Razor Energy Corp. (“
Razor”) (TSXV: RZE) is
pleased to announce that Razor has entered into a debt settlement
agreement with Alberta Investment Management Corporation,
(“
AIMCo”), on behalf of certain designated
entities managed and advised by AIMCo (the “
Debt Settlement
Agreement”), pursuant to which AIMCo and Razor have
agreed, subject to certain terms and conditions, to the settlement
of all obligations owing by Razor to AIMCo under the senior second
amended and restated loan agreement dated February 16, 2021 (the
“
Credit Agreement”) through the transfer to AIMCo
of equity interests held by Razor in its currently wholly-owned,
non-listed subsidiary, FutEra Power Corp.
(“
FutEra”), following a capital reorganization of
FutEra as described further below, and concurrently with the
completion of a rights offering to all holders of common shares in
the capital of Razor (“
Razor Common Shares”) by
way of rights offering circular (the “
Rights
Offering”) for proceeds of up to $10 million.
AIMCo (or a designated affiliate of AIMCo) has
also agreed, subject to certain terms and conditions, to fully
exercise its basic subscription privilege under the Rights Offering
(as described below) for approximately $1.825 million and provide a
stand-by commitment for the Rights Offering to a maximum of $4
million (the “Standby Commitment”) under a standby
purchase agreement (the “Standby Purchase
Agreement”) entered into between AIMCo and Razor
concurrently with the Debt Settlement Agreement. Assuming the
fulfilment of all closing conditions to the Standby Purchase
Agreement, including that a minimum of $1 million of subscription
proceeds (the “Minimum Additional Proceeds”) has
been received from holders of rights other than AIMCo and its
affiliates, and assuming additional subscription proceeds received
beyond the Minimum Additional Proceeds are less than $3.175
million, AIMCo’s total investment in Razor pursuant to the Rights
Offering would be approximately $5.825 million. The transactions
contemplated by the Debt Settlement Agreement and the Standby
Purchase Agreement, including the Rights Offering, are collectively
referred to herein as the “Recapitalization
Transaction”.
The Debt Settlement Agreement provides for the
following transactions:
- Following the
Internal Reorganization (as defined below), Razor will settle all
outstanding indebtedness owed to AIMCo in the approximate aggregate
amount of $63.2 million (the “Outstanding
Indebtedness”) by way of the sale and transfer by Razor to
AIMCo of that number of common shares in the capital of FutEra
(“FutEra Common Shares”) representing 70.00% of
the issued and outstanding FutEra Common Shares and 100% of the
issued and outstanding FutEra Preferred Shares (as defined below),
in each case following the Internal Reorganization (the
“FutEra Share Transfer Transaction”). At the time
of issuance and transfer to AIMCo, the FutEra Preferred Shares will
be convertible (subject to further adjustment in the manner
contemplated by the FutEra Preferred Share provisions) into that
number of FutEra Common Shares representing 30% of the aggregate
number of FutEra Common Shares outstanding at such time and then
issuable upon conversion of the FutEra Preferred Shares.
- FutEra will
create a new class of voting, convertible preferred shares
(“FutEra Preferred Shares”) and Razor and FutEra
will complete an internal corporate restructuring to exchange a
portion of the FutEra Common Shares held by Razor for FutEra
Preferred Shares (the “Internal Reorganization”).
The FutEra Preferred Shares will have, among other rights, the
right to receive cumulative dividends which will accrue daily at a
rate of 12% per annum and compound quarterly; a liquidation
preference per share equal to the original issue price plus all
unpaid accrued and compounded dividends; the right to convert each
FutEra Preferred Share into a number of FutEra Common Shares equal
to the liquidation preference at the time of conversion divided by
the original issue price (subject to adjustment in certain
circumstances); and voting rights on an as-converted basis with
FutEra Common Shares.
- On closing of
the Recapitalization Transaction, Razor and AIMCo will enter into
an investor rights agreement pursuant to which, among other things,
AIMCo will be granted certain representation rights with respect to
Razor’s board of directors, including the right to designate two
representatives for election, and if AIMCo is entitled to designate
a representative but such representative is not elected or
appointed, AIMCo shall be entitled to appoint a board observer in
place of such representative. AIMCo’s representation rights will
terminate at such time AIMCo holds less than 15% of the voting
interests of Razor.
- On closing of
the Recapitalization Transaction, Razor and AIMCo will enter a
registration rights agreement pursuant to which AIMCo will be
granted certain distribution and registration rights with respect
to Razor Common Shares held by AIMCo to facilitate the resale by
AIMCo of such Razor Common Shares by way of prospectus offering,
subject to certain restrictions and limitations.
- On closing of
the Recapitalization Transaction, AIMCo, Razor, and FutEra will
enter into a unanimous shareholders agreement with respect to the
management of the business and affairs of FutEra, including
customary governance, drag-along and other share transfer rights
and restrictions in favour of AIMCo, as well as distribution and
registration rights to facilitate the future resale by AIMCo of
FutEra Common Shares by way of prospectus offering, subject to
certain restrictions and limitations.
- Concurrently
with the Recapitalization Transaction, and as a condition to the
completion of the transactions contemplated by the Debt Settlement
Agreement, Razor will conduct a rights offering to all holders of
Razor Common Shares by way of rights offering circular (the
“Rights Offering”). The Rights Offering will be
for proceeds of up to $10 million. Pursuant to the Rights Offering,
all eligible holders of Razor Common Shares will receive one
transferable right (a “Right”) for each Razor
Common Share held. The Rights will entitle the holder thereof to
subscribe for units of Razor (“Unit”), with the
number of Units available for subscription and the subscription
price to be determined at the time of the Rights Offering. Each
Unit will be comprised of one Razor Common Share and one Razor
Common Share purchase warrant of Razor. Each full warrant will
entitle the holder to acquire, subject to adjustment in certain
circumstances, one Razor Common Share at an exercise price to be
determined at the time of the Rights Offering. In connection with
the Rights Offering, all eligible holders of Razor Common Shares on
the close of business on the record date for the Rights Offering
will be provided the right to: (i) exercise their basic
subscription privilege to acquire their pro-rata portion of Units
in such Rights Offering; and (ii) provided they have exercised
their basic subscription privilege, exercise an additional
subscription privilege to acquire, subject to proration, such
number of additional unsubscribed Units, if any, in the Rights
Offering. Razor and AIMCo have entered into the Standby Purchase
Agreement pursuant to which AIMCo has agreed to exercise its basic
subscription privilege under the Rights Offering and to provide the
Standby Commitment with respect to unsubscribed Units under the
Rights Offering, following all exercises of both the basic and
additional privileges by other holders of Rights, to a maximum of
$4 million, subject to the terms and conditions in the Standby
Purchase Agreement, including receipt of the Minimum Additional
Proceeds. It is anticipated that the Rights will be listed for
trading on the TSX Venture Exchange (“TSXV”).
Further details concerning the Rights Offering will be contained in
Razor’s Notice of Rights Offering and Rights Offering Circular to
be available on Razor’s SEDAR profile at www.sedar.com once the
Rights Offering is launched.
The Recapitalization Transaction is subject to
the satisfaction of a number of conditions, including concurrent
completion of the Internal Reorganization, the FutEra Share
Transfer Transaction and the Rights Offering, as well as the
receipt by Razor and FutEra of all necessary third party and
regulatory approvals, including the approval of the TSXV and
consent of Arena Investors, LP (“Arena”) as a
secured lender under Razor’s amended and restated term loan
agreement dated March 9, 2022 (the “Amended and Restated
Term Loan Agreement”), no occurrence of a material adverse
change or material adverse effect, satisfactory completion of due
diligence, and other customary closing conditions.
Use of Proceeds from the Rights
Offering
Razor intends to use the proceeds from the
Rights Offering as follows:
Description of intended use of available
funds |
Assuming Standby Commitment and Minimum Additional Proceeds
only |
Assuming 75% of the
Rights Offering |
Assuming 100% of the
Rights Offering |
Production enhancement – well repairs and interventions |
$5,000,000 |
$5,000,000 |
$5,000,000 |
Estimated Rights Offering
costs(1) |
$600,000 |
$600,000 |
$600,000 |
Working capital – general purposes |
$1,225,000 |
$1,900,000 |
$4,400,000 |
Total: |
$6,825,000 |
$7,500,000 |
$10,000,000 |
(1) |
Estimated Right Offering costs do not include costs and expenses
expected to be incurred in connection with the Recapitalization
Transaction other than those directly in connection with the Rights
Offering. |
Benefits of the Recapitalization
Transaction
The Recapitalization Transaction, if completed,
will increase Razor’s sustainability by creating a simplified
balance sheet and providing liquidity to the benefit of all
stakeholders. These aspects should assist Razor in increasing
production, optimizing operations, and potentially attracting
further capital and enhancing strategic corporate optionality.
In addition, Arena has agreed to waive the
production covenant found in the Amended and Restated Term Loan
Agreement from November 1, 2022 to April 30, 2023 and has further
amended the production covenant for the period from May 1, 2023 to
September 30, 2023. Although there can be no assurances, Razor’s
reactivation and other production enhancement efforts should see
production levels exceed the 4,150 boepd level in August, 2023.
Background of the Recapitalization
Transaction
Razor, along with many of its peers, has been
negatively impacted by changing market conditions affecting the oil
and gas industry, primarily the result of changes in investor
sentiment with respect to the oil and gas industry generally. This
has resulted in, among other things, decreased cash flows otherwise
needed for working capital and reinvestment, and a limited ability
to access new third party capital (equity, debt or other), or to
generate additional funds through assets sales, joint ventures or
other industry transactions on reasonable terms.
Razor’s excess leverage has created quantitative
and qualitative issues, including a lack of capital to invest into
operations which in turn perpetuates lower netbacks and increased
challenges to grow the business through acquisitions.
Given current market conditions, Razor began to
explore potential solutions to its liquidity and capital position
to avoid potential adverse consequences. Further to this, Razor
formed a special committee of independent directors in April 2023
(the “Special Committee”) to help oversee such
matters and to negotiate and structure, on behalf of Razor,
potential transactions to address Razor’s liquidity and capital
position. As part of this, the Special Committee, along with
Razor’s management and other advisors, has engaged in discussions
with various stakeholders of Razor to explore the possibility of
recapitalizing Razor. The objective of these discussions was to
improve Razor’s prospects going forward and provide a means to
continue as a viable business for the benefit of all
stakeholders.
Special Committee, Board Approvals and
Recommendations
In connection with negotiating and reviewing the
terms of the Recapitalization Transaction, the Special Committee
considered and reviewed a variety of matters, including a detailed
assessment of Razor’s prospects, cash flows, outlook and reasonable
alternatives available to Razor, including the risks of continuing
with the status quo. As part of their process, the Special
Committee retained DLA Piper as its independent legal counsel and
Razor retained Echelon Wealth Partners Inc. (the “Financial
Advisor”) to provide an opinion as to the fairness to
Razor, from a financial point of view, of the proposed
Recapitalization Transaction.
Further to this, as a part of their
deliberations in respect of the Recapitalization Transaction, the
Fairness Advisor provided the board of directors of Razor (the
“Board”) and Special Committee with its opinion
the “Fairness Opinion”) that, as at the date of
the Fairness Opinion, the Recapitalization Transaction is fair,
from a financial point of view, to Razor. The Fairness Opinion is
subject to the assumptions, limitations and qualifications set out
therein.
As such, the Special Committee recommended to
the Board that the Recapitalization Transaction is in the best
interests of Razor and should be approved, after consulting with
its legal advisors, and after considering other relevant matters,
including the anticipated benefits to Razor as described above and
certain other considerations and determinations, including the
conclusions set forth in the Fairness Opinion. After considering
the report and recommendations of, and the factors considered by,
the Special Committee, the Board approved the Recapitalization
Transaction.
MI 61-101 Matters
AIMCo is a "related party" of Razor pursuant to
Multilateral Instrument 61-101 - Protection of Minority Security
Holders in Special Transactions ("MI 61-101").
AIMCo owns or controls (directly or indirectly) 4,612,728 Razor
Common Shares (representing approximately 18.25% of the outstanding
Razor Common Shares) and is a significant shareholder of Razor.
With respect to the FutEra Share Transfer
Transaction and the Standby Commitment, while such transactions are
expected to constitute "related party transactions" for the
purposes of MI 61-101, the FutEra Share Transfer Transaction is
exempt from the formal valuation requirements of MI 61-101 as Razor
is not listed on a specified market that would require compliance
with such formal valuation requirements (as set forth in Section
5.5(b) of MI 61-101) and is further exempt from the minority
shareholder approval requirements of MI 61-101 by virtue of Section
5.7(e) of MI 61-101 which provides that a related party transaction
is exempt from the minority shareholder approval requirements if
the issuer is in serious financial difficulty, the transaction is
designed to improve the financial position of the company (among
other criteria) and there is no other requirement to hold a meeting
of shareholders to approve the transaction.
As part of their deliberations in respect of the
Recapitalization Transaction, the Special Committee (each of whom
are "independent directors" in respect of the Recapitalization
Transaction for the purposes of MI 61-101) considered the financial
position of Razor and the objectives of the Recapitalization
Transaction, and the criteria and conditions with respect to the
financial hardship exemptions described above, including the fact
that there is no requirement, corporate or otherwise, to hold a
meeting to obtain any approval of the holders of Razor Common
Shares for the Recapitalization Transaction, and in this regard
unanimously determined that: (i) Razor is in serious financial
difficulty; (ii) the Recapitalization Transaction (including the
Internal Reorganization and the FutEra Share Transfer Transaction)
is designed to improve the financial position of Razor; and (iii)
the terms of the Recapitalization Transaction (including the FutEra
Share Transfer Transaction) are reasonable in the circumstances of
Razor.
A discussion and description of the review and
approval process adopted by the Special Committee and other
information required by MI 61-101 in connection with the
Recapitalization Transaction, including further details and the
facts supporting reliance on the financial hardship exemptions
described above, will be set forth in Razor’s material change
report to be filed under Razor’s SEDAR profile at
www.sedar.com.
About FutEra
FutEra leverages Alberta’s resource
industry innovation and experience to create transitional power and
sustainable infrastructure solutions to commercial markets and
communities, both in Canada and globally. Currently, FutEra
operates a first of its kind co-produced geothermal and natural gas
hybrid power project in Swan Hills, Alberta.
www.futerapower.com
About Razor
Razor is a publicly traded junior oil and gas
development and production company headquartered in Calgary,
Alberta, concentrated on acquiring, and subsequently enhancing,
producing oil and gas properties primarily in Alberta. Razor is led
by experienced management and a strong, committed Board of
Directors, with a long-term vision of growth, focused on efficiency
and cost control in all areas of the business. Razor currently
trades on TSXV under the ticker “RZE”.
www.razor-energy.com
Razor has two active subsidiaries, FutEra and
Blade Energy Services Corp. (“Blade”).
About Blade
Blade Energy Services is a subsidiary of Razor.
Operating in west central Alberta, Blade’s primary services include
fluid hauling, road maintenance, earth works including well site
reclamation and other oilfield services.
www.blade-es.com
For additional information please
contact:
|
Doug Bailey |
|
Lisa Mueller |
|
President and Chief Executive Officer |
|
President and Chief Executive Officer |
|
Razor Energy Corp |
|
FutEra Power Corp |
|
Executive Director |
|
|
|
FutEra Power Corp |
|
|
|
|
|
|
Razor Energy Corp/FutEra Power Corp800, 500-5th Ave SWCalgary,
Alberta T2P 3L5Telephone: (403) 262-0242 |
|
READER ADVISORIES
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 press release.
FORWARD-LOOKING STATEMENTS:
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning,
but not limited to, the completion of the Recapitalization
Transaction (including the various elements thereof), the potential
benefits and effects of the Recapitalization Transaction on Razor,
the ability of Razor to satisfy the closing conditions for the
Recapitalization Transaction, timing for the completion of the
Recapitalization Transaction and related matters, the listing of
the Rights on the TSXV, the conditions to closing of the
Recapitalization Transaction, the anticipated use of the net
proceeds of the Rights Offering, the impact of Razor’s reactivation
and other production enhancement efforts on production levels, the
receipt of any required regulatory approvals or third-party
consents for the Recapitalization Transaction, the potential
minimum and maximum gross proceeds of the Rights Offering and the
expected filing of Razor’s Rights Offering Notice, Rights Offering
Circular and material change report in respect of the
Recapitalization Transaction on SEDAR. Razor provided such
forward-looking information in reliance on certain expectations and
assumptions that it believes are reasonable at the time, including
expectations and assumptions concerning prevailing commodity
prices, Razor’s liquidity and cash flows. In addition, the use of
any of the words “anticipate”, “believe”, “intend”, “may”, “is”,
“will”, “should”, “expect” and similar expressions are intended to
identify forward-looking statements.
The forward-looking statements are based on
certain key expectations and assumptions made by Razor, including
but not limited to expectations and assumptions concerning the
receipt of all regulatory and third party approvals for the
Recapitalization Transaction, the ability of Razor to complete the
Rights Offering, and all other portions of the Recapitalization
Transaction in the manner described herein, the prevailing
commodity prices, weather, regulatory approvals, liquidity of the
Razor Common Shares, activities by third party operators, exchange
rates, interest rates, applicable royalty rates and tax laws,
future production rates and estimates of operating costs,
performance of existing and future wells, plant turnaround times
and continued rail service to transport products, reserve volumes,
business prospects and opportunities, the future trading price of
the Razor Common Shares, the availability and cost of financing,
labor and services, the impact of increasing competition, ability
to market geothermal electricity, oil and natural gas successfully
and Razor’s ability to access capital (including by way of the
completion of the Recapitalization Transaction).
Although Razor believes that the expectations
and assumptions on which the forward-looking statements are based
are reasonable, undue reliance should not be placed on the
forward-looking statements because Razor can give no assurance that
they will prove to be correct. Since forward- looking statements
address future events and conditions, by their very nature they
involve inherent risks and uncertainties. Actual results could
differ materially from those currently anticipated due to several
factors and risks. These include, but are not limited to, risks
associated with the oil and gas industry and geothermal electricity
projects in general (e.g., operational risks in development,
exploration and production; delays or changes in plans with respect
to exploration or development projects or capital expenditures;
variability in geothermal resources; the uncertainty of estimates
and projections relating to production, costs and expenses, and
health, safety and environmental risks), electricity and commodity
price and exchange rate fluctuations, changes in legislation
affecting the oil and gas and geothermal industries and
uncertainties resulting from potential delays or changes in plans
with respect to exploration or development projects or capital
expenditures.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Please refer to the risk factors
identified in the annual information form and management discussion
and analysis of Razor which are available on SEDAR at
www.sedar.com.
The forward-looking statements contained in this
press release are made as of the date hereof and Razor undertakes
no obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws.
This press release also contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about the expected
financial obligation reductions as a result of the Recapitalization
Transaction, all of which are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth in the above
paragraphs. FOFI contained herein was made as of the date of this
news release and was provided for the purpose of describing the
anticipated effects of the Recapitalization Transaction on Razor’s
business and operations. Razor disclaims any intention or
obligation to update or revise any FOFI contained herein, whether
as a result of new information, future events or otherwise, unless
required pursuant to applicable law. Readers are cautioned that the
FOFI contained herein should not be used for purposes other than
for which it is disclosed herein.
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