Wellco Energy Services Inc. et al. - MRRS Decision
Headnote
Mutual Reliance Review System for ExemptiveRelief Applications - Relief from registration, prospectus,continuous disclosure, insider reporting and SEDI filing requirementsin connection with a statutory arrangement involving an exchangeableshare structure.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am,ss. 25(1), 53(1), 74(1), 80(b)(iii) and 121(2)(a)(ii).
Applicable National Instruments
National Instrument 55-102 System for ElectronicDisclosure by Insiders (SEDI).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ALBERTA, BRITISH COLUMBIA,SASKATCHEWAN
MANITOBA, ONTARIO, NEW BRUNSWICK,PRINCE EDWARD ISLAND,
NOVA SCOTIA, NEWFOUNDLANDAND LABRADOR,
THE NORTHWEST TERRITORIES,AND THE YUKON TERRITORY
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
WELLCO ENERGY SERVICES INC.,
WELLCO ACQUISITION INC.,
AND WELLCO ENERGY SERVICESTRUST
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (collectively, the "Decision Makers")in each of Alberta, British Columbia, Saskatchewan, Manitoba,Ontario, New Brunswick, Prince Edward Island, Newfoundland andLabrador, Nova Scotia, the Yukon Territory, and the NorthwestTerritories (the "Jurisdictions") has received anapplication from Wellco Energy Services Trust (the "Trust"),Wellco Energy Services Inc. (the "Corporation") andWellco Acquisition Inc. ("AcquisitionCo") for a decisionunder the securities legislation of the Jurisdictions (the "Legislation")that:
1. the requirements contained in the Legislationof all of the Jurisdictions except British Columbia, to beregistered to trade in a security (the "RegistrationRequirement") and to file a preliminary prospectus anda prospectus and receive receipts therefore (the "ProspectusRequirement") will not apply to certain trades of securitiesto be made in connection with a proposed plan of arrangementunder section 193 of the Business Corporations Act(Alberta) (the "ABCA") (the "Arrangement")involving the Trust, AcquisitionCo, the Corporation and thesecurityholders of the Corporation; and
2. with respect to AcquisitionCo (or its successoron amalgamation with the Corporation and the Corporation'sCanadian subsidiaries - the "Amalgamated Corporation"),in those Jurisdictions in which AcquisitionCo or the AmalgamatedCorporation becomes a reporting issuer under the Legislation;
(a) the requirements to issue a press releaseand file a report upon the occurrence of a material change,file an annual report where applicable, interim financialstatements and audited annual financial statements and deliversuch financial statements to the securityholders of AcquisitionCoor the Amalgamated Corporation, file an information circularor make an annual filing in lieu of filing an informationcircular, where applicable, file an annual information formand provide management's discussion and analysis of financialconditions and results of operations (the "ContinuousDisclosure Requirements") will not apply to AcquisitionCoor the Amalgamated Corporation; and
(b) the requirement that insiders file reportsdisclosing the insiders direct or indirect beneficial ownershipof, or control or direction over, securities (the "InsiderReporting Requirements"), and the requirement to filean insider profile under National Instrument 55-102 Systemof Electronic Disclosure by Insiders (the "SEDIFiling Requirements"), will not apply to insiders ofAcquisitionCo or the Amalgamated Corporation;
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System")the Alberta Securities Commission is the principal regulatorfor this application;
AND WHEREAS the Trust, the Corporationand AcquisitionCo have represented to the Decision Makers that:
3. the Corporation was incorporated pursuantto the Company Act (British Columbia) on July 29, 1981under the name of Tomahawk Resources Ltd. It subsequentlychanged its name to Sartis Medical Systems Canada Inc. onAugust 23, 1993 and further changed its name to United SartisEnterprises Inc. on December 5, 1995 and then changed itsname to Wellco Energy Services Inc. on February 11, 1999.On August 16, 2000, the Corporation continued into the provinceof Alberta pursuant to Articles of Continuance;
4. the Corporation's primary services to theoil and gas industry include directional and horizontal drilling,wellsite accommodation unit rentals, drilling and completionsupervision, drilling fluids and environmental services, rentalof flare tanks and portable water and wastewater treatmentfacilities;
5. the head and principal offices of the Corporationare located in Calgary, Alberta;
6. the authorized capital of the Corporationpresently consists of 50,000,000 common shares ("CommonShares") and 50,000,000 Class "A" preferredshares;
7. as at June 24, 2002, 30,492,499 CommonShares and no Class "A" preferred shares were issuedand outstanding and options ("Options") to purchase2,515,000 Common Shares were outstanding;
8. the Common Shares are listed on the TSXVenture Exchange (the "TSX");
9. the Corporation is a reporting issuer inAlberta, British Columbia and Ontario and has been for morethan 12 months;
10. the Corporation has filed all the informationthat it has been required to file as a reporting issuer ineach of the Provinces of Alberta, British Columbia and Ontario,and is not in default of the securities legislation in anyof these jurisdictions;
11. the Trust is an open-end unincorporatedinvestment trust governed by the laws of Alberta and createdpursuant to a Declaration of Trust dated as of May 28, 2002,amended and restated on June 26, 2002. Computershare TrustCompany of Canada is the initial trustee of the Trust;
12. the head and principal offices of theTrust are located in Calgary, Alberta;
13. the Trust was established to:
a) invest in securities of AcquisitionCoand the Amalgamated Corporation;
b) acquire or invest in other securitiesof the Amalgamated Corporation, any other subsidiary ofthe Trust, or any other entity;
c) dispose of any part of the monies, propertiesand assets of the Trust;
d) temporarily hold cash and investmentsfor the purposes of paying the expenses and the liabilitiesof the Trust, making other permitted investments, payingamounts payable by the Trust in connection with the redemptionof any Trust Units, and making distributions to Unitholders;and
pay costs, fees and expenses associated withthe foregoing purposes or incidental thereto;
14. the Trust was established with nominalcapitalization and currently has only nominal assets and noliabilities. The only activity that will initially be carriedon by the Trust will be the holding of securities of the AmalgamatedCorporation;
15. the Trust is authorized to issue an unlimitednumber of trust units ("Trust Units") and an unlimitednumber of special voting rights ("Special Voting Rights");
16. as of July 2, 2002, there was one TrustUnit issued and outstanding and no Special Voting Rights wereoutstanding;
17. on May 28, 2002, the Trust issued 11,000,000special warrants. Each special warrant entitles the holderto acquire 0.1 Trust Units on the effective date of the Arrangement;
18. the Trust has received conditional approvalfrom the TSX for the listing on the TSX of the Trust Unitsto be issued in connection with the Arrangement subject to,among other things, completion of the Arrangement;
19. the Trust is not a reporting issuer inany of the Jurisdictions;
20. AcquisitionCo was incorporated pursuantto the ABCA on June 25, 2002;
21. the head and principal offices of AcquisitionCoare located in Calgary, Alberta;
22. AcquisitionCo was incorporated to participatein the Arrangement by acquiring Common Shares of the Corporation;
23. the authorized capital of AcquisitionCocurrently consists of an unlimited number of common shares;
24. AcquisitionCo will amend its Articlessuch that it (and the Amalgamated Corporation) will also beauthorized to issue an unlimited number of exchangeable sharesissuable in series, of which 1,300,000 Series A exchangeableshares (the "Exchangeable Shares") will be authorized;
25. as of July 2, 2002, 10 common shares ofAcquisitionCo were issued and outstanding and owned by theTrust;
26. AcquisitionCo is not a reporting issuerin any of the Jurisdictions;
27. the Arrangement will be effected by wayof a plan of arrangement under section 193 of the ABCA whichwill require approval by:
(i) not less than two-thirds of the votescast by the holders of Common Shares ("Shareholders")and the holders of Options ("Optionholders") (presentin person or represented by proxy), voting as a single class,at a meeting to be held on August 2, 2002 (the "Meeting");and
(ii) the approval of the Court of Queen'sBench of Alberta (the "Court");
28. the management information circular (the"Information Circular") mailed to the Shareholdersand the Optionholders in connection with the Meeting was preparedin conformity with the provisions of the ABCA and applicablesecurities laws and contains prospectus-level disclosure concerningthe respective business and affairs of the Trust, the Corporationand the Amalgamated Corporation and a detailed descriptionof the Arrangement;
29. under the Arrangement:
(A) Shareholders (other than dissentingShareholders) will exchange Common Shares held by them withAcquisitionCo in consideration for, at the election or deemedelection of each such Shareholder:
(i) one note of AcquisitionCo (a "Note")for every 10 Common Shares;
(ii) one Exchangeable Share for every10 Common Shares; or
(iii) a combination of Notes and ExchangeableShares;
(B) Options (other than those held by dissentingOptionholders) will be terminated; and
(C) each Note will be exchanged with theTrust for one Trust Unit;
30. each Option, other than Options held bydissenting Shareholders, will be amended to vest in its entirety;
31. holders of Options that exercise the sameprior to the effective time of the Arrangement will participatein the Arrangement in respect of the Common Shares receivedon the same basis as other Shareholders;
32. as part of the Arrangement, AcquisitionCo,the Corporation and the Corporation's Canadian subsidiarieswill amalgamate to form the Amalgamated Corporation whichwill continue under the name "Wellco Energy ServicesInc.";
33. upon completion of the Arrangement, theAmalgamated Corporation will become a reporting issuer underthe Legislation in Alberta, British Columbia and Ontario andwill be subject to the Continuous Disclosure Requirementsin such Jurisdictions;
34. the Trust will become a reporting issuerunder the Legislation in Alberta, British Columbia and Ontarioand will be subject to the Continuous Disclosure Requirementsin such Jurisdictions;
35. the Exchangeable Shares will provide aholder with a security having economic, ownership, and votingrights which are, as nearly as practicable, equivalent tothose of the Trust Units;
36. the Exchangeable Shares will be exchangeableby a holder thereof for Trust Units at any time at the optionof such holder;
37. under the terms of the Exchangeable Sharesand certain rights to be granted in connection with the Arrangement,the Trust or a subsidiary of the Trust other than the AmalgamatedCorporation (an "ExchangeCo") or the AmalgamatedCorporation will be able to redeem, retract or acquire ExchangeableShares in exchange for Trust Units in certain circumstances;
38. prior to the occurrence of the Arrangement,AcquisitionCo, the Trust and Computershare Trust Company ofCanada (the "Trustee") will enter into a votingand exchange trust agreement (the "Voting and ExchangeTrust Agreement");
39. under the terms of the Voting and ExchangeTrust Agreement, upon the occurrence and during the continuanceof certain events involving the bankruptcy, insolvency, dissolutionor winding up of the Amalgamated Corporation, involuntarilyor otherwise, a holder of Exchangeable Shares will be entitledto instruct the Trustee to exercise the rights granted bythe Trust under the Voting and Exchange Trust Agreement withrespect to any or all of the Exchangeable Shares held by suchholder, thereby requiring the Trust or ExchangeCo, as thecase may be, to purchase such Exchangeable Shares from theholder;
40. upon the occurrence of certain eventspertaining to the institution of voluntary liquidation, dissolutionor winding-up proceedings in respect of the Trust or otherdistribution of the assets of the Trust for the purposes ofwinding-up the affairs of the Trust or the threat or institutionof proceedings with respect to the involuntary liquidation,dissolution or winding-up of the Trust or to effect any otherdistribution of assets of the Trust for the purposes of winding-upthe affairs of the Trust, the Trust or ExchangeCo, as thecase may be, will be deemed to have acquired each outstandingExchangeable Share (other than Exchangeable Shares held bythe Trust or its subsidiaries) and holders of ExchangeableShares will be deemed to have exchanged the Exchangeable Sharesheld by them immediately prior to such trust liquidation event;
41. the Trust will issue a Special VotingRight to the Trustee which will effectively provide the holdersof Exchangeable Shares with voting rights equivalent to thoseattached to the Trust Units. Pursuant to the Voting and ExchangeTrust Agreement, the Special Voting Right will be held bythe Trustee for the benefit of holders of Exchangeable Sharesfrom time to time (other than the Trust and its subsidiaries)and each voting right attached thereto will be voted pursuantto the instructions of the holder of the related ExchangeableShare;
42. prior to the occurrence of the Arrangement,AcquisitionCo and the Trust will enter into a support agreement(the "Support Agreement"). Under the Support Agreement,the Trust will agree that:
(1) the Trust will take all actions anddo all things necessary to ensure that the Amalgamated Corporationis able to pay to the holders of the Exchangeable Sharesthe liquidation amount in the event of a liquidation, dissolutionor winding up of the Amalgamated Corporation, the retractionprice in the event of the giving of a retraction requestby a holder of Exchangeable Shares or the redemption pricein the event of a redemption of Exchangeable Shares by theAmalgamated Corporation; and
(2) the Trust will not vote or otherwisetake any action or omit to take any action causing the liquidation,dissolution or winding-up of the Amalgamated Corporation;
43. the steps under the Arrangement, the termsof the Exchangeable Shares and the exercise of certain rightsprovided for in connection with the Arrangement and the ExchangeableShares involves or may involve a number of trades or potentialtrades of Common Shares, Exchangeable Shares, Notes, TrustUnits and rights to acquire Trust Units under the Arrangement(collectively, the "Trades");
44. there are no exemptions from the RegistrationRequirement or the Prospectus Requirement available underthe Legislation for certain of the Trades;
45. the Information Circular discloses thatapplication will be made to relieve the Amalgamated Corporationfrom the Continuous Disclosure Requirements; and
46. the Trust will concurrently send to holdersof Exchangeable Shares resident in the Jurisdictions all disclosurematerial it sends to holders of Trust Units pursuant to theLegislation;
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation of all of the Jurisdictions except British Columbiais that:
(a) the Registration Requirement and theProspectus Requirement will not apply to the Trades providedthat the first trade in securities acquired under this Decisionshall be deemed to be a distribution or primary distributionto the public; and
(b) the Prospectus Requirement will notapply to the first trade in Trust Units and ExchangeableShares acquired by securityholders of the Corporation underthe Arrangement and the first trade of the Trust Units acquiredby the holders thereof on the exercise of all rights, automaticor otherwise, under such Exchangeable Shares, provided that:
(i) the conditions in subsections (3)or (4) of section 2.6 of Multilateral Instrument 45-102Resale of Securities ("MI 45-102"), withthe issuer being the Trust, are satisfied and for thepurposes of determining the period of time that the Trusthas been a reporting issuer under section 2.6 of MI 45-102,the period of time that the Corporation was a reportingissuer in at least one of the jurisdictions listed inAppendix B of MI 45-102 immediately before the Arrangementmay be included; and
THE DECISION of the Decisions Makersof Alberta, British Columbia and Ontario under the Legislationof Alberta, British Columbia and Ontario is that:
(A) the Continuous Disclosure Requirementswill not apply to AcquisitionCo and the Amalgamated Corporationfor so long as:
(i) the Trust is a reporting issuer inat least one of the jurisdictions listed in Appendix Bof MI 45-102 and is an electronic filer under NationalInstrument 13-101;
(ii) the Trust sends to all holders ofExchangeable Shares resident in the Jurisdictions alldisclosure material furnished to holders of Trust Unitsunder the Continuous Disclosure Requirements;
(iii) the Trust complies with the requirementsof the TSX, or such other market or exchange on whichthe Trust Units may be quoted or listed, in respect ofmaking public disclosure of material information on atimely basis;
(iv) AcquisitionCo or the AmalgamatedCorporation is in compliance with the requirements ofthe Legislation to issue a press release and file a reportwith the Decision Makers of Alberta, British Columbiaand Ontario upon the occurrence of a material change inrespect of the affairs of AcquisitionCo or the AmalgamatedCorporation that is not also a material change in theaffairs of the Trust;
(v) the Trust will include in all futuremailings of proxy solicitation materials to holders ofExchangeable Shares a clear and concise insert explainingthe reason for the mailed material being solely in relationto the Trust and not to AcquisitionCo or the AmalgamatedCorporation, such insert to include a reference to theeconomic equivalency between the Exchangeable Shares andTrust Units and the right to direct voting at meetingsof holders of Trust Units;
(vi) the Trust remains the direct or indirectbeneficial owner of all of the issued and outstandingvoting securities of AcquisitionCo or the AmalgamatedCorporation; and
(vii) AcquisitionCo or the AmalgamatedCorporation does not issue any preferred shares or debtobligations other than debt obligations issued to itsaffiliates or to banks, loan corporations, trust corporations,treasury branches, credit unions, insurance companiesor other financial institutions.
(B) the Insider Reporting Requirements andthe SEDI Filing Requirements will not apply to any insiderof AcquisitionCo or the Amalgamated Corporation in respectof securities of AcquisitionCo or the Amalgamated Corporationprovided:
(i) such insider does not receive, inthe ordinary course, information as to material factsor material changes concerning the Trust before the materialfacts or material changes are generally disclosed;
(ii) such insider is not a director orsenior officer of a major subsidiary of the Trust as definedin National Instrument 55-101 ("Major Subsidiary");
(iii) such insider is not also an insiderof the Trust, excluding any director or senior officerof a subsidiary of the Trust that is not a Major Subsidiary;
(iv) the Trust remains the direct or indirectbeneficial owner of all of the issued and outstandingvoting securities of AcquisitionCo or the AmalgamatedCorporation; and
(v) AcquisitionCo or the Amalgamated Corporationdoes not issue any preferred shares or debt obligationsother than debt obligations issued to its affiliates orto banks, loan corporations, trust corporations, treasurybranches, credit unions, insurance companies or otherfinancial institutions.
August 2, 2002.
"Glenda A. Campbell" "JamesA. Millard"