The British Columbia Securities Commission (the
"BCSC") released the full reasons for its decision
regarding the application by Alamos Gold Inc. ("Alamos")
to have the shareholder rights plan of Aurizon Mines Ltd.
("Aurizon") cease traded along with the competing white
knight bid by Hecla Mining Corporation ("Hecla") in the
face of Alamos' hostile bid for Aurizon. The BCSC cease traded
the shareholder rights plan, but denied the application to cease
trade the Hecla transaction. At issue was the $27.2 million break
fee that Aurizon would have to pay to Hecla should Alamos have
acquired a certain amount of Aurizon shares. Alamos asked the BCSC
to consider this break fee an unusual defensive tactic in the face
of a take over bid. The BSCS disagreed and had allowed the break
fee to remain and the Hecla transaction to continue. As a result,
Alamos withdrew its bid to acquire Aurizon in light of the BCSC
The salient facts are as follows:
On January 14, 2013, Alamos offered to acquire all of the
shares of Aurizon for $4.65 per share, with the offer left open
until February 19, 2013.
In response, Aurizon adopted a shareholder rights plan (which
was eventually cease traded by the BCSC). As a result, Alamos
extended its bid to March 5, 2013.
Two days before the Alamos bid deadline, Aurizon and Hecla
entered into an arrangement agreement that valued Aurizon shares at
$4.75 per share. The arrangement agreement required Aurizon to pay
a break fee to Hecla, which equaled about 3.5% of the value of the
Hecla transaction, in the event Alamos acquired
33 1/3% of Aurizon's shares (which would be enough
to block the Hecla transaction).
In response, Alamos extended the expiry of its offer to March
19, to which Aurizon responded by adopting a second shareholder
Alamos sought an order from the BCSC to cease trade the second
shareholder rights plan and the Hecla transaction unless the break
fee was removed.
On March 18, 2013 the BCSC cease traded the second shareholder
rights plan, but denied the application to cease trade the Hecla
The Alamos offer expired and was not extended. Alamos sited
that with the break fee "the cost of acquiring Aurizon is now
simply too high".
The BCSC decision contains noteworthy discussion of break fees
in the context of a take over bid. Alamos argued that the break fee
was an unusual defensive tactic and was included in the Hecla
transaction solely to defeat the Alamos bid as it ensured that
"the only choice shareholders are able to make is on the Hecla
Aurizon argued that the inclusion of a break fee was necessary
in order to obtain a deal with Hecla and the terms of the Hecla
deal were negotiated vigorously. Evidence was presented that the
board of Aurizon, in exercising its fiduciary duties reviewed the
value of the Hecla transaction as a whole and concluded that the
transaction was in the best interest of Aurizon. The BCSC agreed
and concluded that the break fee was a "necessary element of
an alternative transaction the Aurizon board negotiated for its
shareholders to consider, rather than an attempt to frustrate the
In light of the BCSC decision, Alamos terminated its bid for
Aurizon. Alamos claimed that the break fee made the acquisition of
Aurizon too costly. The BCSC noted that Alamos did not make this
submission in its application materials, nor did Alamos offer any
evidence to support this position at the time of the BCSC hearing.
The BCSC stated the break fee was within market range for these
types of transactions and the 33 1/3% trigger was not
One is left to consider whether the BCSC would have determined
the break fee to be an unusual defensive tactic if Alamos had
submitted evidence that it would terminate its bid if the break fee
was upheld, as the break fee would make the deal too expensive.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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