PROSEP Announces Initiative to Strengthen Balance Sheet



    
    /NOT FOR DISTRIBUTION TO THE UNITED STATES NEWS WIRE SERVICES OR
     DISSEMINATION IN THE UNITED STATES/
    

    MONTREAL, June 17 /CNW/ - ProSep Inc. (TSX: PRP) ("ProSep" or the
"Company"), dedicated to providing process solutions to the oil and gas
industry, today announced an initiative to strengthen its balance sheet. The
plan includes:

    
        -  An intention to file a preliminary short form prospectus for a
           Rights Offering to the Shareholders (the "Shareholders") as of a
           record date for the Rights Offering (the "Record Date") to raise a
           maximum of $10,000,000 (the "Rights Offering"); and

        -  An agreement with the holders of its existing debentures (the
           "Debentures") to convert $7,845,620 of indebtedness into common
           shares of ProSep (the ("Common Shares") by amending the terms of
           the Company's existing Debentures and to participate in the Rights
           Offering so as to ensure that ProSep realizes gross proceeds of at
           least $4,840,000.
    

    The effect of the Rights Offering, expected to close in the third
quarter, taken together with the amendments to the Debentures, will be to (i)
reduce indebtedness under such Debentures by $7,845,620, (ii) reduce the
Company's short term debt obligations by over $3,700,000 and (iii) provide
additional liquidities for general working capital purposes.

    Debentures Amendments

    Pursuant to the Rights Offering purchase and debentures amendment
agreement entered into on June 17, 2009 (the "Rights Offering Purchase and
Debentures Amendment Agreement"), holders of the Company's i) $1,500,000
principal amount 12% Secured Convertible Debentures due October 29, 2009, ii)
US$4,000,000 principal amount 13.25% Unsecured Debentures with a final
maturity date of April 1, 2013 and iii) $5,090,000 principal amount 13%
Unsecured Convertible Debentures due April 23, 2013 have agreed to amend the
terms of these Debentures and to partially convert (representing an amount of
$7,178,500), at an amended conversion price of $0.13, such Debentures and
$667,120 of accrued interest into an aggregate of 60,350,923 Common Shares
(the "Amendments"). The closing of the Amendments will occur on or before the
Record Date for the Rights Offering. Certain holders of Debentures have
further agreed to exercise the Rights attached to all the Common Shares they
hold as of the Record Date pursuant to their Basic Subscription Privileges
and, if required, Additional Subscription Privileges to the fullest extent
permitted by securities laws, to ensure that ProSep realizes gross proceeds
from the Rights Offering of at least $4,840,000.
    Upon the Amendments, the holders of the (i) $1,500,000 principal amount
12% Secured Convertible Debentures will convert their Debentures entirely into
Common Shares at the amended conversion price of $0.13; (ii) the US$4,000,000
principal amount 13.25% Unsecured Debentures will exchange their Debentures
entirely in an equivalent principal amount of 13% Unsecured Convertible
Debentures with a final maturity date of April 23, 2013; and (iii) $5,678,500
principal amount of the 13% Unsecured Convertible Debentures will be converted
into Common Shares at the amended conversion price of $0.13 (reduced from
$0.45). As a result, the remaining Debentures outstanding will have a
principal amount of $3,953,500. The Debentures will bear interest at an annual
rate of 13.25% (increased from 13%) and the maturity date will be extended
from April 23, 2013 to the fifth anniversary of the Amendments. The amended
Debentures will be convertible, at the option of the holders, into Common
Shares based on a conversion price of $0.30 and redeemable in whole or in part
by the Company at any time after the second anniversary of the Amendments.
Interest will be payable every six months in cash.
    The closing of the Amendments, which is subject to regulatory approval
(including approval by the Toronto Stock Exchange) (the "TSX") and to other
customary closing conditions, is expected to occur on or before the Record
Date of the Rights Offering. As a result of the Amendments, the Company will
issue 60,350,923 Common Shares representing a dilution of 94% of all the
issued and outstanding Common Shares at the date hereof and will have a total
of 124,794,374 Common Shares issued and outstanding. Following the Amendments
but before giving effect to the Rights Offering, the share ownership of
FondAction, Le Fonds de développement de la Confédération des syndicats
nationaux pour la coopération et l'emploi ("FondAction") will increase from
2,804,069 Common Shares to 24,465,607 Common Shares (from 4.4% to 19.6% of the
issued and outstanding Common Shares). The personal investment vehicle of one
of the directors of ProSep will convert its $250,000 principal amount of 13%
Unsecured Convertible Debentures into 1,923,077 Common Shares, increasing its
holdings from 92,676 Common Shares to 2,015,753 Common Shares (from o.1% to
1.6% of the issued and outstanding Common Shares).
    The Amendments have been unanimously approved by all directors of the
Company who are free from any interest and unrelated to the parties involved
in the proposed transaction. The Amendments may constitute a related party
transaction in accordance to Multilateral Instrument 61-101 - Protection of
Minority Shareholders in Special Transactions ("MI 61-101"). The Company
relies on the financial hardship exemption included in Sections 5.5(g) and
5.7(e) of MI 61-101 to be exempted from the requirement for a formal valuation
and a minority shareholder approval. In addition, the Company has applied to
the TSX for an exemption, in accordance with Section 604(e) of the TSX Company
Manual, from the requirement to obtain shareholder approval for the Amendments
in consideration of the serious financial circumstances of the Company, as
described in the Management's Discussion and Analysis for the period ended
March 31, 2009. Closing of the Amendments is conditional on receipt of such
exemption from the TSX. Shareholder approval is required by the TSX because
the number of Common Shares to be issued on the Amendments exceeds the maximum
25% dilution permissible under TSX rules, the terms of the Debentures are
amended mainly to provide for a reduced conversion price for the Debentures
that is lower than the market price, less the permissible discount under TSX
rules and the transaction may materially affect the control of the Company
because of the increased share ownership of FondAction. The TSX has advised
ProSep that the Company's reliance on this exemption will automatically result
in a TSX de-listing review to confirm that ProSep continues to meet TSX
continued listing requirements. The Company's reliance on the financial
hardship exemption provisions under MI 61-101 and the TSX Company Manual is
based on determinations by the board of directors of ProSep and all of its
independent directors, acting in good faith, that the Company is in serious
financial difficulty, that the transaction is designed to improve its
financial position and that the terms of the transaction are reasonable under
such circumstances.

    Rights Offering

    ProSep also intends to raise a maximum of $10,000,000 in gross proceeds
from the Rights Offering. ProSep intends to issue to Shareholders (that are
residents of Canada and eligible Shareholders in other jurisdictions) of
record on the Record Date (the "Eligible Holders"), one right ("Right") for
each Common Share held. The Rights will entitle Eligible Holders to subscribe
for and purchase from the Company an aggregate of approximately 76,923,077
Common Shares (assuming full subscription). 1.6223 Rights entitle the holder
to subscribe for one Common Share at the Subscription Price of $0.13 on or
before 4:00 p.m. (local time at place of exercise in Canada) on the Expiration
Date. The Subscription Price represents a 47% discount to the weighted average
price of the Common Shares traded on the TSX during the ten trading days
immediately preceding this announcement.
    Shareholders that fully exercise their Rights pursuant to the Basic
Subscription Privilege will be entitled to subscribe for additional Common
Shares, if available, that were not subscribed for by other Rights holders at
the price equal to the Subscription Price for each additional Common Share.
The Rights will be exercisable for at least 21 days following the date of
mailing of the final prospectus. Rights not exercised on or before 4:00 p.m.
(local time at place of exercise in Canada) on the Expiration Date will be
void and have no value. The Rights Offering is subject to regulatory approval,
including the approval of the TSX and other customary closing conditions. The
approximate net proceeds are estimated to be $9,694,000 (assuming full
subscription) and will be used for general working capital purposes.
    ProSep has applied to list the Rights and the Common Shares issuable upon
the exercise of the Rights on the TSX. Approval of such listing will be
subject to the Company fulfilling all of the listing requirements on the TSX.
The securities offered have not been and will not be registered under the
United States Securities Act 1933 (the "1933 Act"), as amended and, subject to
certain exceptions, may not be offered or sold in the United States.
    Following to the Amendments and the Rights Offering (assuming full
subscription), ProSep will have 201,717,451 Common Shares issued and
outstanding. Assuming full subscription under the Rights Offering, the share
ownership of FondAction will increase from 4.4% to up to 21.7% of all the
issued and outstanding Common Shares of ProSep.
    Directors and members of the executive committee of the Company who own
Common Shares and receive Rights pursuant to the Rights Offering have agreed
to exercise Rights to acquire approximately 650,000 Common Shares under the
Basic and Additional Subscription Privileges.
    If a holder of Common Shares does not exercise all of its Rights pursuant
to the Basic Subscription Privilege, the holder's current percentage ownership
in the Corporation will be diluted by the issuance of Common Shares upon the
exercise of Rights by other holders.
    This news release does not constitute an offer to sell or the
solicitation of an offer to buy these securities. Securities may not be
offered or sold in the United States absent registration or an exemption from
registration under the 1933 Act. The Company does not intend to register any
portion of the Rights Offering in the United States.

    Filing of Amended Public Documents

    At the request of the Autorité des Marchés Financiers, the Company
amended and re-filed on the date of this press release, its 2008 Annual
Management Discussion and Analysis filed on March 12, 2009 (English version)
to provide further analysis. The Company has also filed an information
supplement to the Second Amended Proxy Circular filed on May 14, 2009. These
changes are fully detailed in the accompanying letter filed on www.sedar.com.

    About ProSep Inc.
    ProSep Inc. is dedicated to providing process solutions to the oil and
gas industry. ProSep designs, develops, manufactures and commercializes
technologies to separate oil, water and gas generated by oil and gas
production. For more information, please visit www.prosepinc.com.

    Caution concerning forward-looking statements
    This press release may contain forward-looking statements, including
statements regarding the business and anticipated financial performance of
ProSep Inc. These statements are based, among others, on the Company's current
assumptions, expectations, estimates, objectives, plans and intentions
regarding projected revenues and expenses, the economic and industry
environments in which the Company operates or which could affect its
activities, the Company's ability to attract new clients and consumers as well
as its operating costs, raw materials and energy supplies which are subject to
a number of risks and uncertainties. Forward-looking statements can generally
be identified by the use of the conditional tense, the words "may", "should",
"would", "believe", "plan", "expect", "intend", "anticipate", "estimate",
"foresee", "objective" or "continue" or the negative of these terms or
variations of them or words and expressions of similar nature. Actual results
could differ materially from the conclusion, forecast or projection stated in
such forward-looking information. These statements are subject to a number of
risks and uncertainties that may cause actual results to differ materially
from those contemplated by the forward-looking statements. Some of the factors
that could cause such differences include but are not limited to the Company's
ability to develop, manufacture, and successfully commercialize value added
equipments and services, the availability of funds and resources to continue
its operations and pursue its projects, legislative or regulatory
developments, competition, technological change, changes in government and
economic policy, inflation and general economic conditions in geographic areas
where ProSep Inc. operates. These and other factors should be considered
carefully and undue reliance should not be placed on the forward-looking
statements.
    %SEDAR: 00009317EF




For further information:

For further information: ProSep Inc., Jacques L. Drouin, President &
CEO, (514) 522-5550 ext. 226, jdrouin@prosepinc.com; Patrice Daignault, CFO &
Corporate Secretary, (514) 522-5550 ext. 235, pdaignault@prosepinc.com

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PROSEP INC.

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