/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE
SERVICES OR DISSEMINATION IN THE UNITED
STATES/
CALGARY, AB, Aug. 27, 2021 /CNW/ - (TSX: PMT) –
Perpetual Energy Inc. ("Perpetual" or the "Company") is pleased to
announce that, in connection with its previously announced proposed
plan of arrangement (the "Plan of Arrangement") under the
Business Corporations Act (Alberta) (the "ABCA") involving
Perpetual, the shareholders of Perpetual and Rubellite Energy Inc.
("Rubellite"), the Company (i) has set the consolidation ratio at
1,000 to 1 (the "Ratio") for its common shares (the "Common
Shares"), and (ii) has made inconsequential amendments to the Plan
of Arrangement to correct a minor typographical error and to
include the reduction of Perpetual's stated capital to $0.01 per Common Share as an additional step
in the Plan of Arrangement.
The Special Meeting of Perpetual's shareholders to consider the
Plan of Arrangement and other related matters is scheduled to be
held virtually via live webcast that shareholders may attend via
telephone at 9:00 a.m. (Calgary time) on August
31, 2021 (the "Meeting"). Perpetual shareholders are
encouraged to review the management information circular (the
"Information Circular") with respect to the Plan of Arrangement on
SEDAR at www.sedar.com as it contains important deadlines and
information, including information with respect to the exercise of
warrants to be received by Perpetual shareholders in connection
with the Plan of Arrangement and for Perpetual shareholders to
participate in the equity financings and with respect to the
registered shareholders' right to dissent with respect to the Plan
of Arrangement and, if the Plan of Arrangement becomes effective,
to be paid the fair value of their Common Shares in accordance with
the provisions of ABCA and the Interim Order. An amending agreement
incorporating the amendments to the Plan of Arrangement will also
be made available for review on SEDAR at www.sedar.com. The Plan of
Arrangement is subject to final Court approval.
Odd Lot Consolidation
Pursuant to steps in the Plan of Arrangement, Perpetual will
consolidate the Common Shares (the "Consolidation") on the basis of
the Ratio and will then split (the "Split") the Common Shares at
the same Ratio (the Consolidation and the Split are together, the
"Share Capital Amendments").
Shareholders who own a number of Common Shares less than the
Ratio (the "Consolidated Shareholders") will be paid an amount in
cash per Common Share equal to the volume weighted average trading
price ("VWAP") of the Common Shares on the Toronto Stock Exchange
("TSX") for the 20-day period prior to the effective date of the
Plan of Arrangement (the "Consolidation Consideration"). It is a
condition of the lenders of Perpetual that payments made pursuant
to the Consolidation and in respect of dissenting shareholders not
exceed $750,000 in the aggregate.
Based on the Ratio it is anticipated that only approximately
650,000 Common Shares in aggregate will be cancelled as a result of
the Consolidation and Perpetual would pay an aggregate of
approximately $235,000 to the
Consolidated Shareholders. The Consolidated Shareholders own on
average 113 Common Shares and based on current trading prices will
receive approximately $40 in
Consolidation Consideration in connection with the
Consolidation.
Perpetual values its shareholders and is aware of the challenges
that shareholders experience when trying to sell small holdings of
Common Shares. A minimum brokerage commission for selling a small
number of Common Shares would constitute a significant percentage
of the total proceeds from the sale of the Common Shares and in
many cases would make it economically punitive to sell their small
holdings. The Consolidation helps to address this problem by giving
shareholders liquidity, enabling them to dispose of their Common
Shares without incurring brokerage fees. In addition, the
Consolidation was designed to provide the Consolidated Shareholders
with the benefit of realizing the substantial increase in the
market price of the Common Shares following the announcement of the
Plan of Arrangement thereby having the effect of increasing the
Consolidation Consideration. The closing price of Perpetual's
shares on August 26, 2021 was 17%
higher than the 20-day VWAP immediately prior to the announcement
of the Plan of Arrangement and related other transactions on
July 16, 2021. This compares
favorably to the change for a peer group of junior oil and gas
producers for which there was a 12% decrease relative to their VWAP
for the same period, representing 29% relative outperformance
versus Perpetual's peers.
Perpetual included the Share Capital Amendments as part of the
Plan of Arrangement to provide liquidity for shareholders with
small positions and to reduce administrative costs of Perpetual. A
significant number of shareholders hold small and odd-lot holdings
of Common Shares. The Share Capital Amendments allows such
shareholders to liquidate their investment without payment of
brokerage fees that in many cases would represent all or a
substantial portion of their sale proceeds. Further, as a reporting
issuer, Perpetual is required to print and disseminate to
registered shareholders and beneficial shareholders annual and
interim financial statements and other continuous disclosure
materials, which printing and dissemination costs represent a
significant expense for Perpetual. The effect of the proposed Share
Capital Amendments will be to reduce administrative costs
associated with maintaining a large base of odd-lot and small
shareholders by significantly reducing the number of these
shareholders.
Completion of the Consolidation as part of the Plan of
Arrangement remains subject to the approval of the Company's
shareholders at the Meeting and the Company will issue a further
news release announcing the Consolidation Consideration and the
Plan of Arrangement and Consolidation taking effect. Following
completion of the Share Capital Amendments, the Company will have
approximately 64.0 million Common Shares outstanding. Letters of
transmittal with respect to the Share Capital Amendments and the
Plan of Arrangement were mailed out to all registered shareholders.
All registered shareholders of Perpetual will be required to send
their certificates representing pre-consolidation Common Shares
with a properly executed letter of transmittal to Perpetual's
transfer agent, Odyssey Trust Company, in accordance with the
instructions provided in the letter of transmittal. Shareholders
who hold their Common Shares through a broker or other intermediary
and do not have Common Shares registered in their own name will not
be required to complete a letter of transmittal.
Following the Consolidation, any shareholder holding less than
one Common Share (whether a registered shareholder or a beneficial
shareholder) will cease to have any rights as a shareholder other
than the right to be paid the Consolidation Consideration and will
not participate in the Split or receive Rubellite Common Shares or
Rubellite Warrants under the Plan of Arrangement. Any such holder
who has not surrendered the certificate(s) or Direct Registration
System Advice(s) representing such Common Shares in accordance with
the letter of transmittal on or prior to the third anniversary date
of the effective date of the Plan of Arrangement will cease to have
any claim or interest of any kind or nature against Perpetual or
Rubellite for the Consolidation Consideration or otherwise.
Consolidated Shareholders may wish to obtain advice from their
broker or financial advisor as to the effect of the Consolidation
on them. The tax consequences for each Consolidated Shareholder may
vary. Neither Perpetual nor Rubellite makes any representations
with respect to the tax consequences for a particular Consolidated
Shareholder. It is recommended that each Consolidated Shareholder
consult their personal tax advisor as to the consequences to them
of the Consolidation.
The Share Capital Amendments are further described in the
Information Circular. Perpetual shareholders are encouraged to
carefully review the Information Circular as it contains important
information pertaining to the Consolidation.
Amendments to the Plan of Arrangement
Perpetual has made certain inconsequential amendments to the
Plan of Arrangement to correct a typographical error and to provide
for the reduction of Perpetual's stated capital to $0.01 per share by adding an additional step to
the Plan of Arrangement. At the Meeting, shareholders will be asked
to consider and, if deemed advisable, to approve by way of special
resolution, the Plan of Arrangement and if approved it will also
result in the approval by way of special resolution of the
reduction of the stated capital account maintained in respect of
Perpetual's Common Shares to $0.01
per share. The stated capital reduction will be effective at the
same time the Plan of Arrangement becomes effective.
Perpetual believes that the reduction of the stated capital
account will benefit the Company on a go-forward basis by providing
more flexibility in managing its capital structure, including its
ability to pay dividends and repurchase Common Shares. Due to
Perpetual's long history dating back to its inception as an income
trust in 2002 and its business plan which included extensive
distributions to its unitholders and dividends to its shareholders,
the Company's stated capital account maintained in respect of the
Common Shares no longer reflects the Company's current
circumstances.
The reduction of the stated capital account will have no impact
on the day-to-day operations of the Company and will not, on its
own, impact the financial condition of the Company. The reduction
in the stated capital account will not result in a deemed dividend
or in a reduction of the adjusted cost base of the Common Shares
for shareholders of the Company. Furthermore, the reduction in the
stated capital account of the Common Shares will not give rise to
immediate tax consequences under the Income Tax Act for
shareholders of the Company. Shareholders of the Company may wish
to consult their own tax advisors with respect to the proposed
stated capital account reduction.
The ABCA provides that a corporation shall not reduce its stated
capital if there are reasonable grounds for believing that (i) the
corporation is, or would after the reduction be, unable to pay its
liabilities as they become due, or (ii) the realizable value of the
corporation's assets would thereby be less than the aggregate of
its liabilities. We do not have reasonable grounds to believe that
(i) we are, or would after the proposed stated capital reduction
be, unable to pay our liabilities as they become due, or (ii) the
realizable value of our assets would, as a result of the proposed
stated capital reduction, be less than the aggregate of our
liabilities.
Other Matters Relating to the Plan of Arrangement
Based on preliminary proxy voting results received by the
Company to date, it is apparent that the special resolution to
approve the Plan of Arrangement is supported by shareholders. Thus
far, no notices of dissent have been received and no Perpetual
shareholder, security holder or creditor has served notice of
intention to appear.
Notices of intention to appear have been received from
PricewaterhouseCoopers Inc., ("PwC") LIT, in its capacity as the
Trustee in bankruptcy of Sequoia Resources Corp. ("Sequoia") and
the Orphan Well Association ("OWA") and briefs have been filed
indicating that the parties oppose the application for approval of
the Plan of Arrangement.
In August 2018, PwC filed a
Statement of Claim against Perpetual and its President and Chief
Executive Officer ("CEO") (the "Sequoia Litigation") with respect
to the Company's disposition of shallow conventional natural gas
assets in Eastern Alberta (the
"Goodyear Assets") to an unrelated third party on October 1, 2016 (the "Sequoia Disposition"). The
OWA was permitted to intervene in certain proceedings related to
summary dismissal applications filed by Perpetual. PwC's and the
OWA's purported interest in opposing the Plan of Arrangement is
based solely on this lawsuit.
PwC's Statement of Claim originally sought to return the
Goodyear Assets to Perpetual Operating Trust or, in the
alternative, $217 million in damages;
however, the claims have been substantially narrowed through
decisions of the Court of Queen's Bench (the "Court") and
Alberta Court of Appeal (the "Court
of Appeal"). The Bankruptcy and Insolvency Act ("BIA") claim has
been summarily dismissed. PwC has appealed that decision and the
appeal will not be heard until February
2022. All that remains outstanding is an oppression claim
for the amount of $1.56 million
brought by PwC on behalf of three municipalities who were owed
money at the time of the Sequoia Disposition, voluntarily entered
into payment plans with Sequoia and remained unpaid at the date of
Sequoia's bankruptcy in March
2018.
While management expects that the Company is more likely than
not to be completely successful in defending against the Sequoia
Litigation such that no damages will be awarded against it, the
Special Committee of the Board of Directors in their deliberations
considered the possibility of an adverse second appeal decision
reinstating the BIA claim and future adverse decisions regarding
the BIA or oppression claim at trial. The Special Committee of the
Board of Directors, in their determination that the Plan of
Arrangement and the other transactions are in the best interest of
Perpetual and its stakeholders including its shareholders, secured
and unsecured debtholders, creditors, claimants and other
stakeholders including the regulatory obligations pertaining to its
abandonment and reclamation obligations, considered the impact of
the Plan of Arrangement and other transactions on the Sequoia
estate, and others potentially impacted by the outcome of the
Sequoia Litigation including the environment, and made the
determination that Perpetual would be better positioned with the
Plan of Arrangement to manage either a monetary judgment or a
return of some or all of the Goodyear Assets for which future asset
retirement obligations may need to be addressed.
Upon completion of the Plan of Arrangement and the other
transactions, Perpetual will be in a materially stronger financial
position going forward with a 45% reduction in net debt and
$6 to $7
million increase in adjusted funds flow related to both
lower cash interest and general and administrative costs. With
improved liquidity, Perpetual will be positioned to fund
value-adding opportunities to grow production and adjusted funds
flow to realize the inherent value potential of its assets,
continue to manage its current and any future decommissioning
obligations and to pursue other new ventures. Perpetual will also
have exposure to the Clearwater Assets through its 4 million
Rubellite Share Purchase Options. In any scenario, if the Plan of
Arrangement is approved and the Sequoia claim is eventually
successful, Perpetual believes PwC's recovery potential is
materially improved and the risk of satisfying future
decommissioning obligations for the Goodyear Assets is materially
reduced.
"We are pleased that the preliminary shareholder results are
tremendously supportive of the Plan of Arrangement. While many
elements of the Sequoia Litigation have been determined in
Perpetual's favor, significant effort to ensure due consideration
was given to the parties potentially impacted by the Sequoia
Litigation to the extent PwC is successful in its claims." said
Sue Riddell Rose, Perpetual's CEO.
"We are perplexed by PwC's and the OWA's opposition to the Plan of
Arrangement given the careful planning and attention to detail to
ensure a positive outcome for all stakeholders and considering the
reasonable expectations of all stakeholders."
Shareholder Questions and Assistance
Perpetual shareholders who have questions with respect to any of
the foregoing matters or require assistance in voting for the Plan
of Arrangement can contact our shareholder advisor and proxy
solicitation agent, Kingsdale Advisors, by telephone toll-free at
1-877-659-1819 (416-867-2272 for collect calls outside North
America) or by email at contactus@kingsdaleadvisors.com.
No securities regulatory authority has either approved or
disapproved of the contents of this news release. The securities
being offered have not been, nor will they be, registered under the
United States Securities Act of 1933, as amended, and may not be
offered or sold in the United
States or to, or for the account or benefit of, U.S. persons
absent registration or an applicable exemption from the
registration requirements. This press release shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of the securities in any State in which such
offer, solicitation or sale would be unlawful.
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and
marketing company headquartered in Calgary, Alberta. Perpetual owns a diversified
asset portfolio, including liquids-rich conventional natural gas
assets in the deep basin of West Central Alberta, heavy crude oil
and shallow conventional natural gas in Eastern Alberta, including undeveloped bitumen
leases in Northern Alberta and
prospective undeveloped acreage in the emerging Clearwater play fairway through Rubellite.
Additional information on Perpetual can be accessed at
www.sedar.com or from the Company's website at
www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
Forward-Looking Information
Certain information in this news release may constitute
forward-looking information or statements (together
"forward-looking information") under applicable securities laws.
The forward-looking information includes, without limitation,
statements with respect to: the completion, and anticipated
benefits of, the Plan of Arrangement and the other transactions to
Perpetual's shareholders and other stakeholders, including the
Share Capital Amendments; the expectation that shareholders will
approve the Plan of Arrangement based on preliminary voting
results; the anticipated success in defending the Sequoia
Litigation; the statements contained under the heading "Other
Matters Relating to the Plan of Arrangement"; the anticipated
timing for the completion of the Plan of Arrangement; and expected
timing of the special meeting of Perpetual Shareholders to be held
to consider the Plan of Arrangement; and other similar
statements.
Forward-looking information is based on current expectations,
estimates and projections that involve a number of known and
unknown risks, which could cause actual results to vary and in some
instances to differ materially from those anticipated by Perpetual
and described in the forward-looking information contained in this
news release. In particular and without limitation of the
foregoing, material factors or assumptions on which the
forward-looking information in this news release is based include:
the successful completion of each of the Plan of Arrangement and
the other transactions, including obtaining necessary shareholder,
Court and regulatory approvals, as applicable, and satisfying all
other conditions to completion within expected timelines;
completion of the Plan of Arrangement on the expected terms;
anticipated benefits to Perpetual's shareholders; the ability of
Perpetual to continue as a going concern in the event the Plan of
Arrangement and the other transactions are not completed; the
ability of Rubellite to successfully operate the Clearwater assets; forecast commodity prices
and other pricing assumptions; forecast production volumes based on
business and market conditions; foreign exchange rates; near-term
pricing and continued volatility of the market; Rubellite's and
Perpetual's capacity and continued operations; estimates of
quantities of crude oil from properties and other sources not
currently classified as proved; accounting estimates and judgments;
future use and development of technology and associated expected
future results; the ability to obtain regulatory approvals; the
successful and timely implementation of capital projects; ability
to generate sufficient cash flow to meet current and future
obligations; estimated abandonment and reclamation costs, including
associated levies and regulations applicable thereto; Rubellite's
ability to operate under the management of Perpetual pursuant to
the management services agreement; the ability of Rubellite and
Perpetual to obtain and retain qualified staff and equipment in a
timely and cost-efficient manner, as applicable; the successful
listing of the Rubellite Shares and Arrangement Warrants on the
TSX; the retention of key properties; forecast inflation and other
assumptions inherent in Perpetual's current guidance and estimates;
the continuance of existing tax, royalty, and regulatory regimes;
the accuracy of the estimates of reserves volumes; ability to
access and implement technology necessary to efficiently and
effectively operate assets; and the ongoing and future impact of
the coronavirus on commodity prices and the global economy, among
others.
Undue reliance should not be placed on forward-looking
information, which is not a guarantee of performance and is subject
to a number of risks or uncertainties, including without limitation
those described herein and under "Risk Factors" in Perpetual's
Annual Information Form and MD&A for the year ended
December 31, 2020 and in other
reports on file with Canadian securities regulatory authorities
which may be accessed through the SEDAR website
(www.sedar.com) and at Perpetual's website
(www.perpetualenergyinc.com). In addition, defence
costs of legal claims such as the Sequoia Litigation can be
substantial, even with respect to claims that have no merit and due
to the inherent uncertainty of the litigation process, the
resolution of the Sequoia Litigation or the related opposition to
the Plan of Arrangement to which the Company has become subject
could have a material effect on the Company's financial position
and results of operations.
Readers are cautioned that the foregoing list of risk factors
is not exhaustive. Forward-looking information is based on the
estimates and opinions of Perpetual's management at the time the
information is released, and Perpetual disclaims any intent or
obligation to update publicly any such forward-looking information,
whether as a result of new information, future events or otherwise,
other than as expressly required by applicable securities
law.
SOURCE Perpetual Energy Inc.