Amendments to secured convertible debenture and release of proceeds: Financial Hardship Exemption



    CALGARY, Aug. 27 /CNW/ - Birch Mountain Resources Ltd. ("Birch Mountain"
or the "Company") (BMD: TSX) announces that it has entered into agreements to
amend certain terms of a $31.5 million principal amount convertible senior
secured debenture, (the "Debenture"), issued to Tricap Partners Ltd.
("Tricap") on a private placement basis on December 21, 2007 and announced on
December 24, 2007, in order to gain the release and use of the cash proceeds
from the sale of the South Haul Road that Tricap would have had the right to
elect to apply to reduce the indebtedness owing to them under the Loan
Agreement (as defined below). In connection with these amendments, Tricap has
agreed to waive certain defaults under the Loan Agreement on the terms set
forth in the amendment.
    The amendments to the Debenture will accommodate the continuous pursuit
of an immediate sale of the Company or its assets or additional equity
financing to unlock the maximum value for its shareholders as previously
announced on July 23, 2008.

    Background to Debenture Amendments

    On June 23, 2008, Tricap issued a notice of a default with respect to
financial covenant non-compliance by the Company under the terms of the
December 21, 2007 Loan Agreement, (the "Loan Agreement"). This became an event
of default on July 3, 2008 and since July 23, 2008 Tricap has had the ability
to convert the Debenture into common shares of the Company ("Common Shares")
due to the passage of an additional 20 days without the Company having cured
the event of default.
    The Company signed an agreement effective July 11, 2008 with the East
Athabasca Highway Proponents led by Suncor Energy, for the acquisition,
construction and operation of the South Haul Road, ("SHR"). The cash proceeds
of $4.8 million (the "SHR Proceeds") have been paid to and are currently being
held by counsel to Tricap, in accordance with the terms of the Loan Agreement.
The proceeds will be used by the Company for its continued business operations
and in accordance with an approved cash flow forecast.

    Summary of Amendments

    Pursuant to the terms of an Acknowledgement, Waiver and Amending
Agreement between the Company and Tricap effective August 1, 2008 (the
"Amending Agreement") the parties agreed to make certain amendments to the
Loan Agreement, the Debenture and the Investor Rights Agreement between the
Company and Tricap dated December 21, 2007 subject to TSX approval. Generally
stated, the amendments to the Loan Agreement provide that Tricap will waive
the Company's existing defaults and release the SHR Proceeds to the Company,
subject to the Company satisfying a number of conditions as set out in the
Amending Agreement.

    
    Pursuant to the Amending Agreement the principal amendments include:

    -   the aggregate principal amount is increased from $31.5 million to
        $34.5 million to accommodate a $3 million loan amendment fee;
    -   the applicable interest rate is increased from a variable interest
        rate of prime plus 9% to an interest rate of 20%;
    -   the conversion price pursuant to the Debenture is reduced from the
        lower of $0.40 (reduced from $0.80) per Common Share (the "Initial
        Price) and the current market price at the time of conversion;
    -   should the Company issue equity securities below $0.40 per share, or
        securities convertible into equity securities with a strike or
        exercise price below $0.40 per equity security, the Initial Price
        will be reduced to such lower amount per equity security (the
        "Ratchet Provision");
    -   the restriction on conversion of the Debenture prior to
        December 31, 2008 will be removed, such that the Debenture will be
        convertible in whole or in part into Common Shares at any time
        throughout the term of the Debenture;
    -   the minimum Change of Control Redemption Price (the "Minimum
        Redemption Price") pursuant to the Debenture will be amended from its
        current rate of 120% to 150%. On January 1, 2009, the Minimum
        Redemption Price will increase to 200%;
    -   the reinstatement of the events of default under the Loan Agreement
        and the granting of certain board rights in favour of Tricap will
        occur in the event that a sale agreement or an equity financing of
        not less than $10 million is not concluded on or before
        September 30, 2008 and a closing of the said transaction does not
        occur on or before October 31, 2008;
    -   a reduction of the loan amendment fee which would reduce the
        principal amount of the Debenture from $34.5 million dollars to
        $32.5 million dollars in the event a sale agreement is concluded on
        or before September 30, 2008 and a closing of the said transaction
        occurs on or before October 31, 2008.

    Conditional TSX Approval, Exemption from Shareholder Approval and Effect
    of Amendments
    

    In connection with the Amending Agreement, and based on a principal
amount of $34.5 million and an Initial Price of $0.40, the Company may issue
up to 86,250,000 common shares representing a dilution of 102% of the current
issued and outstanding shares. A greater number of common shares may be issued
to Tricap should the conversion price be less than the Initial Price. For
example, based on a price of $0.20 per share (the closing price on
August 25, 2008), assuming full conversion of the Debenture,
172,500,000 common shares would be issuable which would represent 67.16% of
the then outstanding common shares. A lesser number of common shares may be
issued to Tricap should the principal amount be reduced.
    In accordance with the policies of the TSX, shareholder approval is
required for the Amending Agreement on the basis of the following: (i)
dilution will be in excess of 100% if the amended Debentures are converted,
(ii) Tricap would own in excess of 50% of the issued and outstanding
securities of the Company if the amended Debentures are converted, which would
materially effect control of the Company and (iii) the anti-dilution
provisions of the amended Debentures are not in accordance with section
607(g)(i), 604(a)(i) and 607(e) of the TSX Company Manual.
    As already disclosed, the Company is presently experiencing serious
financial difficulty. As a consequence of such financial hardship and upon the
recommendation of the Special Committee of the board of directors of the
Company, the Company applied to the TSX for an exemption from the requirement
to obtain shareholder approval for the Amending Agreement on the basis of the
financial hardship exemption pursuant to section 604(e) of the TSX Company
Manual (the "Financial Hardship Exemption"). The TSX has conditionally granted
and the Company shall rely upon the Financial Hardship Exemption in connection
with the Amending Agreement.
    As a consequence of relying upon the Financial Hardship Exemption, the
TSX has informed the Company that it will, in the ordinary course, commence a
delisting review. It is expected upon completion of further transactions as
described above, the Company will then be in compliance with TSX listing
requirements.
    The Company also intends to rely on the Financial Hardship Exemption for
any further transactions which may require shareholder approval. A further
press release will be issued once details of any further transactions have
been determined.
    Pursuant to Multilateral Instrument 61-101 ("MI 61-101"), the Amending
Agreement may be considered to be a "related party transaction". The Company
will rely upon the formal valuation exemption in Section 5.5(g) of MI 61-101
and upon the minority approval exemption in Section 5.7(e) of MI 61-101 on the
basis of financial hardship.

    Forward Looking Statements: This news release contains certain
forward-looking statements. All statements, other than statements of
historical fact, included herein, including without limitation, statements
regarding resources and reserves, exploration and development plans and
results, anticipated capital expenditures and financing thereof, anticipated
outcomes and timing of regulatory applications and approvals and the future
plans and objectives of Birch Mountain 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. Certain
amounts in financial statements are based on estimates using the best
currently available information and assumptions of management. Important
factors that could cause actual results to differ materially from Birch
Mountain's expectations are disclosed elsewhere in documents that are
available to the public at www.sedar.com and www.sec.gov.

    %SEDAR: 00003909E




For further information:

For further information: Birch Mountain, Tel. (403) 262-1838, Fax (403)
263-9888; Steve Chizzik, Equity Communication, Tel. (908) 688-9111, Website:
www.birchmountain.com

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BIRCH MOUNTAIN RESOURCES LTD.

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