Montana Exploration Corp. announces strategic financing with McIntyre Partners, restructuring transactions and re-pricing of options

TSX-V SYMBOL: MTZ

CALGARY, Jan. 31, 2013 /CNW/ - Montana Exploration Corp. ("Montana") is pleased to announce that it has entered into a definitive Investment Agreement with Wolseley Ventures Limited, an affiliate of McIntyre Partners, a UK based private equity firm (the "Investor"), whereby the Investor will:

• complete a $3.5 million purchase of 17,500,000 units at $0.20 per unit (the "Private Placement") where each unit will consist of one common share in the capital of Montana and one warrant exercisable for one common share at a price of $0.25 for a period of 12 months from the date that the Private Placement is completed (the "Closing Date"); and
  
  
• have the ability to invest up to an additional $8.425 million upon the exercise of the $0.25 warrants and a purchase option priced at $0.38 per common share.

The subscription price of $0.20 represents a discount of 20% from the closing price of the common shares on November 9, 2012, being the last trading day prior to the first announcement of the Private Placement. The financing is expected to permit Montana to fulfill its initial obligations under the farmout and participation agreement publicly disclosed on May 8, 2012 to drill wells targeting oil production and conduct seismic and other oilfield operations on Montana's substantial acreage position, an extension of the Shaunavon trend from Saskatchewan, which agreement was made with a private Denver based exploration company (the "Farm-in Partner") which is supported by a substantial New York-based, private equity firm.

The Board of Directors, with Mr. Collins abstaining, have unanimously approved the Investment Agreement. Mr. Collins, the current holder of 49.1% of the outstanding common shares, 37% of the outstanding preferred shares and $2.86 million of senior secured debt has agreed to vote in favour of the transaction at a shareholders meeting to be held to approve certain elements of the transaction, including the exchange of Mr. Collins' preferred shares and secured debt for common shares and warrants of Montana.

Mr. Charles Selby, Chairman and Chief Executive Officer of Montana said "The negotiation of a staged equity financing of approximately $12 million is a significant accomplishment. Going forward with two key shareholders, Jim Collins and McIntyre Partners, along with a greatly simplified capital structure, will create value for all shareholders. We look forward to welcoming Julian McIntyre, the principal of McIntyre Partners, and Dr. Alex Kulpecz, a former senior Shell executive, to our board. Montana has recently completed a 54 square mile 3D survey in conjunction with our Farm-in Partner, and we expect to select three initial drilling locations in the coming month. The price of the Private Placement reflects the high cost of exploration capital in a challenging market environment.  However, the financing contemplates staged investments by the Investor at successively higher prices. This financing is an important element in Montana's total financing plan. Our Farm-in Partner has agreed to carry us through the first 25 square miles of our 3D program and to pay the first $1.0 million of an initial $1.5 million drilling program where initial Shaunavon wells are expected to cost approximately $500,000. The Investor will have the option of investing up to an additional approximately $4.4 million through the exercise of warrants which would fund Montana's remaining Shaunavon program, if exercised. An additional approximately $4.0 million has been designated by the Investor to pursue a new acquisition opportunity."

The Investment Agreement provides certain rights to the Investor, including the right to participate in future financings by Montana and preapproval rights for certain significant transactions. Under a services arrangement the Investor will also bring new, scalable opportunities to Montana. In addition, as previously noted, the Investor will have the right to nominate up to two individuals to Montana's Board of Directors.

The Investment Agreement permits Montana to complete a rights offering for gross proceeds of up to $1,300,000 at a price of $0.20 per common share in order to provide existing shareholders with the opportunity to purchase additional common shares at the same price as the equity being issued to the Investor.  James Collins, or an affiliate or subsidiary thereof, will provide a backstop of up to $500,000 for the rights offering, in consideration for the grant of 625,000 warrants to purchase common shares at a price of $0.25 per common share with a term of one year from the Closing Date.  Mr. Collins is a director and a controlling shareholder of Montana who is also the principal shareholder of ANG Partners, Ltd. and Rioco Partners, Ltd., who are also stakeholders in Montana. The rights offering will be extended to all existing holders of common shares and preferred shares.

Completion of the Private Placement is subject to certain conditions precedent, including, among other things, the following transactions:

(i)			the entering into of a purchase agreement whereby the Investor will have the option, in its sole discretion, for a period of one year from the Closing Date to tender a company to Montana for a value to be equal to the confirmed value of the cash and assets held by such company of up to $6,900,000. It is the intention of the parties that the assets of the company will be cash (not to exceed $4,050,000) and interests that Montana and the Investor have jointly identified in Toole County, Montana, located approximately 100 miles west of Montana's current lands.  If this option is exercised by the Investor, Montana will pay the purchase price by the issuance of common shares at a price of $0.38 per common share, which would result in the issuance of up to 18,157,894 common shares;
(ii)			that Montana amend the terms of its Series A Convertible First Preferred Shares, Series B Convertible First Preferred Shares and Series C Convertible First Preferred Shares (collectively, the "Preferred Shares") to deem the conversion of the Preferred Shares into units, each unit consisting of one common share (with an effective price of $0.40 based on the original subscription price, the consolidation of the common shares effective February 28, 2011 and the increase to the exchange ratio approved at last year's shareholders meeting) and one warrant to purchase an additional common share at an exercise price of  $0.50 (reduced from $0.80) expiring on the date that is one year from the Closing Date (an extension of approximately one year);
(iii)			that $2.46 million of the principal amount owing by Montana under its senior debt ("Senior Debt") to Rioco Partners, Ltd. be converted into common shares. The principal shareholder of Rioco Partners, Ltd. is James Collins, a director and a controlling shareholder of Montana.  As an inducement to Rioco Partners, Ltd. to convert the Senior Debt into common shares, the Corporation has offered to amend the conversion price of the Senior Debt from $0.32 to $0.25 per common share and that the 4,000,000 warrants previously issued to Rioco Partners, Ltd. for extending the maturity of the loan be re-priced to $0.25 per common share, which also reflects Mr. Collins ongoing funding of the general and administration costs and capital commitments of Montana over the past four months and up to closing; and
(iv)			that the existing indebtedness of the Corporation to Brookfield Bridge Lending Fund Inc. be extended to a date that is at least 18 months from the Closing Date.

Upon closing of the Private Placement, the Investor will hold approximately 22.5% of the outstanding shares at that time, which will result in the creation of a new control person of Montana, as defined by the rules of the TSX Venture Exchange (the "Exchange").  Pursuant to the policies of the Exchange, the creation of a new control person requires the approval of shareholders.  In addition, the proposed amendment to the Articles of the Corporation and the re-pricing of the warrants issued to Rioco Partners Ltd. will require shareholder approval.  The proposed transactions are also subject to certain other conditions precedent, including that the Investor be satisfied with the results of the 3D survey and initial drilling locations on Montana's Shaunavon trend acreage and that Montana receive regulatory approval from the TSX Venture Exchange.

Cornerstone Capital Partnership LP and its sub-agents have acted as financial advisors to Montana in connection with the above transactions and are entitled to receive a $25,000 plus GST working fee payable in common shares issued at $0.25 per common share and a finder's fee associated with the Private Placement consisting of $210,000 in cash and 1,050,000 warrants to purchase common shares with an exercise price of $0.25 and a term expiring two years from the Closing Date.

The terms of the preferred shares permit the holder thereof to exchange such shares for units, each unit consisting of one common share and a warrant to purchase an additional common share for a period of two years from the date the preferred shares were originally issued at an exercise price of $0.80.  So that the holders of preferred shares who have previously exercised their right to exchange into units do not suffer any disadvantage, the Board of Directors has approved amending the warrants which have previously been issued on the exchange of preferred shares by extending the expiry date of such warrants to the later of February 1, 2014 and the date that is one year from the Closing Date and reducing the exercise price thereof to $0.50 per common share.

A special meeting of the shareholders of Montana will be held on March 14, 2013 to consider the transactions contemplated by the Investment Agreement.  Shareholders of record as of the close of business on February 11, 2013 will be entitled to receive notice of, and vote at, the special meeting of shareholders.  In connection with the special meeting, an information circular containing detailed information regarding the transactions contemplated by the Investment Agreement will be sent to all holders of common shares and preferred shares as of the record date.

Montana is also proposing to reduce the exercise price of the 1,485,000 options to purchase Common Shares (the "Options") outstanding under its stock option plan to $0.25. Options are an important component of Montana's compensation strategy providing employees, consultants, officers and directors with long-term equity-based performance incentives.  The Options will be re-priced to bring them in line with the current market price of the Common Shares.

To accommodate closing conditions, Mr. Jack Moore will step down as a director at closing to enable the appointment of Mr. McIntyre and Mr. Kulpecz. The Board proposes to renominate Jack Moore to the Board at the next annual general meeting.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Caution Regarding Forward Looking Information

Certain statements contained in this document constitute "forward-looking statements" and/or "forward-looking information" within the meaning of applicable securities laws (collectively referred to as forward-looking statements). Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "intend", "forecast", "target", "project", "guidance", "may", "will", "should", "could", "estimate", "predict" "propose" or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this press release include, but are not limited to completion of the transactions contemplated by the Investment Agreement including the Private Placement, the issuance of shares pursuant to the Purchase Option Agreement, the conversion of the senior debt of Montana into common shares, the extension of the indebtedness of Montana to Brookfield Bridge Lending Fund Inc. and the amendment of the articles of Montana to convert the preferred shares into units and extend and reprice the warrants issuable to the former holders of preferred shares upon the exchange of their preferred shares for units; the addition of Mr. McIntyre and Mr. Kulpecz to the Board of Directors of Montana; the selection of initial drilling locations; the initial cost of Shaunavon Wells; additional financing from the Investor; completion of the rights offering and the holding of a special meeting of shareholders.

In addition, the proposed transactions are subject to Montana receiving regulatory approval from the Exchange and approval at a meeting of the holders of common shares and preferred shares of Montana.

Forward-looking statements and information contained in this press release are based on our current beliefs as well as assumptions made by, and information currently available to, us. Although we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.

By their very nature, the forward-looking statements included in this press release involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the volatility of oil and gas prices; production and development costs and capital expenditures; the imprecision of reserve estimates and estimates of recoverable quantities of oil, natural gas and liquids; Montana's ability to replace and expand oil and gas reserves; environmental claims and liabilities; incorrect assessments of value when making acquisitions; increases in debt service charges; the loss of key personnel; the marketability of production; defaults by third party operators; unforeseen title defects; fluctuations in foreign currency and exchange rates; inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax and royalty laws; Montana's ability to access external sources of debt and equity capital; and Montana's ability to obtain equipment in a timely manner to carry out development activities. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to Montana, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking statements contained in this press release are made as of the date of this document and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

SOURCE: Montana Exploration Corp.

Charles Selby, Chairman & CEO
Telephone: [phone] (ext 247)
Fax: [phone]
Email: [email protected]

Don Foulkes, President
Telephone: [phone] (ext 248)
Fax: [phone]
Email: [email protected]