Silverstar, Redcliffe see market turmoil taking toll on issuers; Capital Pacific raises $1.8 million

By Kenneth Lim

Boston, March 20 - The uneven markets have been taking a hit on issuers, say executives at two companies that recently raised funds.

Silverstar Holdings Ltd. issued $7.5 million of 9% convertible secured debentures in a private placement at terms that were cheaper for investors than originally planned, its chief executive said.

Meanwhile, Redcliffe Exploration Inc. said it also had to sell C$8 million of stock cheaper than desired amid tough market conditions.

Silverstar raises $7.5 million

Silverstar Holdings said it issued $7.5 million of 9% convertible secured debentures due March 19, 2012 in a major fundraising exercise.

"We have a market cap of $30 million, you can draw your own conclusion about how significant it is," president and chief executive Clive Kabatznik told Prospect News.

The debentures are convertible into common shares at $1.20 per share. The notes have a mandatory conversion provision at $2.40 per share, or double the conversion price. Investors also received warrants for approximately 3,125,000 common shares, which are exercisable at $1.50 for five years.

Silverstar common stock (Nasdaq: SSTR) closed at $1.20 on Thursday, up by $0.11, or 10.09%.

Silverstar, a Boca Raton, Fla.-based publisher and developer of interactive entertainment software, said it will use approximately $3.9 million of the proceeds to complete the final earn-out payment for the company's planned acquisition of an Empire Interactive subsidiary.

"Completed at a premium to the market, this investment recognizes our success and expresses a vote of confidence in our potential," Kabatznik said in a press release. "This financing will help us expand and accelerate our award-winning product pipeline, and improve our position as one of the few remaining independent middle market interactive entertainment companies that are publicly traded in the U.S."

Speaking to Prospect News, Kabatznik said the Empire Interactive payment was due at the end of April, and Silverstar was essentially switching a short-term debt with a longer-term financing.

While he was pleased that the convertibles priced with an initial conversion premium, he said the premium amount was not as large as originally planned.

"What I'm saying is that the deal terms that were agreed upon were different from what was eventually priced," he said. "I'm pleased that we got a deal done in this marketplace. I'm pleased that we got a deal done at a premium. We have the ability to buy these back, theoretically, so I can theoretically mitigate the dilution later on."

Kabatznik said the deal took a hit from what has been happening in the market.

"The markets haven't been kind," he said. "So obviously with what's going on at Bear Stearns and so on, the deterioration of the market in the last two weeks, pricing deteriorated in that time. First of all, our stock price declined fairly dramatically the last two weeks because of the markets. Between then and closing, the markets deteriorated, and so the terms had to change."

He said the money should last the company "for a while."

Redcliffe satisfied with deal

Redcliffe Exploration said it is selling C$8 million worth of stock in a private placement.

The deal involves 8.33 million class A shares on a bought-deal basis priced a C$0.60 for C$5 million and 4.17 million flow-through class A shares on a best-effort basis at C$0.72 per share for C$3 million.

Northern Securities Inc. is leading the underwriters, which include GMP Securities LP and Raymond James Ltd.

There is an over-allotment option for a further C$1.25 million worth of class A shares and a further C$750,000 worth of flow-through shares.

Redcliffe class A shares (TSX: RXP.A) closed at C$0.57 on Thursday, lower by 5%, or C$0.03.

Redcliffe, a Calgary, Alta.-based oil and natural gas company, said it will use the proceeds for drilling and for general purposes.

Redcliffe chief financial officer George Gramatke said the company is focusing on "developing what we already have" in 2008, and the new capital is a significant injection for the company's plans.

"It's a reasonably important deal," Gramatke said. "This capital together with our cash flow and bank line for 2008 will fund us for our operating needs for this year. In the absence of an event, yes, it will take us through the end of the year. I have us exiting the year with a very reasonable and low debt-to-cash flow ratio."

Gramatke said the company chose to raise capital through equity to avoid overloading on debt.

"We don't want to run our debt too high," he said. "The market will penalize you for having too much debt."

While he was "satisfied with the pricing under current market conditions," he said the current market was poor.

"We do think that our stock is worth more than that," he said.

Capital raising under such conditions can be tough for an oil and gas exploration company, he added.

"We drilled an oil well here recently," he said. "This is the type of oil well that geologists will see once in a lifetime. A beautiful, beautiful well, and we own 72% of it ... and the stock moves a nickel. It's just not a particularly good market."

"If you're a junior oil and gas and if you're Alberta-focused, the market just isn't there," he said. "But it's coming back. We couldn't have done this deal two months ago. There are companies out there that have great stories but just can't get the prices. But it's coming back."

Capital Pacific raises $1.8 million

Capital Pacific Bancorp said it sold $1.8 million of common shares in a private placement to institutions and insiders.

The deal comprises common shares at $9.50 apiece. Each share comes with a detachable quarter-share warrant. One whole warrant is exercisable at $10.50.

Capital Pacific common stock (OTCBB: CPBO) gained 3.12%, or $0.25, to close at $8.25 on Thursday.

Portland, Ore.-based Capital Pacific did not say how it will use the proceeds of the sale.

"We're pleased to have closed this private placement with a group of experienced bank investors," Capital Pacific chief executive Mark Stevenson said in a statement. "We're committed to being the best business bank in Portland, and this new capital positions us well for future growth. Our focus remains on increasing deposits and building our business with local businesses, including non-profit organizations, professional firms and property management companies."

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