ITAFOS TO ACQUIRE STONEGATE AGRICOM LTD. BY WAY OF PLAN OF ARRANGEMENT
MAY 19, 2017
Toronto, May 19, 2017 - Itafos (TSXV:IFOS) and Stonegate Agricom Ltd. (TSX:ST) (” Stonegate”) are pleased to announce that they have entered into an arrangement agreement dated May 18, 2017 (the ” Arrangement Agreement”) pursuant to which Itafos would acquire all of the issued and outstanding common shares of Stonegate (the “Stonegate Shares”) not already owned directly or indirectly by it by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (the ” Arrangement”).
Under the terms of the Arrangement Agreement, each shareholder of Stonegate (a “Stonegate Shareholder”) will receive 0.008 of an ordinary share of Itafos (an “Itafos Share ”) for each Stonegate Share held. Itafos anticipates issuing an aggregate of approximately 2,985,777 Itafos Shares to Stonegate Shareholders pursuant to the Arrangement.
The Arrangement is expected to provide Stonegate Shareholders with the opportunity to participate in a larger phosphate entity, with a diversified portfolio of phosphate projects and a prospect for growth in the short to medium term.
The Arrangement is subject to the approval of the Ontario Superior Court of Justice (Commercial List) and (i) at least two-thirds of the votes cast by Stonegate Shareholders at the Stonegate Meeting (as defined below); and (ii) a majority of the votes cast by disinterested Stonegate Shareholders at the Stonegate Meeting.
In addition to the aforementioned approvals, completion of the Arrangement is subject to other customary conditions, including the receipt of all necessary regulatory and stock exchange approvals. The Arrangement is expected to close by August 2017.
The Arrangement Agreement contains customary non-solicitation provisions which are subject to Stonegate’s right to consider and accept a superior proposal subject to a matching right in favour of Itafos. In the event that the Arrangement is not completed as a result of a superior proposal or for other certain specified circumstances, Stonegate will pay Itafos a termination fee.
The Arrangement constitutes a “business combination” under Multilateral Instrument 61-101 — Protection of Minority Security Holders in Special Transactions (“MI 61-101”) for Stonegate and a “related party transaction” under MI 61-101 for Itafos as Itafos currently indirectly owns 202,450,642 Stonegate Shares, representing approximately 35.2% of the issued and outstanding Stonegate Shares. Itafos is relying on the formal valuation exemption in section 5.5(b) of MI 61-101, on the basis that no securities of Itafos are listed on the Toronto Stock Exchange (the “TSX”) or other specified markets, and the minority approval exemption in section 5.7(a) of MI 61-101, on the basis that neither the fair market value of the Stonegate Shares to be acquired pursuant to the Arrangement nor the consideration to be paid for the Stonegate Shares exceeds 25% of Itafos’ market capitalization. As required by MI 61-101, Stonegate will obtain a formal valuation (the “Valuation”) from Echelon Wealth Partners Inc. (“ Echelon”) and will seek the requisite approvals of the Arrangement from Stonegate Shareholders at a special meeting which is expected to be held in July 2017 (the “ Stonegate Meeting”).
The Valuation is being prepared under the supervision of a special committee of the board of directors of Stonegate consisting of independent and disinterested directors (the “ Stonegate Special Committee”) and will be included in the management information circular (the “Circular”) to be mailed to Stonegate Shareholders in connection with the Stonegate Meeting. Prior to the execution of the Arrangement Agreement, Echelon provided a verbal opinion that, based upon and subject to the assumptions, limitations and qualifications in such opinion, the consideration to be received by Stonegate Shareholders is fair, from a financial point of view, to Stonegate Shareholders (other than Itafos and its affiliates). A copy of the fairness opinion will also be included in the Circular. All Stonegate Shareholders (other than Itafos and its affiliates) will be treated on the same basis and no additional consideration or benefit is available to any Stonegate Shareholder (other than Itafos and its affiliates). In connection with the Arrangement, all outstanding options of Stonegate will be cancelled, and the 100,000,000 outstanding common share purchase warrants of Stonegate will be exchanged for replacement warrants of Itafos exercisable to acquire that number of Itafos Shares as is equal to 0.008 multiplied by the number of Stonegate Shares that the holders of the warrants so transferred and assigned would have acquired if such holders had exercised such warrants immediately prior to the effective time of the Arrangement.
The Stonegate Special Committee, following a review of the terms and conditions of the Arrangement Agreement and consideration of a number of factors, unanimously recommended that the board of directors of Stonegate (the “Stonegate Board”) approve the Arrangement. After receiving the recommendation of the Stonegate Special Committee and advice from its advisors, the disinterested members of the Stonegate Board have unanimously determined that the Arrangement is in the best interests of Stonegate and is fair to Stonegate shareholders (other than Itafos and its affiliates) and will recommend that Stonegate Shareholders vote in favour of the Arrangement. Mr. Brian Zatarain, a director of Stonegate and Chief Executive Officer of Itafos, is a related party and, as such, declared his interest to the Stonegate Board in connection with the Arrangement and did not attend the meetings of the Stonegate Board relating to the Arrangement. All of the directors and senior officers of Stonegate, as well Mr. Lloyd I. Miller, III (a Stonegate Shareholder who beneficially owns, or controls or directs, directly or indirectly 21.3% of the Stonegate Shares), have entered into customary support agreements (collectively, the “Support Agreements”) with Itafos pursuant to which, among other things, they have agreed to vote their Stonegate Shares in favour of the Arrangement.
If the Arrangement is completed, the Stonegate Shares will be delisted from the TSX.
A copy of the Arrangement Agreement is available through Stonegate’s and Itafos’ filings with the securities regulatory authorities in Canada in SEDAR at www.sedar.com.
None of the securities to be issued pursuant to the Arrangement Agreement have been or will be registered under the United States Securities Act of 1933, as amended (the “ U.S. Securities Act”), or any state securities laws, and any securities issued in the Arrangement are anticipated to be issued in reliance upon available exemptions from such registration requirements pursuant to Section 3(a)(10) of the U.S. Securities Act and applicable exemptions under state securities laws. This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities.
Itafos will file an updated early warning report in connection with entering into the Arrangement Agreement and the Support Agreements. A copy of the report will be available under Stonegate’s profile at www.sedar.com, or by contacting Brian Zatarain, the Chief Executive Officer of Itafos at email@example.com.
Echelon Wealth Partners Inc. is acting as the financial advisor to Stonegate in connection with the Arrangement. Cassels Brock & Blackwell LLP is acting as Canadian legal counsel to Stonegate, Neal, Gerber & Eisenberg LLP is acting as US legal counsel to Stonegate and Norton Rose Fulbright Canada LLP is acting as legal counsel to Itafos in connection with the Arrangement.