Polaris Geothermal Inc.

Polaris Geothermal Inc.

December 11, 2006 09:52 ET

Polaris Geothermal Provides Update

TORONTO, ONTARIO--(CCNMatthews - Dec. 11, 2006) -

Not For Distribution to US Newswire Services or for Dissemination in the United States

Polaris Geothermal Inc. ("Polaris Geothermal" or the "Company"), (TSX VENTURE:GEO) a renewable energy geothermal power producer, wishes to announce the following:

Amendment of Previously Announced Private Placement

The Company has amended the terms to its previously announced private placement on a best efforts agency basis (the "Offering") with Dundee Securities Corporation (the "Agent") of up to 9,600,000 units ("Units") at a price of $1.25 per Unit for gross proceeds of up to Cdn.$12,000,000. Each Unit will consist of one class A common share and one share purchase warrant (a "Warrant"). Each Warrant will entitle the holder to acquire one class A common share ("Common Share") of Polaris Geothermal at an exercise price of $1.50 for a period of 24 months from the date of issuance. The Warrants are subject to an acceleration clause that if, at any time within six months or more following the closing of the Offering, the closing price of the Common Shares of the Company on the TSX Venture Exchange or the Toronto Stock Exchange exceeds $2.50 per share or higher for a period of twenty (20) consecutive trading days, then the Company shall give notice to the investors that the Warrants must be exercised or they will expire thirty (30) days after such notice.

As compensation, the Agent will receive a cash fee equal to 7 percent of the gross proceeds raised in the Offering and compensation warrants entitling them to acquire up to 7 percent of the number of Units issued in the financing, at an exercise price of $1.25 per Unit for a period of 24 months from the date of issuance.

The Offering is scheduled to close in December, 2006. Proceeds from the Offering will be invested in Polaris Geothermal's 66 mega watt (MW) San Jacinto-Tizate geothermal project in Nicaragua, to be applied towards a payment due on January 10, 2007 under the terms of the Company's credit facility with Standard Bank London PLC ("Standard Bank") and Central American Bank for Economic Integration ("CABEI"), to pay down other debt and for general corporate purposes.

Quest Capital Corp. Bridge Loan

The Company is pleased to announce that it has entered into a term sheet with Quest Capital Corp. ("Quest") pursuant to which Quest will, subject to completion of due diligence and other conditions, lend the sum of Cdn.$5 million (the "Loan") to the Company. The Loan will be advanced in two tranches, the first tranche being approximately Cdn.$3.4 million, representing the amount necessary to pay the July 2006 payment and interest owing thereon to Standard Bank and CABEI (the "Senior Lenders"). The second tranche will be in the amount of approximately Cdn.$1.6 million, representing the balance of the $5 million credit facility and will be used towards the prepayment of the amount owing to the Senior Lenders which is due on January 10, 2007. The balance of the funds necessary to make the January 10, 2007 payment is expected to be obtained from the Offering. The Loan shall be due and payable in full on June 30, 2007 and will bear interest at the rate of 12% per annum, payable monthly on the last business day of each month. The Senior Lenders have agreed to the terms of the Quest credit facility. The Loan will be secured by the assets of the Company and second priority security over the lands owned by the Company's Nicaraguan subsidiary, subordinate only to the existing security held by the Senior Lenders. It is expected that the Loan will be completed in December, 2006.

In connection with the Loan, subject to the approval of the TSX Venture Exchange, Polaris will issue an aggregate of up to 600,000 Common Shares to Quest and Standard Bank.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. All dollars in this release are in Canadian funds.


This press release includes certain "forward-looking statements". All statements regarding the ability of the Company to successfully complete the Offering and the loan with Quest are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. All statements that are not historical facts, including without limitation statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, are "forward-looking statements". We caution you that such "forward looking statements" involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include unpredictable results of exploration activities, uncertainties inherent in the estimation of geothermal resources, fluctuations in the costs of goods and services, problems associated with production operations, changes in legal, social or political conditions in the jurisdictions where the Company operates, lack of appropriate funding and other risk factors, as discussed in the Company's filings with Canadian securities regulatory agencies. The Company expressly disclaims any obligation to update any forward-looking statements.

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