Probe Resources Ltd.
TSX VENTURE : PBR.H

Probe Resources Ltd.
Rooster Resources, LLC

April 23, 2012 19:58 ET

Probe Resources Ltd. Provides an Update Respecting Its Recent Shareholder Meeting and the Proposed Transaction With Rooster Probe GOM Oil & Gas Ltd.

CALGARY, ALBERTA--(Marketwire - April 23, 2012) - Probe Resources Ltd. ("Probe") (TSX VENTURE:PBR.H) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Probe and Rooster Probe GOM Oil & Gas Ltd. ("Canco") announce the following update with respect to the previously announced plan of arrangement involving Probe and Canco (the "Transaction").

Meeting Held

Probe held an annual general and special meeting of its shareholders on April 20, 2012 (the "Meeting"). At the meeting, the shareholders of Probe approved resolutions authorizing the creation of a class of proportionate voting shares of Probe ("Proportionate Voting Shares") and the creation of a new fixed stock option plan for Probe following the completion of the Transaction. The Probe shareholders also elected as directors and appointed as auditors those nominees set forth in the information circular and proxy statement of Probe dated February 24, 2012 concerning the Meeting (the "Circular").

The Transaction

Probe announced the Transaction on February 22, 2012. Pursuant to the Transaction, Probe will acquire all of the issued and outstanding common shares of Canco ("Canco Shares") pursuant to a plan of arrangement concerning Canco under the Business Corporations Act (British Columbia) in exchange for, at the election of each holder of Canco Shares (the "Canco Shareholders"), either: (i) one post-consolidation common share of Probe ("Probe Share") (at a deemed price of $0.60 per share) for each Canco Share held or (ii) one-thousandth of one Proportionate Voting Share (at a deemed price of $600.00 per full share) for each Canco Share held.

Immediately prior to the completion of the Transaction, Probe will consolidate the outstanding Probe Shares on a 250 to 1 basis and change its name to Rooster Energy Ltd. Immediately following the Transaction: (i) the current directors and officers of Probe, with the exception of Paul Crilly and Richard Buski, who will remain directors, will be replaced by nominees of Canco; and (ii) Probe and Canco will be amalgamated to form the Combined Company.

Canco is party to an option agreement (the "Rooster Option"), pursuant to which Canco has the option to acquire from Rooster Resources, LLC all of the outstanding membership interests of Rooster Energy, LLC, a Louisiana limited liability company that indirectly owns oil and natural gas assets in the Gulf of Mexico. The Rooster Option will be exercised immediately following the completion of the Transaction and the amalgamation of Probe and Canco and the assets of Rooster Energy, LLC will be integrated with Probe's existing assets. The consideration payable to Rooster Resources, LLC pursuant to the exercise of the Rooster Option will be 56,738 Proportionate Voting Shares (at a deemed price of $600.00 per share).

Canco Private Placement

The Canco Private Placement is being conducted in connection with the Transaction. The Canco Private Placement is a best efforts offering of subscription receipts of Canco ("Canco Subscription Receipts") being conducted by a syndicate of agents led by Macquarie Capital Markets Canada Ltd. ("Macquarie"). Each Canco Subscription Receipt will represent the right to automatically receive one Canco Share immediately prior to the completion of the Transaction, subject to the satisfaction of certain conditions.

On April 16, 2012, Probe announced that: (i) the offering price pursuant to the Canco Private Placement would be reduced from $1.00 to $0.60 per Canco Subscription Receipt; (ii) the number of Canco Subscription Receipts issuable would be revised to a minimum of 33,333,333 and maximum of 40,000,000 for gross proceeds of between $20,000,000 and $24,000,000; (iii) K2 and Chester F. Morrison, Jr., both non-arm's length parties with respect to the Transaction, would each purchase 8,333,333 Canco Subscription Receipts under the Canco Private Placement for consideration of $5,000,000 and (iv) the deemed issuance price of the Probe Shares and Proportionate Voting Shares issuable under the Transaction would be reduced to $0.60 and $600.00, respectively, from $1.00 and $1,000, respectively.

The commission payable to the agents under the Canco Private Placement will not exceed 6% of the gross proceeds of the offering.

Approximately $9.8 million of the net proceeds of the Canco Private Placement will be contributed by the Combined Company to Rooster Energy, LLC following exercise of the Rooster Option. Rooster Energy, LLC will in turn contribute these funds to its wholly-owned subsidiary Rooster Petroleum, LLC for the payment of accounts payable owed to Chet Morrison Contractors, LLC, in the amount of US$10 million. The balance of the proceeds of the Canco Private Placement will be used to fund a drilling program by the Combined Company and for working capital and general corporate purposes, as reflected below under the heading "Impact on Circular Disclosure - Estimated Funds Available to the Combined Company and Principle Purposes".

The Probe Shares or Proportionate Voting Shares issuable to K2 and Chester F. Morrison pursuant to the Transaction in respect of the Canco Subscription Receipts purchased by them pursuant to the Canco Private Placement will be subject to escrow pursuant to the requirements of the TSXV. See "Impact on Circular Disclosure - Principal Shareholders and Escrowed Securities" below.

Intention to Seek Written Shareholders' Consent

Due to the changes to the Canco Private Placement announced by Probe on April 16, 2012 and the consequent impact on the disclosure contained in the Circular, proposed resolutions approving the Transaction and the deemed pricing of the Probe Shares and Proportionate Voting Shares issuable pursuant to the Transaction were not put before the Probe shareholders for a vote at the Meeting. Instead, Probe will now seek the written consent of the disinterested Probe shareholders to the Transaction and the revised deemed pricing of the Probe Shares and Proportionate Voting Shares issuable pursuant to the Transaction (the "Written Consent"). In order to be valid, the Written Consent must be provided by a majority of the Probe shareholders, excluding Probe Shares held by non-arm's length parties. For the purposes of the Written Consent, K2 will be considered to be a non-arm's length party due to its intended participation in the Canco Private Placement. K2 holds approximately 87.3% of the currently issued and outstanding Probe Shares.

Amended and Restated Arrangement Agreement

On April 23, 2012, Probe, Morrison Energy Group, LLC, Rooster Resources, LLC, K2 and Canco entered into an amended and restated arrangement agreement (the "Amended and Restated Transaction Agreement"). The Amended and Restated Transaction Agreement amends the terms of the arrangement agreement executed by the parties on February 22, 2012 to: (i) reflect the changes to the Canco Private Placement; (ii) provide for the obtaining of the Written Consent; and (iii) extend the outside time for completing the Transaction from May 1, 2012 to June 1, 2012. The Amended and Restated Transaction Agreement has been filed by Probe on SEDAR concurrently with this issuance of this press release and will be available for viewing under Probe's profile on www.sedar.com.

Other Terms Unamended

Other than with respect to the announced changes to the Canco Private Placement, the material terms of the Transaction, including the number of Proportionate Voting Shares issuable pursuant to the exercise of the Rooster Option, remain unamended from those previously disclosed.

Conditions to the Completion of the Transaction

Completion of the Transaction remains subject to certain conditions, including completion of the Canco Private Placement, receipt of the Written Consent and approval from the TSXV.

Timing of the Completion of the Transaction

Provided that Probe is able to obtain the Written Consent and all other conditions to the completion of the Transaction are satisfied, including the receipt by Probe of all required approvals of the TSXV, Probe and Canco anticipate that the Transaction will close on or about April 26, 2012. The closing date could be delayed, however, for a number of reasons, including a failure to satisfy the conditions to the completion of the Transaction on a timely basis.

The Probe Shares will remain suspended from trading on the TSXV pending completion of the Transaction.

Impact on Circular Disclosure

The Circular contained comprehensive disclosure concerning Probe, Canco, the Combined Company and the Transaction. The Circular can be viewed under Probe's profile on www.sedar.com.

The announced changes to the Canco Private Placement would, if they had occurred prior to the mailing of the Circular, have impacted certain of the disclosure contained therein. Certain updated disclosure, reflecting the impact of the changes to the Canco Private Placement, is provided below. Readers are cautioned that the disclosure contained in the Circular concerning Probe, Canco, the Combined Company and the Transaction, including the disclosure contained in Schedule "E" of the Circular, is qualified entirely by the updated descriptions of the Transaction and the Canco Private Placement contained herein and that such disclosure must be read in conjunction herewith. Other than as disclosed herein or in press releases previously issued by Probe, the disclosure contained in the Circular otherwise describes Probe, Canco, the Combined Company and the Transaction accurately in all material respects.

Effect of the Transaction

There are currently 3,546,106,667 Probe Shares issued and outstanding on a pre-consolidation basis. Immediately prior to the completion of the Transaction, Probe will consolidate the outstanding Probe Shares on a 250 to 1 basis with the result that 14,184,427 post-consolidated Probe Shares will be outstanding.

It is Probe's understanding that Chester F. Morrison, Jr. intends to elect to receive Proportionate Voting Shares under the Transaction with respect to the 8,333,333 Canco Subscription Receipts that he intends to purchase under the Canco Private Placement.

If the minimum of 33,333,333 Canco Subscription Receipts are issued under the Canco Private Placement and the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction, approximately 39,184,427 post-consolidation Probe Shares and 65,071 Proportionate Voting Shares will be outstanding following the completion of the Transaction and the exercise of the Rooster Option. Of these, approximately 36.2% of the post-consolidation Probe Shares will be held by the current Probe Shareholders, 63.8% of the post-consolidation Probe Shares will be held by the former holders of Canco Subscription Receipts, 12.8% of the Proportionate Voting Shares will be held by Chester F. Morrison, Jr. and 87.2% of the Proportionate Voting Shares will be held Rooster Resources, LLC.

If the maximum of 40,000,000 Canco Subscription Receipts are issued under the Canco Private Placement and the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction, approximately 45,851,094 post-consolidation Probe Shares and 65,071 Proportionate Voting Shares will be outstanding following the completion of the Transaction and the exercise of the Rooster Option. Of these, approximately 30.9% of the post-consolidation Probe Shares will be held by the current Probe Shareholders, 69.1% of the post-consolidation Probe Shares will be held by the former holders of Canco Subscription Receipts, 12.8% of the Proportionate Voting Shares will be held by Chester F. Morrison, Jr. and 87.2% of the Proportionate Voting Shares will be held Rooster Resources, LLC.

Pro Forma Financial Information

Probe has filed a material change report on SEDAR dated today's date concurrently with the issuance of this press release. Attached as Schedule "A" to the material change report are pro forma financial statements for Probe as at November 30, 2011 and for the twelve months ended November 30, 2011, giving effect to the completion of the Transaction (assuming the issuance of the minimum of 33,333,333 Canco Subscription Receipts under the Canco Private Placement) and the exercise of the Rooster Option. The material change report will be available for viewing under Probe's profile on SEDAR at www.sedar.com. Certain select summary pro forma financial information derived from those pro forma financial statements is provided below.

Pro Forma
Twelve Months
ended
November 30, 2011
(unaudited)
Revenues
Oil & Gas 26,764,109
Expenses
Total Operating Expenses 21,841,372
Total General and Administrative Expenses 4,835,484
26,676,856
Income from Operations 87,254
Interest Expense (675,704)
Gain on Sale of Assets 70,807
Other Income 1,086,077
Deferred Income Tax (80,496)
Total Other Income 400,684
Net Income 487,938
Other Comprehensive Loss - Foreign Exchange Loss (4,232,802)
Total Comprehensive Loss (3,744,864)
Pro Forma
as at
November 30, 2011
(unaudited)
Total Assets 80,097,657
Total Liabilities 45,734,499
Shareholders' Equity 34,363,157

Estimated Funds Available to the Combined Company and Principle Purposes

The Combined Company will have pro forma working capital as at November 30, 2011 of $1.19 million, after giving effect to the issuance of the minimum of 33,333,333 Canco Subscription Receipts under the Canco Private Placement, the contribution of $9.8 million to Rooster Energy upon the exercise of the Rooster Option and closing and transaction costs. In addition, the Combined Company estimates that it will generate approximately $26.0 million in cash flow in 2012, resulting in total estimated funds available to the Combined Company in 2012 of approximately $27.2 million. The table below sets forth an estimate of the principal uses through 2012 of those funds.

Use Amount
(millions)
Exploration and Development Wells $19.1
Facilities $2.4
General and Administrative $3.5
General Corporate Purposes $2.2
TOTAL: $27.2

If the maximum of 40,000,000 Canco Subscription Receipts are issued under the Canco Private Placement, the Combined Company will have an additional $4.0 million in available funds for an estimated total of $31.2 million. The table below sets forth an estimate of the principal uses through 2012 of those funds.

Use Amount
(millions)
Exploration and Development Wells $23.1
Facilities $2.4
General and Administrative $3.5
General Corporate Purposes $2.2
TOTAL: $31.2

Consolidated Capitalization

The following table sets forth the pro forma consolidated capitalization of the Combined Company as at November 30, 2011 assuming the issuance of the minimum of 33,333,333 Canco Subscription Receipts under the Canco Private Placement and that the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction.

Designation Authorized Outstanding as at November
30, 2011 after giving effect to
the Transaction and
immediately prior to the
exercise of the Rooster Option
Outstanding as at November
30, 2011 after giving effect to
the Transaction and the
exercise of the Rooster
Option
Post-Consolidation Probe Shares unlimited CDN$12,825,000 CDN$12,825,000
(39,184,427 shares) (39,184,427 shares)
Proportionate Voting Shares unlimited CDN$4,275,000 CDN$23,604,360
(8,333 shares) (65,071 shares)
Note:
(1) The pro forma deficit as at November 30, 2011 was ($14,708,204).
(2) If the maximum of 40,000,000 million Canco Subscription Receipts are issued under the Canco Private Placement and the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction, the consolidated capitalization in respect of the Combined will be $16,825,000 (45,851,094 Probe Shares) and $23,604,360 (65,071 Proportionate Voting Shares).

Fully Diluted Share Capital

The following table sets forth the fully diluted share capital of the Combined Company following the completion of the Transaction and the exercise of the Rooster Option, assuming the issuance of the minimum of 33,333,333 Canco Subscription Receipts under the Canco Private Placement and that the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction.

Number of
Shares

Percentage
Post-Consolidation Probe Shares
Issued and outstanding 39,184,427 34.9%
Proportionate Voting Shares
Issued and outstanding(1) 65,071,000 58.1%
Stock Options
Stock options available for issuance(2) 7,836,885 7.0%
Total (Fully Diluted) 112,092,312 100%
Notes:
(1) Assuming the conversion of the Proportionate Voting Shares to Probe Shares.
(2) Upon completion of the Transaction, a further news release will be issued setting forth the maximum number of Probe Shares that may be reserved for issuance under the Combined Company's stock option plan.
(3) If the maximum of 40,000,000 million Canco Subscription Receipts are issued under the Canco Private Placement and the holders of such Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction, the total fully diluted amount will be 120,092,313, consisting of 45,851,094 issued Probe Shares (representing approximately 38.2% of the diluted number), 65,071,000 Probe Shares issuable pursuant to outstanding Proportionate Voting Shares (representing approximately 54.2% of the diluted number) and 9,170,219 Probe Shares that may be reserved for issuance pursuant to options available for issuance (representing approximately 7.6% of the diluted number).

Principal Shareholders and Escrowed Securities

Upon completion of the Transaction and exercise of the Rooster Option, and assuming that the holders of Canco Subscription Receipts other than Chester F. Morrison, Jr. do not elect to receive any Proportionate Voting Shares under the Transaction, it is anticipated that the following will own of record or beneficially own, directly or indirectly, or exercise control or direction over more than 10% of a class of voting security of the Combined Company.

Name and Municipality of
Residence
Number of Shares Held or
Controlled
Percentage if the Minimum
of 33,333,333 Canco
Subscription Receipts are
Issued
(2)
Percentage if the
Maximum of 40,000,000
Canco Subscription
Receipts are Issued
(2)
Rooster Resources, LLC
Houma, Louisiana, USA(1)
56,738 Proportionate Voting Shares 54.42% 51.12%
Chester F. Morrison, Jr.
Houma, Louisiana, USA (1)
8,333 Proportionate Voting Shares 7.99% 7.51%
K2 Principal Fund L.P.(3)
Toronto, Ontario
20,716,337 Post-Consolidation Probe Shares 19.87% 18.68%
Notes:
(1) Chester F. Morrison, Jr. is the manager and sole trustee of The CMC Grantor Trust, which is the sole member of Rooster Resources, LLC. Chester F. Morrison, Jr. intends to subscribe for 8,333,333 Canco Subscription Receipts Pursuant to the Canco Private Placement and elect to receive 8,333 Proportionate Voting Shares in exchange for such Canco Subscription Receipts pursuant to the Transaction. Chester F. Morrison is a proposed director of the Combined Company and will exercise control or direction over the votes attaching to 65,071 Proportionate Voting Shares if the Transaction is completed.
(2) Assuming the conversion of all Proportionate Voting Shares to post-consolidation Probe Shares.
(3) Mr. Paul Crilly and Mr. David Heden are both current directors of Probe and act as Managing Directors of K2 & Associates Investment Management Inc. of which K2 Principle Fund L.P. is a subsidiary. Mr. Crilly is a proposed director of the Combined Company and will exercise control or direction over the votes attaching to 20,716,337 Probe Shares if the Transaction is completed.

As required by the TSXV, the shareholders of the Combined Company described in the table above will enter into an escrow agreement with Computershare Trust Company of Canada and the Combined Company (the "Escrow Agreement") pursuant to which they will deposit the securities of the Combined Company described in the table above in escrow with Computershare Trust Company of Canada. The Escrow Agreement will be a TSXV Form 5D Value Security Escrow Agreement which provides for the release from escrow to each holder of 25% the escrowed securities on the date of the TSXV bulletin approving the Transaction (the "Final Exchange Bulletin") and 25% thereafter on each of the 6, 12 and 18 month anniversaries of the date of the Final Exchange Bulletin. Certain of the proposed directors and officers of the Combined Company, in addition to Chester F. Morrison, Jr., may participate in the Canco Private Placement and, if they do, any securities issued under the Transaction with respect to Canco Subscription Receipts purchased by such individuals will also be subject to escrow under the Escrow Agreement.

United States Securities Matters

This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities in the United States. The securities of Probe and Rooster Probe GOM Oil & Gas Ltd. have not been and will not be registered under the United States Securities Act of 1933, as amended (the "US Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Caution

Completion of the Transaction is subject to a number of conditions, including TSXV acceptance and receipt of the Written Consent. The Transaction cannot close until the required Probe shareholder approvals are obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Circular, and as supplemented from time to time, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Probe should be considered highly speculative.

The TSXV has in no way passed upon the merits of the Transaction or the Canco Private Placement and has neither approved nor disapproved the contents of this press release.

Forward Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the completion of the Transaction and the completion of the Canco Private Placement.

The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Probe, including expectations and assumptions concerning timing of receipt of required regulatory and shareholder approvals and the satisfaction of other conditions to the completion of the Transaction and Canco Private Placement.

Although Probe believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Probe can give no assurance that they will prove to be correct. Neither the Transaction nor Canco Private Placement may be completed on the terms described or at all.

The forward-looking statements contained in this document are made as of the date hereof and Probe undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the Policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Probe Resources Ltd.
    David Elgie
    President and Chief Executive Officer
    (250) 816-3297

    Rooster Resources, LLC
    Robert Murphy
    Chief Executive Officer
    (832) 772-6313