Zargon Oil & Gas Ltd.

Headnote

National Policy 11-206 Process for Cease to be Reporting Issuer Applications -- issuer deemed to be no longer a reporting issuer under securities legislation.

Applicable Legislative Provisions

Securities Act, R.S.A. 2000, c. S-4, s. 153.

Citation: Re Zargon Oil & Gas Ltd., 2022 ABASC 173

ALBERTA SECURITIES COMMISSION

REVOCATION ORDER

UNDER THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Legislation)

ZARGON OIL & GAS LTD.

December 22, 2022

Background

1. Zargon Oil & Gas Ltd. (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the regulator or securities regulatory authority in each of Alberta and Ontario (the Decision Makers) respectively on 19 November 2020.

2. The Issuer has applied to each of the Decision Makers under National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions (NP 11-207) for an order revoking the FFCTOs.

3. This order is the order of the Decision Maker in Alberta (the Principal Regulator) and evidences the decision of the Decision Maker in Ontario.

Interpretation

4. Terms defined in National Instrument 14-101 Definitions or in NP 11-207 have the same meaning if used in this order, unless otherwise defined.

Representations

5. This decision is based on the following facts represented by the Issuer:

(a) The Issuer is a corporation existing under the Business Corporations Act (Alberta) the ABCA) formed pursuant to an amalgamation on 1 January 2014.

(b) The Issuer's head office is located in Calgary, Alberta.

(c) The Issuer is a reporting issuer in each of the provinces of Alberta, British Columbia, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (collectively, the Reporting Jurisdictions).

(d) The Issuer is the general partner of, and holds, directly or indirectly, all of the partnership units in, Blue Sky Oil & Gas partnership (formerly Zargon Oil & Gas Partnership) (Zargon Partnership).

(e) The authorized capital of the Issuer consists of an unlimited number of New Common shares (the New Common Shares) and an unlimited number of Redeemable shares (the Redeemable Shares) of which 100 New Common Shares and no Redeemable Shares are issued and outstanding.

(f) Blue Sky Resources Ltd. (Blue Sky) is a corporation existing under the ABCA, incorporated on 2 March 2018. It is a private oil and gas company with its head office located in Calgary, Alberta.

(g) On 8 September 2020, the Issuer filed a Notice of Intention to Make a Proposal (the NOI) under Subsection 50.4 of the Bankruptcy and Insolvency Act (Canada) (the BIA), and issued a news release announcing (i) its intention to make such proposal to its creditors; (ii) that trading in the former common shares of the Issuer (the Former Common Shares) on the Toronto Stock Exchange (the TSX) was to be suspended; and (iii) that the Issuer had accepted the resignations of all of the directors of the Issuer except Craig Hansen.

(h) The Former Common Shares were delisted from the TSX on 14 October 2020. As a result, no securities of the Issuer are traded on a marketplace as defined in National Instrument 21-101 Marketplace Operation.

(i) On 13 November 2020, a consolidation order was granted by the Court of Queen's Bench of Alberta and a joint proposal to the creditors of the Issuer, Zargon Partnership and Zargon U.S. Holdings Ltd., which was a wholly owned subsidiary of the Issuer (Zargon US, and together with Zargon Partnership,the Creditors), was filed in accordance with the BIA (the Proposal). Zargon US has since dissolved.

(j) On 4 December 2020 the first meeting of the Creditors was held and the Creditors approved the Proposal by the majorities required under the BIA, namely 91.1% of the Creditors in number and 86.9% of the value of the Creditors' claims.

(k) On 6 January 2021, the Court of Queen's Bench of Alberta granted an order approving the Proposal (the Court Order). The period for appeal of the Court Order elapsed on 16 January 2021.

(l) The FFCTO was issued by the Decision Makers on 19 November 2020 due to the failure of the Issuer to file its interim unaudited financial statements, interim management's discussion and analysis (MD&A) and certification of interim filings for the interim period ended 30 September 2020 (the CD Materials).

(m) During the time period beginning when the NOI was filed, until the Reorganization (as defined below) was completed, the Issuer was unable to prepare, certify and file the CD Materials when they became due, because the Issuer lacked the financial and human resources to do so.

(n) The Proposal contemplated, among other things, the compromise and settlement of claims by the Creditors and the reorganization of the share capital of the Issuer (the Reorganization) involving:

(i) the filing of articles of reorganization pursuant to section 192 of the ABCA to:

A. authorize two classes of shares in the capital of the Issuer: New Common Shares and Redeemable Shares;

B. re-designate each previously issued and outstanding Former Common Share into one one-millionth (0.000001) of a Redeemable Share;

C. terminate or cancel of all outstanding options, warrants, convertible instruments and any other rights or interests that were capable of being converted into Former Common Shares or former preferred shares of the Issuer, including, without limitation, stock options, in each case without consideration and without further action required on the part of such holders of such securities; and

D. redeem and cancel all of the issued and outstanding Redeemable Shares in consideration of payment by the Issuer of $0.01 per each Redeemable Share, provided that if the aggregate redemption price payable to any specific holder of Redeemable Shares was less than $10.00, then the actual redemption price payable to such holder was nil, and the Redeemable Shares held by each such holder were to be redeemed without any payment or further act or formality by the Issuer or otherwise; and

(ii) the issuance of New Common Shares to Blue Sky (the Trade).

(o) Under the provisions of the BIA, only creditors are entitled to vote on a proposal unless ordered by the Court and holders of equity are not entitled to any payment unless all claims that are not equity claims are first paid in full.

(p) The Proposal provided that only a limited portion of the claims of the Issuer's unsecured creditors would be satisfied. Accordingly, the holders of the Former Common Shares were not entitled to vote in respect of the Proposal or receive any consideration under the Reorganization.

(q) On 29 January 2021 the Issuer received a partial revocation order of the FFCTO in Alberta (the Partial Revocation Order) solely to permit the Trade.

(r) The Partial Revocation Order was granted solely to permit the Trade in Alberta in connection with the Proposal and Reorganization, subject to certain conditions.

(s) The Issuer has satisfied every condition of the Partial Revocation Order.

(t) The Reorganization was completed on 29 January 2021.

(u) Following the Reorganization, the Issuer has fewer than 15 security holders in each of the jurisdictions in Canada and fewer than 51 security holders in total worldwide.

(v) Blue Sky is the sole holder of all outstanding New Common Shares. No other securities of the Issuer are outstanding as a result of the Reorganization. Holders of the Former Common Shares ceased to have any economic interest in the Issuer upon completion of the Reorganization.

(w) The Issuer's constating documents contain limitations on the number of shareholders permitted and restrictions on transfer in order to qualify it as a "private issuer" for the purposes of National Instrument 45-106 Prospectus Exemptions.

(x) The Filer is not in default of any of its obligations under securities legislation in any jurisdiction in Canada as of the date hereof, other than the obligation to file: (a) annual audited financial statements, annual MD&A and certifications of annual filings for the financial years ended 31 December 2020 and 31 December 2021; (b) its interim unaudited financial statements, interim management's discussion and analysis (MD&A) and certifications of interim filings for the interim period ended 30 September 2020 and each interim period since that time; (c) a material change report (MCR) in respect of the completion of the Reorganization; and (d) MCRs in respect of the resignations and appointments of directors and officers of the Filer (collectively, the Filings), all of which Filings became due after the filing of the NOI.

(y) The preparation and filing of the Filings to restore the Issuer's outstanding continuous disclosure record would be unduly costly and burdensome and would serve no purpose, since the Issuer is wholly-owned by Blue Sky and no other party has an interest in the Issuer or the restoration of its outstanding continuous disclosure record. Further, it would not be practicable because the Issuer was in receivership at the time the Filings became due.

(z) The Issuer has applied for and expects to be granted concurrently with this revocation order, a decision that the Issuer has ceased to be a reporting issuer in each of the provinces of Canada. If that decision is granted, the Issuer will not be a reporting issuer in any jurisdiction in Canada and will not be subject to the requirement to maintain a public disclosure record.

(aa) Following completion of the Reorganization, the Issuer will comply with its obligations under the ABCA in respect of annual shareholder meetings.

Order

6. Each of the Decision Makers is satisfied that the order to revoke the FFCTO meets the test set out in the Legislation for the Decision Maker to make the decision.

7. The decision of the Decision Makers under the Legislation is that the FFCTO is revoked.

22 December 2022