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Passport Energy, Amarok enter definitive merger deal
2014-04-30 08:29 ET - News Release
Also News Release (C-AMR) Amarok Energy Inc
Mr. Bruce Murray of Passport reports
PASSPORT ENERGY AND AMAROK ENERGY ENTER INTO ARRANGEMENT AGREEMENT
Passport Energy Ltd. and Amarok Energy Inc., further to the joint press release dated March 21, 2014, announcing the execution of a non-binding letter of intent between Passport and Amarok to merge the companies by way of a plan of arrangement under the Business Corporations Act (Alberta) (ABCA), have entered into a definitive arrangement agreement dated April 25, 2014.
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 per cent 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 $13-million and up to a maximum of $23-million at a price of 18 cents per subscription receipt, following which Passport proposes to complete a consolidation of its common shares on a one-for-six 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 postconsolidation 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 postconsolidated Passport common share will be exchanged for one Amarok common share at a deemed price of 18 cents per Amarok common share. Immediately following the amalgamation, it is proposed that Amarok will consolidate its common shares on a one-for-five basis and change its name from Amarok Energy Inc. to Powder Mountain Energy Ltd. Assuming completion of each of the above steps, the resulting issuer will have approximately 37 million common shares issued and outstanding assuming the minimum amount of subscription receipts are subscribed for and 48 million common shares issued and outstanding assuming the maximum amount of subscription receipts are subscribed for, at a price of approximately 90 cents 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 per cent, 39 per cent and 51 per cent of the issued and outstanding common shares of the resulting issuer, respectively, assuming the minimum amount of the private placement offering is subscribed for, and 8 per cent, 53 per cent and 39 per cent 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 $28-million assuming the minimum amount of the private placement offering is subscribed for and $38-million assuming the maximum amount of the private placement offering is subscribed for, and approximately $7.8-million of assets in southeast Saskatchewan, Montana and Wyoming.
32 Degrees (as defined below) proposes to subscribe for $13-million of the private placement offering, which would result in 32 Degrees owning approximately 49 per cent (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 per cent in the case where the minimum private placement offering is completed), and following the arrangement, approximately 30 per cent (assuming the maximum private placement offering is subscribed for) of the resulting issuer (approximately 39 per cent 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) 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, Alta. 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 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 $13-million and a maximum of $23-million by way of subscription receipts issued at 18 cents per subscription receipt on a postconsolidated (as defined below) basis convertible into common shares of Passport on a one-for-one basis (after consolidation). Passport has entered into an engagement letter with Integral Capital Markets, a division of Integral Wealth Securities Ltd., 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 $200,000 on the 32 Degrees subscription (as defined below) and 6 per cent 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 finance, 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 18 cents per subscription receipt under the private placement offering, Passport shall, subject to shareholder approval and regulatory approval, complete a consolidation of all of issued and outstanding Passport shares immediately prior to the closing of the private placement offering on the basis of six Passport shares for every one postconsolidation Passport share. Each subscription receipt will entitle the holder thereof to one postconsolidation Passport share which shall be issued immediately prior to the amalgamation.
The arrangement agreement contemplates that as a mutual condition precedent, $13-million of the private placement offering will be subscribed for by 32 Degrees Diversified Energy Fund II (Canadian) L.P. and 32 Degrees Diversified Energy Fund II (U.S.) LP. A portion of the subscription price payable by 32 Degrees under the 32 Degrees subscription will be paid by the transfer and conveyance of approximately 241.4 contiguous sections in the Hardy area of southeast Saskatchewan 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 $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, 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 $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, and interest equal to 12 per cent 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 per cent of postamalgamation Amarok shares (as defined below), 32 Degrees together with: 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 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, 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 per cent (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 per cent 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 TSX-V 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, 10.25 million stock options and 815,222 common share purchase 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 postconsolidation Passport shares issued and outstanding, and, assuming the maximum private placement offering is subscribed for, there will be approximately 146,369,241 postconsolidation Passport shares issued and outstanding, as well as 1,708,333 postconsolidation Passport options and 135,870 postconsolidation Passport warrants issued and outstanding. Amarok currently has 93,215,292 common shares, 8,137,534 stock options and one common share purchase warrant 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 immediately prior to the arrangement.
As part of the amalgamation, it is proposed that each one postconsolidation Passport share (which shall include the postconsolidation Passport shares issued pursuant to the subscription receipts) shall be exchanged to a wholly owned subsidiary of Amarok in consideration for one Amarok common share. It is anticipated that the shareholders of Passport and subscription receipt holders will, upon completion of the amalgamation, hold in aggregate 49.3 per cent 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 per cent 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: not less than $15-million in cash and cash equivalents; and oil and gas assets located in Wyoming and Montana of not less than $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 per cent (assuming the maximum private placement offering is subscribed for) of the issued and outstanding common shares of the resulting issuer (approximately 39 per cent 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: approve of 32 Degrees as a new control person of the resulting issuer; consolidate its common shares on a one-for-five basis 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 postconsolidation 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 postconsolidation Amarok shares; and change its name from Amarok Energy to Powder Mountain Energy 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: Massimo Geremia, Bruce Murray, Gregg Smith, Larry Evans, Mitch Putnam, Trent Baker and Samuel Ingram.
Mr. Geremia and Mr. Ingram are currently directors of Amarok. Mr. Smith and Mr. Murray are currently directors of Passport. Mr. Evans, Mr. Putnam and Mr. 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 Mr. 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 $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, Alta., 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, Alta., 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 Jan. 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: the receipt by Passport's board of directors of a verbal fairness opinion from its financial advisers; and 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. of 650, 635, Eighth Ave. SW, Calgary, Alta., T2P 3M3. 32 Degrees: is at arm's length to Passport and Amarok; does not, as at the date hereof, own or control any shares of Passport or Amarok; is intending to subscribe for the private placement offering as a business investment; and other than the $13-million 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.
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