TORONTO, Oct. 22 /CNW/ -- Jaguar Financial Corporation (TSX: JFC) ("Jaguar" or the "Company") today criticized the directors of Canadian Royalties Inc. ("Canadian Royalties" or "CZZ") for supporting the offer by Jien Mining Canada Ltd. ("Jien") to remove the contractual right of Debenture holders to receive 101% of the principal amount on a change of control.
Coercive and Oppressive Conduct - Integration of the Jien Offer and
Removal of the 101% Payment
The Indenture governing the rights of Debenture holders is clear in recognizing two separate transactions. The first transaction is a change in control of CZZ which is the purchase by an acquiror of two-thirds or more of the issued common shares of CZZ. Upon that occurrence a second transaction must occur under the Indenture which is an offer by CZZ within 30 days of the change in control to acquire the Debentures at a price equal to 101% of the principal amount of the Debentures plus accrued interest.
When Jien made its original offer ("Original Offer") to purchase the common shares of CZZ at $0.60 per share and the Debentures at $0.60 on the dollar, the CZZ Board rejected the Original Offer for various reasons including, most importantly from the point of view of the Debenture holders, the following reason disclosed in CZZ's press release dated August 25, 2009:
"The Debenture indenture requires payment of 101% to holders of the
Debentures in the event of a change in control."
In addition, the Directors Circular of CZZ dated August 25 stated the
following:
"7. The Debenture indenture requires payment of 101% of principal to
Debentureholders in the event of a change in control
Under the Debenture Offer, Jien is offering only $600 cash per $1,000 principal amount of Debentures (i.e. only 60% of the principal amount), plus accrued and unpaid interest up to, but excluding, the date the Debentures are taken up under the Debenture Offer. However, the indenture governing the Debentures provides that on a change of control an offer must be commenced to purchase the Debentures at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon (if any). The Debenture Offer is at a significant discount to the payment Jien would be required to make to the holders of the Debentures upon a change of control."
Accordingly, the directors clearly recognized at the outset of the Jien take-over bid process that the Debenture holders must receive 101% of their principal amount in a change of control. Without any explanation, the directors have completely changed their position on the revised offer by Jien (the "Revised Offer").
Under the terms of the Revised Offer, which has been supported by the CZZ Board, Debenture holders who accept the Revised Offer must consent to an amendment to the Indenture which removes the requirement that payment of 101% of the principal amount be made on the acquisition of control by Jien. In other words, the Jien Offer has been structured so that its acceptance is paired with the stripping of rights under the Indenture. Integrating the amendment to the Indenture is a denial of fundamental fairness to Debenture holders and a coercive and oppressive tactic.
Vic Alboini, Chairman and Chief Executive Officer of Jaguar stated: "Jien's Original Offer was rejected by the board of Canadian Royalties partly because the Debenture holders were not receiving 101% of their principal amount as required under the Indenture upon a change of control. They have completely flip-flopped on this important contractual right for the Debenture holders. The directors of CZZ made a serious mistake in not insisting upon payment of 101% of the principal amount in the Revised Offer."
Coercive and Oppressive Conduct - Creating the Illusion of Locked-Up
Support
The directors of CZZ have created an illusion of substantial support from Debenture holders by stating erroneously in the Support Agreement between CZZ and Jien that there are "lock-up agreements ... with Debentureholders holding not less than $78 million principal amount of Debentures."
In fact the only signed lock-up agreements CZZ has filed on Sedar are an agreement with Fonds de solidarite FTQ for $20 million and two agreements with Colonial First State Asset Management in Australia for a total of $18,873,000. These agreements represent a total of $38,873,000 or 28% of the $137.5 million total principal amount of the Debentures.
There are nine additional Lock-Up Agreements on Sedar from seven directors and two officers of CZZ which provide for a lock-up of nil principal amount of Debentures.
The recent Directors' Circular of CZZ states that "Debentureholders that have entered into lock-up agreements with Jien, or that have otherwise confirmed their intention, intend to tender an aggregate of $78,783,000 principal amount of debentures, 57% of the outstanding principal amount of the Debentures." However, there are signed lock-up agreements with holders of only $38,873,000 principal amount of Debentures.
It is coercive for the CZZ directors to misstate the extent to which Debenture holders have signed lock-up agreements; by stating that the holders of $78 million in Debentures have locked up while in fact the publicly disclosed lock-ups total only $38,783,000.
Jaguar intends to hold the directors and officers of CZZ accountable for the difference between 101% of the Debenture principal amount and accrued interest owing to the Debenture holders and any payment of less than 101% that may be made by Jien to the holders of the Debentures.
About Jaguar Financial Corporation
Jaguar is a Canadian merchant bank that invests in undervalued small capitalization companies in a variety of industry sectors.
The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this news release. This news release may contain certain forward looking statements which involve known and unknown risks, delays, and uncertainties not under Jaguar's control which may cause actual results, performances or achievements of Jaguar to be materially different from those implied by such forward looking statements.
