I don't like the looks of this one..........
Oct 16, 2006 14:15 ET 'Watch Resources Ltd. Announces Proposed Amalgamation and Private Placement Offering <WR.V>' - CNW
/NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES/
CALGARY, Oct. 16 /CNW/ - Watch Resources Ltd. ("Watch" or the
"Corporation") (TSXV: WR) is pleased to announce that it has entered into an
arm's length amalgamation agreement dated October 12, 2006 with Energy 51 Inc.
("Energy 51") to amalgamate and merge the two companies (the "Amalgamation").
The Amalgamation is expected to occur on or about December 15, 2006 and the
resulting company will be named Watch Resources Ltd. ("Amalco").
Watch is also pleased to announce that it has entered into an engagement
letter with J.F. Mackie & Company Ltd. (the "Agent") respecting an agency
offering of a minimum of $10,000,000 and a maximum of up to $18,000,000 of
subscription receipts (the "Subscription Receipts") on a best efforts private
placement basis (the "Offering"), at a price of $0.20 per Subscription
Receipt. Each Subscription Receipt will entitle the holder, without payment of
any additional consideration, to one common share in the capital of Amalco
("Amalco Share") upon completion of the Amalgamation.
The completion of the Amalgamation is subject to the approval of the
shareholders of each of Watch and Energy 51 and the receipt of all required
regulatory approvals, including the approval of the TSX Venture Exchange (the
"TSXV") and the satisfaction of other customary conditions in respect of the
Amalgamation.
The completion of the Offering is also subject to receipt of all required
regulatory approvals including the approval of the TSXV and the satisfaction
of other customary conditions, including completion by the Agent of due
diligence and the execution and delivery of a definitive agency agreement
between Watch and the Agent. The Offering is expected to close on or prior to
November 2, 2006.
Trading of the common shares of Watch (the "Watch Shares") on the TSXV
was halted prior to the commencement of trading on October 13, 2006 in
anticipation of this release and will remain halted until such time as Watch
and Energy 51 are able to satisfy the requirements of the TSXV for the Watch
Shares to resume trading.
The Amalgamation
The Amalgamation will result in the merger of two entities which
presently hold virtually identical interests in properties. Since May 2005,
Energy 51 and Watch have been operating in tandem pursuant to a joint venture
agreement (the "Joint Venture") in which Watch and Energy 51 agreed to jointly
explore and develop the Fishing Lake and Dewberry properties in North East
Alberta on a 50/50 basis. The merger of the two companies is expected to
result in not only a material general and administrative cost saving for
Amalco, but be beneficial to both sets of shareholders in a number of ways.
Management of Watch is of the view that certain synergies and benefits
will arise from the Amalgamation, including, among others: (a) improving the
ability of Amalco to attract new financing, as required; (b) enhanced
transparency and governance model with combined Watch and Energy 51 financial
records, engineering reports and operational activities being subject to
continuous disclosure requirements as prescribed under applicable securities
laws; and (c) all of the assets of Amalco being under the management of a
single management team.
"The merger of Energy 51 and Watch is an excellent opportunity to enhance
the synergies of the two companies and obtain the full benefits of the
economies of scale which are anticipated to exist upon closing of the
amalgamation" said Randy Buchanan, President and Chief Executive Officer of
Watch. "I also believe that shareholders will benefit from the efficiencies in
one company holding what is currently two interests in the same asset base."
"The proposed amalgamation has permitted Watch to access the capital
markets to an extent which has not been available to Watch in the past. The
amalgamation marks the beginning of a period where we anticipate the merged
entity will be able to, with the proceeds of the proposed offering, carry out
a promising exploration and exploitation plan described to our shareholders"
said Mr. Buchanan. "The result of the amalgamation is that we will be able to
coordinate a concentrated effort in building new assets with the drill bit."
Results of Amalgamation
As a result of the Amalgamation, each of Energy 51's and Watch's
shareholders will receive one Amalco Share for each common share of Energy 51
(an "Energy 51 Share") and for each Watch Share held. In connection with the
approval of the Amalgamation, the holders of the Watch Shares and Energy 51
Shares will also be asked to approve a consolidation of the Amalco Shares on a
5 to 1 basis. Energy 51 currently owns 12,973,000 Watch Shares, all of which
will be cancelled upon completion of the Amalgamation and it is anticipated
that the holders of options to acquire Energy 51 Shares and Watch Shares will
enter into agreements whereby they will be entitled to options to acquire
Amalco Shares on substantially the same terms.
The Amalgamation constitutes a reverse take-over and change of control of
Watch under the policies of the TSXV. Upon completion of the Amalgamation,
holders of Watch Shares are anticipated to hold approximately 24.37% of the
issued and outstanding Amalco Shares and the holders of Energy 51 Shares are
anticipated to hold approximately 36.34% of the issued and outstanding Amalco
Shares. Insiders of Watch and Energy 51 (including the majority holder of
Energy 51 Shares, 3100272 Nova Scotia Company, a Nova Scotia incorporated
entity, the shares of which are held by certain funds which are managed by
Greenhill Capital Partners, LLC, a United States based investment firm and a
subsidiary of Greenhill & Co., Inc., a publicly traded global investment bank)
are anticipated to hold approximately 35.14% of the issued and outstanding
Amalco Shares. The remaining Amalco Shares will be held by the holders of the
Subscription Receipts who are entitled to Amalco Shares upon completion of the
Amalgamation.
The board of directors of Amalco is expected to consist of:
<<
- current Watch board members Chris Cooper and Barry Lee, each of whom
have been directors of the Corporation since December 1999 and
presently reside in Vancouver, British Columbia. Mr. Cooper is also
presently the President and Chief Executive Officer of Northern Sun
Exploration Company Inc. and President, Styles Management Inc. and
formerly served as the Chief Financial Officer of the Corporation.
Mr. Lee is the President and Chief Executive Officer of PIL
Productions Limited and formerly served as President of the
Corporation;
- current Watch and Energy 51 board members Randy Buchanan and Paul
Watson, each of whom have been directors of the Corporation since May
2005 and presently reside in Calgary, Alberta. Mr. Buchanan is also
presently the President and Chief Executive Officer of Energy 51 Inc.
and was the President and Chief Executive Officer of Lexoil
Incorporated from February 1996 to December 2003. Mr. Watson is also
presently a director of Kelman Technologies Inc. and the Vice
President, Exploration of Energy 51 Inc. and held the position of
Vice President, Exploration of Trafina Energy Inc. from July 2000 to
March 30, 2004. Mr. Buchanan and Mr. Watson each have over 33 years
of oil & gas experience in the geological, geophysical, and
management areas;
- current Energy 51 board members Frank Pottow, Chris Ortega and
Douglas Black, Q.C. Mr. Pottow and Mr. Ortega have extensive
experience as board members of a number of North American energy
companies and as well as extensive financial market experience and
are each employed at Greenhill Capital Partners, LLC. In particular,
Mr. Pottow has previously served as a director of three previous
publicly listed Canadian energy companies: Archer Resources Ltd.,
Canrise Resources Ltd. and IPEC Ltd. Mr. Black is the vice-chairman
of Fraser Milner Casgrain LLP and a board member of a number of
public and private boards of directors; and
- Peter Kurceba, P.Geol. who is currently working with J.F. Mackie &
Company Ltd. as an oil and gas analyst. Mr. Kurceba is an experienced
geologist who has founded and operated several successful public and
private companies himself and has more than 30 years of industry
experience in management and exploration capacities in the oil and
gas sector. Mr. Kurceba currently sits on the board of directors of
each of Yoho Resources Inc., Gibraltar Exploration Ltd. and Newcast
Energy Corporation among others. Mr. Kurceba was the President, Chief
Executive Officer and founding shareholder of Canrise Resources Ltd.,
an exploration and production company based in Calgary, Alberta.
>>
Each of Randy Buchanan (President and Chief Executive Officer) Paul
Watson (Vice-President, Exploration), Geoff Beatson (Vice-President,
Engineering) and Keith Scrimger (Chief Financial Officer) are current members
of the management teams of, and hold the same positions at, each of Energy 51
and Watch. Each are expected to continue in such capacities with Amalco upon
completion of the Amalgamation.
Approvals and Lock-Up Agreements
The boards of directors of each of Watch and Energy 51 have agreed to
recommend approval of the Amalgamation and shareholders of Energy 51 holding
approximately 90% of the issued and outstanding Energy 51 Shares have agreed
to vote in favour of the Amalgamation. Officers and directors of Watch holding
approximately 1.58% in aggregate of the Watch Shares have agreed to vote in
favour of the Amalgamation.
Each of the agreements entered into by the officers and directors of
Watch and the shareholders of Energy 51 provide that the parties shall not,
directly or indirectly, solicit or invite any inquiries, discussion or
negotiations with any third party with respect to any acquisition proposal.
Energy 51 and Watch have agreed to equivalent non-solicitation provisions and
a reciprocal non-completion fee payable under certain circumstances.
Pro Forma Information
Assuming the successful completion of the Amalgamation in the manner
proposed and the consolidation of the Amalco Shares on a 5 to 1 basis and the
Offering being fully subscribed:
<<
- 45,808,638 Amalco Shares would be issued and outstanding and
aggregate gross proceeds of $18 million (before expenses of the
Offering and the Amalgamation) would be received by Amalco pursuant
to the maximum Offering. Approximately 3,654,200 Amalco Shares would
be issuable upon the exercise of options pursuant to the Amalco share
option plan (anticipated to be in substantially the form of the
current Watch share option plan) and 1,080,000 Amalco warrants would
be outstanding, exercisable at $1.00 per Amalco Share.
- Tax pools in Amalco are anticipated to be in the range of
approximately $22.35 million.
- Daily production is expected to more than double Watch's current
production as each of Watch and Energy 51 own 50% of the core
projects and additional production will be derived from Energy 51
properties outside of Fishing Lake and Dewberry. Oil production at
Watch's Fishing Lake and Dewberry properties has increased in each
month of 2006 as these heavy oil wells clean-up and their sand cuts
drop.
- Amalco's combined net acreage is expected to total approximately
27,234 acres (11,022 hectares), of which the majority is un-drilled
lands in the Fishing Lake core project area.
- Amalco is expected to be debt-free and as at June 30, 2006 would have
held $4.892 million in cash/receivables on a pro forma basis. These
funds are currently being used to equip and bring on-stream the
Watch/Energy 51 oil wells at Fishing Lake and Dewberry as well as two
pipelines in these areas to tie-in two drilled and completed gas
wells.
- The planned capital budget and operations plan for the first quarter
of 2007 is anticipated to be $13.6 million to drill, complete, and
fully equip 21 new oil wells at Fishing Lake. Any unused funds are
expected to be utilized to begin exploration on three 3/4 sections of
un-drilled lands at Fishing Lake and additional development oil
drilling at Dewberry. Gas drilling at Fishing Lake is anticipated to
be postponed until market conditions become more favourable.
>>
Conditions to Completion
Successful completion of the Amalgamation is subject to TSXV and
regulatory approvals and the approval by at least two-thirds of disinterested
Watch and Energy 51 shareholders. It is anticipated that the shareholder
meetings required to approve the Amalgamation will be held, and the
Amalgamation is expected to close on or prior to December 15, 2006. An
information circular prepared by Watch is expected to be mailed to its
shareholders in November 2006.
The Amalgamation is also subject to customary closing conditions
contained in the pre-acquisition agreement, including the parties obtaining
necessary third party and regulatory approvals, the closing of the Offering,
all necessary board and shareholder approvals being obtained and the
pre-acquisition agreement not otherwise being terminated in accordance with
its terms.
There can be no assurance that the Amalgamation or the Offering will be
completed as proposed or at all. In addition, sponsorship of the proposed
transaction may be required in accordance with the policies of the TSXV. It is
the intention of Watch and Energy 51 to apply for an exemption to the
sponsorship requirements of the TSXV but there are no assurances one will be
obtained.
Energy 51
Energy 51 was incorporated under the laws of the province of Alberta on
January 9, 2004 as 1085143 Alberta Ltd. Energy 51 changed its name to Energy
51 Inc. on March 30, 2004 and commenced business on that date. Its principal
business activities are the exploration and development of oil and gas
properties pursuant to the Joint Venture.
Selected Financial Information
The following table sets forth certain unaudited financial information
for Energy 51, as prepared by management:
<<
Year ended Three months ended
March 31, 2006 June 30, 2006
---------------------------------------
Working Capital 3,810,144 2,165,236
Pre-production loss from oil and
gas operations (288,908) (115,681)
Net loss for the period (786,404) (244,908)
Bank debt Nil Nil
Shares outstanding 82,830,081 82,830,081
>>
Financial information regarding Watch is available by accessing Watch's
profile on www.sedar.com.
The Offering
The Offering is for a minimum of $10 million to a maximum of $18 million
in Subscription Receipts and will be undertaken by way of a best efforts
agency private placement. Subject to regulatory approval, it is intended that
each Subscription Receipt will be issued at a price of $0.20. All of the
Subscription Receipts and the Amalco Shares issuable upon exercise of the
Subscription Receipts will be subject to restrictions on resale under
securities laws for a period of four months following the issuance of the
Subscription Receipts.
The Corporation has agreed to pay a cash commission to the Agent in an
amount equal to 6% of the total gross proceeds from the sale of the
Subscription Receipts, 50% of which is payable on the closing of the Offering,
with the remaining 50% upon the completion of the Amalgamation. In addition,
the Corporation will, upon completion of the Offering, issue to the Agent a
number of agent warrants equal to 6% of the total number of Subscription
Receipts sold. Each agent warrant will entitle the holder to acquire one
Amalco Share, at an exercise price of $0.20 per Amalco Share (on a
pre-consolidation basis) during the period commencing on the completion of the
Amalgamation and ending on or before the date that is 12 months following
completion of the Amalgamation.
The Offering is subject to a number of customary conditions, including
the execution and delivery of a formal agency agreement between the
Corporation and the Agent. Completion of the Offering is also subject to the
receipt of all necessary regulatory approvals, including the approval of the
TSX Venture Exchange.
Net proceeds of the Offering will be placed in escrow pending the
completion of the Amalgamation. If the Amalgamation is not completed on or
before December 15, 2006, each holder of Subscription Receipts will be
entitled to receive an amount equal to the amount place d in escrow on their
behalf as well as a pro rata share of the interest earned on those amounts.
Results of the Offering
It is presently anticipated that the net proceeds of the Offering,
releasable upon completion of the Amalgamation, after deduction of expenses
and commissions associated with the Offering, will be used by Amalco for
drilling, completions, and equipping of anticipated new production and for
general corporate purposes.
Management anticipates that such proceeds will permit Amalco to complete
a 21 well drilling program on 7 1/2 sections of Watch/Energy 51's core
property at Fishing Lake with the objective of identifying and mapping fully
four potential pay zones in preparation for the next level of exploitation on
the entire 7 1/2 sections of land. Management believes that this growth will
put Amalco in a stable position for future opportunities. It is anticipated
that, with the proceeds of the Offering, Amalco will be able to consider
further exploration on the other 3 3/4 sections of land that Watch/Energy 51
currently holds at Fishing Lake as well as at Dewberry where Watch/Energy 51
has only one current oil well producing on the 1 1/4 sections of lands held.
Cautionary Statements
Investors are cautioned that, except as disclosed in publicly
disseminated press releases of Watch and the management information circulars
to be prepared in connection with the Amalgamation, any information released
or received with respect to the proposed transaction may not be accurate or
complete and should not be relied on.
The information in this news release includes certain information and
statements about management's view of future events, expectations, plans and
prospects that constitute forward looking statements. These statements are
based upon assumptions that are subject to significant risks and
uncertainties. Because of these risks and uncertainties and as a result of a
variety of factors, the actual results, expectations, achievements or
performance may differ materially from those anticipated and indicated by
these forward looking statements. Although the Corporation believes that the
expectations reflected in forward looking statements are reasonable, it can
give no assurances that the expectations of any forward looking statements
will prove to be correct. The Corporation disclaims any intention and assumes
no obligation to update or revise any forward looking statements to reflect
actual results, whether as a result of new information, future events, changes
in assumptions, changes in factors affecting such forward looking statements
or otherwise.
Completion of the Amalgamation is subject to a number of conditions,
including but not limited to TSXV acceptance and shareholder approval. There
can be no assurance that the transaction or the Offering will be completed as
proposed or at all.
Investors are cautioned that, except as disclosed in the Information
Circular to be prepared in connection with the transaction, any information
released or received with respect to the Amalgamation may not be accurate or
complete and should not be relied upon. Trading in the securities of Watch
should be considered highly speculative.
The TSXV has in no way passed upon the merits of the proposed transaction
and has neither approved nor disapproved the contents of this press
release.
THIS NEWS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO PURCHASE SECURITIES OF THE CORPORATION IN ANY
JURISDICTION.
For further information: in respect of the proposed Amalgamation or
Offering, or for other general corporate purposes, please contact: Watch
Resources Ltd., 305, 707-10th, Avenue S.W., Calgary, Alberta, T2R 0B3, Randy
Buchanan, President and Chief Executive Officer, Telephone: (403) 265-1951,
ext. 223
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