Naftex Energy Corporation - s. 144

Order

Headnote

Section 144 -- partial revocation of cease trade order to permit meeting of shareholders, share consolidation, and other matters related thereto.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am, ss. 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, C.S.5, AS AMENDED (THE ACT)

AND

IN THE MATTER OF

NAFTEX ENERGY CORPORATION

 

ORDER

(Section 144)

WHEREAS Naftex Energy Corporation (Naftex) has made an application (the Application) to the Ontario Securities Commission (the Commission) for an order under section 144 of the Act to vary a cease trade order dated June 10, 2002 issued by the Commission under subsections 127(1) and 127(5) of the Act (the Order) solely to permit Naftex to mail a management information circular (the Circular), to hold the meeting of the shareholders of Naftex (the Meeting) contemplated therein and to effect the transaction contemplated therein.

AND WHEREAS Naftex has represented to the Commission that:

1. Naftex is a public oil and gas exploration and development company incorporated under the laws of the Yukon Territory.

2. Naftex is a reporting issuer in British Columbia, Alberta, Ontario and the Yukon Territory and is also subject to cease trade orders issued by the British Columbia Securities Commission (BCSC) and the Alberta Securities Commission (ASC). Naftex has concurrently applied to the BCSC and ASC for a partial revocation of their cease trade orders.

3. Naftex is authorized to issue an unlimited number of common shares (the Shares) without par or nominal value of which there are 94,289,963 Shares issued and outstanding.

4. The Shares of Naftex are listed on the NEX Board of the TSX Venture Exchange (the Exchange). Trading in the Shares was suspended on the Exchange effective May 31, 2002 as a result of the cease trade orders.

5. The Shares were later transferred to the NEX Board of the Exchange on December 1, 2003 for failure by Naftex to maintain the requirements of the Exchange.

6. The Order was issued against Naftex for failure to file financial statements for the year ended December 31, 2001 and for the three-month period ended March 31, 2002. Naftex subsequently failed to file annual financial statements for 2002, 2003 and 2004. Naftex was originally in non-compliance with the filing of its financial statements due to a lack of financial information regarding its activities in Egypt and Naftex was unable to timely file its financial statements beginning with the financial statements for the year ended December 31, 2001.

7. Naftex has now filed its annual financial statements for the fiscal years ended December 31, 2001, 2002, 2003 and 2004, including the required annual chief executive officer and chief financial officer certifications, where applicable, and its interim financial statements for the three, six, and nine month periods ended March 31, June 30 and September 30, 2005 compared to the same periods in 2004, respectively, including the required interim chief executive officer and chief financial officer certifications, where applicable.

8. Other than as outline in paragraph 7 above, Naftex is in default for not filing March 31, June 30 and September 30 interim financial statements for fiscal years 2002, 2003 and 2004 and Naftex does not intend to file interim financial statements for any other prior periods that have occurred since the date of the Order.

9. Norse Energy Corp ASA (Norse Energy) is the controlling shareholder of Naftex, holding 96.39% of the issued Shares. Norse Energy is a Norwegian public limited company whose shares are listed on Oslo Børs (the Norwegian Stock Exchange) in Oslo, Norway.

10. Given Naftex's current financial situation and outlook, it is unlikely to pay any dividends to shareholders of Naftex (Shareholders) in the foreseeable future. Thus, Shareholders have limited liquidity for their shareholdings and are not deriving any income therefrom.

11. Management has determined to mail the Circular to request that the Shareholders vote for a special resolution (the Consolidation Resolution) to amend the Articles of Naftex to consolidate all of the Shares (the Consolidation).

12. The Consolidation Resolution will authorize management to proceed with a consolidation of the Shares on the basis of every 3,366,222 old Shares being consolidated into one new Share. Fractional Shares will not be issued under the Consolidation; however, Shareholders will be paid for their fractional Shares based on a price of $0.60 per old Share.

13. The Circular contains prospectus level disclosure, complies with Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business Combination and Related Party Transactions, contains a valuation and fairness opinion and provides dissent rights to Shareholders (Dissent Rights).

14. The only Shareholder that will hold Shares other than fractional Shares upon completion of the Consolidation is Norse Energy. The Consolidation will in effect result in Naftex becoming a wholly-owned subsidiary of Norse Energy and Shareholders (other than Norse Energy) will have no continuing interest in Naftex.

15. In connection with the completion of the Consolidation, Naftex will apply to have the Shares delisted from the Exchange and to cease to be a reporting issuer.

16. Naftex will apply to the Yukon Supreme Court for an order to obtain relief for failure to timely hold its annual general meeting, pursuant to the Business Corporation Act (Yukon).

17. Naftex cannot effect the Consolidation without mailing the Circular and holding the Meeting and Naftex cannot mail the Circular, hold the Meeting or effect the Consolidation without a variation of the Order.

18. Naftex is seeking a variation of the Order for the purpose of effecting the mailing of the Circular, holding the Meeting and effecting the Consolidation, including any action required by exercise of Dissent Rights.

AND WHEREAS considering the Application and the recommendation of the staff of the Commission;

AND WHEREAS the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 144 of the Act, that the Order be and is hereby partially revoked solely to permit the mailing of the Circular, the holding of the Meeting and the effecting of the Consolidation, including any action required by exercise of Dissent Rights.

DATED this 29th day of March, 2006

"John Hughes"
Manager, Corporate Finance
Ontario Securities Commission