Eurogas Corporation
Headnote
MI 11-102 and NP 11-203 -- relief from the dealer registration requirement and prospectus requirement -- filer intends to distribute common shares of a subsidiary that is not a reporting issuer to the filer's shareholders -- common shares will be held by escrow agent until such time as subsidiary files and obtains receipt for a prospectus, which will be done as soon as practicable after shares are delivered to escrow agent -- relief granted subject to first trade of the common shares being a distribution until the subsidiary obtains receipt for a prospectus.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).
July 25, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(THE "JURISDICTION")
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
EUROGAS CORPORATION ("Eurogas")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Eurogas for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for an exemption from the dealer registration requirement and the prospectus requirement with respect to certain trades in common shares of Eurogas International Inc. ("Eurogas International") by way of dividend-in-kind to holders of common shares of Eurogas (the "Exemption Sought").
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) Eurogas has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in each of the provinces and territories of Canada other than Ontario (the "Passport Jurisdictions").
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by Eurogas:
1. Eurogas is a corporation incorporated under the Canada Business Corporations Act. Its executive head office is located in Toronto, Ontario and it is a reporting issuer in each of the Jurisdiction and the Passport Jurisdictions (collectively, the "Jurisdictions") where such concept exists. Eurogas is not in default of securities legislation in any of the Jurisdictions.
2. The common shares of Eurogas are listed on the TSX Venture Exchange under the symbol EUG.
3. Eurogas International Inc. ("Eurogas International") is a corporation incorporated under the laws of Barbados and is a wholly-owned subsidiary of Eurogas.
4. Eurogas is an independent oil and gas company which carries on exploration, development, production, acquisition and natural gas storage activities and has its primary interests in properties in Spain and Tunisia. In Spain, Eurogas is engaged in developing a proposed underground natural gas storage facility 21 kilometres off the east coast of Spain. In Tunisia, Eurogas holds, through Eurogas International, a non-operated working interest in a permit (the "Sfax Permit") covering over one million acres located in Tunisia's Gulf of Gabes.
5. During 2005, Eurogas International and its joint venture partner successfully converted the Sfax Permit to an exploration permit. The four year permit commenced December 9, 2005, and includes a commitment to drill one exploration well at a budgeted cost of US$9.8 million net to Eurogas International prior to December 9, 2009. Failure to fulfill the technical and financial commitments on the Sfax Permit within the duration of the initial period of the concession will result in cancellation of the permit by Tunisian authorities.
6. In April 2008, Eurogas and its joint venture partner entered into a farmout agreement with Delta Hydrocarbons B.V. ("Delta") pursuant to which Delta committed to spend US$125 million on the Sfax Permit for a 50% participation in the joint venture. Subsequent to Delta fulfilling its commitment, Eurogas International's interest will be 22.5%, and each party to the joint venture will be responsible for any further expenditures based on their proportionate joint venture interest.
7. The current work program being implemented in connection with the Sfax Permit includes the drilling of up to four wells. Drilling on the first well commenced on June 16, 2008 and results of the drilling program could be imminent.
8. On July 10, 2008, Eurogas announced that its Board of Directors had approved a restructuring plan to distribute the common shares of Eurogas International as a dividend to all holders of common shares of Eurogas ("Eurogas Shareholders") on a pro rata basis of one Eurogas International common share for each five Eurogas common shares held (the "Distribution").
9. In accordance with the restructuring plan, Eurogas will exchange all of its existing common shares of Eurogas International for preferred shares of Eurogas International (the "Preferred Shares") and new common shares of Eurogas International ("EI Common Shares"). The Preferred Shares, which Eurogas will thereafter hold, will capture the current value of Eurogas International (the "Freeze"). The EI Common Shares will be distributed by Eurogas to the Eurogas Shareholders to be held by Computershare Trust Company of Canada, as escrow agent (the "Escrow Agent"), for the benefit of the Eurogas Shareholders until such time as Eurogas International becomes a reporting issuer in at least one of the Jurisdictions listed in Appendix B to National Instrument 45-102 Resale of Securities ("NI 45-102").
10. Upon completion of the Distribution, the EI Common Shares will be held in the same pro rata proportion as the common shares of Eurogas are held by the Eurogas Shareholders.
11. Following the Distribution, Eurogas Shareholders will not be able to trade EI Common Shares unless and until the Prospectus (defined below) has been receipted by the securities regulatory authorities.
12. As soon as practicable following the delivery of the EI Common Shares to the Escrow Agent, Eurogas International will file a non-offering prospectus (the "Prospectus") with each of the securities regulatory authorities in each of the Jurisdictions and will make application to list the EI Common Shares on a stock exchange in Canada.
13. The purpose of the restructuring plan is to create two separate publicly traded companies, the values of which will be directly related to their underlying core properties. The Freeze will allow Eurogas Shareholders to retain the existing value of the Sfax Permit through their Eurogas common shares, and the Distribution will allow Eurogas Shareholders to participate in the future potential value of Eurogas International as a "pure play" investment. The Freeze and the Distribution must be done at the same time in order to avoid potential tax consequences for Eurogas and Eurogas Shareholders. However, if the Freeze and Distribution are completed following any positive drilling results, the increased value would have to remain in Eurogas, through the Preferred Shares, and thereby impact the potential value and future value of Eurogas International.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for 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 the first trade in the EI Common Shares will be a distribution until such time as a receipt for the Prospectus has been obtained in at least one Jurisdiction.