Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

June 29, 2011 13:00 ET

Touchstone Announces Successful Completion of Debenture Unit and Subscription Receipt Financing

CALGARY, ALBERTA--(Marketwire - June 29, 2011) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Touchstone Exploration Inc., (TSX VENTURE:TAB) ("Touchstone" or the "Company") is pleased to announce that it has successfully concurrently closed a previously announced brokered private placement of: 44,107,573 subscription receipts ("Subscription Receipts") at a price of $0.56 per Subscription Receipt for aggregate gross proceeds of approximately $24.7 million (the "Subscription Receipt Offering"); and a previously announced brokered private placement of $6,000,000 principal amount of convertible debenture units ("Debenture Units") at a price of $1,000 per Debenture Unit, each Debenture Unit consisting of a $1,000 principal amount of 9.5% senior unsecured convertible debentures ("Debentures") and 500 common share purchase warrants ("Warrants") for aggregate gross proceeds of approximately $6.0 million (the "Debenture Unit Offering") with Paradigm Capital Inc. ("Paradigm") and FirstEnergy Capital Corp. as lead agents together with a syndicate of agents comprised of Canaccord Genuity Corp., CIBC World Markets Inc., Fraser Mackenzie Limited and Haywood Securities Inc. (collectively the "Agents").

The net proceeds of the Subscription Receipt Offering and the Debenture Unit Offering will be used to substantially fund the purchase price payable by Touchstone with respect to the previously announced acquisition (the "Primera Acquisition") of all of the issued and outstanding shares of Primera Oil & Gas Limited, Primera Oilfield Management Services Limited and Primera East Brighton Limited from CL Financial Ltd. and for working capital purposes. An aggregate of (US)$23.3 million of the purchase price will be financed by way of vendor take-back notes due two (2) years from closing bearing coupon interest at a rate of 8% per annum and secured exclusively against the assets to be acquired pursuant to the Primera Acquisition.

Subscription Receipt Offering

The gross proceeds of the Subscription Receipt financing are being held in escrow pending the completion of the Primera Acquisition pursuant to a subscription receipt agreement (the "Subscription Receipt Agreement") among the Company, Paradigm on behalf of the Agents and the Computershare Trust Company of Canada (the "Escrow Agent") which sets forth the terms and conditions of the Subscription Receipts. The Escrowed Funds will be held in escrow by the Escrow Agent pursuant to the Subscription Receipt Agreement and will be released to the Company, or as otherwise directed by the Company, together with interest thereon, if, at or before 5:00 p.m. (Calgary time) on August 19, 2011 (the "Deadline") a notice from the Company and acknowledged by Paradigm, on behalf of the Agents, is delivered to the Escrow Agent (the "Closing Notice") stating that:

(a) the final share purchase agreement with respect to the Primera Acquisition (the "Acquisition Agreement") shall have been entered into in form and substance satisfactory to Paradigm, on behalf of the Agents, acting reasonably;
(b) all conditions, undertakings and other matters to be satisfied, completed or otherwise met prior to the completion of the Primera Acquisition (in accordance with the Acquisition Agreement and without waiver of any material provision thereof, in whole or in part, by any of the parties thereto unless the consent of Paradigm, on behalf of the Agents, is given to such waiver) have been satisfied, completed or otherwise met, other than the payment of the consideration to be paid pursuant to the Primera Acquisition for which the Escrowed Funds are required, in whole or in part;
(c) there have been no material amendments of the terms and conditions of the Acquisition Agreement (whether directly or indirectly) which have not been approved by Paradigm, on behalf of the Agents; and
(d) Touchstone is not in material breach of or default under the agency agreement entered into with respect to the Subscription Receipt Offering.

Such Escrowed Funds shall be released against the Company's irrevocable direction to the Escrow Agent to release the Escrowed Funds and interest thereon, if any, to the Company, or as otherwise directed by the Company. If the Company has obtained a final receipt (the "Receipt") for a (final) short form prospectus (the "Final Prospectus") in Alberta, British Columbia, Ontario and Saskatchewan (the "Selling Jurisdictions") qualifying the distribution of the common shares ("Common Shares") of the Company underlying the Subscription Receipts, the Company shall also deliver an irrevocable direction to the registrar and transfer agent of the Common Shares to issue the underlying Common Shares pursuant to the Subscription Receipts. In the event the Receipt has not been obtained prior to the time the Closing Notice is issued, the Escrowed Funds shall be released to the Company but the Common Shares underlying the Subscription Receipts shall not be issued (unless exercised by the holder after the Deadline) until the earlier of the date the Receipt is obtained and the date that is four months and a day after the Closing Date (the applicable date being the "Exercise Deadline").

If at or before the Deadline:

(a) the Closing Notice has not been delivered to the Escrow Agent, or
(b) the Acquisition Agreement is terminated, or
(c) Touchstone has advised the Agents or has announced to the public that it does not intend to proceed with the Primera Acquisition,

(in each case, the "Termination Time"), each holder of Subscription Receipts will forthwith receive from the Escrowed Funds being held by the Escrow Agent under the Subscription Receipt Agreement the full subscription price of such holder's Subscription Receipts, together with such holder's pro rata portion of interest earned thereon from the Closing Date to the Termination Time, and upon the occurrence of the Termination Time, the Subscription Receipts will only represent the holder's right to receive such payment of such amount from the Escrow Agent.

If the Closing Notice has been delivered to the Escrow Agent, and the Receipt has been obtained by the Company, prior to the Deadline, each Subscription Receipt will entitle the holder to receive, without additional consideration or further action, one Common Share. Upon the issuance of the Subscription Receipt to the Subscriber, each Subscription Receipt shall have attached to it one right (a "Right") entitling the holder of the Subscription Receipt to receive an additional 0.1 of a Common Share for each Right held by such holder without additional consideration or further action in the event that the Receipt has not been obtained on or prior to the 45th day following the Closing Date (the "Qualification Deadline"). Such Rights shall immediately terminate, be of no force or effect and shall not entitle the holder thereof to receive any additional Common Shares in the event the Company obtains the Receipt in the manner described above on or prior to the Qualification Deadline. No fractional Common Shares will be issued to holders upon exercise of the Rights. Any fractional number of Common Shares equal to or greater than 0.5 will be rounded up to the nearest whole number and less than 0.5 will be rounded down to the nearest whole number. In calculating such fractional interest, all Rights held by a registered holder of Subscription Receipts shall be aggregated. The Right attached to the Subscription Receipt is not separately transferable by the holder thereof.

The Subscription Receipts will not be exercisable by the holders thereof prior to the Deadline. If the Closing Notice has been delivered to the Escrow Agent at or prior to the Deadline but the Receipt has not yet been issued, the Subscription Receipts may be exercised by the holders thereof at any time after the Deadline and prior to the Exercise Deadline. The Common Shares issuable pursuant to Subscription Receipts exercised by a holder prior to the Exercise Deadline will continue to be subject to a four month hold period under applicable Canadian securities laws and the policies of the TSX Venture Exchange until October 30, 2011. Any Subscription Receipts not exercised prior to the Exercise Deadline shall be deemed to be exercised, without the payment of any additional consideration or further action by the holders thereof, on the Exercise Deadline.

Nothing in the Subscription Receipt Agreement or in the holding of a Subscription Receipt evidenced by a Subscription Receipt certificate or otherwise, shall confer or be construed as conferring upon a holder of Subscription Receipts any right or interest whatsoever as a shareholder of the Company, including, but not limited to, the right to vote at, to receive notice of, or to attend meetings of shareholders. Holders of Subscription Receipts are entitled to exercise the rights expressly provided for in the Subscription Receipts and the Subscription Receipt Agreement on the terms and conditions set forth therein.

Touchstone has paid the Agents one-half of the aggregate cash commission equal to 6% of the gross proceeds raised in the Subscription Receipt Offering. The remaining one-half is payable upon issuance of the Closing Notice provided, however, that if a Termination Time occurs the aggregate cash commission paid shall be limited to the one-half already paid. Touchstone has also agreed to reimburse the Agents for the costs, fees and expenses incurred with respect to the Subscription Receipt Offering.

Debenture Offering

Each Debenture will be a direct unsecured obligation of the Company in the original principal amount of $1,000, will rank pari passu with all existing or future unsecured and unsubordinated indebtedness of the Company, bear interest at a rate of 9.5% per annum from Closing, payable semi-annually on the last day of June and December of each year commencing on December 31, 2011 and mature on June 30, 2016. The Debentures will be convertible at the holder's option into Debenture Shares at any time prior to the close of business on the earlier of June 30, 2016 and the business day immediately preceding the date fixed for redemption of the Debentures at an initial conversion price of $0.70 per common share (a "Debenture Share") of the Company (the "Conversion Price"), being a ratio of 1,428.5714 Debenture Shares per $1,000 principal amount of Debentures, subject to adjustment in certain events including dividend protection for the declaration of dividends. Holders converting their Debentures will receive (i) accrued and unpaid interest thereon to the date of conversion plus, (ii) if conversion occurs prior to June 30, 2014 (the "Call Date"), an additional amount equal to 75% of the aggregate amount of interest that would have been paid on such Debentures in respect of the period from the conversion date to Call Date had such Debentures not been converted and remained outstanding to and including the Call Date (the "Interest Make-Whole"). Subject to regulatory approval, the Company may, at its option, elect to satisfy its obligation to pay the Interest Make-Whole by issuing and delivering that number of Common Shares obtained by dividing the principal amount of the Debentures that have been converted by 95% of the volume weighted average trading price of the Common Shares on the TSX Venture Exchange or Toronto Stock Exchange, as applicable, for the twenty (20) consecutive trading days ending five trading days preceding the conversion date.

Except as set out below, the Debentures will not be redeemable before the Call Date. On and after the Call Date and prior to maturity, the Debentures will be redeemable in whole or in part at the Company's option on not more than sixty (60) days and not less than thirty (30) days prior notice at par plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the the TSX Venture Exchange or Toronto Stock Exchange, as applicable, during the twenty (20) consecutive trading days ending on the fifth trading day preceding the date on which notice of redemption is given is not less than 150% of the Conversion Price.

Upon the occurrence of a Change of Control (as defined below), the Company will be required to offer to purchase, within 30 days following the consummation of the Change of Control, each of the Debentures at a price equal to: (i) 100% of the principal amount thereof; plus (ii) accrued and unpaid interest thereon to the redemption date; plus (iii) if the redemption date occurs prior to the Call Date, 100% of the aggregate interest payable from the redemption date to the Call Date. Subject to regulatory approval, in the event of a Change of Control where the consideration is or can be received wholly or partially in cash (being 10% or more in cash), holders of the Debentures may elect to convert their Debentures and receive, in addition to the number of Common Shares they otherwise would have been entitled to under "Conversion", an additional number of Common Shares not exceeding the specified amount of Common Shares per $1,000 of Debentures, as outlined in the trust indenture, and provided that the conversion price is not less than permitted discounts to the market price. A "Change of Control" shall be deemed to have occurred if at any time (i) any person or group of persons acting jointly or in concert becomes the beneficial owner of, or directly or indirectly exercises control or direction over, securities of the Company carrying in excess of 50% of the total voting rights attached to all of the outstanding securities of the Company or (ii) the Company completes a sale of all or substantially all of its assets.

If the Primera Acquisition is not completed by September 30, 2011, Touchstone will be required to offer to purchase, within thirty (30) days of such date, the Debenture Units subscribed for (the "Acquisition Default Redemption") at a price equal to (i) 100% of the principal amount thereof plus (ii) accrued and unpaid interest thereon to the redemption date, plus (iii) 100% of the aggregate interest payable from the redemption date to the first anniversary of the redemption date. If the holders of at least 66 Γàö% of the principal amount of the outstanding Debentures accept such offer to purchase, the Company shall be entitled to redeem all outstanding Debenture Units at the same price.

Each whole Warrant entitles the Subscriber to purchase one Warrant Share at any time from the date after expiry of the Acquisition Default Redemption obligation up to 4:30 P.M. (Mountain Standard Time) on the date which is thirty-six (36) months from the closing of the Debenture Unit Offering at a price of $0.75 per Warrant Share subject to adjustment in the class, number and/or price of the Warrant Shares upon the happening of certain events, including any subdivision, consolidation or reclassification of the Common Shares of the Company. The Warrants shall be non-transferable and non-assignable from the date of the closing to the date of expiry of the Acquisition Default Redemption obligation.

The Debentures, Warrants and any Common Shares issued upon conversion of the Debentures or exercise of the Warrants are subject to a four month hold period under applicable Canadian securities laws and the policies of the TSX Venture Exchange until October 30, 2011.

Touchstone has paid the Agents an aggregate cash commission equal to 6% of the gross proceeds raised in the Debenture Offering. Touchstone has also agreed to reimburse the Agents for the costs, fees and expenses incurred with respect to the Debenture Offering.

This news release is not for distribution to United States newswire services, should not be disseminated in the United States and does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities of Touchstone Exploration Inc. have not been registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

The companies in which Touchstone Exploration Inc. directly and indirectly owns investments or assets are separate entities. In this news release "Touchstone" is sometimes used for convenience where references are made to Touchstone Exploration Inc. and its subsidiaries in general.

Cautionary Note Regarding Forward-looking Statements: Information in this news release that involves Touchstone's expectations, plans, intentions or strategies regarding the future are forward-looking statements that are not facts and involve a number of risks and uncertainties. Touchstone generally uses words such as "outlook", "will", "could", "would", "might", "remains", "to be", "plans", "believes", "may", "expects", "intends", "anticipates", "estimate", "future", "plan", "positioned", "potential", "project", "remain", "scheduled", "set to", "subject to", "upcoming", and similar expressions to help identify forward-looking statements. Forward-looking information in this news release may include, but is not limited to, information with respect to the timing for and completion of the proposed Primera Acquisition and Subscription Receipt Offering and/or Debenture Unit Offering. The forward-looking statements in this news release are based upon information available to Touchstone as of the date of this news release. Forward-looking statements believed to be true when made may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Touchstone and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations. In addition to other factors and assumptions which may be identified in this news release, assumptions have been made regarding and are implicit in, among other things, the ability of Touchstone to complete the proposed Primera Acquisition and Subscription Receipt Offering and/or Debenture Unit Offering as described in this news release and, once completed, to realize the anticipated benefits of such acquisition and the timely receipt of any required regulatory approvals. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.For further information regarding specific risks and uncertainties applicable to Touchstone please see Touchstone's Annual Information Form and the most recent management discussion and analysis, which may be viewed with other Touchstone disclosure documents through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Touchstone does not undertake any obligation to publicly update forward-looking information except as required by applicable securities law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

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