Dalmac Energy Inc. Financing Arrangement, Asset Sale and Asset Purchase
April 29 2019 - 8:51PM
Dalmac Energy Inc. ("
Dalmac")
(TSX Venture "DAL") wishes to announce that on April 29, 2019,
Dalmac entered into an agreement to sell its Fox Creek Tank Farm
(the "
Tank Farm") to 1175317 Alberta Ltd. (the
"
Purchaser"), a corporation wholly owned by Mr.
John Babic, a director and President and CEO of Dalmac, for an
aggregate purchase price of $380,000 cash (the
"
Sale"). The Tank Farm represents
approximately 1% of Dalmac's total assets and the purchase price
for the asset was determined following the receipt by Dalmac of an
independent appraisal. Also on April 29, 2019, the Purchaser agreed
to provide a shareholder loan from the Purchaser in the amount of
$420,000 (the "
Shareholder Loan"). The Shareholder
Loan will be non-interest bearing, unsecured and assigned and
postponed to Dalmac's existing credit facility (the "
Credit
Facility") with its primary lender, Servus Credit Union
Ltd. (the "
Lender").
The purpose of both the Sale and the Shareholder
Loan are to provide Dalmac with additional and necessary working
capital to support Dalmac's ongoing operations as it moves into its
typical seasonal slow-down during the summer months. Dalmac
was in breach of its 2018 covenants under the Credit Facility and
the working capital support that will be provided by the Sale and
Shareholder Loan has facilitated certain amendments to the Credit
Facility resulting in an opportunity for 2018 covenant relief and
the willingness of the Lender to continue to act as lender to
Dalmac. In addition, Dalmac has also entered into agreement
to make certain amendments to its Credit Facility, which amendments
include: (a) a reduction in Dalmac's evergreen equipment facility
maximum from $7,000,000 to $5,250,000; (b) an increase in its
annual interest rate from the Lender's prime lending rate plus 1%
to the Lender's prime lending rate plus 1.2%; (c) a condition that
the Shareholder Loan be assigned and postponed to the Credit
Facility; and (d) the inclusion of additional specificity in the
required calculation of Dalmac's debt service coverage ratio, which
has remained at a minimum of 1.25:1 (cash flow divided by debt
service requirements).
Each of the Sale, Shareholder Loan and Purchase
may be considered a "Related Party Transaction" pursuant to
Multilateral Instrument 61-101 – Protection of Minority Security
Holders in Special Transactions ("MI 61-101").
While MI 61-101 would typically require the Corporation to obtain a
full valuation and minority approval, in respect of the Sale, the
Shareholder Loan and the Purchase, the Corporation is relying on
certain exemptions from those requirements. With respect to the
Sale and the Shareholder Loan, the Corporation is relying on the
exemptions provided by sections 5.5(g) and 5.7(e) of MI 61-101 and,
therefore, no minority shareholder approval is required or will be
sought and no valuation is required or will be obtained in respect
of those transactions. More specifically, Dalmac's available funds
(including any amounts available for borrowing under its current
Credit Facility) are not currently sufficient to fund Dalmac's
ongoing working capital needs or meet its covenants under its
Credit Facility. Dalmac's Board of Directors has continued to look
for and assess a number of potential restructuring and lending
options for Dalmac and has determined the transactions contemplated
herein to be the best available opportunity. As such, the
independent directors, acting in good faith, have determined that:
(i) the Corporation is in serious financial difficulty; (ii) the
Sale, the Shareholder Loan and associated amendments to its Credit
Facility will improve the financial position of the Corporation;
and (iii) the terms of the Sale and the Loan are reasonable in the
circumstances of Dalmac, and as a result of the foregoing, the
conditions of the MI 61-101 exemptions in respect of the Sale and
the Shareholder Loan have been met.
Because of Dalmac's need to immediately
refinance its debt with the Lender based on the 2018 covenant
issues, Dalmac did not have time to provide its shareholders with
notice prior to undertaking the transactions contemplated
herein.
Each of the transactions contemplated in this
news release are subject to the approval by the TSX Venture
Exchange and there can be no guarantee whatsoever that such
approval will be obtained or, if obtained, the conditions on which
such approval will be given. Should the TSX Venture Exchange
require any amendments to such transactions, the Corporation will
immediately provide updated disclosure to its stakeholders.
For further information: Please contact John
Babic, at 4934 – 89 Street NW, Edmonton AB T6E 5K1 by phone (780)
988-8510, by fax at (780) 988-8512, or by e-mail at
jbabic@dalmacenergy.com. |
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in policies
of the TSX Venture Exchange) accepts responsibility for the
adequacy or accuracy of this release.
Forward-looking Information:
This document contains forward-looking information (as such term is
defined by applicable securities laws). The use of any of the words
"expect", "anticipate", "continue", "estimate", "may", "will",
"would", "believe", "plans", "intends", "possible", "future" and
similar expressions are intended to identify forward-looking
information. The forward-looking information in this document
includes, among other things, Dalmac's anticipated completion and
use of proceeds in respect of the Sale and the Shareholder Loan,
the ability of the transactions contemplated herein to close and to
allow Dalmac to proceed operating as planned as it moves into the
summer months, the positive impact of the amendments to the Credit
Facility on Dalmac's financial position. For the purposes of the
forward-looking information provided herein, Dalmac has assumed
that the appraisal of the Tank Farm was accurate and that Dalmac's
working capital and equipment and operational needs going into the
typical seasonal slow-down during the summer months will be
consistent with those in prior years and the budget and operational
and acquisition and disposition plans prepared by management (which
budget and plans have been based on, among other things, available
market, political and industry information and forecasts).
Readers are cautioned that forward-looking
information is subject to a number of risks, uncertainties and
other factors may cause actual results to differ materially from
the forward-looking information provided. In particular, among
other risks: there can be no guarantee that the amounts raised
pursuant to the Sale and the Shareholder Loan will be sufficient to
meet Dalmac's current needs as unforeseen events could arise that
require cash in excess of what is currently available to Dalmac;
for reasons currently unforeseen the completion of each of the
transactions herein may not occur on the timelines contemplated by
Dalmac or at all; there can be no guarantee the that the amendments
to the Credit Facility will result in an improvement in Dalmac's
overall financial situation as Dalmac's financial position is
subject to a significant number of external risks outside of
Dalmac's control; the work Dalmac is anticipating it will receive
may become unavailable or payment therefore reduced or prices for
goods and services as contemplated in Dalmac's budget may exceed
expectations, and, as such, additional financing or other options
may need to be pursued and, there can be no guarantee that Dalmac
will have the resources available to satisfy all of its working
capital needs in the future; and for reasons that are currently
unforeseen, management may be required to alter Dalmac's current
business strategy and capital program (which may result in a change
in the use of the Sale and Shareholder Loan proceeds from that
described above) and there can be no certainty as to what such
alterations may be. In addition to the foregoing, Dalmac is
subject to more general business and operational risks which
include, among others: general economic, market and business
conditions; volatility in market prices for crude oil and natural
gas; the ability of Dalmac's clients to explore for, develop and
produce oil and gas; availability of other sources of financing and
capital; the ability of Dalmac's customers to pay in a timely
manner; changes in commodity prices; changes in tax or
environmental laws or royalty rates; political change; the impact
of competitors; reliance on industry partners; circumstances may
arise, including changes in accounting policies, regulations or
economic conditions, which could change the assumptions, estimates
or expectations or the information provided upon which Dalmac's
budget and operational plans were made; there may be circumstances
where, for unforeseen reasons, a reallocation of funds may be
necessary as may be determined at the discretion of Dalmac and
there can be no assurance as at the date of this disclosure as to
how those funds may be reallocated; should any one of a number of
issues arise, Dalmac may find it necessary to alter its current
business strategy and/or capital expenditure program; fluctuations
in interest rates; demand for Dalmac's products and services; and
certain other risks detailed from time to time in Dalmac's public
disclosure documents including, without limitation, those risks
identified in this document.
The forward-looking information in this document
speak only as of the date of this document, and Dalmac does not
assume any obligation to publicly update or revise them to reflect
new events or circumstances, except as may be required pursuant to
applicable laws.+
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