Mr. Leonard Van Betuw reports

AVILA ENERGY CORPORATION PROVIDES UPDATES ON ITS CONVERTIBLE DEBENTURE UNITS FINANCING AND THE MTT TRANSACTION

Avila Energy Corp. has clarified its news release dated June 7, 2023, regarding the convertible debenture unit financing and the Micro Turbine Technology BV transaction.

Convertible debenture unit financing

As previously stated in its June 7, 2023, news release, Avila has agreed to enter into non-brokered private placement discussions with two groups of accredited investors according to National instrument 45-106 (Prospectus Exemptions) located in the United States and continue to work toward the completion of the private placements totalling $10-million (U.S.) on or before July 15, 2023, of convertible debenture units, offering for a minimum of $5-million (U.S.) and a maximum of $30-million (U.S.), subject to an additional $5-million (U.S.) to cover any oversubscription, the whole on a best effort basis only.

The offering price per unit is $1,000 (U.S.) with a minimum subscription of $5-million (U.S.) (5,000 units). The company may accept subscriptions for less than the minimum in its sole discretion.

The convertible debenture units shall consist of: (i) one 24-month convertible unit with a stated value of $1,050 (U.S.) per unit with an automatic extension; and (ii) a two-year warrant representing the right to purchase one company common share for every dollar of the stated value of the units subscribed for at an exercise price of 50 U.S. cents per common share.

Each holder of the units shall be entitled to receive interest payable on the stated value of such unit at the rate of 9 per cent per annum, which shall be cumulative and be due and payable in common shares on the applicable conversion date or in cash at the discretion of the company, subject to the Canadian Securities Exchange policies. In the event the accrued interest is paid in common shares, the number of common shares shall be calculated using the conversion price.

Upon completion of the business combination announced by the company on April 3, 2023, the holders of the units shall be entitled to demand a full or partial redemption of 115 per cent of the stated value plus 115 per cent of the amount of accrued but unpaid interest thereon to the extent that the residual postredemption trust balance of the company exceeds $10-million (U.S.). The redemption shall be allocated on a pro rata basis to all holders of the units. Thereafter, units shall be redeemable, in whole or in part, at the option of the holder of the units, in cash, at a price per share equal to 115 per cent of the stated value plus 115 per cent of the amount of accrued but unpaid interest thereon, unless extended as described as the extension (as defined herein).

The holder of the units shall be entitled to convert any portion of the units, plus any accrued but unpaid interest, into common shares at any time after the earlier of:

1. The date of the completion of the business combination;
2. 24 months after the initial closing date of the offering at the conversion price set forth herein.

If no conversion has taken place within 24 months of the offering closing date, the units, plus any accrued but unpaid interest, will automatically convert into common shares at the conversion price set forth below if the share price is at $4 (U.S.) or higher. In the event the business combination is not consummated within 24 months of the offering closing date, the units shall remain an obligation of the company. In this case, the units may be converted into common shares of the company listed on a Canadian exchange at the choice of the holder of the units. If the holder of the units decides not to convert into common shares at the end of that 24-month period, then the units will be automatically extended for 12 months unconditionally, and the exchange price will be increased from 115 per cent to 122 per cent. During the extension period, the holder of the units can convert into common shares as described herein. If, at the end of the extension period, the share is trading at or above $4 (U.S.) per common share, the units will be automatically converted into common shares. If the common shares are trading below $4 (U.S.) per common share, the units will become due and payable at 122 per cent of the unpaid principal and accrued interest amount. If this occurs, the company and the holder of the units agree to negotiate the terms in good faith. In such case, the holder of the units will have full rights and remedies to be repaid in full as described herein unless the parties agree to new terms. In addition, once the company has raised $25-million (U.S.), the units will become secured by all the assets of the company.

If the units are converted into common shares, the conversion price is the lower of:

1. $6 (U.S.) per share;
2. 80 per cent of the lowest closing price of the company during 21 consecutive trading days ending on the trading day immediately prior to receiving a conversion notice from the holder of the units; the conversion price shall be subject to a floor price of $4 (U.S.) per share, subject to compliance with CSE policies.

If the transaction does not close, then the units will be converted into common shares at the conversion price at the lower of: (i) $1.25 per share; or (ii) 80 per cent of the lowest closing price of the company during 21 consecutive trading days ending on the trading day immediately prior to receiving a conversion notice from the unitholder. The conversion price shall be subject to a floor price of 50 cents per share. For clarification, there can be no conversion into the common shares of the company as long as the transaction is still progressing.

The financing is to be completed by way of a private placement offering: (i) pursuant to Section 4(a)(2) and/or Rule 506(b) of Regulation D under the U.S. Securities Act of 1933, as amended; or (ii) pursuant to Canada's applicable securities laws, including National Instrument 45-106 and any and all applicable state/provincial securities laws.

Closing is anticipated to close on or before July 15, 2023, or as may be extended by the company.

The units and underlying securities will be subject to a four-month-and-one-day regulatory hold period from the date of issuance.

The proceeds of the offering will be used for the purposes set out herein. The proceeds will be applicable on a pro rata basis based on the actual proceeds raised.

MTT transaction (update)

On April 13, 2023, MTT sent a termination notice to the company, alleging that the company has not complied with its obligations under the loan (as defined in the licence agreement entered into between Avila and MTT on March 22, 2022). However, the company is disputing the termination notice for the two following reasons:

• MTT cannot validly terminate the licence agreement as the alleged default purports to the loan as the loan did not exist as at the termination notice. The loan was converted into equity of MTT on Jan. 31, 2023, which extinguished the loan.
• This is further supported by a payment agreement entered into between MTT and Avila on March 17, 2023, whereby Avila (debtor) owes MTT (creditor) an amount of 2.15 million euros for late payment of the loan. The extinguished loan has been replaced by the payment agreement. The termination notice will be withdrawn once the payment agreement has been executed between the parties, a confirmation that the wire instructions of MTT have been received by Avila and the confirmation by Avila that a first payment of 300,000 euros has been received. Three hundred thousand euros were to be paid by March 21, 2023, and the balance of two million euros were supposed to be paid by April 4, 2023. The amount owed bears an interest rate of 5.25 per cent, compounded annually.
• MTT is in default due to an unpaid judgment against MTT, which puts in peril the loss by MTT of the patents underlying the licence agreement. As such, the company has issued a notice of default to MTT on April 13, 2023, and the defaults have not been cured yet by MTT.

Notwithstanding the foregoing, the parties are currently negotiating the transaction details and are looking forward to amicably resolve the continuing dispute. The legal issues surrounding the termination or not of the licence agreement will be settled once MTT cures Avila's default notice. Avila intends to honour its other financial contractual obligations toward MTT of 2.15 million euros.

Avila will provide periodic updates upon any news or advances to keep Avila's shareholders duly informed on this issue. As noted in its June 7, 2023, news release, parts of the proceeds to be raised by the offering will enable to cure any alleged payment default by Avila toward MTT.

About Avila Energy Corp.

The company is an emerging Canadian Securities Exchange-listed corporation trading under the symbol (VIK) and, in combination with an expanding portfolio of 100-per-cent owned and operated oil and natural gas production, pipelines, and facilities, is a licensed producer, explorer and developer of energy in Canada. The company's long-term vision is to achieve through the implementation of a closed system of carbon capture and sequestration an established path toward the material reduction of Tier 1, Tier 2 and Tier 3 emissions, and continue to work toward becoming a vertically integrated carbon neutral energy producer. The company's goals are to be achieved by focusing on the application of proven geological, geophysical, engineering and production techniques in combination and the direct sale of energy to both residential and commercial consumers.

We seek Safe Harbor.