Pegasus has entered into a pre-acquisition agreement with Harvest Energy Trust pursuant to which a wholly owned subsidiary of Harvest has agreed to make an offer to acquire all of the Class A and Class B shares of Pegasus for consideration consisting of 0.015 Harvest trust units for each Pegasus Class A share and 0.15 Harvest trust units for every Pegasus Class B share (the "Proposed Transaction"). The total transaction value is $18.7 million, of which approximately $14 million is the assumption of Pegasus net debt.
Commencing in December 2008, in light of low commodity prices and increasing debt levels, the board of directors of Pegasus, together with its financial advisor, conducted a comprehensive review of the strategic alternatives available to Pegasus. In connection with this strategic review, a number of parties were contacted with respect to a proposed transaction with Pegasus. As a result of the strategic review, the board of directors concluded that the acquisition of Pegasus by Harvest presents the best alternative for the Pegasus shareholders. In reaching this conclusion, the board considered a number of factors, including the value and form of consideration offered under the transaction, deal liquidity, as well as the Corporation's limited access to capital, debt levels and future capital spending constraints.
The board of directors of Pegasus has unanimously approved the Proposed Transaction and has concluded that the transaction is in the best interests of Pegasus and its shareholders and will recommend that its shareholders accept the offer. FirstEnergy Capital Corp. is acting as exclusive financial advisor to Pegasus' board of directors and has provided the board of directors with a fairness opinion that, subject to review of final documentation, the consideration to be received by Pegasus' shareholders under the offer is fair, from a financial point of view. Officers and directors holding approximately 17% of the outstanding Class A and Class B shares have entered into lock-up agreements with Harvest pursuant to which they have agreed to tender their Pegasus shares to the offer.
The Proposed Transaction will be subject to certain conditions, including the deposit of at least 90% of Pegasus' outstanding Class A (on a diluted basis) and Class B shares to the offer and the receipt of all required regulatory approvals and other customary conditions. The Agreement provides for a non-completion fee of $0.7 million which is payable to Harvest under certain circumstances if the transaction is not completed. The Agreement also requires that Pegasus cease all solicitation discussions and negotiations with any other parties with respect to any take-over proposals and provides Harvest with the right to match should a superior take-over proposal be received by Pegasus. Harvest anticipates mailing the offer and takeover bid circular to Pegasus' shareholders on or about June 19, 2009, and in any event not later than June 26, 2009, and the offer will expire approximately 35 days thereafter.
Pegasus shareholders who accept the offer and acquire Harvest trust units will be eligible to receive distributions on such Harvest trust units, provided they hold such trust units on the applicable record date for the monthly distribution.
Pegasus' assets include a large presence in Central Alberta, being the Crossfield and Strathmore areas which are mutual and adjacent to existing Harvest operations with complementary drilling opportunities. Based on internal field estimates for the month of May 2009, Pegasus' production averaged approximately 600 boe/d comprised of 2,975 thousand cubic feet (mcf) of natural gas and 105 barrels (bbl) of oil and natural gas liquids. Total consideration for the transaction represents approximately $31,100 per flowing boe based on these production estimates.
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