PATC Announces Change in Financing Plans to Improve Liquidity and Restructure its Balance Sheet



    VANCOUVER, Jan. 4 /CNW/ - Precision Assessment Technology Corporation
("PATC" or the "Company") (TSX:PDT) announced today that it will not be
proceeding with the second closing with Bison Capital Equity Partners II, LP
("Bison") and that the Company is taking steps to address resulting liquidity
concerns.
    As announced by PATC on April 2, 2007, Bison invested USD$8.0 million to
acquire 8,000 preferred shares of PATC's wholly owned U.S. subsidiary,
Precision Assessment Technology (U.S.) Corporation ("PATC US"). Each such
preferred share is exchangeable into 4,348 common shares of PATC. If all the
PATC US preferred shares were exchanged, Bison would receive approximately
34.8 million common shares of PATC, representing approximately 31% of the
outstanding shares of PATC on a fully diluted basis.
    It was originally contemplated that Bison would purchase an additional
4,000 PATC US preferred shares at a second closing for an additional
investment of USD$4.0 million. The proceeds from this investment were to be
used for the acquisition of another drilling company, which was to contribute
substantial additional cash flow, and for working capital purposes. The
Company, with Bison's consent, determined not to proceed with the acquisition
of this drilling company based upon the results of its due diligence
investigation. As a result, Bison was not prepared to make the additional
USD$4.0 million investment in PATC US on the same terms as the original
USD$8.0 million invested. The new terms proposed by Bison were not acceptable
to PATC and would have materially increased the Company's cost of capital from
Bison.
    Given that a portion of the second Bison investment was to be used for
working capital purposes, the decision not to proceed with the second
investment has resulted in liquidity problems for PATC and its subsidiaries.
Additional working capital is required to fund the expansion of PATC's
business resulting from the acquisition of BC2 Environmental Corp. completed
in March 2007 and from internal growth.
    Bob Nowack, Chairman of PATC, stated "A large number of steps had been
taken and the financing with Bison had been structured in contemplation of the
abandoned acquisition. Not completing this transaction is consistent with our
disciplined approach to acquisitions notwithstanding the difficulties caused
by choosing not the complete. Not completing this second acquisition and the
resultant delay in completing the additional equity financing has caused the
liquidity problems and a working capital deficit. The Company's bankers have
been patient while alternate financing has been arranged and Bison continues
to support the Company and is helping to take the steps necessary to
facilitate securing the necessary financing."
    A Special Committee of the Board of Directors of PATC ("Special
Committee") was struck to consider strategic alternatives to address the
liquidity concerns and financial difficulty arising as a result of the
foregoing. Both the Special Committee and the Board of Directors have
considered and approved, subject to regulatory approval, the following steps
designed to improve the financial condition of PATC:

    
    -  Amendment of Terms of Bison Financing - Bison and PATC will be
       amending the original documentation entered into in connection with
       the Bison investment to acknowledge that Bison will not be making a
       second investment in PATC US. In addition, certain of the financial
       covenants relating to the PATC preferred shares are to be amended to
       reflect PATC's revised business plans. In connection with such
       changes, Bison has required, and the Special Committee has agreed,
       subject to the receipt of required regulatory approvals including
       approval of the Toronto Stock Exchange ("TSX"), to increase the
       exchange ratio applicable to the 8,000 outstanding PATC US preferred
       shares from 4,348 common shares of PATC for each such preferred share
       to 6,667 common shares of PATC. This would increase the number of PATC
       common shares that Bison would receive if such preferred shares were
       fully exchanged to approximately 53.3 million common shares of PATC,
       representing approximately 39% of the outstanding shares of PATC on a
       fully diluted basis today or 27% assuming completion of the steps
       outlined below.

    -  Conversion of Existing Bridge Loan - PATC proposes, subject to TSX
       approval, to convert the bridge loan held by Conor Pacific Canada Inc.
       ("Conor Pacific") in the principal amount of $3,400,000 and up to
       $700,000 of additional amounts payable by PATC to Conor Pacific into
       preferred shares of PATC ("PATC Preferred Shares") for a subscription
       price of $1,000 per share. The PATC Preferred Shares shall have the
       same terms as those attached to the PATC US preferred shares held by
       Bison, the principal terms of which, subject to the amendments noted
       above, were described in PATC's press release of March 1, 2007. Conor
       Pacific is owned and controlled by Mr. Bob Nowack, a director and
       Chairman of Precision. The proposed conversion improves PATC's balance
       sheet by eliminating substantial indebtedness and improves debt
       service coverage by reducing ongoing interest expense. If such
       preferred shares are issued, they would, if fully converted into PATC
       common shares, entitle Conor Pacific and its affiliates to acquire
       approximately 27.3 million additional common shares. This would
       represent approximately 14% of the outstanding common shares of PATC
       on a fully diluted basis, assuming completion of all of the steps set
       out herein. Conor Pacific and its affiliates currently own
       approximately 25 million common shares of PATC or 32.5% of PATC's
       outstanding common shares on a fully diluted basis.

    -  Subscription for Additional PATC Preferred Shares - PATC needs to
       continue with its growth initiatives and has capital commitments for
       2008. In order to assist in funding these requirements, Conor Pacific
       has agreed, subject to TSX approval, to subscribe for an additional
       4,000 PATC Preferred Shares for a subscription price of $1,000 per
       share for aggregate subscription proceeds of $4 million. This
       additional capital will address current liquidity problems and replace
       the equity which was to have been contributed by Bison at the closing
       of the acquisition referenced above. If such PATC Preferred Shares are
       issued, they would, if fully converted into PATC common shares,
       entitle Conor Pacific and its affiliates to acquire approximately
       26.7 million additional common shares. This would represent

       approximately 14% of the outstanding common shares of PATC on a fully
       diluted basis, assuming completion of all of the steps set out herein.

    -  Issue of Common Shares in Connection with the Lease of Spectrum
       Assets - PATC Limited Partnership No. 1, a limited partnership formed
       under the laws of the province of British Columbia (the "Limited
       Partnership"), has purchased certain drilling assets from a third
       party vendor (the "Spectrum Assets") for a purchase price of
       USD$2.5 million. PATC was unable to complete the purchase of the
       Spectrum Assets due to the financial difficulties described above. The
       Limited Partnership will lease the Spectrum Assets to PATC or an
       affiliate of PATC pursuant to an operating lease. The operating lease
       provides PATC with an option at the end of the initial term of
       13 months to purchase the Spectrum Assets from the Limited Partnership
       for a purchase price equal to their then fair market value. It is
       proposed, subject to TSX approval, that $500,000 of the purchase price
       for the Spectrum Assets would be paid by the issue to the Limited
       Partnership of 3,333,333 common shares of PATC (being an effective
       issue price of $0.15 per common share). The Limited Partnership is
       owned as to 20% by Conor Pacific and as to an additional 60% by other
       directors.

    -  Non-brokered Private Placement of Common Shares - In order to fund
       continued growth, PATC intends, subject to TSX approval, to proceed
       with a non-brokered private placement of up to 13,333,333 common
       shares at a subscription price of $0.15 per common share for aggregate
       proceeds of up to $2.0 million.
    

    Each of the foregoing transactions, with the exception of the private
placement, would ordinarily be subject to shareholder approval pursuant to TSX
requirements. The Special Committee and the Board of PATC have determined that
the liquidity problems put the Company at risk and that it is in serious
financial difficulty within the meaning of Paragraph (e) of Section 604 of the
TSX Company Manual. As a result, PATC intends to apply to the TSX to dispense
with the requirement to obtain shareholder approval in connection with each of
the transactions on the basis of such serious financial difficulties.
    Each of the foregoing transactions, with the exception of the private
placement, may also be considered "related party transactions" pursuant to
Rule 61-501 of the Ontario Securities Commission ("Rule 61-501"). The Company
intends to rely on the financial hardship exemption to the formal valuation
and minority approval requirements as contemplated by Part 5 of Rule 61-501.
    Upon completion of the forgoing transactions, the PATC intends, subject
to TSX approval, to consolidate its common shares on the basis of one common
share for every ten issued and outstanding common shares (1:10 consolidation),
as approved by shareholders at the Company's annual meeting held on July 19,
2007.
    With the completion of the lease of the Spectrum Assets, PATC anticipates
it is now at an annual revenue run rate of approximately $27.0 million. The
restructuring of the balance sheet will result in PATC having approximately
$20.0 million of equity. Following these equity financings, the Company's
intention is to renegotiate its existing senior debt by increasing the term of
all existing senior debt (including the operating line of credit) to further
improve liquidity. At the same time, the Company expects to be able to secure
additional long term growth capital from its bankers.

    About PATC - PATC provides drilling services for site assessment and
remediation and groundwater assessment, monitoring and mitigation in the
United States. These services are provided using specialized and innovative
drilling and sampling equipment and technologies from offices in California
and Florida. Precision Assessment Technology Corporation operates through its
wholly owned U.S. subsidiaries, Precision Sampling, Inc., Trenchless
Specialties Inc. and BC2 Environmental Corp. Further information can be found
at www.patc-usa.com. PATC's common shares are listed on the Toronto Stock
Exchange under the symbol "PDT".

    FORWARD-LOOKING STATEMENTS: Except for statements of historical fact, all
statements in this news release - including, without limitation, statements
regarding future plans and objectives of PATC are forward-looking statements
that involve various risks and uncertainties. Forward-looking statements in
this document are often, but not always, identified by the use of words such
as "anticipate" and "intend" and statements that an event or result "will"
occur or be achieved and other similar expressions. There can be no assurance
that such statements will prove to be accurate; actual results and future
events could differ materially from those anticipated in such statements.

    %SEDAR: 00003754E




For further information:

For further information: Tony Kirschner, Vice President, Corporate
Development PATC, Tel: (604) 669-3373 (Ext. 208)

Organization Profile

PRECISION ASSESSMENT TECHNOLOGY CORPORATION

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