Marquee Energy and Alberta Oilsands complete arrangement transaction

On December 6, 2016, Alberta Oilsands Inc. (“AOS”) acquired all of the issued and outstanding common shares of Marquee Energy Ltd. (“Old Marquee”) pursuant to a statutory plan of arrangement under the Alberta Business Corporations Act (“ABCA”) involving AOS, Old Marquee and the holders of common shares of Old Marquee (the “Arrangement”) in accordance with the terms and subject to the conditions of an arrangement agreement dated August 19, 2016, as amended October 11, 2016 (as amended, the “Arrangement Agreement”). Pursuant to the Arrangement, holders of common shares of Old Marquee received 1.67 common shares of AOS for each common share of Old Marquee. As a result of the Arrangement, Old Marquee became a wholly owned subsidiary of AOS and, immediately following the completion of the Arrangement, AOS and Old Marquee completed a vertical short-form amalgamation pursuant to the ABCA (the “Amalgamation”) and continued under the name “Marquee Energy Ltd.” (“New Marquee”). As a result, Old Marquee shareholders and AOS shareholders own approximately 49 per cent and 51 per cent, respectively, of the issued and outstanding common shares of New Marquee (on a non-diluted basis). Concurrent with the closing of the Arrangement, New Marquee entered into a credit agreement with two Canadian chartered banks providing for credit facilities of up to an aggregate of $30 million, with approximately $18 million of net debt.

As of the close of trading on December 7, 2016, common shares of Old Marquee were delisted from the TSX Venture Exchange (“TSXV”) and ceased trading on the TSXV under the symbol “MQL” and common shares of AOS ceased trading on the TSXV under the symbol “AOS”. The common shares of New Marquee commenced trading on the TSXV under the symbol “MQX” on December 8, 2016. 

Prior to closing the Arrangement, Old Marquee and AOS settled a dispute with Smoothwater Capital Corporation (“Smoothwater”), a significant shareholder of AOS that was initially opposed to the proposed Arrangement and favoured an alternative transaction pursuant to which AOS would be liquidated and its remaining cash distributed to its shareholders. As AOS was only the issuer of shares in connection with the Arrangement, and neither AOS nor its shareholders were being arranged, AOS and Marquee believed that the Arrangement as structured did not require a vote of AOS shareholders under the ABCA. 

Marquee obtained an interim order of the Court of Queen’s Bench of Alberta providing for the calling of a meeting of Old Marquee shareholders to vote on the Arrangement. Smoothwater made an application within the Marquee arrangement proceeding to amend the interim order and provide AOS shareholders the right to vote. This application resulted in an order of the court to the effect that Old Marquee could not proceed to seek final approval of the Arrangement unless AOS shareholders were provided with a vote on the Arrangement and granted dissent rights, each in a manner similar to such rights afforded to Old Marquee shareholders.

Marquee appealed. Marquee argued that the decision was incorrect because the shares of AOS were not being arranged. It maintained that the decision of the lower court represented a marked departure from prior jurisprudence pertaining to plans of arrangement in Canada. In a decision released on November 15, 2016, the Alberta Court of Appeal allowed the appeal of Old Marquee and concluded that the Arrangement could be completed without a vote of AOS shareholders or dissent rights in favour of AOS shareholders. In reaching its decision, the Court of Appeal relied on the following reasons:

•              the provisions of the ABCA addressing the fairness and reasonableness of a plan of arrangement only refers to security holders and creditors of the company being arranged (in this case, not AOS shareholders);

•              the court’s role is to assess the plan of arrangement before it, not the process by which it was developed or the subsequent steps needed to implement the business plan of the parties; and

•              directors of a corporation are required to resolve the interests of different stakeholders (which are not always aligned), and the court should defer to the expertise of directors in these situations.

The Court of Appeal did not address Smoothwater’s contention that the transaction was in fact an amalgamation that required AOS shareholder approval and was not an acquisition by AOS of Marquee. 

Following the decision of the Court of Appeal, Old Marquee, AOS and Smoothwater entered into settlement negotiations, which ultimately resulted in the parties entering into a standstill, nomination and voting agreement on November 28, 2016. Among other things, pursuant to such agreement, (i) Smoothwater agreed to immediately cease all actions related to the opposition of the Arrangement, (ii) Smoothwater became entitled to nominate one director to the board of New Marquee, to chair the Governance and Compensation Committee of New Marquee and to join the Strategy Committee of New Marquee, (iii) Smoothwater agreed to a limited standstill; and (iv) New Marquee agreed to reimburse a portion of Smoothwater’s documented expenses and to issue to Smoothwater an aggregate of 1,000,000 common shares of New Marquee at a deemed price of $0.11 per share.

Bennett Jones LLP acted as legal counsel to Old Marquee with a team led by Brent Kraus and including Harinder Basra, Drew Broughton, Kelly Ford, Eric Chernin and Katie Miller (capital markets and M&A), and Michael Theroux and Codie Chisholm (litigation). 

Burstall Winger Zammit LLP acted as counsel to AOS with a team led by Douglas Stuve and Sabina Shah, and including Jonathan Hudolin, Farhiyah Shariff and Sarah Magee (capital markets and M&A), and Alan McConnell and Spencer Chimuk (litigation). 

Goodmans LLP acted as counsel to Smoothwater Capital Corporation, with a team led by Jonathan Feldman and Kirk Rauliuk (capital markets and M&A) and David Conklin (litigation).Osler, Hoskin & Harcourt LLP also acted as counsel to Smoothwater, with a team led by Tristram Mallett and Catherine Hamill (litigation).

Norton Rose Fulbright Canada LLP acted as counsel to Old Marquee in connection with credit financing matters, with a team led by Danielle Maksimow and including Christina Winger (banking and finance). 

McCarthy Tétrault LLP acted as counsel to National Bank of Canada and the other members of the lending syndicate with respect to credit financing matters, with a team led by James-Scott Lee and including Matthew Bell (financial services).