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Petro-Reef Resources Ltd. Cancels Annual and Special Meeting Pending Further Information

Thursday, June 7, 2012 8:54 AM


CALGARY, ALBERTA -- (Marketwire) -- 06/07/12 -- Petro-Reef Resources Ltd. (TSX VENTURE:PER), ("Petro-Reef" or the "Company") announces that the directors of Petro-Reef, in performing their fiduciary duties to all shareholders, have determined that it would be in the best interests of the Company to cancel the annual and special shareholders meeting which had been postponed from June 7, 2012 to July 4, 2012 and to call a new meeting at a later date for the following reasons.

Cavalon Capital Corp. ("Cavalon") approached the Company in March, 2012 and signed a confidentiality agreement on March 15, 2012. Since then Cavalon met twice with the special committee of the board on a very general basis and did not provide sufficient information or details for the special committee or the board to properly analyse their proposal.

On May 15, 2012 Cavalon presented a partially handwritten proposal that included a capital injection of $5 million at $0.35 per share, through:

--  a plan of arrangement, with a Capital Pool Company, which was
    represented to have $450,000 in cash, and of which David Tonken and
    Gregory Matthews are directors and of which Mr. Tonken is President
--  a plan of arrangement with another corporation, but not clearly
    identified to the special committee, which was represented to have $1.5
    million in cash.
    Very general information was provided on the two corporations and no
    information was provided to the special committee regarding the
    liabilities or other obligations of the proposed merger candidates.
--  an investment by the Cavalon Nominees totalling $600,000. 
--  a private placement of $2.5 million would be undertaken through an
    agent, who in a meeting with the special committee did not provide any
    details of, nor a firm commitment to undertake, the private placement,
    nor its timing.

The "offer" was to have been accepted by 10:00 a.m. on May 17, 2012. Cavalon launched its proxy solicitation on May 23, 2012, although it has come to the board's attention that Messrs Tonken and Matthews may have been approaching shareholders to support them before May 8, 2012, while discussions were still presumably ongoing with the Company under the confidentiality agreement.

Cavalon's decision to exercise the provisions of the Alberta Business Corporations Act ("ABCA") to solicit proxies under a dissident's proxy circular (the expression used in the ABCA) appears to be an attempt by a group of people who have no investment in Petro-Reef to make a cashless take over, without the "bid". The board is also concerned that the information given to the special committee by Messrs. Tonken and Matthews was about them and their team, and not a description of their plans for Petro-Reef and their ability to carry out those plans. The board is concerned that Cavalon does not have concrete plans for Petro-Reef or is not prepared to publicly give details of its milestones in the dissident proxy circular.

With these concerns in mind, the board requested Cavalon to provide it with clarification and details of the terms of its proposal and the dissident proxy circular. Despite giving an extension of time to respond, at the request of Cavalon, the board has not received any response to its request. Rather, Cavalon has chosen instead to respond with a defensive press release that succeeds in highlighting the problems the board has faced in obtaining any concrete information about their proposal and an attitude towards denying, rather than promoting corporate democracy.

The information requested by the board included the following:

--  Clear, viable and binding indications of Cavalon's financing
    commitments, and its ability to provide the $5,000,000 cash investment
    mentioned in the dissident proxy circular without excessive costs to
    Petro-Reef and its shareholders. The board is particularly concerned
    with the apparent conflict of interest between Messrs. Tonken and
    Matthews in the CPC and, if they were elected as directors of Petro-
    Reef, with the Company in negotiating the terms of a plan of arrangement
    with the CPC and the other corporation on from both sides of the
    transaction, as well as the fact that transaction costs for plans of
    arrangement are substantial when compared to brokers fees and could
    easily consume a significant portion of the cash contributions to the
    Company. The board is concerned that the benefits of any deal with the
    CPC would appear to accrue principally to Messrs. Tonken and Matthews
    and not to the shareholders Petro-Reef. 
--  An explanation and description of each of the milestones for performance
    described in the dissident proxy circular and in particular, Cavalon's
    proposed method of action to: 
    --  implement the cost savings initiative for the reservoir optimization
    --  take steps to achieve an improved corporate profile by September,
    --  begin to complete more substantial financing by early October, 2012;
    --  acquire the first roll-up target and identify the next acquisition
        target by the year-end; and 
    --  be in a position to begin paying quarterly dividends to shareholders
        within 24 months of the Cavalon Nominees taking office.
--  A proposed 2012 budget for Petro-Reef. 
--  An explanation of the departure in strategy from its proposal to the
    Special Committee of the Petro-Reef in the Proposal put forward in the
    dissident proxy circular, including an apparent move from an exploration
    and development company to an acquisition company; 
--  With respect to the Cavalon Nominees additional information, including: 
    --  how the Cavalon Nominees intend to meet the requirements for
        independent directors; 
    --  details on management and director remuneration and benefits,
        including the number and timing of options to be granted to each
        Cavalon Nominee; and 
    --  a description of all potential related party transactions and
        conflicts of interest in connection with the above.

The board believes this information is necessary for it to perform proper due diligence on Cavalon and its proposal in order to put the board in a position to report to shareholders with sufficient information to enable shareholders to make a considered decision. This concern has also been expressed by shareholders to members of the board.

Petro-Reef continues to wait on Cavalon's specifics to due diligence questions relating their proposal.

In addition, in pursuit of its objective of identifying a strategic alternative, Petro-Reef continues to be in discussions with third parties. These include parties with an industry track record of success, and the board expects to receive a proposal in the near future that may require shareholder approval.

Finally, a number of shares have traded since the April 16, 2012 record date and it is necessary to set a new record date to permit all shareholders the opportunity to receive this important information and vote.

About Petro-Reef Resources Ltd.

Petro-Reef Resources Ltd. is an Alberta incorporated oil and natural gas exploration and production company whose business activities are focused in Alberta. The Company has no subsidiaries. The Company's head office address is Suite 970, 10655 Southport Road SW, Calgary, Alberta T2W 4Y1.

The Company's shares are listed on TSX-V (Symbol: PER). There are 62,239,477 common shares issued and outstanding.

Neither 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.

Petro-Reef Resources Ltd.
N. Gary Van Nest
CEO and Chairman
(403) 523-2505
(403) 264-1348 (FAX)

Petro-Reef Resources Ltd.
Hugh M. Thomson
Vice-President Finance and CFO
(403) 523-2505
(403) 264-1348 (FAX)

Petro-Reef Resources Ltd.
970, 10655 Southport Road S.W.
Calgary, Alberta T2W 4Y1

(Source: Market Wire )
(Source: Quotemedia)


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