CALGARY, AB – Mr. Rick F. (Buck) Braund, Chairman and CEO, and Mr. Mark Munro, Vice President Finance & CFO (collectively “Management“) on behalf of the Board of Directors (the “Board“) of Reserve Royalty Income Management Inc., as administrator for the Trust (the “Administrator”), announce the following:
DEFINITIVE AGREEMENT AND THE TRANSACTION
Reserve Royalty announces that it has entered into a definitive sale agreement (the “Agreement“) with Topaz Energy Corp. (the “Purchaser“) (TSX: TPZ) pursuant to which the parties have agreed to complete the Transaction whereby the Purchaser will acquire all of the issued and outstanding units of Reserve Royalty Commercial Trust (“Commercial Trust“) for Purchaser share consideration of $26 million, adjusted for working capital paid in cash (the “Purchase Price“). The Commercial Trust is a wholly owned subsidiary of Reserve Royalty that holds all the oil and gas related assets, royalties and liabilities associated with Reserve Royalty. The share consideration will be paid by the Purchaser through the issuance to Reserve Royalty of 1,794,886 common shares on a deemed $14.4856 price per share (being the five-day weighted average trading price of the Purchaser’s common shares prior to signing of the Agreement).
The Purchase Price, net of Trust wind up costs, translates to a fully diluted value ranging from $0.23 to $0.26 per unit, subject to the trading price of the share consideration received. Since the formation of the Trust in January 2014, cumulative funds equal to $0.24 per unit have been distributed its Unitholders.
Reserve Royalty’s goal set at inception was to create value for its Unitholders through growth and long-term, sustainable, cash distributions derived from oil and gas royalty investments. Challenges experienced across the Canadian energy landscape (suppressed commodity prices, lack of industry investment and the COVID-19 pandemic) have limited Reserve Royalty’s ability to access external markets on an accretive basis needed to fund meaningful growth opportunities. These challenges along with the Trust’s cost structure and desire to provide Unitholders with access to liquidity, led the Board to initiate a formal process (the “Process“), advised by Peters & Co. Limited (“Peters“), to explore opportunities to enhance Unitholder value in February of this year.
After reviewing the proposals received in connection with the Process, the Board determined that the Transaction represented the best alternative for Unitholders given current industry, economic and capital markets conditions. The Purchase Price is in the form of share consideration and not subject to any financing conditions, which provides the opportunity for Unitholders to participate in a larger, liquid investment in the Purchaser with sufficient access to capital to further achieve the stated goal initially set out by Reserve Royalty.
THE TRANSACTION APPROVALS
Under the Transaction, the Purchaser will acquire all of the issued and outstanding units of the Commercial Trust. Reserve Royalty will seek approval of the Transaction from its Unitholders (the “Unitholder Approval“) by written resolution (the “Written Resolution“) or, in the event the Written Resolution is not received, at a special meeting of Unitholders expected to be held in May 2021 (the “Meeting“). The Transaction will be subject to the approval of at least 662/3% of the votes represented by those units (“Units“) of the Trust entitled to be voted on such resolution by Written Resolution or at the Meeting (voted by Unitholders or by their appointed proxy). The Transaction is subject to various closing conditions, including the required Unitholder Approval, the approval of the Toronto Stock Exchange and certain other regulatory approvals. The Agreement contains customary representations and warranties of each party and interim operational covenants by Reserve Royalty. Further details with respect to the Transaction will be included in a notice of Meeting (the “Notice“) that will be mailed to the Unitholders. If the Written Resolution is not received, the Meeting is expected to be held in May 2021. Closing of the Transaction will occur soon after receipt of the requisite Unitholder approval and upon satisfaction of all other customary conditions precedent contained in the Agreement.
Certain Unitholders, including all of the directors and officers of the Trust and the largest Unitholders, whose aggregate holdings constitute approximately 51.1% of the outstanding Units have executed hard support agreements in respect of the Transaction, pursuant to which they have irrevocably agreed to approve the written resolution and vote in favour of and otherwise support the Transaction.
Following completion of the Transaction, all or substantially all of the share consideration will be provided to Unitholders of the Trust on a pro rata entitlement basis all in accordance with the trust indenture of the Trust. Subsequently, the Trust will perform all acts necessary to liquidate the Trust, if any, and shall distribute the remaining interests of the Trust, if any, directly to the Unitholders in accordance with their entitlements.
RECOMMENDATION OF THE BOARD
After consulting with its financial and legal advisors, among other considerations, the Board has unanimously: (i) determined that the Transaction is in the best interests of Reserve Royalty; (ii) determined that the Transaction is fair to Unitholders; (iii) approved the Agreement and the Transaction; and (iv) resolved to recommend that the Unitholders vote in favor of the Transaction.
In connection with the Transaction, Peters is acting as the Trust’s lead financial advisor, Burnet, Duckworth & Palmer LLP is acting as legal counsel and Computershare Trust Company of Canada is acting as transfer agent and depositary for Reserve Royalty.
ABOUT THE PURCHASER – TOPAZ ENERGY CORP.
The Purchaser is a unique royalty and energy infrastructure company focused on generating free cash flow growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with one of Canada’s largest natural gas producers, Tourmaline Oil Corp., an investment grade senior Canadian E&P company, and leveraging industry relationships to execute complementary acquisitions from other high quality energy companies, while maintaining its commitment to environmental, social and governance best practices.
The Purchaser’s common shares are listed and posting for trading on the Toronto Stock Exchange under the trading symbol “TPZ”.
Additional information relating to the Purchaser is available on SEDAR at www.sedar.com. We encourage you to review the Purchaser’s public disclosure record, including the risk factors set forth therein, prior to deciding whether to support the Transaction and signing the Written Resolution.
DEFINITIONS AND ADVISORIES
All amounts referred to in this letter are stated in Canadian dollars unless otherwise specified. This letter contains certain forward-looking information within the meaning of Canadian securities laws. Forward-looking information relates to future events or future performance and is based upon the Trust’s current internal expectations, estimates, projections, assumptions and beliefs. All information other than historical fact is forward-looking information. Words such as “plan”, “expect”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words that indicate events or conditions may occur are intended to identify forward-looking information. More particularly and without limitation, this letter contains forward looking information relating to the anticipated benefits of the Transaction to Reserve Royalty and its Unitholders; the timing and anticipated receipt of required Unitholder and stock exchange approvals for the Transaction; the ability of Reserve Royalty and the Purchaser to satisfy the other conditions to, and to complete, the Transaction; the anticipated receipt of the Written Resolution; and the anticipated timing of the holding of the Meeting and the closing of the Transaction.
The forward-looking statements concerning the anticipated benefits and completion of the Transaction, the timing and anticipated receipt of required third party approvals and the anticipated timing for completion of the Transaction, have been provided herein in reliance on certain assumptions that the Purchaser and Reserve Royalty believe are reasonable at this time, including assumptions as to the likelihood that the Written Resolution will be received; the time required to prepare and send the Meeting materials, including the Notice; the ability of the parties to receive, in a timely manner, the necessary Unitholder and stock exchange approvals, if required; and the ability of the parties to satisfy, in a timely manner, and the other conditions to the closing of the Transaction.
By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Reserve Royalty’s control. Completion of the Transaction is subject to a number of conditions which are typical for transactions of this nature. Failure to satisfy any of these conditions, the emergence of a superior proposal or the failure to obtain the approval of Unitholders may result in the termination of the Agreement. The foregoing list is not exhaustive. Additional information on these and other risks that could affect completion of the Transaction will be set forth in the Notice, which will be sent to all Unitholders. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The actual results, performance or achievement of Reserve Royalty could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Reserve Royalty will derive therefrom. The forward-looking statements in this letter should not be interpreted as providing a full assessment or reflection of the unprecedented impacts of the recent COVID-19 pandemic and the resulting indirect global and regional economic impacts. Reserve Royalty disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.
FORWARD-LOOKING STATEMENTS PERTAINING TO THE PURCHASER
This document contains forward-looking statements and forward-looking information (collectively, “forward-looking statements”) that relate to the Purchaser’s current expectations and views of future events. These forward-looking statements relate to future events or the Purchaser’s future performance. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “expects”, “will continue”, “is anticipated”, “anticipates”, “believes”, “estimated”, “intends”, “plans”, “forecast”, “projection”, “strategy”, “objective” and “outlook”) are not historical facts and may be forward-looking statements and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this document. In particular and without limitation, this news release contains forward-looking statements pertaining to the following: the benefits of Unitholders in owning common shares of the Purchaser including the Purchaser’s access to capital; the liquidity of the Purchaser’s common shares; the growth opportunities and the Purchaser’s business as described under the heading “About the Purchaser – Topaz Energy Corp.” above. Forward–looking information is based on a number of assumptions including those highlighted in this news release and is subject to a number of risks and uncertainties, many of which are beyond the Purchaser’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward–looking information. Such risks and uncertainties include, but are not limited to, the failure to complete acquisitions on the terms or on the timing announced or at all and the failure to realize some or all of the anticipated benefits of these and other acquisitions including estimated royalty production, royalty production revenue and free cash flow per share growth, and the factors discussed in the Purchaser’s recently filed Management’s Discussion and Analysis (See “Forward-Looking Statements” therein), Annual Information Form (See “Risk Factors” and “Forward-Looking Statements” therein) and other reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or the Purchaser’s website (www.topazenergy.ca). The Purchaser does not undertake any obligation to update such forward–looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
SOURCE Reserve Royalty Income Trust
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