Battle Mountain Gold Co.
June 07,
1996
INQUIRY LETTER 1
BAKER & BOTTS L.L.P.
ONE SHELL PLAZA
910 LOUISIANA
HOUSTON, TEXAS 77002-4995
TELEPHONE (713) 229-1234
June 06, 1996
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Martin P. Dunn, Esq.
Re: Battle Mountain Gold Company; Hemlo Gold Mines Inc.
Section
3(a)(10); Rule 144; Rule 145
Ladies and Gentlemen:
We are counsel to Battle Mountain Gold Company, a Nevada corporation
("Battle Mountain"). Battle Mountain has entered into a Combination Agreement
dated as of March 11, 1996, as amended and restated (the "Combination
Agreement"), with Hemlo Gold Mines Inc., an Ontario corporation ("Hemlo Gold").
The Combination Agreement provides that Battle Mountain will acquire the
outstanding common shares of Hemlo Gold ("Hemlo Gold Common Shares") pursuant to
a plan of arrangement (the "Arrangement") that is subject to approval by the
Ontario Court of Justice (General Division) (the "Ontario Court") pursuant to
section 182 of the Business Corporations Act (Ontario) (the "OBCA"). As a
part of the Arrangement, the outstanding Hemlo Gold Common Shares will be
exchanged for a new class of Hemlo Gold exchangeable shares (the "Exchangeable
Shares") as more fully described below. Each Exchange Shares entitles its holder
to dividend and other rights economically equivalent to those of one share of
common stock of Battle Mountain ("Battle Mountain Common Stock"). The
Exchangeable Shares will be exchangeable for Battle Mountain Common Stock as
more fully described below.
This
letter requests confirmation that the Division of Corporation Finance (the
"Division") will not recommend any enforcement action to the Securities and
Exchange Commission ("Commission") if Hemlo Gold is acquired and reorganizes its
capital pursuant to the Arrangement without registration of the securities to be
issued at the effective date of the Arrangement ("Effective Date") in exchange
for Hemlo Gold Common Shares under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on our opinion that no such registration is
required for the issuance, offer or sale of such securities by virtue of the
exemption provided by Section 3(a)(10) of the Securities Act. In addition, we
request confirmation as to certain matters concerning the applicability of Rules
144 and 145 to resales of the Exchangeable Shares issued pursuant to the
Arrangement, as set forth below. Hemlo Gold has consented to the submission of
this letter of request on its behalf as well as that of Battle Mountain.
I. The
Companies
The Battle
Mountain Common Stock is registered under Section 12(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and listed on the New
York Stock Exchange.
The Hemlo
Gold Common Shares are registered under Section 12(b) of the Exchange Act and
listed on The Toronto Stock Exchange (the "TSE") and the American Stock
Exchange. Hemlo Gold has advised us that it is a "foreign private issuer", as
defined in Rule 3b-4 under the Exchange Act.
II. The
Arrangement
Battle
Mountain proposes to combine with Hemlo Gold pursuant to the Arrangement. Under
the terms of the Arrangement, Hemlo Gold will undergo a reorganization of its
capital which, in general, involves the following actions: (1) Hemlo Gold will
amend its articles of incorporation to provide for, among other things (a) the
change of its name, (b) change the designation and certain terms of a series of
authorized but unissued shares, (c) the creation of an unlimited number of
Exchangeable Shares and (d) the establishment of the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares; (2) Hemlo Gold
will issue 100 Hemlo Gold Common Shares to Battle Mountain in exchange for the
delivery by Battle Mountain to Hemlo Gold of 148 shares of Battle Mountain
Common Stock; (3) each existing Hemlo Gold Common Share (other than Hemlo Gold
Common Shares held by Battle Mountain or holders who have properly exercised
their rights of dissent and are ultimately entitled to be paid fair value for
their shares) will be exchanged for 1.48 Exchangeable Shares; and (4) Hemlo Gold
will distribute the 148 shares of Battle Mountain Common Stock held by Hemlo
Gold to Battle Mountain for no consideration.
Upon
consummation of the Arrangement, immediately following the Effective Date, Hemlo
Golds outstanding capital stock will consist of 100 Hemlo Gold Common Shares
held by Battle Mountain and the Exchangeable Shares held by the former holders
of Hemlo Gold Common Shares. As long as the Exchangeable Shares remain
outstanding, holders of the Exchangeable Shares will have the right to exchange
their shares on a one-for-one basis for shares of Battle Mountain Common Stock,
plus an additional amount equivalent to any declared and unpaid dividends on
such Exchangeable Shares. See "A. Exchange Rights" below. An objective of this
transaction structure is to provide Canadian shareholders of Hemlo Gold with the
opportunity to achieve, in certain circumstances, tax-deferred treatment in
Canada on the disposition of their Hemlo Gold Common Shares.
It is
anticipated that the Exchangeable Shares will be publicly traded in Canada
following the Effective Date. The TSE has accepted notice of the proposed
Arrangement and has conditionally approved the listing of the Exchangeable
Shares on the Effective Date, subject to the satisfaction of routine
requirements of the TSE.
A.
Exchange Rights
Each
holder of Exchangeable Shares will be entitled at any time following the
Effective Date to retract (i.e., require Hemlo Gold to redeem) any or all
Exchangeable Shares owned by such holder and to receive in exchange an
equivalent number of shares of Battle Mountain Common Stock, plus an additional
amount equivalent to any declared and unpaid dividends on such Exchangeable
Shares, subject to the retraction call right of Battle Mountain and an indirect
wholly owned subsidiary of Battle Mountain ("Battle Mountain Sub") described
below.
Upon
notification of a retraction request, each of Battle Mountain and Battle
Mountain Sub will have two business days in which to exercise a call right (a
"retraction call right") to purchase all of the Exchangeable Shares subject to
the retraction request for consideration consisting of an equivalent number of
shares of Battle Mountain Common Stock, plus an additional amount equivalent to
any declared and unpaid dividends on such Exchangeable Shares. In the event
neither Battle Mountain nor Battle Mountain Sub determines to exercise its
retraction call right (and the retraction request is not revoked), Hemlo Gold is
obligated to deliver to the holder the number of shares of Battle Mountain
Common Stock equal to the number of Exchangeable Shares submitted by the holder
for retraction, plus an additional amount equivalent to any declared and unpaid
dividends on such Exchangeable Shares. Under certain circumstances, the right to
exercise the retraction call right may be exercised only by Battle Mountain Sub.
Subject to
applicable law and the redemption call right of Battle Mountain and Battle
Mountain Sub described in the following sentence, on any date on or after June
30, 2003 specified by the Hemlo Gold Board of Directors, or such earlier date as
specified by the Hemlo Gold Board of Directors if there are fewer than 5,000,000
Exchangeable Shares outstanding (other than Exchangeable Shares held by Battle
Mountain and its direct and indirect subsidiaries and subject to adjustments to
such number of shares to reflect permitted changes to Exchangeable Shares) (the
"Optional Redemption Date"), Hemlo Gold may redeem all of the then outstanding
Exchangeable Shares in exchange for an equal number of shares of Battle Mountain
Common Stock, plus an additional amount equivalent to any declared and unpaid
dividends on such Exchangeable Shares. Notwithstanding any proposed redemption
of the Exchangeable Shares by Hemlo Gold, Battle Mountain and Battle Mountain
Sub will have the overriding right (a "redemption call right") to purchase on
the Optional Redemption Date all of the outstanding Exchangeable Shares (other
than Exchangeable Shares held by Battle Mountain or Battle Mountain Sub) for
consideration consisting of one share of Battle Mountain Common Stock for each
such Exchangeable Share, plus an additional amount equivalent to any declared
and unpaid dividends on such Exchangeable Share. Under certain circumstances,
the right to exercise the redemption call right may be exercised only by Battle
Mountain Sub.
B.
Dividend, Liquidation and Voting Rights of Holders of Exchangeable Shares
On the
Effective Date, Battle Mountain, Hemlo Gold and The R-M Trust Company (the
"Trustee") will enter into a Voting, Support and Exchange Trust Agreement
("Trust Agreement"). Pursuant to the terms of the Trust Agreement, Battle
Mountain will on the Effective Date deposit with the Trustee one share of
Special Voting Stock of Battle Mountain ("Special Voting Stock"), which will
entitle the Trustee to a number of votes equal to the number of Exchangeable
Shares outstanding from time to time that are not held by Battle Mountain or
certain subsidiaries of Battle Mountain. With respect to any matter as to which
holders of shares of Battle Mountain Common Stock are entitled to vote, each
holder of an Exchangeable Share will have the right to instruct the Trustee as
to the manner of voting for one of the votes attached to the share of Special
Voting Stock for each Exchangeable Share owned by such holder.
Holders of
the Exchangeable Shares will generally not be entitled to any voting rights with
respect to Hemlo Gold, other than as required by law. The Exchangeable Shares
will carry only limited statutory voting rights with respect to Hemlo Gold,
including the right to receive notice of and vote at any meeting relating to the
subordination, limitation or elimination of the rights, privileges, restrictions
or conditions of the Exchangeable Shares.
Upon the
occurrence of a bankruptcy, insolvency, dissolution or winding up of Hemlo Gold
(a "Hemlo Gold Insolvency Event"), holders of the Exchangeable Shares will have
preferential rights to receive from Hemlo Gold one share of Battle Mountain
Common Stock for each Exchangeable Share they hold, plus an additional amount
equivalent to any declared and unpaid dividends on each such Exchangeable Share.
In the event of a proposed Hemlo Gold Insolvency Event, Battle Mountain and
Battle Mountain Sub will have the right to purchase (a "liquidation call right")
all of the outstanding Exchangeable Shares from the holders thereof at the
effective time of any such Hemlo Gold Insolvency Event for consideration
consisting of one share of Battle Mountain Common Stock for each such
Exchangeable Share, plus an additional amount equivalent to any declared and
unpaid dividends on such Exchangeable Share. Under certain circumstances, the
right to exercise the liquidation call right may be exercised only by Battle
Mountain Sub.
Upon the
occurrence of a liquidation, dissolution or winding up of Battle Mountain, in
order for the holders of the Exchangeable Shares to participate on a pro rata
basis with the holders of Battle Mountain Common Stock, each holder of
Exchangeable Shares will automatically receive in exchange therefor an
equivalent number of shares of Battle Mountain Common Stock, plus an additional
amount equivalent to any declared and unpaid dividends on such Exchangeable
Shares.
C. Trust
Agreement
Pursuant
to the Trust Agreement, Battle Mountain will agree that, among other things, (i)
Battle Mountain will not declare or pay dividends on the Battle Mountain Common
Stock unless Hemlo Gold is able to and simultaneously pays an equivalent
dividend on the Exchangeable Shares; (ii) Battle Mountain will advise Hemlo Gold
in advance of the declaration of any dividend on the Battle Mountain Common
Stock and ensure that the declaration date, record date and payment date for
dividends on the Exchangeable Shares are the same as that for the Battle
Mountain Common Stock and that such dividend on the Exchangeable Shares will
correspond with any requirement on the stock exchange on which the Exchangeable
Shares are then listed; and (iii) Battle Mountain will take all actions and do
all necessary things to ensure that Hemlo Gold is able to deliver to the holders
of the Exchangeable Shares the equivalent number of shares of Battle Mountain
Common Stock in the event of a liquidation, dissolution or winding up of Hemlo
Gold, a retraction request by a holder of Exchangeable Shares or a redemption of
Exchangeable Shares by Hemlo Gold.
D.
Court Approval Process
As more
fully detailed in the accompanying letter from Battle Mountains Ontario special
counsel, Goodman Phillips & Vineberg (the "Ontario Counsel Letter"), Hemlo Gold
will submit the Arrangement to the Ontario Court pursuant to the OBCA and will
seek an interim order from the Ontario Court providing for, among other things
(i) the calling and holding of a special meeting of the shareholders of Hemlo
Gold (the "Hemlo Gold Meeting") for purpose of considering and approving the
Arrangement, (ii) the procedures for the calling, holding and conduct of the
Hemlo Gold Meeting, (iii) the distribution to all Hemlo Gold shareholders of
proxy materials relating to the Hemlo Gold Meeting, (iv) the level of Hemlo Gold
shareholder approval required to approve the Arrangement, and (v) the providing
to Hemlo Gold shareholders of rights to dissent from the Arrangement. Following
receipt of the interim order, the Hemlo Gold Meeting will be held. Assuming that
the Arrangement is approved by Hemlo Gold shareholders at the Hemlo Gold
Meeting, Hemlo Gold will seek a final order from the Ontario Court approving the
Arrangement.
III.
Legal Analysis
A.
Section 3(a)(10) Exemption
Section
3(a)(10) of the Securities Act provides that the following securities are exempt
from the registration requirements of Section 5 of the Securities Act:
"Except
with respect to a security exchanged in a case under title 11 of the United
States Code, any security which is issued in exchange for one or more bona fide
outstanding securities, claims or property interests, or partly in such exchange
and partly for cash, where the terms and conditions of such issuance and
exchange are approved, after a hearing upon the fairness of such terms and
conditions at which all persons to whom it is proposed to issue securities in
such exchange shall have the right to appear, by any court, or by any official
or agency of the United States, or by any State or Territorial banking or
insurance commission or other governmental authority expressly authorized by law
to grant such approval."
The three
principal elements of the Section 3(a)(10) exemption that are relevant to the
Arrangement are (1) an exchange of securities, (2) a hearing on the fairness of
the exchange at which persons exchanging securities have the right to appear and
(3) court approval. The Division has emphasized that the approving court must be
made aware that its approval will provide the basis for an exemption from the
registration requirements of the Securities Act. See LAC Minerals Ltd. (June 27,
1991).
The
Arrangement provides for the issuance of the Exchange Shares in exchange for the
Hemlo Gold Common Shares held by the current Hemlo Gold shareholders. Thus, the
Exchangeable Shares are securities being issued "in exchange for one or more
bona fide outstanding securities" as required by Section 3(a)(10).
Under the
OBCA, consummation of the Arrangement requires the approval of the Ontario
Court. The Division has previously taken a favorable no-action position with
respect to the Section 3(a)(10) exemption in connection with the Ontario Courts
approval of an arrangement under the OBCA. See Symantec Corporation; Delrina
Corporation (November 22, 1995) and Cadillac Fairview, Inc.; The Cadillac
Fairview Corporation Limited; Cadillac Fairview Urban Properties Limited (May
26, 1995). The Ontario Counsel Letter provides an analysis of the OBCA as it
applies to the Ontario Courts approval of an Arrangement.
The
Division has also recognized hearings before other Canadian provincial courts as
qualifying for the Section 3(a)(10) exemption. See, e.g., Orbital Sciences
Corporation (October 13, 1995) (British Columbia); Microsoft Corporation;
SOFTIMAGE Inc. (April 8, 1994) (Quebec); 3-D Systems Inc. (April 26, 1993)
(British Columbia); International Mahogany Corp. (October 25, 1990 (British
Columbia); and Canadian Conquest Exploration Inc. (April 6, 1989) (Alberta).
In
Symantec Corporation; Delrina Corporation (November 22, 1995), the Division
indicated that it would not recommend enforcement action if, pursuant to a plan
of arrangement providing for a reorganization substantially similar to the
proposed Arrangement, outstanding Delrina common shares were exchanged for
Delrina exchangeable shares on terms generally resembling those of the proposed
Arrangement, without registration in reliance on Section 3(a)(10), following a
finding of fairness by the Ontario Court.
As the
Ontario Counsel Letter indicates, all persons to whom it is proposed that
Exchangeable Shares be issued will receive notification of, and will have an
opportunity to be heard at, the hearing at which the fairness of the Arrangement
will be considered. The Ontario Court will determine whether the terms and
conditions of the Arrangement are fair and reasonable. The Ontario Counsel
Letter provides full details of the fairness analysis required of the Ontario
Court. The Ontario Court also will be advised in the proceedings that, if it
approves the Arrangement, the Exchangeable Shares will be issued without
registration under the Securities Act.
The
application for the interim order submitted to the Ontario Court will include a
substantially final draft of a Joint Proxy Statement containing information
relating to the proposed Arrangement, the terms and provisions of the
Exchangeable Shares, the expected material tax consequences relating to the
proposed Arrangement and other information required by Section 14(a) of the
Exchange Act. No proxy statement or any other solicitation materials will be
sent to Hemlo Gold shareholders until the Ontario Court has issued its interim
order.
Based on
the foregoing, and relying in part on the Ontario Counsel Letter, it is our
opinion that, if the Ontario Court approves the Arrangement in a hearing
conducted pursuant to the OBCA, then the issuance, offer and sale of the
Exchangeable Shares (and any other securities of Battle Mountain or Hemlo Gold
that might be deemed to be issued at the Effective Date in exchange for the
Hemlo Gold Common Shares) pursuant to the Arrangement will not require
registration under the Securities Act by virtue of the exemption provided by
Section 3(a)(10) of the Securities Act.
B. Resale
of Section 3(a)(10) Securities
It is
expected that Exchangeable Shares will trade on a major Canadian stock exchange,
and holders of Exchangeable Shares will be under no contractual restriction from
transferring such shares (except for customary pooling of interests restrictions
applicable to affiliates of Hemlo Gold).
With
respect to public resales of the Exchangeable Shares, we request confirmation
that:
1. Persons
who are not affiliates of Hemlo Gold prior to the Effective Date may resell the
Exchangeable Shares they receive in the Arrangement without regard to the
provisions of Rules 145(c) and (d).
2. Persons
who are affiliates of Hemlo Gold prior to the Effective Date, but will not be
affiliates of either Hemlo Gold or Battle Mountain after the Effective Date, may
resell the Exchangeable Shares they receive in the manner permitted by Rule
145(d)(1), (d)(2) or (d)(3) without regard to the holding period required by
Rule 144(d). In computing the holding period of the Exchangeable Shares for the
purposes of Rule 145(d)(2) and (d)(3), however, such persons may not tack the
holding period of their Hemlo Gold Common Shares.
3. Persons
who are affiliates of Hemlo Gold to the Effective Date and affiliates of either
Hemlo Gold or Battle Mountain after the Effective Date may resell the
Exchangeable Shares they receive in the Arrangement in accordance with Rule
145(d).
Battle
Mountain will file a Registration Statement (the "Registration Statement") for
the registration of shares of Battle Mountain Common Stock to be issued from
time to time upon the exchange of the Exchangeable Shares. Pursuant to the
Combination Agreement, the Registration Statement must be effective prior to the
Effective Date, which is currently scheduled for late June 1996.
IV.
Conclusion
We
respectfully request your confirmation (i) that the Division will not recommend
any enforcement action to the Commission if the proposed Arrangement is effected
in accordance with the plan described above without registration under the
Securities Act of the securities to be issued at the Effective Date in exchange
for the Hemlo Gold Common Shares pursuant to the Arrangement, in reliance on our
opinion that no such registration is required for the issuance, offer and sale
of such securities by virtue of the exemption provided by Section 3(a)(10) of
the Securities Act, and (ii) as to the matters concerning resale of the
Exchangeable Shares set forth under "Resale of Section 3(a)(10) Securities"
above.
Pursuant
to Securities Act Release No. 33-6269, seven copies of this letter and the
attachment are enclosed.
We would
appreciate it if you would please acknowledge receipt of this letter by stamping
the enclosed copy on the first page and returning it to us in the
self-addressed, stamped envelope we are enclosing.
If you
have any questions or desire any additional information regarding the matters
discussed in this request, please contact Darrell W. Taylor at (713) 229-1313,
John D. Geddes at (713) 229-1113 or C. Michael Watson at (713) 229-1542. If for
any reason you expect to provide a response that is unable to confirm our views
as expressed herein, we would appreciate the opportunity to discuss the matter
with you prior to delivery of your written response.
Very truly
yours,
BAKER &
BOTTS, L.L.P.
By:
Darrell W. Taylor
Attachment
cc: Kenneth W. Blackman, Esquire
Fried,
Frank, Harris, Shriver & Jacobson
Max Webb, Esquire
Division
of Corporation Finance
INQUIRY LETTER 2
GOODMAN PHILLIPS & VINEBERG
250 YONGE STREET, SUITE 2400
TORONTO ONTARIO CANADA M5B 2M6
TELEPHONE(416) 979-2211
June 06, 1996
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Plaza
Houston, Texas
77002 - 4995 U.S.A.
Attention: C. Michael Watson
Dear Sirs:
Re: Proposed Plan of Arrangement involving
Battle Mountain Gold Company and Hemlo
Gold Mines Inc.
under
Section 182 of the Business Corporation Act (Ontario)
We act as
Canadian legal counsel to Battle Mountain Gold Company, a Nevada corporation
("Battle Mountain"), in connection with a proposed plan of arrangement (the
"Arrangement") under section 182 of the Business Corporations Act
(Ontario) (the "OBCA") as a consequence of which Battle Mountain will combine
with Hemlo Gold Mines Inc. ("Hemlo Gold") a publicly-traded corporation governed
by the OBCA pursuant to a share exchange.
You have
requested this letter in connection with a submission to be made by you on
behalf of Battle Mountain requesting a "no-action" letter from the Division of
Corporation Finance of the Securities and Exchange Commission (the "SEC"),
respecting, among other things, the availability of the exemption contained in
Section 3(a)(10) of the Securities Act of 1933 of the United States, as amended
(the "1933 Act"), from the registration requirements thereof in respect of the
issuance of certain securities by Hemlo Gold to its shareholders pursuant to the
Arrangement.
We
understand that section 3(a)(10) of the 1933 Act provides, inter alia,
for an exemption from the registration requirements of section 5 of the 1933 Act
for:
"...any
security which is issued in exchange for one or more bone fide outstanding
securities, or partly in such exchange and partly for cash, where the terms and
conditions of such issuance and exchange are approved, after a hearing upon the
fairness of such terms and conditions at which all persons to whom it is
proposed to issue securities in exchange shall have the right to appear, by any
court..."
You have
requested our advice concerning the nature of the proceeding whereby an Ontario
court will consider and approve the Arrangement under section 182 of the OBCA.
You have also asked us to confirm that an Ontario court, in approving the
Arrangement under section 182, will inquire into the fairness of the terms and
conditions of the Arrangement. Finally, you have asked us to confirm that the
Ontario court approving the Arrangement will be advised that its order will
constitute the basis for an exemption from the registration requirements of the
1933 Act.
For the
purposes of this letter, we have assumed that the SEC considers that "any court"
includes foreign courts for the purposes of section 3(a)(10) of the 1933 Act.
Description of the Arrangement
Following Hemlo Gold shareholder approval and Ontario court approval of
the arrangement (discussed below), Hemlo Gold will file articles of arrangement
with the Ontario Ministry of Consumer and Commercial Relations, thereby
effecting the Arrangement. In summary, the Arrangement will consist of the
following chronological steps, each of which will occur immediately following
the completion of the prior step:
1. The articles of incorporation of
Hemlo Gold shall be amended to, among other things:
(a) change the name of the corporation to Battle Mountain Canada Inc.;
(b) change
the designation and certain terms of the authorized but unissued Subordinate
Voting Participating Shares;
(c) create
an unlimited number of Exchangeable Shares and set forth the rights, privileges
and conditions attaching to them; and
(d) make
certain changes in the rights, privileges, restrictions and conditions attaching
to the Common Shares.
2. Hemlo
Gold shall issue to Battle Mountain 100 Hemlo Gold Common Shares in
consideration of the delivery by Battle Mountain to Hemlo Gold of 148 shares of
Battle Mountain Common Stock.
3. Each
Hemlo Gold Common Share (other than shares held by Battle Mountain and by
holders who have duly exercised their rights of dissent and who are ultimately
entitled to be paid fair value for such shares) shall be exchanged for 1.48
Exchangeable Shares.
4. Hemlo
Gold shall distribute its 148 shares of Battle Mountain Common Stock to Battle
Mountain for no consideration.
Upon completion of the following
steps, the Arrangement will be deemed to have been completed.
Shareholder and Court Approval of the Arrangement
Pursuant to section 182(1)(a) of the OBCA, an arrangement includes the
reorganization of the shares of Hemlo Gold as described above. Accordingly, the
proposed Arrangement falls within the range of transactions contemplated by the
statutory arrangement provisions of section 182 of the OBCA.
In order
for the Arrangement to be implemented, Hemlo Gold must comply with the statutory
procedures under sections 182 and 183 of the OBCA. In summary, to complete the
arrangement, Hemlo Gold will:
(a) seek
an interim order of the Ontario Court (the "Interim Order") under section 185(5)
of the OBCA providing for, among other things:
(i) the
calling and holding of a meeting of all Hemlo Gold shareholders (the "Hemlo Gold
Meeting") to consider and, if deemed advisable, to approve the Arrangement;
(ii) the
procedure for the calling, holding and conduct of the Hemlo Gold Meeting;
(iii) the
distribution to all Hemlo Gold shareholders of a notice of the Hemlo Gold
Meeting, form of proxy and information circular respecting the Arrangement;
(iv) the
distribution to all Hemlo Gold Shareholders of a notice and text of an
application by Hemlo Gold for a hearing to obtain a final order of the Ontario
court (the "Final Order") approving the Arrangement, to be held following Hemlo
Gold shareholder approval of the Arrangement and at which hearing Hemlo Gold
shareholders will be entitled to appear and be heard by the court upon
compliance with the Rules of Civil Procedure of Ontario;
(v) the
level of Hemlo Gold shareholder approval to the Arrangement required to be
obtained at the Hemlo Gold Meeting in order that the Arrangement be deemed to be
approved by the Hemlo Gold shareholders;
(vi) the
providing to Hemlo Gold shareholders of rights to dissent from the Arrangement;
and
(vii) the
right of Hemlo Gold, following Hemlo Gold shareholder approval of the
Arrangement at the Hemlo Gold Meeting, to apply to the Ontario court for
approval of the Arrangement and providing that service of the notice of
application distributed to all Hemlo Gold shareholders as contemplated by
paragraph (iv) above shall constitute proper and complete service of such notice
of application;
(b)
following receipt of the Interim Order, call the Hemlo Gold Meeting and
distribute to all Hemlo Gold shareholders the materials required by the Interim
Order;
(c) hold
the Hemlo Gold Meeting and, assuming the required Hemlo Gold shareholder
approval is obtain thereat, seek the Final Order; and
(d)
assuming the Final Order is obtained, file articles of arrangement as described
under "Description of the Arrangement" above, thereby effecting the Arrangement.
The
following additional significant points should be noted:
(a)
pursuant to the OBCA and the regulations thereunder, the information circular
distributed to the Hemlo Gold shareholders must contain prospectus-level
disclosure respecting the Arrangement;
(b) unless
a greater majority is required by the Interim Order, the Arrangement must be
approved by at least two-thirds of the votes cast by the Hemlo Gold shareholders
at the Hemlo Gold Meeting;
(c)
pursuant to the Rules of Civil Procedure of Ontario, any person wishing to
oppose Hemlo Golds application for court approval of the Arrangement has, upon
filing a notice of appearance under the Rules of Civil Procedure, the right to
appear before the court, to be heard, to be represented by counsel and to file
evidence at the hearing; and
(d) the
consideration of the Arrangement by the court at the hearing for the Final Order
will include an inquiry into the fairness of the Arrangement (as discussed
below).
FAIRNESS
At the
hearing for the Final Order, the court has a broad discretion in its
consideration of the Arrangement. In practice, the courts have established a
number of criteria under which each arrangement is evaluated.
These
criteria have been expressed in various ways by the courts; however, the recent
decision in Trizec Corporation Ltd. v. Horsham Acquisition Corp., 1994 10
W.W.R. 127 (Alta. Q.B.) ("Trizec") is representative. In Trizec, an arrangement
was considered under section 192 of the Canada Business Corporations Act
(the "CBCA"), the provisions of which are substantially similar, in all
respects, to section 182 of the OBCA. In that decision, Mr. Justice Forsyth
stated that the nature of the essential test for court approval of an
arrangement is whether the court is:
". . .
satisfied that all statutory requirements have been fulfilled, that the
arrangement is put forward in good faith, and that the arrangement is fair and
reasonable." (at pp. 132-3)
Similarly,
in re Canadian Pacific Ltd. (1990), 70 D.L.R. (4th) 349 (Ont. H.C.J.)
("Canadian Pacific"), Mr. Justice Austin, in considering an arrangement under
section 192 of the CBCA, wrote that:
". . . the
jurisprudence has established that for an arrangement to get court approval, it
must not only be not oppressive, it must be fair and reasonable." (at pp. 369)
In that
case the court, citing Re Alabama New Orleans Texas and Pacific Junction
Railway Co. 1891 1 Ch. 215 (C.A.) with approval, established five roles of
an Ontario court when considering an arrangement:
1. to
ascertain that all the statutory requirements have been fulfilled;
2. to
satisfy itself that the arrangement is put forward in good faith;
3. to
consider whether the statutory majority who approved the scheme were acting bona
fide or were seeking to promote interests adverse to those of the class whom
they professed to represent;
4. to
determine whether the arrangement is such as a man of business would reasonably
approve; and
5. to
determine whether the arrangement is fair and reasonable.
This issue
was considered recently in the context of an OBCA corporation in Re Teddy
Bear Valley Mines Ltd. (1990), 1993 O.J. No. 1588. In that case the court
stated:
"Section
182 of the OBCA gives the Court broad discretion to sanction a plan of
arrangement either in its entirety or amended in any manner the Court may direct
and subject to compliance of such terms and conditions, if any, as the Court
thinks fit. In considering a plan of arrangement the Court must ascertain if all
statutory requirements have been met. Beyond this the Court must criticize the
scheme and ascertain whether it is in truth fair and reasonable." (at p. 10).
This
position was asserted more strongly by the Ontario Supreme Court in a seminal
Canadian case, Re Diary Corp. of Canada Ltd., 1934 3 D.L.R. 347, in which
the Court determined that it was the duty of the court to ascertain whether the
arrangement proposed under subsection 64(a) of the Companies Act, R.S.O. 1927,
as amended, was in truth fair and reasonable. As stated by Mr. Justice
Middleton, at p.348:
"Upon this
motion I think it is incumbent upon the Judge to ascertain if all statutory
requirements which are in the nature of conditions precedent have been strictly
complied with and I think the Judge also is called upon to determine whether
anything has been done or purported to have been done which is not authorized by
this statute. Beyond that there is, I think, the duty imposed upon the Court to
criticize the scheme and ascertain whether it is in truth fair and reasonable."
This
decision has been cited often in subsequent jurisprudence (including Trizec and
Canadian Pacific), both in Ontario and in other provinces which have
substantially similar legislation regarding the approval of arrangements. The
duty, as expressed in this decision, has also been affirmed at the appellate
level in various jurisprudence (including Northland Properties Ltd. v.
Excelsior Life Insurance Co. of Canada, 1989 3 WWR 363 (B.C.C.A.), Premji
v. Amoco Acquisition Company Ltd. (1988), 70 C.B.R. 185 (Alta. C.A.) and
Re Langleys Ltd. 1938 O.R. 123 (Ont. C.A.).
The duty
to determine whether an arrangement is fair and reasonable is an independent
duty of the court. It is not sufficient for court approval that the arrangement
not be challenged or that the shareholders have approved the arrangement. As Mr.
Justice Blair wrote in Re Olympia & York Developments Ltd. (1993), 102
D.L.R. (4th) 149 (Ont. Ct.-Gen. Div) in connection with an arrangement under
section 182 of the OBCA:
"The court
supervises the process. The court approves or declines to approve the
arrangement, depending upon whether it is fair and reasonable to all concerned
in the circumstances." (at p. 163)
Mr.
Justice Blair wrote further, at p. 169, that ". . . the mere fact that a
requisite majority of shareholders has adopted the plan is not, in itself,
enough to warrant court approval." The applicant must satisfy the court that the
arrangement is fair and reasonable in order for the court to approve of the
arrangement.
The duty
to ensure that a proposed arrangement under section 182 of the OBCA is fair and
reasonable is well established in Ontario jurisprudence. The court is required
to make an independent examination of the nature of the arrangement and its
effects on various parties in order to satisfy this duty. The inquiry into
fairness is a principal element in the judicial confirmation of a proposed
arrangement.
We have
been advised by counsel to Hemlo Gold that in its application to court for
approval of the Agreement, the court will be advised that its order will
constitute the basis for an exemption from the registration requirements of the
1933 Act.
Our
opinions herein are limited to the matters stated herein and to the laws of
Ontario relevant thereto and are not to be read as extending to any other
matter.
Yours very
truly,
Goodman
Phillips & Vineberg
STAFF REPLY LETTER
June 7,
1996
RESPONSE OF THE OFFICE OF CHIEF
COUNSEL
DIVISION OF CORPORATION FINANCE
Re: Battle Mountain Gold Company ("Battle Mountain")
Hemlo Gold Mines Inc. ("Hemlo Gold")
Incoming
letter dated June 6, 1996
Based on
the facts presented, the Division will not recommend enforcement action to the
Commission if Battle Mountain and Hemlo Gold, in reliance on your opinion as
counsel that the exemption provided by Section 3(a)(10) of the Securities Act of
1933 ("Securities Act") is available, cause the described issuance of Hemlo Gold
exchangeable securities in exchange for outstanding common shares of Hemlo Gold
without registration under the Securities Act. In reaching this position, the
Division has particularly noted that: the Ontario Court of Justice will conduct
a hearing to determine whether the terms and conditions of such exchange are
fair to holders of Hemlo Gold common stock; all such holders will be notified of
such hearing and will have the right to appear; such court will be advised that,
if it approves such exchange, the Hemlo Gold exchangeable shares will be issued
without registration under the Securities Act; and, such court will approve such
exchange only if it determines that the terms and conditions thereof are fair to
the Hemlo Gold shareholders. The Division has also noted that the offer and sale
of Battle Mountain common shares as may be issued pursuant to the exchange
rights of the Hemlo Gold exchangeable securities will be covered by a
registration statement under the Securities Act, which will become effective
before the consummation of the business combination between Battle Mountain and
Hemlo Gold.
It is the
Divisions view that the Hemlo Gold exchangeable securities will not be
"restricted securities" within the meaning of Rule 144(a)(3). Because the Hemlo
Gold exchangeable securities will not be restricted securities, the holding
period condition of Rule 144(d) will not apply to any resales. The Divisions
other views on resales of such securities are as follows:
1. Persons
who are unaffiliated with either Hemlo Gold or Battle Mountain may resell such
securities without regard to Rule 145(c) and (d).
2. Persons
who are affiliates of Hemlo Gold or Battle Mountain before the business
combination who are not affiliates of Hemlo Gold or Battle Mountain after such
combination may resell the Hemlo Gold exchangeable securities in the manner
described in Rule 145(d). The calculation of the time at which such persons may
rely on Rule 145(d)(2) and (3) may not take into account the periods during
which such persons held Hemlo Gold common stock.
3. Persons
who are affiliates of Hemlo Gold or Battle Mountain who are affiliates of Hemlo
Gold or Battle Mountain after the business combination may resell Hemlo Gold
exchangeable securities received in the business combination as described in
Rule 145(d)(1).
Because
these positions are based on the representations made to the Division in your
letter, you should note that any different facts or conditions might require
different results. Furthermore, the Divisions views on registration under the
Securities Act only express the Divisions position on enforcement action and do
not express a legal conclusion on the question presented.
Sincerely,
Michael Hyatte
Special
Counsel
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