CALGARY, AB – PetroFrontier Corp. (“PetroFrontier” or the “Corporation”) (TSXV:PFC) announces that it intends to complete a private placement, the entering into of an amended debenture extending agreement including the immediate repayment of certain of the amounts outstanding under its secured debenture and the grant of options to key personnel.
Amended Debenture Extending Agreement
Further to the Corporation’s July 13, 2020 press release providing details of the extension agreement (the “Original Extending Agreement“) that extended payment of amounts owing to the Corporation’s senior secured creditor, Kasten Energy Inc. (“Kasten“) under the debenture granted on July 21, 2016 (the “Debenture“), the Corporation is pleased to announce that it has entered into an amended Debenture and credit facility extending agreement (the “Amended Extending Agreement“) which not only extends the terms of the Debenture and the credit facility entered into on June 3, 2019 (the “Credit Facility“), but will also result in the immediate partial repayment of the Corporation’s indebtedness under the Debenture of $1,000,000 in exchange for the issuance by PetroFrontier of common shares of the Corporation (the “Common Shares“). As at June 30, 2020, the amount outstanding under the Debenture and the Credit Facility totalled $4,515,456.
The Amended Extending Agreement provides that:
- The amount outstanding under the Debenture will be immediately partially repaid by one million dollars ($1,000,000) in exchange for 25,000,000 Common Shares at a price of $0.04 per Common Share;
- The maturity dates for both the Debenture and Credit Facility are further extended to August 31, 2022 (the “Extended Maturity Date“);
- The interest rate is revised to 8% per annum for the Debenture;
- An annual extension fee of 2% of the amount outstanding under the Debenture and Credit Facility will be payable to Kasten;
- The remaining amounts payable under the Debenture and Credit Facility will be convertible into Common Shares at the holder’s option at a price of $0.05 per Common Share for the first year and $0.10 for the second year (the “Conversion Option“); and
- All amounts owing under the Debenture and Credit Facility will be repayable on the Extended Maturity Date.
The issuance of Common Shares in relation to the immediate partial repayment of the Corporation’s debt by $1,000,000, together with the pricing of the Common Shares which may be issued by the Corporation under the Conversion Option, and therefore the closing of the Amended Extending Agreement, remains subject to the approval of the TSX Venture Exchange Inc. (the “Exchange“).
Related Party Participation in the Amended Extending Agreement
The Amended Extending Agreement was entered into between the Corporation and Kasten. Kasten is a control person of PetroFrontier which deems the Amended Extending Agreement to be a “related party transaction” as defined under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101“). Kasten currently owns, or exercises control over 38.28% of the outstanding Common Shares. The closing of the Amended Extending Agreement is subject to Exchange approval and a press release will be issued by the Corporation if closing occurs setting out Kasten’s updated ownership and control of the Common Shares.
Neither the Corporation nor the related party, to the knowledge of the Corporation after reasonable inquiry, has knowledge of any material information concerning the Corporation or its securities that has not been generally disclosed.
The Amended Extending Agreement is exempt from the formal valuation requirements of MI 61-101 pursuant to subsection 5.5(b) as the Common Shares are listed only on the Exchange, and from the minority shareholder approval requirements of MI 61-101 pursuant to subsection 5.7(b) as the Corporation is in financial difficulty as it requires more time to pay the Debenture and Credit Facility, the Amended Extending Agreement is designed to improve the financial position of the Corporation, and the board of directors and all of the Corporation’s independent directors have determined that the Corporation is in financial difficulty, the Amended Extending Agreement is designed to improve the Corporation’s financial position, and the terms of the Amended Extending Agreement are reasonable in the circumstances.
The Corporation announces its intention to complete a private placement of Common Shares at a price of $0.04 per Common Share for proceeds of up to $1,000,000 (the “Private Placement“). The Corporation intends to rely on the following exemptions from prospectus requirements in relation to the Private Placement:
- The “accredited investor” exemption; and
- The exemption for sales to purchasers advised by investment dealers.
The Corporation may pay a cash commission or finder’s fee to qualified non-related parties of up to 7% of the gross proceeds of the Private Placement and issue broker warrants (the “Broker Warrants“) equal to up to 7% of the number of Common Shares sold in the Private Placement. Each Broker Warrant will entitle the holder to acquire one Common Share at a price of $0.04 per Broker Warrant for a period of 12 months from the date of issuance.
The use of proceeds of the Private Placement is dependent on the final amount raised. Based on the maximum Private Placement, the use of proceeds will be as follows: (i) $350,000 for field reactivations; and (ii) $650,000 for general corporate purposes including accounts payable and the costs of the Private Placement.
As the Corporation is relying on the exemption for sales to purchasers advised by investment dealers, it confirms that there is no material fact or material change related to the Corporation which has not been generally disclosed.
Completion of the Private Placement is subject to regulatory approval including, but not limited to, the approval of the Exchange. The Common Shares and Broker Warrants issued will be subject to a four month hold period from the date of the closing of the Private Placement.
It is expected that insiders of the Corporation will participate in the Private Placement.
Grant of Options
The Corporation announces its intention to grant options (“Options“) to key personnel under its option plan which was ratified by shareholders at its last annual and special meeting held on December 20, 2019. The Corporation intends to issue Options to acquire 5,000,000 Common Shares. Each Option will entitle the holder to acquire a Common Share at a price of $0.05 per Common Share for a term of five (5) years. The Options will vest as to one third each on the date of grant and the first and second anniversaries of the grant.
About PetroFrontier Corp.
PetroFrontier is a junior energy company currently focused on developing two Mannville heavy oil plays in the Cold Lake and Wabasca areas of Alberta.
PetroFrontier’s head office is in Calgary, Alberta and its Common Shares are listed for trading on the Exchange under the symbol “PFC”.