Relief from the formal valuation requirement in connection with a business combination pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- issuer and related party purchaser negotiated terms of the acquisition of the issuer -- involvement of related party brings transaction within the definition of a business combination under MI 61-101- related party did not have any special information or degree of influence over the issuer -- exemptive relief from formal valuation requirements granted, subject to two conditions: first, the Transaction is not a business combination by virtue of paragraphs (e)(ii) or (e)(iii) of the definition of "business combination" in MI 61-101; and second, the management information circular to be mailed to Longview securityholders in connection with the transaction, (i) discloses that the related party purchaser does not have, or has not had within the preceding 12 months, any board or management representation in respect of the issuer, (ii) identifies and discloses any material information concerning the issuer or its Shares which the related party purchaser may have knowledge of that has not been generally disclosed, and (iii) discloses that the related party purchaser has read the circular and agrees that it identifies and discloses the information required by (ii) above.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 4.3, 9.1.
May 1, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF THE PROVINCE OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF LONGVIEW OIL CORP. (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption pursuant to Section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (the MI 61-101) from the formal valuation requirements of Section 4.3 of MI 61-101 in connection with a plan of arrangement (the Arrangement) to be completed under the provisions of the Business Corporations Act (Alberta) pursuant to an arrangement agreement (theArrangement Agreement) entered into between the Filer and Surge Energy Inc. (Surge) on March 31, 2014 (the Exemption Sought). Under the Arrangement, Surge will acquire all of the outstanding common shares of the Filer (Filer Shares) by issuing to the shareholders of the Filer (other than Surge) (theFiler Shareholders) 0.975 common shares of Surge (Surge Shares) for each Filer Share.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-101) is intended to be relied upon in Quebec.
Terms defined in National Instrument 14-101 Definitions, MI 11-102Passport System, NP 11-203 Procedure and Related Matters, and MI 61-101 have the same meanings if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer and Surge:
1. The Filer is a public oil and gas production company incorporated under the laws of the province of Alberta. The registered office of the Filer is located at Suite 2400, 525 -- 8th Avenue S.W., Calgary, Alberta T2P 1G1.
2. The Filer is a "reporting issuer" for the purposes of securities legislation in all of the provinces of Canada. The Filer is not in default of any requirement of securities legislation applicable to it.
3. The authorized share capital of the Filer consists of an unlimited number of Filer Shares, of which 47,009,190 are outstanding as of the date hereof.
4. The Filer Shares are listed on the Toronto Stock Exchange (the TSX) under the trading symbol "LNV".
5. Surge is a public oil and gas production and exploration company incorporated under the laws of the province of Alberta. The registered office of Surge is located at Suite 4000, 421 -- 7th Avenue S.W., Calgary, Alberta, T2P 4K9.
6. Surge is a "reporting issuer" for the purposes of securities legislation in all of the provinces of Canada. Surge is not in default of any requirement of securities legislation applicable to it.
7. The Surge Shares are listed on the TSX under the trading symbol "SGY".
8. The authorized share capital of Surge consists of an unlimited number of Surge Shares and an unlimited number of preferred shares, of which 179,501,315 common shares and no preferred shares are outstanding as of March 31, 2014.
9. As of the date hereof, Surge owns and controls 9,300,000 Filer Shares, representing approximately 19.8% of the outstanding Filer Shares.
10. On February 4, 2014, the Filer and Advantage Oil & Gas Ltd. (Advantage) announced that Advantage had entered into an agreement to sell 21,200,000 Filer Shares, representing approximately 45% of the issued and outstanding Filer Shares and all of the Filer Shares held by Advantage, to a syndicate of underwriters at a price of $4.45 per share (the Secondary Offering).
11. On February 7, 2014, the Filer received a non-binding proposal from Surge with respect to a possible business combination pursuant to which Surge would acquire all of the outstanding Filer Shares (the Original Proposal).
12. On February 8, 2014, the Filer board of directors (the Filer Board) met to review the Original Proposal and determined to appoint a special committee of independent directors (the Filer Special Committee) to consider the Original Proposal.
13. On February 10, 2014, the Filer was informed by Surge that Surge had submitted an expression of interest to the underwriters for the Secondary Offering to purchase, and the underwriters had agreed to allocate to Surge, 9,300,000 Filer Shares of the Secondary Offering, representing approximately 19.8% of the issued and outstanding Filer Shares. The Filer did not have any control or participate in any way in the decision of the underwriters to allocate the Filer Shares to Surge pursuant to the Secondary Offering.
14. On February 11, 2014, the Filer engaged BMO Capital Markets as a financial advisor (the Financial Advisor) to assist and advise the Filer Board and the Filer Special Committee.
15. On February 28, 2014, Surge purchased 9,300,000 Filer Shares, representing 19.8% of the issued and outstanding Filer Shares, pursuant to the Secondary Offering for $4.45 in cash per Filer Share. As a result of such purchase, Surge became a "related party" (as such term is defined in MI 61-101) of the Filer.
16. On March 3, 2014, the Filer and Surge entered into a confidentiality agreement allowing the Filer to access confidential information relating to Surge to allow the Filer to evaluate a potential transaction between the two parties.
17. On March 13, 2014, the Filer Special Committee met to discuss the due diligence findings and financial perspectives of a transaction between the two parties, and with advice and guidance from its Financial Advisor and legal advisors, also considered various alternatives available to the Filer, including a consideration of other potential parties who may be interested in pursuing a potential transaction with the Filer.
18. On March 19, 2014, the Filer and Surge entered into a non-binding letter of intent and a mutual confidentiality agreement (the Mutual Confidentiality Agreement) and between March 19, 2014 and March 31, 2014, the Filer and Surge, with the assistance of their respective legal and financial advisors, conducted confirmatory due diligence reviews and negotiated the terms of the Arrangement Agreement. The Mutual Confidentiality Agreement contained provisions common for this type of transaction.
19. On March 31, 2014, the Filer Special Committee met with its legal and financial advisors to review the terms of the proposed Arrangement Agreement. At that meeting, the Filer's legal advisors reviewed in detail the terms and conditions of the Arrangement Agreement and the Filer Special Committee's legal and fiduciary duties in the context of the proposed transaction. The Financial Advisor delivered a verbal opinion that as at such date, and based upon and subject to certain assumptions, limitations, qualifications and other matters, the consideration to be received by the Filer shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Filer shareholders. Following its deliberations and based, in part, on the advice and analysis provided, including the Fairness Opinion, the Filer Special Committee unanimously determined to recommend that the Board approve the Arrangement Agreement and the transactions contemplated thereby.
20. Immediately following the Filer Special Committee meeting, the Filer Board met, and based on the recommendations of the Filer Special Committee, unanimously approved the entering into of the Arrangement Agreement.
21. On March 31, 2014, Surge and the Filer entered into the Arrangement Agreement. Under the terms of the Arrangement Agreement, Surge will acquire all of the issued and outstanding Filer Shares from the Filer Shareholders on the basis of 0.975 Surge Shares for each Filer Share. The exchange ratio implies a value of $5.99 per Filer Share based on the closing price of Surge Shares of $6.14 on the close of the TSX on March 31, 2014. Based on that implied value per Filer Share, the consideration to be received by the Filer Shareholders under the Arrangement represents a 35% premium to the price received by Advantage pursuant to the Secondary Offering on February 28, 2014.
22. All of the directors and officers of the Filer have entered into the voting agreements with Surge pursuant to which such directors and officers have agreed to vote all of their Filer Shares in favour of the Arrangement and to otherwise support the Arrangement, subject to the provisions of such voting agreements.
23. The interest of Surge in the Filer and its status as a "related party" of the Filer has not resulted in Surge being provided with any special information or obtaining any degree of influence over the business and operations of the Filer.
24. Except pursuant to the Mutual Confidentiality Agreement and Arrangement Agreement, Surge has not gained any knowledge of, or influence over, the business or operations of the Filer.
25. Surge and the Filer have at all times acted on an arm's length basis.
26. Surge has never had any board or management representation at the Filer, nor have any of Surge's directors, officers or, to its knowledge, employees ever had a material relationship with the Filer, any of its subsidiaries, or any of its directors, officers or employees.
27. Surge has no knowledge of any material information concerning the Filer or the Filer's securities that has not been generally disclosed or will not be generally disclosed at the time the Filer mails its management information circular (the Information Circular) to the Filer Shareholders in connection with approval of the Arrangement.
28. The Filer has no knowledge of material information concerning Surge or Surge's securities that has not been generally disclosed or will not be generally disclosed at the time the Filer mails its Information Circular to the Filer Shareholders in connection with approval of the Arrangement.
29. The only non-cash consideration to be received by the Filer shareholders under the Arrangement are the Surge Shares, which are shares of a reporting issuer.
30. The Information Circular to be sent to the Filer Shareholders will state that the Filer has no knowledge of any material information concerning the Filer or the Filer Shares that has not been generally disclosed.
31. There is a "liquid market", as that term is defined in section 1.2 of MI 61-101, in the Surge Shares.
32. The number of Surge Shares to be issued pursuant to the Arrangement will represent less than 25% of the issued and outstanding Surge Shares immediately before the Arrangement.
33. The Surge Shares to be received by the Filer Shareholders will be freely tradeable at the time the Arrangement is completed.
34. Under MI 61-101, the Arrangement would be a "business combination" as Surge, a related party of the Filer (by virtue of owning more than 10% of the outstanding Filer Shares), would acquire the Filer. As a result, sections 4.3 and 4.5 of MI 61-101, respectively, would require that the Filer obtain a formal valuation of the Filer Shares and minority approval in connection with the Arrangement.
35. There is no exemption available in MI 61-101 that would provide an exemption from the formal valuation requirement in these circumstances.
36. The Filer will obtain minority approval for the Arrangement as required under s. 4.5 of MI 61-101 and provide the disclosure in the Information Circular required in section 4.2 of MI 61-101.
The principal regulator is satisfied that the decision meets the test set out in the Legislation of the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that:
(a) the Arrangement is not a business combination by virtue of paragraphs (e)(ii) or (e)(iii) of the definition of "business combination" in MI 61-101; and
(b) the Information Circular to be mailed to the Filer securityholders in connection with the Arrangement:
(i) discloses that Surge does not have, or has not had within the preceding 12 months, any board or management representation in respect of the Filer;
(ii) identifies and discloses any material information concerning the Filer or the Filer Shares which Surge may have knowledge of that has not been generally disclosed; and
(iii) discloses that Surge has read the Information Circular and agrees that it identifies and discloses the information required by (ii) above.