Artumas posts terms of new convertibles being offered to bondholders

By Angela McDaniels

Tacoma, Wash., June 24 - Artumas Group Inc. released the term sheet for its $8 million of new senior secured convertible bonds, which are being offered to the holders of its $10 million of 10.5% callable convertibles due 2009, $35 million of 10% callable convertibles due 2010 and $70 million of 6% senior unsecured convertibles due 2012.

The bondholders are scheduled to meet June 25 to vote on a proposal to convert all of the existing bonds into shares.

The company is also asking bondholders to waive their rights to declare defaults and to accelerate the debt due to non-compliance with some covenants in the period up to July 2.

Convertibles terms

The new convertibles will carry a coupon of 15% and have a tenor of one year.

The bonds will be convertible into Artumas' Oslo-listed common stock. The conversion price is NOK 0.0375 per share.

The minimum subscription amount for the new convertibles is $100,000. Any convertibles that are not taken up by the bondholders will be offered by the company to some of its "substantial" shareholders.

The convertibles will be divided into two tranches. Tranche A will include $2.4 million principal amount, and tranche B will include $5.6 million principal amount.

Holders of tranche A convertibles will be able to put their bonds back to the company at 105% of par within 30 days of the earlier of (a) the receipt of at least $40 million of net proceeds from any material transaction entered into by the company and (b) Aug. 3.

After the 105% put option has expired, holders of both tranche A and tranche B convertibles will have the option to put their bonds back to the company at 135% of par until Nov. 30.

Subscriptions will be sought for the $8 million total amount. Tranche A will be allotted on a pro rata basis based on the subscriptions received for the total amount and will close on June 25.

If the company closes a material transaction by Aug. 3, the tranche B bonds will be issued to the subscribing bondholders and the balance of the total amount will be paid to the company on Aug. 15.

If a material transaction does not close by Aug. 3, holders will have until Aug. 15 to notify the company whether they wish to take up their portion of the tranche B bonds and whether they wish to take up any tranche B bonds that have not yet been subscribed for.

The term sheet was originally scheduled to be posted June 17. The company said the release of the terms was delayed because the term sheet was still being reviewed.

Proposal terms

The meeting of bondholders was delayed from June 15 and, before that, May 29 to allow more time for discussions with the bondholders and their representatives.

After receiving counterproposals from bondholders, Artumas' original proposal was changed to reduce the conversion price, giving holders a greater stake in the company, and to include the $8 million issue of convertibles in order to provide new capital.

Artumas said that the steering committee of the ad hoc group of bondholders provided a letter of intention, along with some bondholders, to commit funds to underwrite up to $5.5 million of the new convertibles.

In exchange for the existing bonds and accrued interest, 3,018,762,988 new shares will be issued, making up 98.8% of the company's share capital. Before the lowering of the conversion price, 752,664,417 new shares were to be issued.

Existing shareholders hold 35,816,987 shares.

If all bonds are converted, holders of the 10.5% bonds will hold 269,538,390 shares, holders of the 10% bonds will have 943,708,578 shares and holders of the 6% bonds will have 1,805,516,020 new shares, making up 8.8%, 30.9% and 59.1%, respectively, of Artumas' then-outstanding shares.

The company previously said that in order to secure its funding requirements, it would be inviting some existing shareholders, bondholders and new investors to participate in a $20 million to $30 million private placement of shares. The shares would be sold for at least NOK 0.25 apiece.

After the placement, Artumas would consider a subsequent offering of up to $10 million to shareholders who were not invited to participate in the private placement under the original proposal.

The proposed conversion is subject to the private placement for at least $20 million of shares as well as shareholder approval at a June 29 meeting.

The company said that it intends to settle shares from the conversion and placement around July 2.

Artumas believes that the proposed transactions are in the best interest of all stakeholders because they would give the company a clean balance sheet and could ensure that it avoids having to obtain creditor protection.

Calgary, Alta.-based Artumas is an electricity producer targeting rural regions in Africa.

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