estimated at $95,000 Post: $95,000, convertible into 1,017,857 Common Shares (1)	1,561,353 (5.9%)
David Snowden, Director	Pre: 506,000 (1.63%) Sale Prior to Closing: Nil Post, after Consolidation: 253,000	Pre: Nil Transaction: Nil Post: Nil	Pre: Nil Transaction: Invest $30,000 Post: $30,000, convertible into 321,429 Common Shares (1)	574,429 (2.23%)
Remy Stachowiak, Director	Pre: 135,000 (0.43%) Sale Prior to Closing: Nil Post, after Consolidation: 67,500	Pre: Nil Transaction: Nil Post: Nil	Pre: Nil Transaction: Invest $32,500. Post: $32,500, convertible into 348,214 Common Shares (1)	415,714 (1.61%)
John Wilby, CFO and Secretary	Pre: 1,000,000 (3.22%), indirectly through Minnorm Holdings Inc. ("Minnorm") Sale Prior to Closing: Nil Post, after Consolidation: 500,000	Pre: $33,667, indirectly through Minnorm Transaction: Nil Post: $33,667	Pre: Nil Transaction: Invest $50,000 Post: $50,000, convertible into 535,714 Common Shares (1)	1,035,714 (3.99%)

Notes:

(1) Giving effect to the issuance of Common Shares on conversion and exercise of the warrants issued on conversion.

(2) Giving effect to the exercise or conversion of securities by the holder only.

"The new financing will provide the Company with the working capital it needs to begin executing the new work secured in 2010 and early 2011. The Company closed 2010 with a backlog of approximately $17.6 million, compared with $7.5 million at the end of 2009," said Phil Jamieson, Chairman & CEO. "We look forward to closing the financing and focusing the Company's efforts on returning to a positive EBITDA during 2011."

About Semcan Inc.

Semcan is a North American supplier of industrial processes and environmental solutions with specific emphasis on water remediation and emission control systems.

Caution Regarding Forward-Looking Information and Non-GAAP Measures

Forward-Looking Information

This news release contains certain forward-looking statements. These statements relate to future events or future performance and reflect management's current expectations and assumptions regarding the growth, results of operations, performance, and business prospects and opportunities. Such forward-looking statements reflect management's current beliefs and expectations and are based on information currently available to management of Semcan. In particular, statements regarding the future operating results and economic performance are forward-looking statements. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking statements, including risks outlined under "Risk Factors" in our Annual Information Form, which is posted at www.sedar.com. In evaluating these statements, investors should specifically consider various factors, including such risks as Investment Risk; Business Valuations; Condition of Capital Markets; Dependence on Key Personnel; General Economic Factors; Interest Rate Risk; Competition; and Reliance on Key Suppliers. One or more of these "Risk Factors" could cause actual events or results to differ materially from any forward-looking statement. These factors should not be considered exhaustive. Although the forward-looking statements contained in this press release are based on what management of Semcan considers to be reasonable assumptions based on information currently available to them, there can be no assurance that actual events or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. These forward-looking statements are made as of the date of this press release, and none of Semcan nor its directors assume any obligation to update or revise them to reflect new events or circumstances. Undue reliance should not be placed on forward-looking statements.

Non-GAAP Measures

The term "Adjusted EBITDA" is a financial measure used in this document which is not a standard measure under Canadian generally accepted accounting principles. Semcan's method of calculating Adjusted EBITDA may differ from the methods used by other issuers. Therefore, Semcan's measure of Adjusted EBITDA, as presented in this press release, may not be comparable to similar measures presented by other issuers. Adjusted EBITDA refers to net earnings determined in accordance with generally accepted accounting principles, before depreciation, amortization of intangible assets, gain or loss on disposal of property and equipment, interest expense, special charges, stock compensation expense and income tax expense. Management believes that Adjusted EBITDA is a useful supplemental measure of cash available for debt service, working capital, capital expenditures, income taxes, and distribution. Investors are cautioned that Adjusted EBITDA, as a non-GAAP measure, is not an alternative to measures under GAAP and should not, on its own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return.

The term "backlog" is a financial measure used in this document which is not a standard measure under Canadian generally accepted accounting principles. Semcan's method of calculating backlog may differ from the methods used by other issuers. Therefore, Semcan's measure of backlog, as presented in this press release, may not be comparable to similar measures presented by other issuers. Backlog is the value of revenue remaining to be earned from purchase orders received from customers. The projects represented in backlog are executed according to a schedule agreed with each customer, which could range in duration from one month to eighteen months. Revenues are earned on a percentage of completion basis. Management uses this measure to i) monitor the Company's success in securing new orders, and ii) gauge the likelihood of meeting revenue objectives in future periods.

Investors are cautioned that backlog, as a non-GAAP measure, is not an alternative to measures under GAAP and should not, on its own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return.