Passport Energy Ltd. ("Passport") (TSX VENTURE:PPO) and Amarok Energy Inc.
("Amarok") (TSX VENTURE:AMR) are pleased to announce that further to the joint
press release dated March 21, 2014 announcing the execution of a non-binding
letter of intent between Passport and Amarok (the "LOI") to merge the companies
by way of a plan of arrangement (the "Arrangement") under the Business
Corporations Act (Alberta) (the "ABCA"), the parties have entered into a
definitive Arrangement Agreement dated April 25, 2014 (the "Arrangement
Agreement").
The Arrangement has the support of the Boards of Directors of both Passport and
Amarok. The directors and officers of Passport representing approximately 7.73%
of the outstanding Passport Shares (as defined below) will enter into voting
support agreements with Passport and Amarok to support the Arrangement.
The Arrangement and the terms of the Arrangement Agreement are substantially the
same as set forth in the LOI announced in the March 21, 2014 joint press release
of Passport and Amarok.
Summary of the Arrangement
Pursuant to the Arrangement Agreement, Passport intends to complete a brokered
private placement of subscription receipts of Passport for a minimum of
CDN$13,000,000 and up to a maximum of CDN$23,000,000 at a price of CDN$0.18 per
subscription receipt following which Passport proposes to complete a
consolidation of its common shares on a 6 for 1 basis (which will not include
the common shares of Passport to be issued upon exchange of the subscription
receipts). Each subscription receipt issued pursuant to the private placement
offering shall entitle the holder thereof to acquire one post-consolidation
common share of Passport at no additional consideration. Following the
consolidation, and the conversion of the subscription receipts, Passport and
Amarok propose to complete a three-cornered amalgamation whereby each
post-consolidated Passport common share will be exchanged for one Amarok common
share at a deemed price of CDN$0.18 per Amarok common share. Immediately
following the amalgamation, it is proposed that Amarok will consolidate its
common shares on a 5 for 1 basis and change its name from "Amarok Energy Inc."
to "Powder Mountain Energy Ltd." (the "Resulting Issuer"). Assuming completion
of each of the above steps, the Resulting Issuer will have approximately
37,000,000 common shares issued and outstanding assuming the minimum amount of
subscription receipts are subscribed for and 48,000,000 common shares issued and
outstanding assuming the maximum amount of subscription receipts are subscribed
for, at a price of approximately CDN$0.90 per Resulting Issuer common share,
following the completion of the Arrangement.
Upon completion of the Arrangement, it is anticipated that the current Passport
shareholders, the subscribers to the private placement and the Amarok
shareholders will hold approximately 10%, 39% and 51% of the issued and
outstanding common shares of the Resulting Issuer assuming the minimum amount of
the private placement offering is subscribed for and 8%, 53% and 39% of the
issued and outstanding common shares of the Resulting Issuer, respectively if
the maximum amount of the private placement offering is subscribed for. It is
anticipated that the Resulting Issuer will have cash (prior to transaction costs
or working capital deficit prior to the Arrangement) of approximately
CDN$28,000,000 assuming the minimum amount of the private placement offering is
subscribed for and CDN$38,000,000 assuming the maximum amount of the private
placement offering is subscribed for, and approximately CDN$7,800,000 of assets
in Southeast Saskatchewan, Montana and Wyoming.
32 Degrees (as defined below) proposes to subscribe for CDN$13,000,000 of the
private placement offering, which would result in 32 Degrees owning
approximately 49% (in the case where the maximum private placement offering is
subscribed for) of the issued and outstanding common shares of Passport
immediately following conversion of the subscription receipts (approximately 80%
in the case where the minimum private placement offering is completed) and
following the Arrangement, approximately 30% (assuming the maximum private
placement offering is subscribed for) of the Resulting Issuer (approximately 39%
in the case where the minimum private placement offering is subscribed for). As
a result, 32 Degrees will become a "control person" (as such term is defined
under the policies of the TSX Venture Exchange ("TSXV") of Passport upon
conversion of the subscription receipts and a control person of the Resulting
Issuer upon completion of the Arrangement.
Passport and Amarok have each provided notice to hold their respective
shareholders meetings on June 12, 2014 in Calgary, Alberta. Passport's
shareholders meeting will be held to approve, among other things, the Passport
Continuance (as defined below), the Private Placement Offering (as defined
below) and 32 Degrees as a new control person of Passport, the Consolidation (as
defined below), and the Arrangement, all as more particularly described below.
Amarok's shareholders meeting will be held to approve, among other things, 32
Degrees as a new control person, the Amarok Consolidation and the Name Change,
all as more particularly described below. The Arrangement Agreement provides
that Passport and Amarok will cooperate in the preparation, filing and mailing
of a joint information circular in respect of their respective shareholders
meetings. It is anticipated the joint information circular will be mailed on or
about May 16, 2014.
Details of the private placement offering and the Arrangement are described in
further detail below.
The Passport Private Placement
The Arrangement Agreement contemplates the Arrangement proceeding by way of a
three cornered amalgamation (the "Amalgamation") whereby a wholly owned
subsidiary of Amarok will acquire all of the issued and outstanding common
shares of Passport from shareholders of Passport in exchange for shares of
Amarok. Prior to the Amalgamation, Passport shall complete a brokered private
placement of a minimum of CDN$13,000,000 (the "Minimum Private Placement
Offering") and a maximum of CDN$23,000,000 (the "Maximum Private Placement
Offering") by way of subscription receipts ("Subscription Receipts") issued at
CDN$0.18 per Subscription Receipt on a post-Consolidated (as defined below)
basis convertible into common shares of Passport ("Passport Shares") on a 1 for
1 basis (after Consolidation) (the Minimum Private Placement Offering and the
Maximum Private Placement Offering collectively referred to as the "Private
Placement Offering"). Passport has entered into an engagement letter with
Integral Capital Markets ("Integral"), a division of Integral Wealth Securities
Limited to act as the exclusive agent of Passport to solicit subscriptions for
the sale of the Subscription Receipts on a reasonable best efforts basis. In
consideration for the services to be provided, Integral will be paid a cash
amount equal to CDN$200,000 on the 32 Degrees Subscription (as defined below)
and 6% of the gross proceeds raised from the Subscription Receipts from all
other parties excepting certain subscribers designated by Passport. Integral
will be reimbursed for its reasonable out-of-pocket expenses including its legal
fees. The net proceeds of the Private Placement Offering will be used to fund,
following the completion of the Arrangement, drilling activities on the Hardy
Lands (as hereinafter defined), further land and asset acquisitions and general
corporate purposes.
In order to facilitate a price of CDN$0.18 per Subscription Receipt under the
Private Placement Offering, Passport shall, subject to shareholder approval and
regulatory approval, complete a consolidation (the "Consolidation") of all of
issued and outstanding Passport Shares immediately prior to the closing of the
Private Placement Offering on the basis of six (6) Passport Shares for every one
(1) post-Consolidation Passport Share. Each Subscription Receipt will entitle
the holder thereof to one (1) post-Consolidation Passport Share which shall be
issued immediately prior to the Amalgamation.
The Arrangement Agreement contemplates that as a mutual condition precedent,
CDN$13,000,000 of the Private Placement Offering (the "32 Degrees Subscription")
will be subscribed for by 32 Degrees Diversified Energy Fund II (Canadian) L.P.
and 32 Degrees Diversified Energy Fund II (US) L.P. (collectively referred to as
"32 Degrees"). A portion of the subscription price (the "Subscription Portion")
payable by 32 Degrees under the 32 Degrees Subscription will be paid by the
transfer and conveyance of approximately 24 1/4 contiguous sections in the Hardy
area of Southeast Saskatchewan (the "Hardy Lands") recently acquired from arm's
length third parties and owned by a wholly-owned subsidiary of 32 Degrees ("32
Degrees HoldCo"). The estimated value of the Subscription Portion as at the date
hereof is approximately CDN$702,000 representing the purchase price of the Hardy
Lands paid by 32 Degrees Holdco. 32 Degrees HoldCo may, in its discretion,
acquire additional lands adjacent to, or in proximity to the Hardy Lands (the
"Additional Lands"), prior to the closing of the Private Placement Offering.
Additional Lands may, subject to applicable regulatory approval, also be
included and form a part of the Subscription Portion. The Subscription Portion
amount will equal the aggregate of approximately CDN$702,000 plus the amount
paid for Additional Lands, if any, the aggregate amount expended or contributed
by 32 Degrees with respect to the Hardy Lands, and Additional Lands, if any,
prior to the completion of the Private Placement Offering (the "Expenditure
Amount"), and interest equal to 12% per annum (calculated daily in respect of
each contribution or expenditure comprising the Expenditure Amount).
Subject to regulatory approval, the 32 Degrees Subscription will also provide
that following the closing of the Private Placement Offering and until the
Subscriber Group (as that term is defined below) holds directly or indirectly
less than 10% of post-Amalgamation Amarok Shares (as defined below), 32 Degrees
together with: (i) any joint investment fund or limited partnership which is
managed by the manager of 32 Degrees or an affiliate of the manager of 32
Degrees; and (ii) any limited partner of 32 Degrees or of any joint investment
fund or limited partnership which is managed by the manager of 32 Degrees or an
affiliate of the manager of 32 Degrees (collectively, the "Subscriber Group")
subject to certain limitations, shall have a pre-emptive right to participate in
any issuance of securities in the capital of the Resulting Issuer (or securities
convertible into, or exercisable or exchangeable for, such securities) at the
same price as the other participants in such financing up to its pro rata
interest determined at the time of such proposed issuance of securities.
Assuming the 32 Degrees Subscription is completed, 32 Degrees will own
approximately 49% (assuming the Maximum Private Placement Offering subscribed
for) of the issued and outstanding common shares of Passport immediately
following conversion of the Subscription Receipts (approximately 80% in the case
where the Minimum Private Placement Offering is completed). Accordingly, 32
Degrees will become a new "control person" (as such term is defined in the TSXV
Policy 1.1) of Passport. Passport will seek to obtain disinterested shareholder
approval of the Private Placement Offering and specifically, approval of 32
Degrees as a new control person.
The Amalgamation by way of Plan of Arrangement
Passport currently has 111,548,781 Passport Shares, 10,250,000 stock options
("Passport Options") 815,222 common share purchase warrants ("Passport
Warrants") issued and outstanding and no other securities of any class issued or
outstanding. It is anticipated that upon completion of the Consolidation and
assuming the Minimum Private Placement Offering is subscribed for, there will be
approximately 90,813,685 post-Consolidation Passport Shares issued and
outstanding and, assuming the Maximum Private Placement Offering is subscribed
for, there will be approximately 146,369,241 post-Consolidation Passport Shares
issued and outstanding as well as 1,708,333 post-Consolidation Passport Options
and 135,870 post-Consolidation Passport Warrants issued and outstanding. Amarok
currently has 93,215,292 common shares, 8,137,534 stock options ("Amarok
Options") and 1 common share purchase warrant ("Amarok Warrants") issued and
outstanding and no other securities of any class issued or outstanding.
The Amalgamation will proceed by way of a plan of arrangement under the ABCA. In
order to proceed, Passport will seek a shareholders resolution to approve the
continuance of Passport from the Business Corporations Act (British Columbia) to
the ABCA (the "Passport Continuance") immediately prior to the Arrangement.
As part of the Amalgamation, it is proposed that each one (1) post-Consolidation
Passport Share (which shall include the post-Consolidation Passport Shares
issued pursuant to the Subscription Receipts) shall be exchanged to a
wholly-owned subsidiary of Amarok in consideration for one (1) Amarok common
share ("Amarok Share"). It is anticipated that the shareholders of Passport and
Subscription Receipt holders will, upon completion of the Amalgamation, hold in
aggregate 49.3% of Amarok Shares assuming the Minimum Private Placement Offering
is subscribed for with Amarok having approximately 184,028,977 Amarok Shares
issued and outstanding and 61.1% of Amarok Shares assuming the Maximum Private
Placement Offering is subscribed for with Amarok having approximately
239,584,533 Amarok Shares issued and outstanding. Pursuant to the Arrangement
Agreement, it is anticipated that all unexercised Passport Options, Amarok
Options and Amarok Warrants will be cancelled or terminated immediately prior to
the Arrangement and all unexercised Passport Warrants will expire on April 26,
2014.
The Arrangement Agreement anticipates that immediately prior to the Arrangement
becoming effective, Amarok shall have: (i) not less than $15 million in cash and
cash equivalents; and (ii) oil and gas assets located in Wyoming and Montana
(the "U.S. Assets") of not less than CDN$2 million in value (or subject to such
other value as mutually agreed by the parties acting reasonably). The
Arrangement Agreement provides that the U.S. Assets may be sold (or an agreement
entered into to sell the U.S. Assets) by Amarok prior to the completion of the
Arrangement with the prior written consent of Passport.
Following the Arrangement, 32 Degrees will own approximately 30% (assuming the
Maximum Private Placement Offering is subscribed for) of the issued and
outstanding common shares of the Resulting Issuer (approximately 39% if the
Minimum Private Placement Offering is subscribed for). As a result, 32 Degrees
will become a new control person of the Resulting Issuer upon completion of the
Arrangement.
The Amarok Consolidation and Name Change
The Arrangement Agreement provides that Amarok will seek regulatory and
shareholder approval to: (i) approve of 32 Degrees as a new control person of
the Resulting Issuer; (ii) consolidate its common shares on a 5 for 1 basis (the
"Amarok Consolidation") immediately following the Amalgamation so that, assuming
the Minimum Private Placement Offering is subscribed for, the approximately
184,028,977 Amarok Shares issued and outstanding will be consolidated to
approximately 36,805,795 post-Consolidation Amarok Shares and assuming the
Maximum Private Placement Offering is subscribed for, the approximately
239,584,533 Amarok Shares issued and outstanding will be consolidated to
approximately 47,916,907 post-consolidation Amarok Shares; and (iii) change its
name from "Amarok Energy Inc." to "Powder Mountain Energy Ltd." (the "Name
Change") or such other name as the parties may mutually agree.
Following the Amalgamation, it is anticipated that the directors of the
Resulting Issuer will be:
i. Massimo Geremia;
ii. Bruce Murray;
iii.Gregg Smith;
iv. Larry Evans;
v. Mitch Putnam;
vi. Trent Baker; and
vii.Samuel Ingram.
Messrs. Massimo Geremia and Samuel Ingram are currently directors of Amarok.
Messrs. Gregg Smith and Bruce Murray are currently directors of Passport.
Messrs. Larry Evans, Mitch Putnam and Trent Baker are the nominees of 32
Degrees.
Management of the Resulting Issuer
The Arrangement Agreement contemplates that following completion of the
Arrangement and Name Change, the President and Chief Executive Officer of the
Resulting Issuer shall be Bruce Murray, the Chief Operating Officer of the
Resulting Issuer shall be Daniel Tiberio, and the Exploration Manager of the
Resulting Issuer shall be Jessica Gordon-Metez, each of whom are presently on
the management team of Passport.
Termination Fee
The Arrangement Agreement provides for a reciprocal termination fee equal to
CDN$300,000 payable by one party of the Arrangement Agreement to the other in
circumstances customary with industry practice. The Arrangement Agreement also
includes customary non-solicitation provisions, including the right of a target
party to respond to superior proposals.
Joint Information Circular and Shareholders Meetings
Passport has provided notice to hold a shareholders meeting on June 12, 2014 to
be held in Calgary, Alberta to approve, among other things, the Passport
Continuance, the Private Placement Offering and 32 Degrees as a new control
person, the Consolidation, and the Arrangement, all as more particularly
described herein. Amarok has also provided notice to hold a shareholders meeting
on June 12, 2014 in Calgary, Alberta to approve, among other things, 32 Degrees
as a new control person, the Amarok Consolidation and the Name Change, all as
more particularly described below. It is anticipated that Passport and Amarok
will mail a joint information circular on or about May 16, 2014 in respect of
their respective shareholders meetings.
The Arrangement, including the Passport Continuance, Private Placement Offering,
the Consolidation, the Amarok Consolidation, the Name Change, the approval of 32
Degrees as a new control person of Passport and the Resulting Issuer, and all
the securities transactions associated therewith or arising therefrom shall be
subject to, all applicable rules, policies and regulations of securities
regulatory authorities (including applicable stock exchange and shareholder
approvals) and securities and corporate laws.
Trading Halt
Trading of Passport Shares and Amarok Shares have, in the case of Passport, been
halted since January 10, 2014 and in the case of Amarok, since the announcement
of the LOI. Trading of the Passport Shares and Amarok Shares is expected to
remain halted until the earlier of May 9, 2014 or:
i. the receipt by Passport's Board of Directors of a verbal fairness
opinion from its financial advisors; and
ii. the entering into of a subscription agreement by 32 Degrees in
connection with the 32 Degrees Subscription.
On or before May 9, 2014, Passport and Amarok will issue a further news release
with information regarding the anticipated timing for the resumption of trading
of the Passport Shares and the Amarok Shares.
About 32 Degrees
32 Degrees is part of a group of energy-focused private equity funds managed by
32 Degrees Capital Advisor Ltd. ("32 Degrees Capital") of 650, 635 - 8th Avenue
SW, Calgary, Alberta T2P 3M3. 32 Degrees (i) is at arm's length to Passport and
Amarok, (ii) does not, as at the date hereof, own or control any shares of
Passport or Amarok, (iii) is intending to subscribe for the Private Placement
Offering as a business investment, and (iv) other than the CDN$13,000,000 32
Degrees intends to subscribe for under the Private Placement Offering, 32
Degrees does not presently have any future intention to acquire ownership of, or
control over, additional securities of Passport or Amarok. 32 Degrees confirms
that no promoter, officer, director, other insider or control person of 32
Degrees or any associates or affiliates of any such person owns, directly or
indirectly, any common shares of Passport or Amarok. Further information
regarding 32 Degrees and 32 Degrees Capital can be found at www.32degrees.ca.
General
The TSX Venture Exchange has in no way passed upon the merits of the Arrangement
or the Private Placement Offering and has neither approved nor disapproved the
contents of this press release.
Neither the TSX Venture Exchange nor its Regulation Service Provider (as that
term is defined in policies of the TSX Venture Exchange) accepts responsibility
for the adequacy or accuracy of this news release.
Certain statements contained in this news release constitute forward-looking
statements. These statements relate to future events. All statements other than
statements of historical fact are forward-looking statements. The use of the
words "may", "expected", "believes" and other words of a similar nature are
intended to identify forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause actual results
or events to differ materially from those anticipated in such forward-looking
statements. Although Passport and Amarok believe these statements to be
reasonable, no assurance can be given that these expectations will prove to be
correct and such forward-looking statements included in this news release should
not be unduly relied upon. Such statements include statements with respect to
the Passport Continuance, Private Placement Offering, the Consolidation, the
Amarok Consolidation and Name Change and the timing thereof. There is no
assurance that the parties will carry out the terms of the Arrangement
Agreement. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of prevailing economic conditions,
receipt of requisite regulatory approvals, and other factors, many of which are
beyond the control of Passport and Amarok. There is no assurance that all terms
and conditions set forth in the Arrangement Agreement or any of the contemplated
transactions set out therein will be undertaken or met in a timely manner. The
forward-looking statements contained in this news release represent Passport's
and Amarok's expectations as of the date hereof, and are subject to change after
such date. Passport and Amarok each disclaim any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as may be required by applicable
securities regulations.
FOR FURTHER INFORMATION PLEASE CONTACT:
Amarok Energy Inc.
Massimo Geremia
Director
(403) 984-1751
mass@manitok.com
www.amarokenergy.com
Passport Energy Ltd.
Bruce Murray
President & CEO
403-930-4061
bmurray@passportenergy.com
Passport Energy Ltd.
Daniel Tiberio
COO
403-930-4070
dtiberio@passportenergy.com
www.passportenergy.com
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