SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
Resources Inc., 2022 ONSC 6239
COURT FILE NO.: CV-22-687707-00CL
DATE: 20221102
RE: Royal Fox Gold Inc., Applicant
AND:
Northern Superior Resources Inc., Respondents
BEFORE: Osborne J.
COUNSEL: Brad Moore and Jean-Philippe Cote, for the Applicant
Stephanie Voudouris, on behalf of Northern Superior Resources Inc.
HEARD: November 2, 2022
ENDORSEMENT
1Royal Fox Gold Inc. (“Royal Fox” or the “Applicant”) has brought this application pursuant to section 182 of the Business Corporations Act, R.S.O. 1990, c.B.16, as amended, (the “OBCA”) for approval of a plan of arrangement (the “Arrangement”) as contemplated by the Arrangement Agreement dated September 6, 2022, between Royal Fox and Northern Superior Resources Inc. (“Northern Superior”). Defined terms have the meaning given to them in the factum and motion materials filed by Royal Fox on this motion.
2On September 29 2022, Justice Conway granted an interim order authorizing the Applicant to hold a special meeting to consider and vote on special resolutions to approve the Arrangement (the “Interim Order”).
3Royal Fox is a mineral exploration company focused on the development of the Philibert Project located near Chibougamau, Québec. Royal Fox is an OBCA company. Its shares trade on the TSXV.
4The counterparty to the Arrangement Agreement, Northern Superior, is a British Columbia company, the shares of which trade on the TSXV and in the United States on the OTCQB. It is engaged in the identification, evaluation, acquisition and exploration of properties [primarily gold] in Québec and Ontario.
5The particulars of the Arrangement are set out in the Meeting Materials and the motion materials filed and in particular, the Circular, the Arrangement Agreement and the Plan of Arrangement. Pursuant to its terms, the holders of common shares of Royal Fox will receive 0.12 of the common share of Northern Superior together with one non-transferable contingent value right [”CVR”] of Northern Superior for each Royal Fox share.
6The CVRs will provide for the potential issuance of additional shares of Northern Superior, to a maximum of 0.06 of a Northern Superior share per CVR, upon the declaration of a maiden mineral resource on the Philibert Project within 12 months from the closing of the Arrangement.
7In addition, holders of options to purchase Royal Fox shares will receive replacement options of Northern Superior, as adjusted, and holders of outstanding Royal Fox common share purchase warrants will have those warrants adjusted in accordance with their respective contractual terms, as applicable. The particulars of these terms are set out in the affidavits of Simon Marcotte filed in support of the Application.
8The share consideration represents a premium of approximately 33% of the closing price of shares of Royal Fox on September 2, 2022 and a premium of approximately 24% over the VWAP 20 trading days prior to the announcement of the Arrangement.
9Assuming no Royal Fox shares are issued pursuant to the exercise of options and warrants prior to the effective time of the Arrangement, and exclusive of the CVRs, former shareholders of Royal Fox are anticipated to own approximately 29.4% of the pro forma combined company, whereas existing holders of Northern Superior shares are anticipated to own approximately 70.6%.
10Prior to the meeting authorized by the Interim Order, Royal Fox distributed the Circular and all other Meeting Materials.
11I am satisfied on the basis of the materials filed by the Applicant in support of the relief sought today that notice as given was appropriate and in accordance with the Interim Order.
12I observe that, as fully disclosed by the Applicant, all but three of the option holders are also shareholders or directors or both, and therefore received the Meeting Materials. Through inadvertence, the Applicant omitted to distribute the Meeting Materials to three option holders who were not shareholders or directors or both. Those three held in the aggregate 1.1 million options representing 6.5% of the outstanding options. Those option holders receive the Meeting Materials by email on October 23, 2022. This, too, was in accordance with the Interim Order and particularly paragraph 17 thereof.
13Similarly, a minority of warrant holders who were not also shareholders or directors, or inadvertently not sent the Meeting Materials but counsel for the Applicant emailed the Meeting Materials to them on October 24, 2022.
14The meeting was held virtually on October 31 2022, in accordance with the terms of the Interim Order as well as the bylaws of the company. Quorum was established.
15Approval required two thirds of the votes cast by the shareholders represented in person and/or by proxy, two thirds of the votes by shareholders and option holders voting as a single class, and a simple majority of votes cast by shareholders excluding persons described in subparagraphs (a) through (d) of section 8.1(2) of Multilateral Instrument 61-101. The Arrangement Resolutions received overwhelming approval.
16In particular, of the 162,047,456 votes cast in person, virtually or by proxy by shareholders, representing approximately 54.66% of the outstanding shares, 99.983% were cast in favour of the Arrangement Resolutions. Of the same number of votes cast by shareholders and option holders, voting as a single class [also representing approximately 54.66% of the outstanding shares and 0% of the outstanding options], 99.983% were cast in favour. Of the 137,730,624 votes cast, excluding votes attached to shares held by persons described in subparagraphs (a) through (d) of section 8.1(2) of Multilateral Instrument 61-101, 99.98% were cast in favour.
17The evidence today discloses that no shareholders exercised any dissent rights, notwithstanding that the right to dissent, as contemplated in section 185 of the OBCA as modified by the Plan and the Interim Order, were provided. Moreover, no shareholder, or for that matter any affected party, has filed a Notice of Appearance.
18In short, those parties principally affected by the relief sought today have overwhelmingly approved the Arrangement and none has indicated any objection or challenge.
19The Director received the Plan of Arrangement and draft order together with other materials on October 27, 2022, and confirmed by letter dated October 31, 2022 filed and in the Record that the Director did not intend to appear before the Court, and the Director has not done so.
20Northern Superior intends to rely on the fairness hearing in this proceeding and the final order approving the Arrangement sought today for an exemption pursuant to section 3(a)(10) of the United States Securities Act of 1933, as amended.
21The Applicant relies upon two affidavits of Simon Marcotte sworn September 27 and November 1, 2022 respectively, with exhibits thereto, as well as the terms of the Interim Order.
Analysis and Consideration of Factors
22Section 182 of the OBCA gives the Court the power to make any order it thinks appropriate in connection with an application for advice and directions in connection with an arrangement, including an order approving the arrangement pursuant to section 182(5)(f).
23In making such an order, the Court must be satisfied that: a) the statutory procedures and any court-ordered requirements have been met; b) the application has been put forward in good faith; and c) the arrangement is fair and reasonable. [See Re Magna International Inc. 2010 ONSC 4123 at paras 99-105, aff’d 2010 ONSC 4685 at paras. 31-41, BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at para. 137 and Steel Canada Inc. (Re) 2014 ONSC 4285 at para. 85].
24I will address each of these requirements in turn although in so doing I note that all of these requirements were considered and found to have been satisfied when the Interim Order was granted and there has been no material change since that time that would lead to a different conclusion for the purposes of the final approval order sought today.
25Royal Fox is a “corporation” as defined in the OBCA.
26The Arrangement of Royal Fox is an “Arrangement” within the meaning of section 182 of the OBCA [i.e., subsection (1)(f): an exchange of securities of a corporation for property, money or other securities of the corporation or property, money or other securities of another body corporate]. As noted above, Royal Fox is an Ontario corporation governed by the OBCA.
27The statutory procedures and any court-ordered requirements have been met. In particular here, the terms of the Interim Order have been complied with. Copies of the Meeting Materials were provided in accordance with the terms of the Interim Order.
28The Meeting itself was called, held and conducted in accordance with the requirements of the Interim Order. As noted above, the Arrangement was approved overwhelmingly by Royal Fox’s Securityholders.
29The Arrangement is put forward in good faith. There is no evidence otherwise.
30In my view, the Arrangement is fair and reasonable. There is clearly a valid business purpose.
31The factors identified by the Supreme Court of Canada that may be relevant to the test for the assessment of the fairness and reasonableness of a proposed arrangement include: a) the vote by security holders on the arrangement; b) the impact on the rights of those security holders; c) the approval of the arrangement by the corporation’s directors and the presence of a fairness opinion; and d) the access of shareholders to dissent and appraisal remedies. [see BCE at paras. 138-143 and 150-152].
32Each of these factors is satisfied here by Royal Fox. The Arrangement was approved not just by the requisite majority of shareholders present in person or by proxy at the Meeting, but overwhelmingly. As observed by Blair, J. in Re St. Lawrence & Hudson Railway Co., 1998 O.J. 3934 at para. 27, what better litmus test then, for assessing whether [a shareholder] might reasonably approve of the plan, than the votes of those whose interests are actually at stake. Such votes are not conclusive but are an important indicator of fairness, as are the lack of dissent or objection.
33The Supreme Court of Canada has recognized that although no single factor is conclusive, the outcome of the shareholder vote is an "important indicator of whether a plan is fair reasonable", which can be given "considerable weight", particularly if the margin is large. See BCE Inc., (Re), at paras. 141 and 150. The Shareholder vote in this case is a strong indication of the fairness and reasonableness of the Arrangement.
34The approval of the Directors, both as a full Board and the Special Committee, was clear. That approval was supported by financial and legal advice provided to both, as well as the Stifel GMP Fairness Opinion, which was to the effect that the Arrangement is in the best interests of Royal Fox and is fair to Royal Fox shareholders. The approval of the Board was unanimous.
35In the aggregate, all of these factors suggest that the rights of interested parties have been fairly and reasonably balanced. Additional comfort can be drawn from the fact that the form of order sought here is consistent with the model order of this Court.
36Having considered all of the foregoing factors, the Court is satisfied that the Arrangement is fair and reasonable and is in the best interests of Royal Fox and its Securityholders.
Approval Granted
37The Final Approval Order is granted, approving the Arrangement pursuant to section 182(5) of the OBCA.
38Order to go as signed by me today, which is effective from today’s date and is enforceable without the necessity of issuing and entering.
Osborne J.
Date: November 2, 2022