Arsenal to Acquire GEOCAN's Shares

Arsenal Energy Inc. and GEOCAN Energy Inc. have entered into an arrangement agreement providing for the acquisition by Arsenal of GEOCAN pursuant to a plan of arrangement under the Business Corporations Act (Alberta). Under the Arrangement, Arsenal will acquire all of the outstanding class "A" common shares of GEOCAN for consideration of $0.70 per GEOCAN Share, payable, at the election of each GEOCAN shareholder, in cash or 0.81 of a common share of Arsenal. The consideration to be paid by Arsenal under the Arrangement of $0.70 per GEOCAN Share represents a premium of 29% over the five day weighted average trading price of the GEOCAN Shares to and including August 7, 2008 of $0.541. The value of the total consideration to be paid by Arsenal for the GEOCAN Shares, based upon a share value of $0.865 for each Arsenal Share and taking into account assumed debt of approximately $8 million, is approximately $47.2 million.

A maximum aggregate of $30,000,000 and a minimum aggregate of $26,000,000 in cash will be payable to the GEOCAN shareholders under the Arrangement. In the event that the GEOCAN shareholders elect, in the aggregate, to receive more than $30,000,000 in cash, the amount of cash to be received by a holder electing to receive cash with respect to a GEOCAN Share will be reduced proportionately and the balance of the purchase price for that GEOCAN Share will be paid by a portion of an Arsenal Share at a deemed price of $0.865 per Arsenal Share. In the event that the GEOCAN shareholders elect, in the aggregate, to receive less than $26,000,000 in cash, the number of Arsenal Shares to be received by a holder electing to receive Arsenal Shares with respect to a GEOCAN Share will be reduced proportionately and the balance of the purchase price for that GEOCAN Share will be paid in cash.

The Arrangement requires the approval of the holders of GEOCAN Shares. The Arrangement Agreement provides that GEOCAN shall call and hold a special meeting of the GEOCAN shareholders by no later than October 6, 2008 for the purposes of considering the Arrangement. The Arrangement is subject to the approval of the Court of Queen's Bench of Alberta, the TSX and all applicable regulatory authorities. Completion of the Arrangement is also subject to a number of additional conditions set out in the Arrangement Agreement.

Under the Arrangement Agreement, GEOCAN and Arsenal have each agreed that they will not solicit or initiate any discussions concerning any business combination or the sale of material assets. The Arrangement Agreement provides for a mutual non-completion fee of $1.7 million if the Arrangement is not completed in certain circumstances.
 

The Board of Directors of GEOCAN has unanimously determined that the Arrangement and Arrangement Agreement are in the best interests of GEOCAN and the GEOCAN shareholders. The Board of Directors of GEOCAN unanimously recommends that the GEOCAN shareholders approve the Arrangement.

Tristone Capital Inc. is acting as exclusive financial advisor to GEOCAN with respect to the Arrangement and has provided the Board of Directors of GEOCAN with a verbal opinion that the consideration to be received by the GEOCAN shareholders under the Arrangement is fair, from a financial point of view, to the GEOCAN shareholders and have agreed to deliver a written opinion to that effect, subject to receipt and review of final documentation.

Emerging Equities Inc. is acting as exclusive financial advisor to Arsenal with respect to the Arrangement.

All of the directors and officers of GEOCAN, holding a total of 3,775,148 GEOCAN Shares, representing approximately 6.7% of the outstanding GEOCAN Shares, have entered into agreements with Arsenal pursuant to which they have agreed to vote their GEOCAN Shares in favour of the Arrangement.

If all necessary approvals are obtained and the conditions contained in the Arrangement Agreement are met, Arsenal and GEOCAN anticipate that the Arrangement will become effective on or about October 7, 2008.
Arsenal and GEOCAN believe that the combination of the two corporations pursuant to the Arrangement would have the following benefits:

  • The increased size of the combined corporation will contribute to lower average operating expenses and cost of capital, overhead synergies and higher financial leverage;
  • The combined corporation will have a complimentary fit of assets as approximately 40% of GEOCAN's current production is in Arsenal's core east central Alberta area; and
  • The addition of GEOCAN's core Northeast British Columbia property, where approximately 40% of GEOCAN's current production is located, to the combined corporation will provide a further core property for development. Arsenal will also acquire new exploration plays in Ochre and Tomahawk as well as 82,000 net acres of undeveloped land, providing additional potential upside to the combined corporation's shareholders.
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