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Exxoteq Limited - Transaction Announcement Exxoteq Limited Registration number 2002/010132/06) Share Code: EXO : ISIN ZAE000050183 (`Exxoteq` or `the company`) - SALE OF 26% OF SEQUENCE OIL & GAS (PTY) LTD FOR CASH; - SPECIFIC ISSUE OF SHARES FOR CASH; - BLACK ECONOMIC EMPOWERMENT; - GRANT OF OPTION TO PURCHASE SHARES IN THE COMPANY; AND - FURTHER CAUTIONARY ANNOUNCEMENT LPC Manhattan Sponsors (Pty) Ltd are authorised to announce that, further to the cautionary announcement dated 25 February 2005, agreement was reached on 15 March 2005, subject to shareholder approval and certain other conditions precedent, for Inyanga Trading 199 (Pty) Ltd (`Inyanga`) to acquire a holding of 26% in Sequence Oil & Gas (Pty) Ltd (`Sequence`) a 100% owned subsidiary of Exxoteq, for a consideration of R14.8 million and to follow a rights issue in Sequence for a further R5.2 million. Exxoteq will use the proceeds to follow their rights in respect of their residual holding of 74% of Sequence. Agreement has also been reached for Inyanga, which is to be controlled by a consortium of investors led by Mr Max Makhabulo and is Black Economically Empowered, to subscribe for 45 000 000 new ordinary shares in the capital of the company for a consideration of R15 million and to be granted a call option against the company in respect of 24 million shares in the company at a price of 50 US cents per share (`the call option`). Terms, conditions precedent and financial effects Inyanga: - has undertaken to purchase 26% of the issued share capital of Sequence for a cash consideration of R14.8 million which will be paid within 24 days of the fulfilment of the last condition precedent, a guarantee having been furnished within 30 days of the signature date. Inyanga has also undertaken to follow a rights issue in Sequence to raise R20 million in Sequence thereby retaining their 26% holding. This transaction is subject to a shareholders` agreement being entered into. - will subscribe for 45 million new ordinary shares in the capital of Exxoteq (`the shares`) for a cash consideration of R15 million to be paid in cash against the issue of the shares, which can only occur once the last condition precedent has been fulfilled. The last condition precedent is expected to be shareholder approval in general meeting. Of the R15 million, R5 million will be lent to the company interest free until the issue of the shares, whereupon the loan will constitute part of the purchase price of the shares. This agreement is subject to the resumption of trade in the company`s shares on the JSE. - has been granted an option to subscribe for 24 000 000 new ordinary shares in the company at a price of 50 US cents per share for a period until 180 days after the completion date, which in turn is 3 days after the fulfilment of the last condition precedent. (`the transactions`). The transactions constitute specific issues of shares for cash and are subject to shareholder approval in general meeting. Irrevocable undertakings to vote in favour of the resolution or resolutions necessary to give effect to the transactions have been agreed by shareholders holding in excess of 50% of the company`s currently issued share capital. The transactions are also subject to the necessary regulatory body approval. Inyanga is a local Black Economically Empowered investment company. The financial effects of the transactions will be published on SENS and in the press once they are available. Rationale The new management of Exxoteq is keen that the suspension in trade in the company`s shares on the JSE Securities Exchange South Africa (`JSE`) should be lifted so that shareholders can again trade in their shares in the company. Before this can happen, the company`s auditors, PKF (Newlands) Inc (`PKF`) need to remove the going concern qualification of the company`s accounts. The successful injection of R5 million into the group, the provision of a guarantee in respect to the further R30 million and the signing of irrevocable undertakings by enough shareholders to ensure the approval of the resolutions necessary to give effect to the transactions should satisfy PKF that the company is a going concern and thus allow them to lift the qualification as the company will be able to afford to develop the Algoa Basin oil field as well as have working capital for day-to-day expenses. The price to be paid for the 26% shareholding in Sequence effectively capitalises Sequence at R76.9 million after the rights issue to raise R20 million, which is a 53% premium over the R50 million at which it was bought by the company. Although this is well below the R418 million at which it was valued at the time of listing (which valuation used a significantly weaker rand exchange rate assumption than seems reasonable now) the directors are of the opinion that the sale price is fair and reasonable as the value of Sequence without the cash to develop a production well is significantly below its `going concern` value. The company will immediately proceed with the development of the Algoa project. The issue of 45 million shares at a price of 33.3 cents per share compares with the pre-suspension trading price of 20 cents and will provide the company with working capital both for day-to-day operations and to fund the investigation and pursuit of other opportunities that are available to the company. The grant of the call option enables Inyanga to further participate in the company should certain of the opportunities that are currently available be turned to account. Circular and resumption of trade in the company`s shares A circular, which is subject to the approval of the JSE, containing full information on the transactions is in the course of preparation and will be sent to shareholders in due course. Application will be made to the JSE for the suspension of trade in the company`s shares on the JSE to be lifted once the company`s accounts are no longer qualified and the JSE has been satisfied regarding the company`s working capital position. Further cautionary Shareholders are advised that further discussions are in progress, which may have a material effect on the financial position of the company. Although trading in the shares of Exxoteq on the JSE Securities Exchange South Africa is suspended at present, the company feels that it is important that shareholders are kept abreast of developments and advises that they exercise caution should they be considering dealing in their shares off market. Cape Town 17 March 2005 Sponsor LPC Manhattan Sponsors (Pty) Ltd Date: 17/03/2005 05:24:16 PM Produced by the JSE SENS Department
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