Polaris Geothermal Inc.
TSX : GEO

Polaris Geothermal Inc.

March 27, 2009 20:12 ET

Polaris Geothermal Inc. Updates Progress Regarding Project Financing and Announces US$10,000,000 Private Placement of Units

TORONTO, ONTARIO--(Marketwire - March 27, 2009) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Polaris Geothermal Inc. (TSX:GEO) ("Polaris Geothermal" or the "Company") is pleased to provide an update on the significant progress made with respect to financing of the Company's planned 24 MW expansion at the San Jacinto geothermal power project in Nicaragua.

Progress on Project Financing

The Company has reached an agreement in principle with the Central American Bank for Economic Integration ("CABEI") to arrange, as lead bank, a US$77 million syndicated senior project financing (the "Debt Financing").

The Company has also entered into an engagement letter with a broker in connection with a planned concurrent US$25-30 million equity offering (the "Equity Offering" and, together with the Debt Financing, "Phase I Project Financing"). Closing of the Equity Offering will be subject to customary conditions, including satisfactory completion of due diligence and Toronto Stock Exchange ("TSX") approval.

The Global Investment Plan that has been presented to CABEI and is subject to final approval by the syndicate is as follows:



GLOBAL INVESTMENT PLAN -- PHASE I PROJECT FINANCING
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24 MW MCT EXPANSION
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Total Capital Debt
EXPANSION FROM 10 MW TO 34 MW Cost Equity Financing
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Corporate Expenses 801,353 327,388 473,965

Power Plant - 24 MW MCT
(Fully Condensing) 75,314,306 12,458,871 62,855,435

Drilling (Completed with
56 MW Behind Pipe) 17,500,000 3,829,400 13,670,600

Financing and Indirect Costs 24,764,821 24,764,821 0

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TOTAL INVESTMENT IN EXPANSION 118,380,480 41,380,480 77,000,000
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PARTICIPATION (%) IN EXPANSION 100.00% 34.96% 65.04%
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Investment to Feb. 28, 2009
(Equity & Debt) 36,983,276 11,991,852 24,991,424
Project Revenue Allocated to
Drilling Reserve 7,500,000 7,500,000 0
Additional Funds Required
(Equity & Debt) 73,897,204 21,888,628 52,008,576
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TOTAL CONTRIBUTION 118,380,480 41,380,480 77,000,000
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PARTICIPATION (%) 100% 34.96% 65.04%
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A portion of the proceeds of the Debt Financing will be used to repay in full the approximately US$21 million (CDN$27 million) owing to holders of debentures issued by the Company on April 11, 2008 (the "2008 Debentures"), the proceeds of which were invested in drilling programs, critical equipment purchases, civil works, construction, mobilization, planning, and related expansion activities at San Jacinto. The remaining proceeds of the Phase I Project Financing, together with the significant amount of equity committed to-date, are expected to enable the Company to successfully complete the planned 24MW expansion of the San Jacinto project and increase overall production to 34MW.

Announcement of Unit Offering

Polaris is pleased to announce a proposed offering of units ("Units") consisting of one (1) voting, convertible, redeemable preferred share of a class to be created (each, a "Preferred Share") and one (1) Class A common share purchase warrant (each, a "Unit Warrant") at a price of CDN$0.45 per Unit for aggregate gross proceeds of US$10,000,000 (the "Unit Offering").

Each Unit Warrant will be exercisable into one Class A common share at a price of CDN$0.45 within 24 months of closing of the Unit Offering. The number of Units issuable upon closing will be determined using the Canadian dollar equivalent of US$10,000,000 of Units, converted at the Bank of Canada noon rate on the day immediately prior to the closing date, divided by 0.45. For purposes of its filings with the TSX, the Company assumed a maximum US/Canadian dollar exchange rate of 1.35:1, provided that if the U.S. dollar goes above $1.35, the filings with the TSX will be amended to reflect the actual rate as of the date immediately prior to closing. On this basis, up to 30,000,000 Units will be issued upon closing of the Unit Offering.

Proceeds of the Unit Offering will be used by Polaris to accomplish the following objectives, among others:

- US $3,850,000 will be used by the Company to expand its portfolio of geothermal properties in Nicaragua and to cover certain acquisition costs.

- CDN$650,000 will be used to satisfy interest payments due and owing on March 31, 2009 pursuant to the terms of the 2008 Debentures, which payment the holders of the 2008 Debentures have agreed to postpone until closing of the Unit Offering.

- Approximately US$3,300,000 will be used to repay accrued liabilities incurred in connection with drilling programs, critical equipment purchases, civil works, construction, mobilization, planning and related expansion activities at the Company's San Jacinto geothermal project in Nicaragua.

Concurrent with and as a condition to closing of the Unit Offering, Polaris intends to implement amendments to the following outstanding warrants, subject to applicable shareholder and regulatory (including TSX) approval:

(a) the 18,009,000 warrants issued on April 11, 2008 in a private placement of units, each unit consisting of CDN$1,000 principal amount of 2008 Debenture, 667 warrants (the "2008 Warrants") and 75 rights to acquire one class A voting common share with no additional consideration, subject to the terms thereof (the "Rights"). Each 2008 Warrant is exercisable at a price of CDN$1.50 into one Class A common share at any time until the date that is the earlier of: (A) April 11, 2010, and (B) the 31st day after the Company has provided written notice that the closing price for the Class A common shares of the Company on the TSX has been at or over CDN$2.25 per share for 40 consecutive trading days with such written notice provided within five business days after such 40 trading day period;

(b) the 26,666,665 warrants issued on July 27, 2007 in a private placement of units (the "2007 Warrants"), each being exercisable into one Class A common share on or before July 27, 2010 at an exercise price of CDN$1.50;

(c) the 4,500,000 warrants issued on March 10, 2004 (the "2004 Warrants") in connection with the acquisition by Polaris of certain securities in the capital of Polaris Energy Corp., each being exercisable into one Class A common share on or before March 10, 2009 at a price of CDN$1.00; and

(d) the 3,500,000 warrants issued on March 3, 2006 in a debenture financing (the "2006 Warrants"), each being exercisable into one Class A common share on or before March 3, 2011 at a price of CDN$1.50.

(the 2004 Warrants, 2006 Warrants, 2007 Warrants and 2008 Warrants are hereinafter collectively referred to as the "Existing Warrants").

Subject to TSX and shareholder approval, Polaris intends to reduce the respective exercise prices of the Existing Warrants (including those held by insiders and related parties) to CDN$0.45 and extend their respective exercise periods to the date that is 24 months from closing of the Unit Offering. As at the close of trading on March 23, 2009, the five-day volume weighted average trading price of Polaris' Class A common shares on the TSX was $0.33 per share.

One of the major subscribers under the Unit Offering will be Treevil Holdings Inc. ("Treevil") or another designated affiliate of Skyberry Holdings Ltd. ("Skyberry"). Skyberry beneficially owns more than 10% of the voting securities of Polaris and is thus a "related party" of the Company for the purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), presently holding a total of 17,154,167 Class A common shares, 29,673,167 Existing Warrants and 975,000 Rights. Treevil is expected to subscribe for US$4,800,000 of the Unit Offering, or 14,400,000 Units, assuming a US/Canadian dollar exchange rate of 1.35:1. On that basis, assuming (i) no exercise of any outstanding warrants (including the Unit Warrants) and (ii) no other changes in the number of outstanding voting securities, Skyberry and its affiliates (including Treevil) will, upon closing of the Unit Offering, hold 31,554,167 (or approximately 29%) out of a total of 108,731,254 outstanding voting securities (being the Class A common shares and Preferred Shares combined) on a non-diluted basis. Skyberry also holds 29,673,167 of the Existing Warrants that are proposed to be amended.

The other major subscriber under the Unit Offering will be Exploration Capital Partners 2000 Limited Partnership ("ECP"). ECP is currently the beneficial owner of 4,249,056 Class A common shares, 4,602,300 Existing Warrants and 345,000 Rights. The Class A common shares currently held by ECP, together with aforementioned securities convertible into Class A common shares, exceed 10% of the number of voting securities of the Company that are currently issued and outstanding, on a non-diluted basis. Accordingly, ECP is also considered a "related party" of Polaris for the purposes of MI 61-101. ECP is expected to subscribe for US$4,800,000 of the Unit Offering, or 14,400,000 Units, assuming a US/Canadian dollar exchange rate of 1.35:1. On that basis, assuming (i) no exercise of any outstanding warrants (including the Unit Warrants) and (ii) no other changes in the number of outstanding voting securities, ECP will, upon closing of the Unit Offering, hold 18,649,056 (or approximately 17%) out of a total of 108,731,254 outstanding voting securities (being the Class A common shares and Preferred Shares combined) on a non-diluted basis. ECP holds 4,602,300 of the Existing Warrants that are proposed to be amended. Upon completion of the Unit Offering, ECP will become an insider of the Company for the purposes of the TSX, subject to the TSX receiving a Personal Information Form containing satisfactory disclosure relating to ECP.

Investments and Technical Management Ltd. ("ITM") is expected to subscribe for US$200,000 of Units, or 600,000 Units, assuming a US/Canadian dollar exchange rate of 1.35:1. To the best of the Company's knowledge, ITM is currently the beneficial owner of 6,564,371 Class A common shares and 2,700,000 Existing Warrants. Because the Class A common shares currently held by ITM combined with its Existing Warrants exceed 10% of the number of voting securities of the Company that are currently issued and outstanding on a non-diluted basis, ITM is also considered a "related party" of Polaris for the purposes of MI 61-101. ITM holds 2,700,000 of the Existing Warrants that are proposed to be amended.

The term sheet entered into among, inter alios, the Company, Treevil, ECP and ITM on March 25, 2009 (the "Term Sheet") in respect of the Unit Offering contains, among other things, (A) a right of first refusal in favour of Treevil and ECP with respect to certain equity financings completed during the next 12 months and (B) a termination fee of US$500,000 payable to Treevil by the Company in the event that the Company accepts or recommends a competing investment or an alternative transaction within 120 days of signing the Term Sheet or if the board of directors of the Company or any committee thereof withdraws its support for the Unit Offering (subject to the directors' fiduciary duties).

In accordance with the provisions of MI 61-101, the Unit Offering and the warrant amendments constitute "related party transactions" requiring the approval of the Company's disinterested shareholders. The Class A common shares held by Skyberry, ECP, ITM and any other interested insiders will be excluded from voting on these matters.

Polaris' shareholders will also be asked approve the filing of articles of amendment in order to create the Preferred Share class. The proposed changes to the Company's articles will require special two-thirds majority approval of the holders of Class A common shares and Class B non-voting common shares attending personally or represented by proxy.

A special meeting of the Company's shareholders has been called in connection with the foregoing matters and is scheduled to take place on April 29, 2009. Completion of the Unit Offering and proposed Existing Warrant amendments is subject to certain conditions, including shareholder and TSX approval. Assuming that these conditions are satisfied or waived, closing of the Unit Offering and related transactions is expected to occur immediately following the shareholders' meeting on April 29, 2009.

About Polaris Geothermal Inc.

Polaris is a Canadian company, focused on the generation of renewable energy projects in Latin America and other parts of the world. For more information about Polaris visit www.polarisgeothermal.com.

FORWARD LOOKING INFORMATION

This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "believes" or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", or "will be taken", "occur", or "be achieved". Forward-looking information in this press release includes, but is not limited to, statements or information concerning the Company's planned financing, expected completion date of the financing, expansion of its portfolio of geothermal properties and planned use of proceeds of financing. The forward-looking information reflects management's current expectations regarding future events and operating performance and is based on certain assumptions. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including uncertainty of obtaining regulatory and shareholder approval, uncertainty of the Company completing the aforementioned financings either on the terms announced or at all, results of the due diligence investigations of Skyberry, ECP, CABEI and others, a material adverse change in the Company's condition, failure to complete definitive documentation, market conditions, and other factors disclosed under the heading "Risk Factors" and elsewhere in the Company's documents filed from time to time with the securities regulatory authorities. Readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

This press release is not an offer of securities for sale in the United States. The securities described herein have not been registered under United States securities laws and may not be offered or sold in the United States absent registration or an exemption from registration. This release shall not constitute an offer to sell or solicitation of an offer, solicitation or sale would be unlawful.

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