Securities Law & Instruments


National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief from continuous disclosure instruments, certification and audit committee requirements -- As a result of a privatization transaction the Filer is now a wholly-owned entity -- Filer's shares were delisted from the TSX and NYSE -- Filer has issued and outstanding debentures due March 31, 2016 -- as a result of defeasance of the debentures, the debentures are no longer payment obligations of the Filer and Filer's disclosure is of no relevance to the debenture holders -- Filer required to file alternative annual disclosure in the form of an annual report about the debentures outstanding, and File a press release in the event of a change in its affairs or those of the debenture trustee that could affect the price of the debentures -- Filer also granted exemptive relief from participation fees.

Applicable Legislative Provisions

National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, s. 8.1.

National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.

National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, s. 8.6.

National Instrument 52-110 Audit Committees, s. 8.1.

National Instrument 58-101 Disclosure of Corporate Governance Practices, s. 3.1.

OSC Rule 13-502 Fees.

Citation: Re Equal Energy Ltd., 2014 ABASC 407

October 17, 2014




Continuous disclosure obligations

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision (the CD Relief) under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirements of all of the following:

(a) National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities;

(b) National Instrument 51-102 Continuous Disclosure Obligations;

(c) National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings;

(d) National Instrument 52-110 Audit Committees; and

(e) National Instrument 58-101 Disclosure of Corporate Governance Practices.

Participation fees

The Director of the Ontario Securities Commission (the OSC Director) has received an application from the Filer for a decision under section 6.1 of Ontario Securities Commission Rule 13-502 Fees that the Filer be exempt from paying participation fees, subject to certain conditions (the Participation Fee Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Alberta Securities Commission is the principal regulator for this application;

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut; and

(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.


Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.


This decision is based on the following facts represented by the Filer:

1. The Filer is engaged in the exploration for, and acquisition, development and production of, petroleum and natural gas with operations in Oklahoma. The Filer also reviews new drilling opportunities and potential acquisitions in Oklahoma to supplement its exploration and development activities. The Filer was formed by an amalgamation (the Amalgamation) on July 31, 2014 between Equal Energy Ltd. (Equal) and Petroflow Canada Acquisition Corp. (Petroflow Sub) under the Business Corporations Act (Alberta). On August 28, 2014, the Filer continued as a corporation under the laws of Delaware.

2. The registered office of the Filer is located in Dover, Delaware, and its head and executive offices are located in Tulsa, Oklahoma.

3. The Filer is a reporting issuer in each jurisdiction of Canada. The Filer is not in default of securities legislation in any jurisdiction.

4. On July 31, 2014, Equal completed a previously announced arrangement (the Arrangement) pursuant to an arrangement agreement with Petroflow Energy Corporation (Petroflow) and Petroflow's wholly-owned subsidiary, Petroflow Sub, whereby (i) Petroflow acquired, indirectly through Petroflow Sub, all of the outstanding common shares of Equal (Shares) for USD$5.43 per Share in cash, (ii) the Amalgamation occurred and (iii) the Shares were cancelled without any repayment of capital in respect thereof.

5. Prior to the Arrangement, the Shares were listed for trading on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Upon completion of the Arrangement, no Shares remained outstanding, and as a result, the Shares were subsequently delisted from the TSX and the NYSE on July 31, 2014 and August 1, 2014, respectively.

6. The Filer does not have any securities outstanding, including debt securities, other than the following:

(a) common shares held by Petroflow; and

(b) 6.75% convertible unsecured junior subordinated debentures due March 31, 2016 (the Debentures).

7. The Debentures were sold through a public offering on February 9, 2011. The Debentures were issued pursuant to a convertible debenture indenture (the Indenture) made as of February 9, 2011 between the Filer and Olympia Trust Company (the Debenture Trustee), as supplemented and amended. The Debentures are listed for trading on the TSX.

8. On July 31, 2014, the Filer defeased all of the outstanding Debentures in accordance with section 9.5 of the Indenture (the Defeasance), and as a result the Filer has discharged all of its obligations with respect to the Debentures. The obligations under the Indenture will be satisfied solely by the Deposited Funds (as defined below).

9. On July 31, 2014, in connection with the Defeasance and pursuant to section 9.5 of the Indenture, all of the following steps were carried out:

(a) the Filer deposited in trust with the Debenture Trustee, pursuant to an escrow agreement, as amended, and for the sole benefit of the holders of the Debentures (Debentureholders), such amount in Canadian dollars as will be sufficient to make all payments required under the Debentures (the Deposited Funds);

(b) KPMG LLP provided a report on an agreed-upon procedures engagement (the Auditor's Opinion) stating that the Deposited Funds will exceed the payments required in respect of the Debentures; and

(c) upon deposit of the Deposited Funds and the provision of the Auditor's Opinion, the Debenture Trustee acknowledged the full payment, satisfaction and discharge of the Debentures.

10. The Filer prepares its financial statements in accordance with generally accepted accounting principles in the United States (US GAAP), and KPMG LLP has advised the Filer that, from an accounting perspective, the Debentures are legally defeased under US GAAP. As a result, neither the Debentures nor the Deposited Funds will be recorded on the financial statements of the Filer.

11. The completion of the Arrangement constituted a "change of control" under the Indenture. As a result, pursuant to its obligations under the Indenture, the Filer offered until September 29, 2014 to repurchase Debentures at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, in accordance with the terms and conditions set out in the Indenture. Debentureholders that did not accept the offer are entitled only to continue to receive interest on the Debentures until they are redeemed at par on March 31, 2016 in accordance with the provisions of the Indenture.

12. Pursuant to the Indenture, following the Arrangement, each Debentureholder no longer has the right to receive Shares on conversion of Debentures, but has the right to receive, in lieu of such Shares, USD$5.43 in cash in exchange for that principal amount of the Debentures as would otherwise have been convertible into one Share (which principal amount is currently CDN$8.39).

13. As a result of the Defeasance, the Debentures now only constitute a right to receive cash payments in connection with the conversion of the Debentures, principal, premium and interest, up to March 31, 2016, from the Deposited Funds.

14. The Filer has no plans to issue securities or engage in acts in furtherance of a trade, except to the extent necessary in the course of redeeming the outstanding Debentures.

15. For so long as the Debentures are outstanding, within 90 days of each financial year end of the Filer, the Filer will file on SEDAR a statement (the Alternative Annual Disclosure) which will disclose, as at the end of the Filer's most recently completed financial year: (i) the number of Debentures that remain outstanding; and (ii) a report by the Debenture Trustee confirming the amount remaining of the Deposited Funds held in cash and, if applicable, the type, maturity date, face amount and coupon rate for any securities held by the Debenture Trustee in trust for the benefit of the Debentureholders.

16. As the Debentures are no longer the obligation of the Filer, continuous disclosure about the Filer is irrelevant to holders of the Debentures. The Alternative Annual Disclosure is disclosure that may be relevant to holders of the Debentures.

17. Upon the occurrence of each change in the affairs of the Filer or the Debenture Trustee that would reasonably be expected to have a significant effect upon the market price or value of any of the Debentures, the Filer will, forthwith upon becoming aware of such a change, issue and file on SEDAR a news release disclosing the nature and substance of the change.

18. On July 31, 2014, the Filer publicly announced, by way of news release, that it had filed an application for the CD Relief. The press release was also subsequently filed on SEDAR.


Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that, until September 30, 2016, the CD Relief is granted, provided that each time the Filer relies on the CD relief, all of the following conditions are true:

(a) the Filer has complied with the representations in paragraphs 15 and 17 above;

(b) all outstanding securities of the Filer other than the Debentures are owned, directly or indirectly, by Petroflow, its associates or affiliates; and

(c) the Filer has not issued any securities or engaged in acts in furtherance of a trade in securities except with respect to the redemption of the Debentures.

The decision of the OSC Director is that the Participation Fee Relief is granted, provided that the Filer complies with the conditions to the CD Relief as set out above in paragraphs (a), (b) and (c).

"Tom Graham"
Director, Corporate Finance