Proceedings

IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990 c.S.5 AS AMENDED

- and -

IN THE MATTER OF CANADIAN 88 ENERGY CORP.,
WEST CENTRAL CAPITAL CORPORATION, GREGORY S. NOVAL
AND
DAVID R. DIPAOLO

STATEMENT OF ALLEGATIONS OF STAFF OF THE
ONTARIO SECURITIES COMMISSION

 

        Staff of the Ontario Securities Commission (the "Commission") allege that:

A.       THE PARTIES
 
1. The respondent Canadian 88 Energy Corp. ("Canadian 88") was at all material times incorporated under the Canada Business Corporations Act and a reporting issuer in Ontario whose common shares are listed and posted for trading on The Toronto Stock Exchange and the Alberta Stock Exchange. Canadian 88 is engaged in the exploration, development, processing and production of natural gas and oil.
 
2. The respondent West Central Capital Corporation ("West Central") was at all material times incorporated under the Business Corporations Act (Alberta).
 
3. The respondent Gregory S. Noval ("Noval") was at all material times the President and Chief Executive Officer and a director of Canadian 88. Noval resides in Calgary, Alberta.
 
4. The respondent David R. DiPaolo ("DiPaolol") was at all material times the sole shareholder, director and officer of West Central. DiPaolo was not at any material time a director, officer or employee of Canadian 88. DiPaolo resides in Calgary, Alberta.
 
5. Morrison Petroleums Ltd. ("Morrison") was at all material times a corporation continued under the Business Corporations Act (Alberta) and a reporting issuer in Ontario whose common shares were listed and posted for trading on The Toronto Stock Exchange and the Montreal Exchange. Morrison was engaged in the exploration, development, production and acquisition of oil and natural gas reserves and gas processing in Canada.
 
B. THE TAKE-OVER BID AND SUBSEQUENT CEASE TRADING ORDER
 
6. On January 13, 1997 Canadian 88 announced (the "Announcement") its intention to make, and on January 16, 1997, made, a formal take-over bid (the "Take-over Bid") for all of the common shares of Morrison on the basis of, at the election of the holder, $10.00 in cash, up to an aggregate maximum of $140,000,000, or 1.5 common shares of Canadian 88 for each common share of Morrison.
 
7. On February 6, 1997 each of the Commission and the Alberta Securities Commission (the "Alberta Commission") issued a temporary cease trading order that trading in common shares of Canadian 88 in connection with the Take-over Bid, and trading in common shares of Morrison by Canadian 88 and West Central, cease until the earlier of midnight February 14, 1997 or 48 hours immediately following the decision of the Commission and the Alberta Commission on the application of staff relating to the Take-over Bid.
 
8. On February 8, 1997 Canadian 88 announced that it was terminating the Take-over Bid.
 
9. On February 10, 1997 the Commission and the Alberta Commission ordered that the existing temporary cease trading order, noted above, terminate on the earlier of midnight February 14, 1997 and 48 hours after Canadian 88 disseminates full information as to the basis of its entitlement to terminate the Take-over Bid in form and content satisfactory to the Directors of the Commission and the Alberta Commission. The temporary cease trading order expired on February 14, 1997 and no further cease trading orders were issued.
 
10. Canadian 88 disseminated reasons for terminating the Take-over Bid in a news release dated February 17, 1997 and announced in a separate news release issued on the same day that it sold 5,711,600 common shares of Morrison. These shares were sold at a price of $10.35 per share, and represented all of the Morrison common shares accumulated by West Central prior to the Announcement, as discussed below.
 
C. ALLEGATIONS RELATING TO THE PROVISION OF UNDISCLOSED INFORMATION BY CANADIAN 88 AND NOVAL TO WEST CENTRAL AND DIPAOLO
 
11. From December 18, 1996 through January 10, 1997 (the "Relevant Period"), the business day immediately preceding the Announcement, West Central purchased and sold Morrison common shares. As at January 10, 1997 West Central held 5,711,600 common shares of Morrison.
 
12. In or about December 1996 Canadian 88 entered into an agreement or understanding with West Central (the "December Agreement"), the principal elements of which were as follows:
 
 
(i)       West Central would purchase and sell Morrison common shares;
 
(ii) Noval would act as West Central's agent in deciding how many Morrison common shares would be purchased or sold, and when;
 
(iii) Canadian 88 would lend to West Central the funds required for such purchases of Morrison common shares;
 
(iv) any profit realized in the market on the Morrison common shares purchased under these arrangements would be split between Canadian 88 and West Central on the following basis - Canadian 88 would receive 66 2/3% of the profit and West Central would receive 33 1/3% of the profit, net of expenses;
 
(v) West Central would bear the whole amount of any losses on the Morrison common shares purchased under this arrangement; and
 
(vi) West Central agreed to deposit any Morrison common shares purchased under this arrangement with Canadian 88 in the event Canadian 88 were to make a take-over bid for Morrison common shares.
 
13. From on or about the date of the December Agreement until the date of the Announcement, Noval acted contrary to the provisions of subsection 76(2) of the Securities Act (Ontario) (the "Act") and Canadian 88 acted contrary to the provisions of subsection 76(3) of the Act by providing West Central and/or DiPaolo information in relation to the proposed Take-over Bid (the "Information"). The Information was not generally disclosed by Canadian 88 and was not given by Canadian 88 to West Central and/or DiPaolo in the necessary course of business or in the necessary course of business to effect the Take-over Bid.
 
14. In the alternative, Canadian 88 and Noval acted contrary to the public interest by entering into the December Agreement with West Central, and by making West Central and/or DiPaolo privy to the undisclosed Information pursuant to which West Central purchased and sold common shares in Morrison prior to the Announcement.
 
15. The Information included but was not limited to:
 
 
(i)       the fact of the December Agreement and its terms;
 
(ii) the retainer of a law firm on or about December 19, 1996 to act for Canadian 88 as special counsel in respect of the Take-over Bid;
 
(iii) the nature and content of all meetings and discussions with Canadian 88's financial advisors and dealer managers retained in connection with the Take-over Bid, including the fact of and the terms of their engagement, and the nature and content of all meetings and discussions with their representatives;
 
(iv) Noval's intention to obtain a shareholders' list from Morrison on or about December 20, 1996;
 
(v) the nature and content of all discussions between representatives of Canadian 88 and its bankers with respect to financing arrangements for the Take-over Bid; and
 
(vi) the retainer of a printing company in connection with the preparation of the Take-over Bid circular, and discussions with a translator and U.S. legal counsel on or about January 8, 1997.
 
D. ALLEGATIONS RELATING TO TRADING BY WEST CENTRAL IN SHARES OF MORRISON
 
16. West Central acted contrary to the provisions of subsection 76(1) of the Act, or otherwise contrary to the public interest, by purchasing and selling common shares of Morrison during the relevant period with knowledge of the Information which had not been generally disclosed.
 
E. ALLEGATIONS REGARDING KNOWLEDGE AND PARTICIPATION OF NOVAL AND DIPAOLO
 
17. The respondent Noval, as the senior officer and a director of Canadian 88, was aware of, permitted and acquiesced or participated in providing the Information to West Central and/or DiPaolo, as referred to in division C above, in breach of the provisions of subsection 76(3) of the Act, or otherwise contrary to the public interest.
 
18. The respondent DiPaolo, as the sole shareholder, director and officer of West Central, was aware of, permitted, acquiesced or participated in the purchasing and selling by West Central of common shares of Morrison during the Relevant Period, as described in division D above, in breach of the provisions of subsection 76(1) of the Act, or otherwise contrary to the public interest.
 
F. ALLEGATIONS RELATING TO CANADIAN 88'S DISCLOSURE OF THE AGREEMENT OR UNDERSTANDING WITH WEST CENTRAL
 
19. The Take-over Bid circular of Canadian 88 dated January 16, 1997 disclosed that West Central was the beneficial owner of 5,711,600 Morrison common shares purchased by it prior to the announcement of the Take-over Bid on the understanding that all such shares would be tendered in acceptance of any offer made by Canadian 88 for the Morrison common shares. These statements, in a material respect and at the time and in light of the circumstances under which they were made, were misleading or untrue or did not state facts that were required to be stated or that were necessary to make the statements not misleading in respect of the December Agreement.
 
20. In the circumstances of the Take-over Bid, the statements referred to in paragraph 19 above were contrary to the public interest. Noval authorized or acquiesced the making of the statements.
 
G. OTHER ALLEGATIONS
 
21. Staff also relies upon such further and other allegations as staff may advise and the Commission may permit.

DATED at Toronto, this 26th day of September, 1997.