Underground Energy announces initial closing of non-brokered financing of secured convertible debentures

NOT FOR DISSEMINATION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

SANTA BARBARA, CA, Oct. 5, 2012 /CNW/ - Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE, OTCQX: UGGYF) today announced that it continues to advance its non-brokered private placement offering (the "Offering") of up to US$6,000,000 secured convertible debentures ("Debentures") of Underground previously announced on September 20, 2012.  As part of this process, it has now completed an initial management and directors close of US$621,000 and the final close of the Offering is now expected to occur on or around October 30, 2012.

Terms of Financing

Each Debenture matures on April 4, 2014 (the "Maturity Date"), subject to extension, at the option of Underground, for a term of an additional six months following the Maturity Date. The security granted by Underground on the Debentures consists of a first floating charge on all of the assets of Underground and its subsidiary. The Debentures bear interest at a rate of 15% per annum, payable quarterly in arrears from the date of closing of the Offering and may be paid in cash or shares of Underground, with any shares issued as payment for interest being valued at the closing price of the shares on the TSX Venture Exchange for the day immediately preceding the interest due date, subject in all cases to applicable law and the rules of the TSX Venture Exchange.

Each Debenture is convertible into shares of Underground at the option of the holders at any time prior to the Debenture being repaid at a conversion price of 10 cents per share. The Debentures in this initial close can be converted into an aggregate of 6,210,000 common shares of UGE.

In addition, investors have received five share purchase warrants ("Warrants") for each dollar of Debenture subscribed for (3,105,000 warrants in this initial close) with each Warrant being exercisable into one share of UGE at an exercise of 10 cents per share. These Warrants will be exercisable until all the Debentures have been repaid. At the option of Underground, the Debentures may be prepaid prior to the Maturity Date provided that at least 12 months of interest has been paid to the holders of Debentures. The Debentures and Warrants will be subject to a four month hold period from the date of issuance.

Cautionary Statements

Statements in this press release contain forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking information").  Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur.  In particular, forward-looking information in this press release includes, without limitation, statements with respect to a subsequent closing date of the Offering.

Although we believe that the expectations and assumptions reflected in the forward-looking information are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. In particular, assumptions have been made that: (i) Underground will obtain all required regulatory approvals for the Offering; and (ii) that additional subscribers will participate in the Offering.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and is subject to a variety of risks and uncertainties and other factors (many of which are beyond the control of Underground) that could cause actual events or results to differ materially from those anticipated in the forward-looking information.  Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking information include, but are not limited to: operational risks in exploration, development and production; delays or changes in plans; competition for and/or inability to retain drilling rigs and other services; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; risks associated to the uncertainty of reserve and resource estimates; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing  problems and other difficulties in producing reserves; the uncertainty of estimates and projections of production, costs and expenses; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; incorrect assessments of the value of acquisitions; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and  natural gas; liabilities inherent in oil and natural gas operations; access to capital; and other factors.  Readers are cautioned that this list of risk factors should not be construed as exhaustive. 

The forward-looking information contained in this news release is expressly qualified by this cautionary statement.  Underground does not undertake any obligation to update or revise any forward-looking statements to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.  Readers are cautioned not to place undue reliance on forward-looking information.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This press release is not an offer of securities for sale in the United States. The securities being offered have not been and will not be registered under the United States Securities Act of 1933, as amended, and accordingly may not be offered or sold in the United States unless registered under that Act or pursuant to an available exemption from the registration requirements thereof.

SOURCE: Underground Energy Corporation

Peter Ballachey
Chief Financial Officer
Underground Energy Corporation
Tel: [phone] x 17

Simon Clarke
Vice President, Corporate Development
Underground Energy Corporation
Tel: [phone]