Northern Frontier Announces Update on Central Water Acquisition, $20 Million Bought Deal Equity Offering, New Proposed Senior Credit Facilities and Amendments to Dividend Policy

CALGARY, ALBERTA--(Marketwired - Aug. 11, 2014) -

THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT AUTHORIZED FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Northern Frontier Corp. (TSX VENTURE:FFF) (the "Corporation" or "Northern Frontier") is pleased to provide an update on the Acquisition (as defined below) of Central Water & Equipment Services Ltd. ("Central Water") and the refinancing of its existing debt (the "Refinancing") subsequent to the press releases of the Corporation dated May 21, 2014 and June 23, 2014. The Corporation is proceeding with the Acquisition and Refinancing by way of a $20.0 million bought deal equity offering (the "Offering") and proposed New Senior Credit Facilities (as defined below) arranged by its existing senior lender. The Acquisition, Refinancing and Offering are all expected to close concurrently on or about August 28, 2014 (the "Closing Date") and are subject to regulatory approval including that of the TSX Venture Exchange.

The Corporation is also amending its Dividend Policy (as defined below) as part of its long-term strategy to manage its cash flow and balance sheet to facilitate its ability to capitalize on future growth opportunities.

Proposed Acquisition of Central Water

Northern Frontier has agreed to acquire Central Water pursuant to the terms and conditions of a share purchase agreement dated May 20, 2014 (amended on June 27, 2014 and August 11, 2014) (the "Share Purchase Agreement") between the Corporation and Darcy Tofin, Paris Tofin and certain affiliated entities. Central Water is a leading logistics service provider in the bulk water and fluids transfer sector in western Canada. Central Water's primary business is providing services for the bulk movement of water used in the testing of large infrastructure storage tanks and pipelines as well as dewatering and other services for industrial sites.

The Share Purchase Agreement, as amended, provides for the acquisition by the Corporation of all of the issued and outstanding shares of Central Water in exchange for aggregate consideration of approximately $24.1 million (the "Acquisition"), subject to an adjustment for current year growth capital expenditures made by Central Water, currently estimated to be approximately $0.6 million, which is subject to change and will be finalized on closing (before giving effect to certain post-closing adjustments). The consideration to be paid on the Closing Date will consist of:

• a cash payment of approximately $20.1 million (exclusive of the $0.6 million in current year growth capital expenditures); and
  
  
• the issuance of 1.86 million Units (as defined below) from treasury of the Corporation, for an aggregate value of approximately $4.0 million.
  
  

Furthermore, the Share Purchase Agreement has a contingent earn-out component, whereby the Corporation is obligated to pay:

• in cash, a 3.6x multiple to the extent that from the Closing Date until September 30, 2015 Central Water's trailing 12 month EBITDA (as defined below under the heading "Advisories - Non-GAAP Measures") exceeds $6.6 million to a maximum cash payment of $6.9 million; and
  
  
• in cash, a 1.0x multiple to the extent that Central Water's trailing 12 month EBITDA exceeds $8.5 million as of the first anniversary of the last day of the first full month following the Closing Date.
  
  

The cash portion of the purchase price of the Acquisition, including any future contingent earn-out payment, will be funded by the Offering and the New Senior Credit Facilities.

Central Water generated EBITDA of approximately $6.6 million for the trailing 12 months ended June 30, 2014, resulting in a current acquisition valuation multiple of approximately 3.65x trailing EBITDA.

The completion of the Acquisition is subject to certain conditions, including the approval of the TSX Venture Exchange.

Refinancing of Existing Credit Facilities

Northern Frontier has executed a term sheet with its existing senior lender to arrange for up to $80.6 million of new syndicated senior credit facilities (the "New Senior Credit Facilities") and expects to establish the New Senior Credit Facilities in conjunction with, and as a condition of, the closing of the Acquisition and the Offering. The Corporation expects to draw down approximately $40.5 million of the New Senior Credit Facilities on the Closing Date, plus an additional $6.9 million to be held in escrow for the earn-out provision noted above, to fund the Acquisition and Refinancing. The New Senior Credit Facilities are expected to consist of the following principal components:

• a $15.0 million committed revolving credit facility (the "Revolver"), expected to have $4.8 million drawn on the Closing Date;
  
  
• a $42.6 million committed non-revolving term loan (the "Term Loan"), expected to be fully drawn on the Closing Date, of which approximately $6.9 million is expected to be held in escrow to fund the potential contingent earn-outs (as noted above) under the Acquisition; and
  
  
• a $20.0 million committed revolving reducing term loan (the "CapEx Reducing Revolver"), expected to be undrawn on the Closing Date.
  
  

The New Senior Credit Facilities will also consist of: (i) an uncommitted treasury risk Management facility of $2.0 million; (ii) an uncommitted corporate MasterCard limit of $1.0 million; (iii) a $2.0 million swingline feature within the Revolver; and (iv) an uncommitted $20.0 million accordion feature.

The Corporation expects to have the option to borrow under the New Senior Credit Facilities using Canadian prime rate loans, US base rate loans, LIBOR loans or bankers' acceptances, as applicable, as well as by way of letters of credit. The margins above prime rate loans, base rate loans, LIBOR loans or bankers' acceptances, as applicable, for the New Senior Credit Facilities will be subject to a pricing grid based on the then applicable ratio of senior funded debt to EBITDA. The interest rate grid for the New Senior Credit Facilities will be set at market rates in line with other senior credit facilities of this size and nature.

The New Senior Credit Facilities will have maturities of four years and the Term Loan and CapEx Reducing Revolver have principal amortization schedules tailored to Northern Frontier's expected cash flow requirements.

In connection with the New Senior Credit Facilities, the Corporation will be required to maintain certain financial covenants which will be tested quarterly on a consolidated trailing 12 month basis, including:

• a maximum ratio of senior funded debt to EBITDA of 2.75:1 with future step downs;
  
  
• a minimum fixed charge coverage ratio of 1.25:1; and
  
  
• a restriction on the Corporation's Dividend Policy being subject to full covenant compliance and further limited to 50% of distributable cash flow.
  
  

The foregoing covenants are subject to the specific terms of the New Senior Credit Facilities and may differ from traditional computations of such measures.

As conditions of closing of the Offering and the Corporation entering into the New Senior Credit Facilities, the Corporation intends to repay and terminate all of its existing credit facilities, exclusive of existing finance leases.

Bought Deal Equity Offering

The Corporation has entered into an agreement with a syndicate of investment dealers co-led by Cormark Securities Inc., Acumen Capital Finance Partners Limited and GMP Securities L.P. and including M Partners Inc. (the "Underwriters") pursuant to which the Underwriters have agreed to purchase 9,303,000 units (the "Units") from the treasury of the Corporation, comprised of one common share of the Corporation ("Common Shares") and one warrant of the Corporation ("Warrants") at a price of $2.15 per Unit (the "Offering Price") and offer them to the public by way of short form prospectus for gross proceeds to the Corporation of approximately $20.0 million. Each Warrant will entitle the holder to acquire one common share of the Corporation (a "Warrant Share") at a price of $3.40 per Warrant Share for 18 months following the Closing Date.

In addition, the Company has granted the Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 1,395,450 Units from the treasury of the Corporation at the Offering Price for additional gross proceeds to the Corporation of up to approximately $3.0 million, exercisable at any time up to 30 days following the Closing Date, for market stabilization purposes and to cover over-allotments, if any.

The net proceeds of the Offering, in combination with New Senior Credit Facilities, will be used by the Corporation to:

• complete the proposed Acquisition of Central Water;
  
  
• fulfill customers' demand for the Corporation's services through the purchase of additional equipment;
  
  
• fund potential future growth opportunities and acquisitions; and
  
  
• general corporate purposes.
  
  

Management and the Board of Directors of the Corporation (the "Board") have committed to approximately $2 million in aggregate participation of the Offering.

In addition to customary conditions of closing, closing of the Offering, which is expected to occur on or about the Closing Date concurrent with the closing of the Acquisition and the Refinancing, is conditional on: (i) the concurrent closing of the Acquisition; (ii) the concurrent completion of the Refinancing; (iii) receipt of all required shareholder, court and regulatory approvals required in connection with the Acquisition (including, without limitation, the conditional approval of the TSX Venture Exchange in respect of the Acquisition and the Offering); and (iv) amending the Corporation's Dividend Policy as outlined below.

The Units to be issued under the Offering will be offered by way of a short form prospectus to be filed with the securities regulatory authorities in each of the provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Ontario, and may be offered in the United States on a private placement basis pursuant to an exemption from the registration requirements of the United States Securities Act of 1933, as amended, and certain other jurisdictions.

This news release does not constitute an offer of securities for sale in the United States. The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, and such securities may not be offered or sold within the United States absent U.S. registration or an applicable exemption from U.S. registration requirements.

Amended Dividend Policy

The Board has amended its dividend policy (the "Dividend Policy") contingent upon the closing of the Acquisition, Offering and Refinancing. The amended Dividend Policy will be as follows:

• commencing with the third quarter ended September 30, 2014, the Corporation intends to pay an annual aggregate cash dividend of $0.10 per common share, payable on a quarterly basis in arrears;
  
  
• the next quarterly dividend of $0.025 per common share is expected to be paid in October 2014 to holders of record on September 30, 2014; and
  
  
• the Board will review the Dividend Policy on an ongoing basis, and may amend the policy at any time in light of the Corporation's then current financial position, profitability, cash flow, applicable legal requirements and other factors considered relevant to the Board.
  
  

Pro Forma Profile and Operational Update

Following completion of the Acquisition, Refinancing, Offering and Dividend Policy amendment, Northern Frontier will have a more diversified operations base, stronger balance sheet and solid cash flow profile from which to grow.

Upon completion of the transactions discussed, the Corporation's operations will be much more diversified, which should mitigate cash flow seasonality and customer concentration along with other operational risks. "Northern Frontier is very pleased to have the opportunity to add Central Water to anchor our logistics services strategy. Combining the expertise of Central Water with our other water-based services will provide an expanded service offering to our clients and increases the diversification of our overall business" stated Chris Yellowega, President and CEO. Central Water is a unique industrial service provider with a leading position in its niche sector. The Acquisition is expected to result in the addition of new clients in the pipeline, large storage tanks and terminals sector, a strengthened service position for clients in the SAGD market (as described below) and an improved market and service presence from Manitoba to northeastern British Columbia. The Corporation has also identified accretive tuck-in acquisitions that will complement the Central Water business that Management is currently pursuing.

On a combined pro forma basis, for fiscal 2013 Northern Frontier and Central Water generated EBITDA of $23.4 million and for the trailing 12 month ended June 30, 2014 Management estimates EBITDA will be in the range of $18.0 million to $19.0 million. The decrease in EBITDA for both businesses since December 31, 2013 has been primarily the result of weak second quarter activity levels, as detailed in our news release dated June 23, 2014. Activities for July have improved and based on discussions with customers regarding their plans for the remainder of 2014 Management anticipates stronger activity levels over the next few quarters.

The Refinancing and Offering will position the Corporation's balance sheet to sustain existing operations as well as continue the growth strategy both organically and through acquisitions. Following closing, Northern Frontier will have eliminated all of its restrictive and expensive subordinated secured debt. "The confidence our existing senior lender has shown in our strategy by way of offering to lead the arrangement of the New Senior Credit Facilities speaks to the long-term strength and viability of our pro forma business" Monty Balderston, Executive Vice President and CFO, added. Assuming $40.5 million of net drawn senior debt and finance leases of approximately $3.5 million, Northern Frontier will have a debt to trailing 12 month EBITDA ratio of approximately 2.3:1 to 2.4:1. Furthermore, it is the Corporation's strategy to evaluate future growth opportunities with reasonable visibility to reduce the Corporation's balance sheet leverage below 2.00:1.

Northern Frontier is and will continue to be a growth story. The amended Dividend Policy will allow the Corporation to retain significantly more cash flow in the business. The additional cash flow and undrawn debt facilities available under the New Senior Credit Facilities will allow Management to execute on the Corporation's growth strategy and take advantage of the anticipated growth in demand for industrial and environmental services from the SAGD market.

Second Quarter Financial Statement Release Date and Conference Call

Northern Frontier is scheduled to release its second quarter 2014 financial results on Monday, August 18, 2014, after the close of regular market trading. The corporation will hold a conference call on Tuesday, August 19, 2014, at 9:30 a.m. Calgary / 11:30 a.m. Toronto time. The call will feature remarks by Mr. Yellowega and Mr. Balderston, regarding the financial results.

Conference dial-in instructions are as follows:

Toronto: 416-764-8609

North America: 1-888-390-0605

Conference ID: 48884002

A replay of the call will be available 24 hours after the event until 11:59 p.m. Toronto time on August 26, 2014. To access the archived conference call, please dial 1-888-390-0541 and enter passcode 884002.

Reader Advisory

Securities Law Matters

This news release does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any securities in any jurisdiction in which such offering, solicitation or sale would be unlawful.

Non-GAAP Measure

EBITDA, which is defined by the Corporation as earnings before finance costs, taxes, depreciation and amortization, gain/loss on disposal of property and equipment, share-based compensation and other specified items, is a non-GAAP measure that does not have a standardized meaning prescribed by GAAP. Therefore, this financial measure may not be comparable to similar measures presented by other issuers. Investors are cautioned that this measure should not be construed as an alternative to profit or cash flow from operating activities determined in accordance with GAAP as an indicator of the Corporation's performance. The Corporation's Management believes that EBITDA is a useful supplemental measure as it provides an indication of the results generated by the principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions.

Additional disclosure regarding EBITDA is included within the Corporation's Fiscal 2013 and Q1 2014 Management's discussion and analysis which are available and filed under the Corporation's profile on SEDAR at www.sedar.com.

Forward-Looking Statements

This news release includes certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These forward-looking statements include, among other things, statements in respect of:

• completion of the Acquisition, Refinancing and the Offering;
• anticipated use of net proceeds from the Refinancing and the Offering;
• terms of the Acquisition, Refinancing and the Offering;
• the receipt of regulatory and third party approvals;
• anticipated benefits of completing the Acquisition, Refinancing the Offering and the amendment to the Dividend Policy;
• the amendments to the Dividend Policy upon completion of the Acquisition, Refinancing and the Offering;
• the declaration and form of payment of dividends;
• expectations of future financial performance of the Corporation; and
• the diversification of the Corporation's operations.

These statements are only predictions and are based upon current expectations, estimates, projections and assumptions, which the Corporation believes are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In making such forward-looking statements, assumptions have been made regarding, among other things, industry activity, the state of financial markets, business conditions, continued availability of capital and financing, future oil and natural gas prices and the ability of the Corporation to obtain necessary regulatory approvals. Although the Corporation believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: the possibility that the parties will not proceed with the Acquisition, Refinancing and the Offering, that the ultimate terms of the Acquisition, Refinancing and the Offering will differ from those that are currently contemplated, that the Acquisition, Refinancing and the Offering will not be successfully completed for any reason (including the failure to obtain the required approvals from regulatory authorities), that the Corporation's financial performance does not transpire as expected, that the Corporation declares any future dividends or the form of payment thereof and regulatory changes. Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. The Corporation has no obligation to update any forward-looking statements set out in this news release, except as required by applicable law.

About Northern Frontier Corp.

Northern Frontier's strategic objective is to create a large industrial and environmental services business through a buy and build growth strategy. Currently, the Corporation provides civil construction and excavation services to the industrial industry, primarily in the in situ Oilsands region south of Fort McMurray, Alberta. Through providing these services to large industrial customers in the steam assisted gravity drainage ("SAGD") region of northeastern Alberta, the Corporation focuses on the ongoing demand for services to support operating facilities, sustaining capital expenditures to maintain production levels of those facilities and the development of new production capacity.

The Corporation's common shares and common share purchase warrants are listed on the TSX Venture Exchange under the trading symbol "FFF" and "FFF.WT", respectively.

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.