THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or as to what action you should take, you are recommended to consult an appropriately qualified independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are taking advice in the United Kingdom or, if you are taking advice in another jurisdiction, from another appropriately authorised independent financial adviser. If you have sold or transferred all of your ordinary shares of 0.001 each in the capital of Mercom Oil Sands Plc ( Company ) ( Ordinary Shares ), please send this document, including the notice of meeting and Form of Proxy as soon as possible to the purchaser or transferee or to the stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. (Incorporated in England and Wales with registered number 7951073) ADOPTION OF AN INVESTING POLICY RENEWAL OF GENERAL AUTHORITY TO ISSUE SHARES, DISAPPLICATION OF PRE-EMPTION RIGHTS AND PROPOSED SHARE CAPITAL REORGANISATION NOTICE OF GENERAL MEETING Your attention is drawn to the recommendation of the board of directors of the Company which is set out in this document and which recommends that you vote in favour of the Resolutions set out in the notice of General Meeting referred to below. The distribution of this document in certain jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Notice of a General Meeting of the Company, to be held at the offices of Bird & Bird LLP, 90 Fetter Lane, London EC4A 1EQ at 2.00 p.m. on 24 May 2013 ( GM ), is set out at the end of this document. To be valid, the accompanying Form of Proxy for use in connection with the GM should be completed, signed and returned as soon as possible and, in any event, so as to reach the Company s registrars, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY by not later than 2.00 p.m. on 22 May 2013. Completion and return of a Form of Proxy will not preclude members of the Company from attending and voting at the GM should they so wish.
DIRECTORS, SECRETARY AND ADVISERS Directors Company Secretary Registered Office Nominated adviser and Joint Broker Joint Broker Registrars* Solicitors Auditors Dr Patrick Cross (Non-Executive Chairman) John Zorbas (Chief Executive Officer) Kyle Appleby (Finance Director) Albert Edmond Taubi (Non-Executive Director) UK Company Secretaries Limited 11 Church Road Great Bookham Surrey KT23 3PB Libertas Capital Corporate Finance Limited 17c Curzon Street London W1J 5HU Beaufort International Associates Limited 49 Whitehall London SW1A 2BX Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY Bird & Bird LLP 15 Fetter Lane London EC4A 1JP Kingston Smith LLP Devonshire House 60 Goswell Road London EC1M 7AD 2
CONTENTS Page DIRECTORS, SECRETARY AND ADVISERS 2 CONTENTS 3 EXPECTED TIMETABLE OF PRINCIPAL EVENTS 3 PART 1 LETTER FROM THE CHAIRMAN 4 DEFINITIONS 9 PART 2 NOTICE OF GENERAL MEETING 11 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Date of this document 8 May 2013 Latest time and date for receipt of completed Forms of Proxy 2.00 p.m. on 22 May 2013 General Meeting 2.00 p.m. on 24 May 2013 Notes: References to time in this document are to London time 3
PART l LETTER FROM THE CHAIRMAN MERCOM OIL SANDS PLC 11 Church Road Great Bookham Surrey KT23 3PB (Incorporated in England and Wales with registered number 7951073) Directors Dr Patrick Cross (Non-Executive Chairman) John Zorbas (Chief Executive Officer) Kyle Appleby (Finance Director) Albert Edmond Taubi (Non-Executive Director) 8 May 2013 To: all holders of Ordinary Shares and, for information only, to the holders of warrants over Ordinary Shares. Dear Sir or Madam Adoption of an Investing Policy, renewal of general authority to issue shares, disapplication of pre-emption rights and proposed share capital reorganisation Notice of General Meeting 1. Introduction Mercom was admitted to AIM on 29 May 2012, having previously entered into the Farm-in Agreement. The Farm-in Agreement related to the acquisition of a 50 per cent. interest in the Chard Oil Sands Leases in Canada and at that time, other than cash, this contract represented the principal asset of the Company. Full details of the Farm-in Agreement and the oil sands leases are set out in the Admission Document copies of which are available on the Company s web site at www.mercomoil.com Subsequent to the admission of the Company to AIM, and as discussed below, your Board took the decision not to implement the Farm-in Agreement and as a consequence the Company did not proceed to comply with the conditions precedent under the Farm-in Agreement, but instead, sought to renegotiate that agreement on alternative basis. The Company s proposals in this regard have however been rejected by the board of Nordic Petroleum which has declared the Company to be in breach of its contractual obligations. This matter has yet to be resolved and accordingly it is therefore difficult to properly assess the long term strategic options available to the Company as discussed below. In the medium term the Company has approximately 2.0 million in cash and assets (as at 31 March 2013) and few liabilities beyond any potential claim from Nordic Petroleum. Accordingly, the Directors have concluded that the Company should seek the approval of Shareholders for the adoption of an investment strategy to enable the Company to maximise the return from its liquid resources. The purpose of this document is to provide you with information on the proposed new strategy and the Investing Policy as well as to seek a renewal of the general authority granted to the Board to issue shares on a non pre-emptive basis and to seek authority for the Board to effect a reorganisation of the Company's share capital. It also explains why the Board considers these proposals to be in the best interests of the Company and its Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their own interests, which represent 5.1 per cent. of the issued share capital of the Company. 4
2. The Chard Assets The Company was admitted to AIM fully intending to proceed with the implementation of the Farm-in Agreement. On 19 June 2012 John Zorbas joined the Board as Joint Chief Executive and shortly thereafter Kim Berknov, the Company s the other Joint Chief Executive resigned his post and subsequently resigned from the Board altogether. John Zorbas joined the Board with a strong background of transactions in the Canadian market and it was believed that his additional contribution would allow Kim Berknov greater flexibility in his role and time to pursue other personal interests. The Board did not expect him to stand down from his position as Joint Chief Executive and resign from the Board, but the Directors were unable to persuade him to remain in place. Following his appointment John Zorbas advised the Board that he was initiating a review of the Farm-in Agreement, which he believed could potentially be financed by an alternative structure utilising Canadian tax incentives. As a result of the proposed timetable of this review, it became impractical to implement the terms of the Farm-in Agreement within the time scale of the contract and accordingly it was agreed with Nordic Petroleum that certain of the contractual deadlines would be extended from 31 July 2012 until 31 October 2012. However no conclusion was reached under the review within this additional timescale and despite intense negotiations, during early November 2012, no further extension was agreed with Nordic Petroleum. On 12 November 2012, Nordic Petroleum declared Mercom to be in breach of the Farm-in Agreement and subsequently has sought to implement the arbitration procedure set out in that contract. 3. Separate Shareholder Intervention On 22 November 2012, the Company announced that it was aware of a statement by Mauricio Trevino Zambrano, a minority Shareholder, that he has formed a company, NAC, to make a bid for Nordic Petroleum. Mercom has agreed to enter into discussions with NAC should it be successful but Mercom has no further information at this time regarding the outcome of NAC s approach. 4. Revised strategy At 31 March 2013 the Company had cash and assets of approximately 2.0 million and excluding any liability under the Farm-in Agreement net liabilities of approximately 0.1 million. The Company is in the course of taking legal advice on how best to respond to Nordic Petroleum and is currently unable to quantify the liabilities that are likely to arise on any settlement of the claims under the Farm-in Agreement. The Directors have looked at possible alternative long term investments to the Chard Oil Sands Leases, but until a reasonable estimate can be made of any likely settlement with Nordic it is difficult to assess the extent to which the Company s cash resources are to fund such opportunities. It may alternatively be possible to find some form of revised agreement with Nordic Petroleum and this may in part depend on the outcome of any bid approach made by NAC for Nordic Petroleum. Until these matters are resolved the Directors are aware that the potential return on the Company s cash is severely limited while bank deposit rates remain low. Accordingly the Directors propose to implement the investment policy outlined below, with a view to obtaining a better return on the Company s cash assets, than is currently being realised. 5. Investing Policy The Board believes that there are a range of investment opportunities available which offer significant value for experienced investors. The Directors intend to focus on seeking investments in good quality mid-tier companies that still offer upside, but which also offer safety and demonstrable track records, although the search for more speculative investments with a greater upside will also continue. 5
The Directors have a broad range of business experience which is not just limited to the oil and gas sector and intend to look at investment opportunities in sectors in which they have relevant experience to assess the opportunity. Whilst oil and gas will be one of the focuses the Directors will not limit themselves to considering opportunities in this sector and will look more broadly at opportunities in the natural resources and energy sectors. To provide the Directors with the flexibility to do so it is proposed that the Investing Policy is broadly drawn. The Company s proposed Investing Policy is; To invest in sectors in which the Board has sufficient experience to assess the relevant investment opportunity including but not limited to the natural resources and energy sectors, with a focus on oil and gas. Investments may be made in quoted shares, units in open ended investment companies and exchange traded funds, commodities, future contracts, or any type of financial instrument that the Board deems to be beneficial to increasing shareholder value. It intends to buy shares and/or financial instruments which it considers to be fundamentally undervalued and offer scope for material returns for Shareholders within 5 years. It is not intended that investments will be for stakes of greater than 20 per cent. in the investee company or fund. It is not intended for there to be cross holdings in respect of investments. However, this will not be considered as a restriction in the Company s investing policy, as the Company might find an opportunity which requires it to take a stake of more than 20 per cent. which is beneficial to the Company. The threshold of 20 per cent. can be surpassed as long as there is a unanimous Board approval accompanied by an independent valuation prepared by a professional or organisation in support of the acquisition price. There will be no geographic, or company specific concentration restrictions or limit on the number of investments made. Whilst the Directors intend to take into account funds available for investment when assessing the amount of any investment and the spread of investments. It is not proposed that there be any maximum investment limit. Investment will be long only (and the Company does not intend to trade in investments). It is proposed that investments will be ungeared. The Company will publish a quarterly update on its NAV. It is not intended to appoint an investment manager to manage the investments. 6. Renewal of authority to allot shares,disapplication of pre-emption rights, proposed share capital reorganisation and adoption of amended articles of association The Directors were granted authority to allot shares in the Company or grant rights to subscribe for or convert securities into shares in the Company up to an aggregate nominal amount of 400,000 (being 400,000,000 Ordinary Shares) pursuant to a resolution passed on 23 March 2012. Pre-emption rights under the Act were also disapplied in respect of any issuance pursuant to such authority. This power and authority expires at the end of the Company s next annual general meeting or 30 June 2013, if earlier. It has only partially been utilized for the issue of shares at the time the Company was admitted to AIM and the issue of 16,410,256 Ordinary Shares to settle certain outstanding consultancy fees. The Directors are seeking a renewal of this power and authority to provide them with flexibility to issue securities without the need to have recourse to Shareholders. Resolution 2, which is an ordinary resolution, authorises the Directors to allot unissued shares (or any other instrument which is convertible into, or represents rights over, Ordinary Shares including, but not limited to, options and/or warrants), up to an aggregate nominal value of 400,000. This authority, if granted, will expire on the conclusion of the next Annual General Meeting and will be subject to renewal at such meeting. If shares are to be allotted using the authority under Resolution 2, and are to be paid for in cash, Section 561(1) of the Act requires that those equity securities are offered first to existing Shareholders in proportion to the number of Ordinary Shares they each hold at that time. An offer of this type is 6
called a rights issue and the entitlement to be offered the shares first is known as a pre-emption right. The Directors believe it is in the interests of the Company for the Directors to be able to allot shares for cash other than by way of a rights issue. Resolution 3, which is a special resolution, asks Shareholders to waive their pre-emption rights in respect of the issue of securities pursuant to the authority proposed under Resolution 2. This authority will expire at the conclusion of the next Annual General Meeting unless revoked sooner. The Directors are seeking the flexibility to be able to reorganise the Company's share capital on a future date, subject to and conditional upon approval from the Board. It is therefore proposed to seek Shareholder approval, pursuant to Resolution 4 (special resolution), to give the Board the power to effect a reorganisation (the Reorganisation ) by: (a) consolidating each 50 Ordinary Shares in the capital of the Company into one ordinary share of 0.05 ( New Ordinary Share ) (the Consolidation ) and; (b) following the Consolidation, sub-dividing each New Ordinary Share in the capital of the Company into 1 Ordinary Share of 0.001 and 1 deferred share of 0.049 (the Deferred Shares ) each in the capital of the Company (the Sub-Division ). In the event that the Reorganisation is implemented it will result in each of the Company's ordinary Shareholders holding approximately 50 times fewer Ordinary Shares. In the event that the number of Ordinary Shares attributed to a Shareholder prior to the Consolidation is not exactly divisible by 50, the Consolidation will generate an entitlement to a fraction of a New Ordinary Share. Any fractional entitlements arising on the Consolidation will be consolidated and sold in the market for the best price reasonably obtainable, on behalf of the Shareholders entitled to the fractions. If the net proceeds of sale are three pounds ( 3.00) or more per any entitled Shareholder, then such proceeds of sale will be paid to the relevant shareholder. If such net proceeds amount to less than three pounds ( 3.00) for any entitled shareholder, they will be retained by the Company in accordance with its articles of association. The value of any Shareholder's fractional entitlement will not exceed the value of one New Ordinary Share. In the event that the Reorganisation is implemented, the Company will adopt new articles of association which will include rights attaching to the Deferred Shares, likely to be minimal and thereby rendering them effectively valueless. The rights which will attach to the Deferred Shares (created pursuant to the Reorganisation) can be summarised as follows: they will not entitle holders to receive any dividend or other distribution or to receive notice or, speak or vote at general meetings of the Company; on a return of assets on a winding up, they will only entitle the holder to the amounts paid up on such shares after the repayment of the capital paid up on the Ordinary Shares and the payment of 100 million per Ordinary Share; they will note be freely transferable; the creation and issue of further shares which rank equally or in priority to the Deferred Shares or the passing of a resolution of the Company to cancel the Deferred Shares or to effect a reduction of capital will not constitute a modification or abrogation of their rights; and the Company will have the right at any time to purchase all of the Deferred Shares for an aggregate consideration of not more than 1.00. No application will be made for the Deferred Shares to be admitted to trading on AIM or any other stock exchange. No share certificates will be issued for any of the Deferred Shares. 7. General Meeting A notice of GM is set out at the end of this document convening the GM to be held at the offices of Bird & Bird LLP, 90 Fetter Lane, London EC4A 1EQ at 2.00 p.m. on 24 May 2013 at which the following Resolutions will be proposed: Resolution 1: to approve by ordinary resolution the adoption of the Investing Policy. Resolution 2: to approve by ordinary resolution the grant of authority to the Directors to allot and issue equity securities. 7
Resolution 3: to approve by special resolution the dis-application of pre-emption rights under the Act in respect of the issue of equity securities pursuant to the authority sought under Resolution 2. Resolution 4: to approve by special resolution the proposed future reorganisation of the Company's share capital, subject to and conditional upon Board approval, by: (a) consolidating each 50 Ordinary Shares in the capital of the Company into one New Ordinary Share of 0.05; (b) following this consolidation, the subdivision of the Company's New Ordinary Shares into 1 Ordinary Share of 0.001 and 1 Deferred Share of 0.049 each in the capital of the Company (the rights attaching to such Deferred Shares to be contained in new articles of association); and (c) subject to the reorganisation having occurred, the adoption by the Company of the draft articles of association produced at the meeting to be adopted by the Company in substitution for, and to the exclusion of, the Company's articles of association in existence at the time of the reorganisation. 8. Action to be taken A Form of Proxy is enclosed for use in connection with the GM. Whether or not you intend to be present at the meeting, you are requested to complete, sign and return the Form of Proxy to the Company s registrar, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY as soon as possible and in any event so as to arrive not later than 2.00 p.m. on 22 May 2013. The completion and return of a Form of Proxy will not preclude you from attending the meeting and voting in person should you subsequently wish to do so. 9. Recommendation The Board considers the Resolutions to be in the best interests of the Company and its Shareholders as a whole and recommend that Shareholders vote in favour of the Resolutions as they do in respect of their own holdings, representing 5.1 per cent. of the issued share capital of the Company. Yours faithfully Patrick Cross Chairman 8
DEFINITIONS The following definitions apply throughout this document, unless the context requires otherwise: Act AIM AIM Rules for Companies Board or Directors Business Days Companies Act 2006, as amended the AIM market of the London Stock Exchange the rules for AIM companies issued by the London Stock Exchange (as amended from time to time) the directors of the Company, whose names are set out on page 2 of this document a day (other than a Saturday, Sunday or public holiday) on which the banks in the City of London are open for normal banking business the Chard Oil Sand Leases the Alberta Crown Oil Sand Leases 7406090383, 7406090384, or the Leases 7406090385 and 7406070400 CREST the computerised settlement system (as defined in the CREST Regulations) in the UK operated by Euroclear which facilitates the transfer of title to shares in uncertificated form (as defined in the CREST Regulations) CREST Regulations the Uncertificated Securities Regulations 2001 Euroclear the Farm-in Agreement Form of Proxy General Meeting or GM Group Investing Policy London Stock Exchange Mercom or the Company NAC Nordic Petroleum Ordinary Shares Euroclear UK & Ireland Limited the agreement dated 15 February 2012 between Norwegian Oil Sands Corp, a subsidiary of Nordic Petroleum and Mercom as amended by an amending agreement dated effective 14 March 2012 the form of proxy which is enclosed with this document for use by Shareholders in connection with the General Meeting the general meeting of the Company to be held at 2.00 p.m. on 24 May 2013, notice of which is attached to this document the Company and its subsidiaries from time to time the Investing Policy to be adopted by the Company as set out in this document, subject to the passing of the relevant resolution at the GM London Stock Exchange plc Mercom Oil Sands Plc, a company Incorporated in England and Wales with registered number 7951073 Nordic Acquisition Company Limited, a company incorporated in England and Wales with registered number 08295640, formed for the purpose of making a bid for Nordic Petroleum Nordic Petroleum ASA, a company incorporated in Norway ordinary shares of 0.001 each in the capital of the Company 9
Resolutions RNS Shareholders Sterling or UK the resolutions to be proposed at the GM the regulatory news service operated by the London Stock Exchange the holders of Ordinary Shares of the Company the legal currency of the UK the United Kingdom of Great Britain and Northern Ireland 10
PART 2 NOTICE OF GENERAL MEETING MERCOM OIL SANDS PLC (incorporated in England and Wales with registered number 7951073) ( Company ) Notice is given that a general meeting of the members of the Company will be held at the offices of Bird & Bird LLP, 90 Fetter Lane, London EC4A 1EQ at 2.00 p.m. on 24 May 2013 for the purposes of considering and, if thought fit, passing the following resolutions: 1. Ordinary resolutions That the proposal to change the Company s investing policy to that set out in the circular to Shareholders dated 8 May 2013 be approved and that the directors of the Company (the "Directors") be authorised to take all such steps as any of them may consider necessary or desirable to implement the investing policy. 2. That in substitution for all authorities in existence immediately prior to this resolution being passed, the Directors be and are hereby generally and unconditionally authorised to exercise all powers of the Company, pursuant to Section 551 of the Companies Act 2006 (the Act ), to allot equity securities (within the meaning of Section 560 of the Act) up to an aggregate nominal amount of 400,000 (provided that if the reorganisation described in resolution 4 below has been effected the nominal value of equity securities which the Directors may allot pursuant to any residual authority will be reduced by a multiple of 50) provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. Special resolutions 3. That subject to the passing of resolution 2 above, the Directors be empowered in accordance with Section 570 and Section 571 of the Act to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred on them pursuant to resolution 2 above (provided that if the reorganisation described in resolution 4 below has been effected the nominal value of equity securities which the Directors may allot pursuant to any residual authority will be reduced by a multiple of 50) as if Section 561(1) of the Act did not apply to any such allotment provided that this power shall be limited to the allotment of equity securities up to an aggregate nominal amount of 400,000 provided that this power shall expire at the conclusion of the next Annual General Meeting of the Company save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. 4. That the Directors be authorised to implement on a future date, subject to approval by the Board, the reorganisation of the Company's share capital as follows: (a) the consolidation of the Company's share capital so that every 50 Ordinary Shares of 0.001 in the issued share capital of the Company be consolidated into one ordinary share of 0.05 (the New Ordinary Shares )(such shares having the same rights and being subject to the same restrictions (save as to nominal value) as the existing Ordinary Shares), provided that where such consolidation would result in any member being entitled to a fraction of a New Ordinary Share, such fraction shall, so far as possible, be aggregated with the fractions of a New Ordinary Share (if any) to which other members of the Company would be similarly so entitled and the Directors be authorised to sell (or appoint any other person to sell) to any 11
person all the New Ordinary Shares representing such fractions at the best price reasonably obtainable to any person(s), and to distribute the proceeds of sale (net of expenses) in due proportion among the relevant members who would otherwise be entitled to the fractions so sold, save that (i) any fraction of a penny which would otherwise be payable shall be rounded up or down in accordance with usual practice of the registrar of the Company; and (ii) any due proportion of such proceeds less than 3.00 (net of expenses) shall be retained by the Directors for the benefit of the Company and the relevant member shall not be entitled thereto (and, for the purposes of implementing the provision of this resolution any Director (or any person appointed by the Directors) shall be authorised to execute one or more instrument(s) of transfer in respect of such New Ordinary Shares on behalf of the relevant member(s) and to do all such acts and things the Directors consider necessary or desirable to effect the transfer of such New Ordinary Shares to, or in accordance with the directions of, any buyer of such New Ordinary Shares); (b) (c) following the consolidation described at (a), the subdivision of each New Ordinary Share into one Ordinary Share of 0.001 and one deferred share of 0.049 ( Deferred Share ), such shares having the rights and being subject to the restrictions set out in the new articles of association of the Company, to be adopted by the Company pursuant to part (c) of this resolution; and subject to such reorganisation described at (a) and (b) having been implemented, the draft new articles of association produced to the meeting be adopted as the articles of association of the Company in substitution for, and to the exclusion of, the Company's articles of association in existence at the time of the reorganisation. By order of the Board: UK Company Secretaries Limited Company Secretary Registered office: 11 Church Road, Great Bookham, Surrey, KT23 3PB Date: 8 May 2013 Notes: 1. A member entitled to attend and vote at the above meeting may appoint one or more proxies to attend and, on a poll, vote in his place. A proxy need not be a member of the company. 2. To be effective, a completed and signed proxy (and any power of attorney or other authority under which it is signed) must be delivered to the Company s registrars, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY by no later than 48 hours (excluding weekends) before the time fixed for the meeting or any adjourned meeting. You may also deliver by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY during normal business hours. 3. Completion of a Form of Proxy will not prevent a member from attending and voting in person. 4. Members will be entitled to attend and vote at the meeting if they are registered on the Company s register of members 48 hours before the time appointed for the meeting or any adjourned meeting. 5. In the case of joint holders of shares in the company, the vote of the senior holder shall be accepted to the exclusion of the votes of the other joint holder(s). For this purpose, seniority will be determined by the order in which the names appear in the company s register of Shareholders (or the company s registrars records). 12 Perivan Financial Print 228601