GALE FORCE PETROLEUM TO FILE PROPOSAL TO CREDITORS
Montreal, February 3, 2009 – The Board of Directors of Gale Force Petroleum Inc. (TSX Venture: GFP, the “Corporation”) today announced that it has performed an in-depth review of the Corporation’s business activities. The Board of Directors has concluded that in order to continue as a going concern, a restructuring of the Corporation’s debts and concurrent refinancing is now necessary. Therefore, as a first step, the Corporation will file a Proposal to Creditors under the Bankruptcy and Insolvency Act (Canada) (the “Proposal”), effective on today’s date.
Michael McLellan, President and CEO, described the situation as follows:
“When your board of directors initially adopted the restructuring plan in September 2007, there was a belief that management could obtain sufficient new funding and create enough value to overcome an unhealthy balance sheet, ultimately growing to create value for shareholders.
We began the restructuring plan with liabilities that exceeded $6 million, assets worth less than $1 million and minimal revenues. We needed to raise sufficient equity to build new assets while simultaneously paying down or reducing our debts. We have faithfully executed this strategy, raising equity financing totalling $4.9 million, reducing the total debts of the Corporation to $3.7 million and investing shareholder’s money in new higher-quality natural gas properties in Alberta and Kentucky.
In the last several months, oil and natural gas prices have diminished, credit has become unavailable and general economic conditions have deteriorated such that the Corporation can no longer rely on raising financing in equity markets that would be needed to complete the restructuring.
It is apparent that unless there is a major reduction and restructuring of the Corporation’s debts, the Corporation will not be able to meet its short-term obligations, nor will it be possible for the Corporation to continue as a going concern.
The Corporation is convinced that it possesses valuable assets. Notably, it believes that its Kentucky Shale Gas Property has the potential to provide extended growth in both revenues and net asset value, if financing could be made available to continue the development of the property and if natural gas prices recover.
The Corporation’s recent workover and completion program proved that there is consistent gas potential across the Kentucky Property and confirmed that there is low-risk, low-cost drilling for the Devonian Shale target, with the potential for excellent economic returns to investment. The recent Farmout Agreement concluded by the Corporation on January 13, 2009, will ensure the continued development of the Kentucky Property in the near term.
However, in the event of a bankruptcy today, even if there is an orderly sale of the Corporation’s assets, in current market conditions there would be no value remaining for the Corporation’s shareholders or for its unsecured creditors.
As a result, the Corporation has determined that the best option to realize a possible future for the Corporation, its shareholders and its creditors, is to file a Proposal to Creditors under the Bankruptcy and insolvency Act (Canada).”
The Proposal will address all classes of creditors and observe standard practice, regulatory and financial requirements.
For the Proposal to be “Approved”, it must receive approval in each class of creditor by at least 66.67% in dollars and 50.00% plus one in the number of eligible creditors who vote. It also must be accepted by the Court.
The Proposal offers payment of all debts owing to the Corporation’s unsecured creditors and potential claimants totalling approximately $2.5 million by the issuance of common shares of the Corporation. Category I unsecured creditors will be offered full payment of their claims at $0.05 per share, or, twenty (20) common shares of the Corporation per each dollar of debt. Category II unsecured creditors will be offered full payment of their claims at $0.067 per share, or, fifteen (15) common shares of the Corporation per each dollar of debt. If the Proposal is Approved, the Corporation will issue approximately 47,000,000 common shares to settle all claims. There are currently 19,468,284 common shares of the Corporation issued and outstanding.
The Corporation has also reached an agreement with its lender and sole secured creditor, Primatlantis Capital, which is subject to the Approval of the Proposal. According to the terms of this agreement, $133,000 in interest and fees owing to Primatlantis will be paid as a Category I unsecured creditor under the Proposal. Additionally, there will be several amendments to the loan agreement, including: the Maturity Date will be extended until December 31, 2010; the loan will not earn any interest nor will there be any fees owing on the loan until after December 31, 2009; after December 31, 2009 the loan will earn interest at 12% per annum; after December 31, 2009, the loan will be convertible in full or in part into securities of the Corporation, at the election of the lender, upon terms and conditions similar to those offered to purchasers of securities of the Corporation participating in any private placement of the Corporation following the Proposal, and; the loan is repayable in full or in part at the election of the Corporation at any time without penalty. Because there will be no scheduled interest payments or capital repayments on the loan until after December 31, 2009, the lender will not put the Corporation into default until at least after December 31, 2009, which will provide the Corporation with time to attempt to obtain funding to reimburse the loan and/or pursue other growth strategies.
The Proposal to Creditors was designed by the Corporation to be fair and equitable to all creditors and stakeholders, with the goal of providing the best chance at realizing value for the creditors, claimants and shareholders under the circumstances. For the filing of the Proposal, the Corporation has contracted Raymond Chabot Inc. to act as Trustee.
The shares issued as payment of debts under the Proposal as well as the amended convertible loan agreement are subject to prior applicable regulatory approval.
The Board of Directors of the Corporation is composed of five members, being Jocelyn Boucher (Chairman), Ron Bourgeois, Mazen Haddad, Antoinette Lizzi and Michael McLellan. As part of the restructuring, the directors had decided against drawing any salary or board fees since July 1, 2008, and will not draw any fees until at least after the restructuring of the Corporation is complete and new financing is obtained. Also, all current directors and officers of the Corporation have forfeited their options to purchase shares of the Corporation.
If the Proposal is Approved, the Corporation will require a minimum amount of equity financing for the restructuring to be successful and for the Corporation to continue as a going concern. The Corporation is therefore examining financing opportunities. Further details will be announced when available.
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