Form 8-K EARTHSTONE ENERGY INC For: Mar 29

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report: March 29, 2016

(Date of earliest event reported)

 

(Exact name of registrant as specified in its charter)

 

 

1400 Woodloch Forest Drive, Suite 300

The Woodlands, Texas 77380

(Address of principal executive offices) (Zip Code)

(281) 298-4246

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

 

 

 

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Item 1.01 Entry into a Material Definitive Agreement.

 

On March 29, 2016, Earthstone Energy, Inc. (“Earthstone”), Lynden Energy Corp., a corporation existing under the laws of British Columbia (“Lynden”), and 1058286 B.C. Ltd., a company organized under the laws of British Columbia, Canada and wholly-owned subsidiary of Earthstone (“Merger Sub”), entered into an amendment (the “Amendment”) to the Arrangement Agreement dated December 16, 2015 (the “Arrangement Agreement”), among Earthstone, Merger Sub and Lynden.

 

The Amendment clarifies certain technical matters related to the mechanics of the Arrangement, mainly that Merger Sub will be the entity that (i) acquires all of the outstanding common stock of Lynden and (ii) amalgamates with Lynden to form one corporate entity with Lynden surviving the amalgamation as a wholly-owned subsidiary of Earthstone. The Amendment also extends the date by which Lynden must hold its special meeting to May 27, 2016. Finally, the Amendment makes miscellaneous, conforming changes that are consistent with the foregoing summary.  

 

The foregoing summary of the Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Amendment, which is attached to this report as Exhibit 2.1 and incorporated herein by reference.

 

Forward-Looking Statements

 

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as “expects,” “believes,” “intends,” “anticipates,” “plans,” “estimates,” “potential,” “possible,” or “probable” or statements that certain actions, events or results “may,” “will,” “should,” or “could” be taken, occur or be achieved. The forward-looking statements include statements about the expected benefits of the proposed transaction to Earthstone and Lynden and their stockholders, the anticipated completion of the proposed transaction or the timing thereof, the expected future reserves, production, financial position, business strategy, revenues, earnings, costs, capital expenditures and debt levels of the combined company, and plans and objectives of management for future operations. Forward-looking statements are based on current expectations and assumptions and analyses made by Earthstone, Lynden and their management in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform to expectations is subject to a number of material risks and uncertainties, including but not limited to: the ability to obtain stockholder, court and regulatory approvals of the proposed transaction; the ability to complete the proposed transaction on anticipated terms and timetable; Earthstone’s and Lynden’s ability to integrate successfully after the transaction and achieve anticipated benefits from it; the possibility that various closing conditions for the transaction may not be satisfied or waived; risks relating to any unforeseen liabilities of Earthstone or Lynden; declines in oil, natural gas liquids or natural gas prices; the level of success in exploration, development and production activities; adverse weather conditions that may negatively impact development or production activities; the timing of exploration and development expenditures; inaccuracies of reserve estimates or assumptions underlying them; revisions to reserve estimates as a result of changes in commodity prices; impacts to financial statements as a result of impairment write-downs; risks related to level of indebtedness and periodic redeterminations of the borrowing base under Earthstone’s credit agreement; Earthstone’s ability to generate sufficient cash flows from operations to meet the internally funded portion of its capital expenditures budget; Earthstone’s ability to obtain external capital to finance exploration and development operations and acquisitions; the ability to successfully complete potential asset dispositions and the risks related thereto; the impacts of hedging on results of operations; uninsured or underinsured losses resulting from oil and natural gas operations; Earthstone’s ability to replace oil and natural gas reserves; any loss of senior management or technical personnel; and risks arising out of hedging transactions. Earthstone’s annual report on Form 10-K for the year ended December 31, 2015, recent current reports on Form 8-K, and other Securities and Exchange Commission (“SEC”) filings discuss some of the important risk factors identified that may affect Earthstone’s business, results of operations, and financial condition. Lynden’s annual report on Form 10-K for the year ended June 30, 2015, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect Lynden’s business, results of operations, and financial condition. Earthstone and Lynden undertake no obligation to revise or update publicly any forward-looking statements except as required by law.

 

Additional Information

 

This report does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of a vote or proxy. In connection with the proposed transaction, Earthstone and Lynden will file with the SEC a joint proxy and information statement/circular and other relevant documents to be mailed by Lynden and Earthstone to their respective security holders in connection with the proposed transaction. The joint proxy and information statement/circular will also be filed with the Canadian securities regulators. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE JOINT PROXY AND INFORMATION STATEMENT/CIRCULAR AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT EARTHSTONE, LYNDEN AND THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain these materials (when they are available)

 

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and other documents filed with the SEC and the Canadian securities regulators free of charge at the SEC’s website, www.sec.gov and at the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. In addition, a copy of the definitive joint proxy and information statement/circular (when it becomes available) may be obtained free of charge from Earthstone’s website at www.earthstoneenergy.com, or from Lynden’s website at www.lyndenenergy.com. Investors and security holders may also read and copy any reports, statements and other information filed by Lynden or Earthstone, with the SEC, at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for further information on its public reference room. In addition, the documents filed with the SEC by Earthstone can be obtained free of charge from Earthstone’s website at www.earthstoneenergy.com or by contacting Earthstone by mail at 1400 Woodloch Forest Drive, Suite 300, The Woodlands, Texas, 77380, or by telephone at (281) 298-4246. The documents filed with the SEC by Lynden can be obtained free of charge from Lynden’s website at www.lyndenenergy.com or by contacting Lynden by mail at 595 Burrard Street, Suite 2900, Vancouver, British Columbia, V7X 1J5 or by telephone at (604) 629-2991.

 

Participants in the Solicitation

 

Earthstone, Lynden and their respective directors, executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Earthstone’s directors and executive officers is available in its proxy statement filed with the SEC by Earthstone on September 21, 2015 in connection with its 2015 annual meeting of stockholders, and information regarding Lynden’s directors and executive officers is available in its management proxy circular filed by Lynden with the SEC on October 21, 2015 in connection with its 2015 annual meeting of stockholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint information statement/circular and other relevant materials to be filed with the SEC and the Canadian securities regulators when they become available.

 

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit is filed with this Current Report on Form 8-K:

 

 

 

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

 

Exhibit 2.1

FIRST AMENDMENT TO THE ARRANGEMENT AGREEMENT

This First Amendment to the Arrangement Agreement (this “Amendment”) is dated as of March 29, 2016 among Earthstone Energy, Inc., a Delaware corporation (“Earthstone”), 1058286 B.C. Ltd., a company existing under the laws of British Columbia (“Earthstone Acquisition”), and Lynden Energy Corp., a company existing under the laws of British Columbia (“Lynden”), and amends that certain Arrangement Agreement made as of December 16, 2015, among Earthstone, Earthstone Acquisition and Lynden (the “Arrangement Agreement”).  Capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings set forth in the Arrangement Agreement (as defined below). Earthstone, Earthstone Acquisition and Lynden are sometimes referred to herein individually as a “Party” and, collectively, as the “Parties.”

WHEREAS, the Parties desire to modify the Arrangement Agreement on the terms herein; and

WHEREAS, the Parties desire to amend the Arrangement Agreement to provide that Earthstone Acquisition will acquire all of the issued and outstanding common shares of Lynden in exchange for the issuance and payment of common shares of Earthstone and in connection therewith and as an integral part thereof, Earthstone Acquisition will amalgamate with and into Lynden with Lynden being the surviving company following the amalgamation pursuant to a Plan of Arrangement in accordance with the Business Corporations Act (British Columbia);

NOW, THEREFORE, in consideration of the premises and mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound by the terms hereof, agree as follows:

ARTICLE I
AMENDMENTS

Section 1.1Amendments.

(a)Section A under the WHEREAS clause of the Arrangement is hereby amended and restated  to read in its entirety as follows:

“A. Earthstone, Earthstone Acquisition and Lynden have determined that a business combination pursuant to which Earthstone Acquisition will acquire all of the issued and outstanding common shares of Lynden in exchange for the issuance and payment of common shares of Earthstone and in connection therewith and as an integral part thereof, Earthstone Acquisition will amalgamate with and into Lynden with Lynden being the surviving company following the amalgamation pursuant to a Plan of Arrangement in accordance with the Business Corporations Act (British Columbia) is in the best interests of their respective shareholders;”

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(b)Section 1.1(p) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows: 

“(p) “Consideration” means, collectively, (a) in respect of each Lynden Share held by Lynden Shareholders, the shares of Earthstone Common Stock receivable therefor by the Lynden Shareholders pursuant to the Plan of Arrangement, and (b) in respect of each Lynden Option held by Lynden Optionholders, the shares of Earthstone Common Stock and cash receivable therefor by the Lynden Optionholders pursuant to the Plan of Arrangement;”

(c)Section 1.1 of the Arrangement Agreement is hereby amended by adding the following definition, in the appropriate alphabetical order:

“Earthstone Acquisition Payment” has the meaning set out in Section 2.7;”

(d)Section 1.1(ii) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“(ii)RESERVED.”

(e)Section 1.1(mmmm) of the Arrangement Agreement is hereby amended and restated to read in its entirety as follows:

“Lynden Shares” means the common shares in the authorized share structure of Lynden;”

(f)Section 1.1(rrrr) of the Arrangement Agreement is hereby amended and restated to read in its entirety as follows:

“(rrrr) “Meeting Deadline” means May 27, 2016, or such later date as may be agreed to in writing by the parties, such agreement to not be withheld unreasonably;”

(g)Section 2.7 of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“2.7U.S. Tax Matters

For United States federal income tax purposes, the parties intend to adopt this Agreement and the Plan of Arrangement as a plan of reorganization and intend that the Arrangement as set forth in the Plan of Arrangement qualify as a reorganization within the meaning of Section 368(a) of the Code.  Provided that the Arrangement meets the requirements of a reorganization within the meaning of Section 368(a) of the Code, each party hereto agrees to treat the Arrangement as a reorganization within the meaning of Section 368(a) of the Code for all United States federal income tax purposes, and agrees to treat this Agreement as a “plan of reorganization” within the meaning of the U.S. Treasury Regulations promulgated under Section 368 of the Code.   Notwithstanding the foregoing, in the event that Lynden has insufficient funds at the Effective Date to satisfy payment obligations to Dissenting Shareholders, the payment of funds by Earthstone

 

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Acquisition to Dissenting Shareholders (an “Earthstone Acquisition Payment”) shall not be prohibited by this Section 2.7.  Unless (i) an Earthstone Acquisition Payment is made, (ii) otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code, or (iii) otherwise required pursuant to applicable Laws, each of the parties shall report the transactions contemplated by this Agreement as a “reorganization” within the meaning of Section 368(a) of the Code (to the extent that the transaction is reportable under the Code) and shall not take any position that is contrary to such treatment.  Notwithstanding the foregoing, neither Earthstone nor Lynden makes any representation, warranty or covenant to any other party or to any Lynden Shareholder or other holder of Lynden securities (including, without limitation, stock options, warrants, debt instruments or other similar rights or instruments) or any holder of shares of Earthstone Common Stock or securities regarding the U.S. tax treatment of the Arrangement, including, but not limited to, whether the Arrangement will qualify as a reorganization within the meaning of Section 368(a) of the Code or as a tax deferred reorganization for purposes of any United States state or local income tax law.”

(h)Section 2.9 of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“2.9Lynden Options

The parties agree that pursuant to the Plan of Arrangement, notwithstanding the terms of the Lynden Option Plan and stock option agreements governing (or stock option certificates representing) the Lynden Options, each Lynden Option outstanding as at the Effective Time shall be deemed to be terminated and cancelled in exchange for delivery on the Effective Date of such number of shares of Earthstone Common Stock determined by the following calculation:

((A x Share Exchange Ratio) – B) x C

A

where:

“A” is the volume weighted average closing price of Earthstone Common Stock on the NYSE MKT (or such other primary stock market on which the Earthstone Common Stock is then trading), converted to Canadian dollars using the Bank of Canada noon exchange rate, for the five trading days preceding the Effective Date;

“B” is the exercise price of the subject Lynden Options; and

“C” is the number of the subject Lynden Options.

In order to be entitled to receive shares of Earthstone Common Stock pursuant to the foregoing calculation, the Lynden Optionholders will be required to pay to Lynden and/or Earthstone Acquisition the amount, if any, of applicable withholding taxes that would have been payable by the Lynden Optionholder had the Lynden Option been exercised rather than cancelled and terminated, and Lynden and/or Earthstone Acquisition shall forthwith remit such funds to the appropriate government tax authority.  

 

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To the extent holders of Lynden Options shall not be entitled to receive any shares of Earthstone Common Stock at closing based upon the foregoing method of calculation, Earthstone Acquisition shall on the Effective Date pay the applicable Lynden Optionholders U.S.$0.001 for every such Lynden Option. The shares of Earthstone Common Stock issuable and deliverable to former holders of Lynden Options have not been registered under the U.S. Securities Act and will be issued by Earthstone in reliance on the Section 3(a)(10) Exemption and shall be fully tradable subject to, with respect to certain holders who are or, at the Effective Time, become affiliates (as defined by Rule 144 of the U.S. Securities Act) of Earthstone, certain restrictions on resale under Rule 144 of the U.S. Securities Act.    

Lynden will file, after the Effective Date and in a timely manner, an election with the Minister of National Revenue under Section 110(1.1) of the Tax Act, in prescribed form, stating that neither Lynden nor a person not dealing at arm’s length with Lynden will deduct in computing its income for a taxation year any amount in respect of the payments made pursuant to this Section 2.9 (other than a designated amount described in subsection 110(1.2) of the Tax Act).   Lynden will provide, in a timely manner, evidence in writing of the filing of such election to the recipients of the payments made pursuant to this Section 2.9.”

(i)Section 2.10 of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“2.10Payment of Consideration

Earthstone will, following receipt by Lynden of the Final Order and prior to the Effective Date, deposit in escrow with the Depositary for the benefit of Earthstone Acquisition sufficient shares of Earthstone Common Stock to provide Earthstone Acquisition with the ability to satisfy the Consideration payable to the Lynden Shareholders and the Lynden Optionholders pursuant to the Plan of Arrangement (other than Lynden Shareholders exercising Dissent Rights and who have not withdrawn their notice of objection).”

(j)Section 2.11 of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“2.11Withholding Taxes

Earthstone, Earthstone Acquisition, Lynden and the Depositary shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement or the Plan of Arrangement to any Person, and from all dividends, interest or other amounts payable to any former Lynden Shareholder such amounts as Earthstone, Earthstone Acquisition, Lynden or the Depositary is required or permitted to deduct and withhold therefrom under any provision of applicable Laws in respect of Taxes.  To the extent that such amounts are so deducted, withheld and remitted, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom

 

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such amounts would otherwise have been paid, provided that such deducted or withheld Taxes or other amounts are actually remitted to the appropriate taxing authority.”

(k)Section 3.1(qq)(ii) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“(ii)Prior to the Effective Time and in connection with or anticipation of this Agreement or the Plan of Arrangement, (i) none of the Lynden Shares will be redeemed, (ii) Lynden has no plan or intention to make any extraordinary dividends with respect to the Lynden Shares, and (iii) none of the Lynden Shares will be acquired by Lynden or any Related Person.”

(l)Section 3.2(qq)(xii) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“(xii)Earthstone will not liquidate Lynden; merge Lynden with or into another corporation; or sell or otherwise dispose of the stock or assets of Lynden to the extent such actions would adversely affect the treatment of the Arrangement as a reorganization within the meaning of Section 368(a) of the Code and except for dispositions made in the ordinary course of business or transfers of stock or assets to a corporation controlled by Earthstone.”

(m)Section 4.4(a)(iv)(C) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“(C)have any plan or intention to declare or pay any dividends or make any distribution of its properties or assets to its shareholders or purchase or retire any Lynden Shares;”

(n)Section 5.1(f) of the Arrangement Agreement is hereby amended and restated  to read in its entirety as follows:

“(f)the issuance and delivery of the shares of Earthstone Common Stock to the holders of Lynden Shares and Lynden Options, pursuant to the Arrangement shall either be (i) exempt from the registration requirements of the U.S. Securities Act pursuant to the Section 3(a)(10) Exemption (or pursuant to any other applicable exemption), and in compliance with all applicable state securities laws, or (ii) to be registered pursuant to an effective registration statement under the U.S. Securities Act;”

(o)Section 8.1 of the Arrangement Agreement with respect to the contact information for Lynden is hereby amended and restated as follows:

“if to Lynden:

 

Board of Directors of Lynden Energy Corp.

Suite 500 – 666 Burrard Street

Vancouver, British Columbia  V6C 3P6

 

 

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Attention:  Colin Watt, President and CEO

 

Fax Number:  (604) 357-5111

Email:  [email protected]”

 

(p)Schedule A of the Arrangement Agreement is hereby amended and restated in its entirety as set forth in Exhibit A attached hereto.

Section 1.2Miscellaneous.

(a)Except as expressly set forth in this Amendment, the Arrangement Agreement is hereby ratified and confirmed in accordance with its terms.  

(b)Governing Law.  This Amendment will be governed by and construed in accordance with the laws of British Columbia and the laws of Canada applicable therein.  Each of the Parties hereto irrevocably attorns to the jurisdiction of the courts of the Province of British Columbia.

(c)This Amendment may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.  Any Party’s delivery of an executed counterpart signature page by facsimile or email is as effective as executing and delivering this Amendment in the presence of the other Party.  No Party shall be bound until such time as all of the Parties have executed counterparts of this Amendment.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

 

 

 

 

 

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Exhibit A

 

Schedule A

PLAN OF ARRANGEMENT

UNDER SECTION 288 OF THE
BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)

Article 1
DEFINITIONS AND INTERPRETATION

In this Plan of Arrangement:

 

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The division of this Plan of Arrangement into Articles and Sections and the insertion of headings are for convenience of reference only and do not affect the construction or interpretation of this Plan of Arrangement.  Unless otherwise specified, references to sections are to sections of this Plan of Arrangement and references to articles are to articles of this Plan of Arrangement.

Unless the context otherwise requires, words importing the singular number only will include the plural and vice versa; words importing the use of any gender will include all genders; and words importing persons will include firms and corporations and vice versa.

In the event that any date on which any action is required to be taken hereunder by any of the parties is not a Business Day, such action will be required to be taken on the next succeeding Business Day.  

Any reference in this Plan of Arrangement to a statute includes all regulations and rules made thereunder, all amendments to such statute or regulation in force from time to time and any statute or regulation that supplements or supersedes such statute or regulation.

Article 2
ARRANGEMENT AGREEMENT

This Plan of Arrangement is made pursuant to and is subject to the provisions of the Arrangement Agreement.  At the Effective Time, without any further act or formality, the Arrangement will be binding upon Earthstone, Earthstone Acquisition, Lynden and the Lynden Securityholders.

 

 

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Article 3
THE ARRANGEMENT

Commencing at the Effective Time, the following will occur and will be deemed to occur in the following sequence without any further authorization, act or formality by Earthstone, Earthstone Acquisition, Lynden, Lynden Securityholders or any other person:

 

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and for the purposes of Section 270 of the Business Corporations Act, the provisions of this section shall constitute the amalgamation agreement between Earthstone Acquisition and Lynden.

If the aggregate number of shares of Earthstone Common Stock to which a Lynden Shareholder would otherwise be entitled under the Arrangement would include a fractional share of Earthstone Common Stock, then the number of shares of Earthstone Common Stock that such Lynden Shareholder is entitled to receive will be equal to the nearest whole number of shares of Earthstone Common Stock (with fractions equal to or greater than 0.5 being rounded up), and such Lynden Shareholder will not receive cash or any other compensation in lieu of such fractional share of Earthstone Common Stock.

The parties agree that pursuant to this Plan of Arrangement, notwithstanding the terms of the Lynden Option Plan and stock option agreements governing (or stock option certificates representing) the Lynden Options, each Lynden Option outstanding as at the Effective Time shall be deemed to be terminated and cancelled in exchange for delivery on the Effective Date of such number of shares of Earthstone Common Stock determined by the following calculation:

((A x Share Exchange Ratio) – B) x C  
A

where:

“A” is the volume weighted average closing price of Earthstone Common Stock on the NYSE MKT (or such other primary stock market on which the Earthstone Common Stock is then trading), converted to Canadian dollars using the Bank of Canada noon exchange rate, for the five trading days preceding the Effective Date;

 

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“B” is the exercise price of the subject Lynden Options; and

“C” is the number of the subject Lynden Options.

In order to be entitled to receive shares of Earthstone Common Stock pursuant to the foregoing calculation, each Lynden Optionholder must first pay to Lynden the amount, if any, of applicable withholding taxes that would have been payable by the Lynden Optionholder had the Lynden Option been exercised rather than cancelled and terminated, and Lynden shall forthwith remit such funds to the appropriate Governmental Authority.  To the extent a holder of Lynden Options is not entitled to receive any shares of Earthstone Common Stock at closing based upon the foregoing method of calculation for a particular Lynden Option, Earthstone Acquisition shall on the Effective Date pay the applicable Lynden Optionholder U.S.$0.001 for every such Lynden Option.

Earthstone will issue and deliver to the Depositary, on behalf of Earthstone Acquisition for delivery to such Lynden Optionholders the shares of Earthstone Common Stock and cash which are required by this Section 3.3, such Earthstone Common Stock to be issued as fully paid and non-assessable shares of Earthstone, and Earthstone will deliver or cause certificates representing such Earthstone Common Stock to be delivered to the Depositary to be dealt with in accordance with Article 5, and the securities register of Earthstone will be revised accordingly.

The Share Exchange Ratio shall be proportionately and appropriately adjusted to reflect fully the effect of, and to provide the Lynden Shareholders the same economic effect as contemplated by the Arrangement Agreement and this Plan of Arrangement prior to, (a) any stock split, reverse stock split, combination or exchange of shares, stock dividend (including any dividend or distribution of securities convertible into Earthstone Common Stock or Lynden Shares), reclassification, reorganization, recapitalization or other like change with respect to Earthstone Common Stock or Lynden Shares or (b) any issuance of additional Lynden Shares (to the extent expressly permitted by the Arrangement Agreement); provided that the foregoing adjustments shall not be made if the record date for the stock split, reverse split, stock dividend, reorganization, recapitalization, other like change or extraordinary dividend or distribution described above does not occur after the date of the Arrangement Agreement and prior to the Effective Time.  If Lynden declares, sets aside or pays any dividend or other distribution payable in cash, securities, property or otherwise to the holders of Lynden Shares prior to the Effective Date, or sets a record date therefor that is prior to the Effective Date, then the Share Exchange Ratio shall be adjusted to reflect such dividend or other distribution by way of a reduction of the Share Exchange Ratio by an amount such that the aggregate value of the Earthstone Common Stock that Lynden Shareholders are entitled to receive at the Effective Time is reduced by an amount equal to the value of such dividend or other distribution.

Article 4
RIGHTS OF DISSENT

Each Lynden Shareholder may exercise rights of dissent (the “Dissent Right”) with respect to the Lynden Shares held by it pursuant to and in the manner set forth in the Interim Order and Section 238 of the Business Corporations Act, as modified by this Article 4, the Interim Order and the Final Order, provided that written notice of dissent contemplated by Section 242 of the Business Corporations Act must be received by Lynden no later than 5:00 p.m. (Vancouver time) on the Business

 

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Day that is two Business Days before the Lynden Meeting or any date to which the Lynden Meeting may be postponed or adjourned. Dissenting Shareholders who:

Article 5
DELIVERY OF EARTHSTONE CERTIFICATES

 

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certificates representing the number of shares of Earthstone Common Stock to which such former Lynden Shareholder or Lynden Optionholder is entitled as determined in accordance with the provisions hereof or, if applicable, a cheque representing the cash payment payable to a former Lynden Optionholder.

 

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Lynden, Earthstone, Earthstone Acquisition and the Depositary will be entitled to deduct and withhold from any consideration deliverable or otherwise payable to any Lynden Shareholder or Lynden Optionholder such amounts as Lynden, Earthstone, Earthstone Acquisition or the Depositary is required or permitted to deduct or withhold with respect to such payment under the Tax Act or Code or any provision of any applicable federal, provincial, state, local or foreign tax law or treaty, in each case, as amended.  To the extent that amounts are so deducted or withheld, such deducted or withheld amounts will be treated for all purposes hereof as having been paid to the Lynden Shareholder or Lynden Optionholder in respect of which such deduction and withholding was made, provided that such deducted or withheld amounts are actually remitted to the appropriate taxing authority.  The Depositary is authorized, as agent for the Lynden Shareholders, to sell such portion of the shares of Earthstone Common Stock otherwise deliverable to applicable Lynden Shareholders as is necessary to provide sufficient funds to Earthstone, Earthstone Acquisition, Lynden or the Depositary, as the case may be, to enable them to comply with such deduction or withholding requirement (after deducting commission, other reasonable expenses incurred in connection with the sale, and any applicable taxes), and Earthstone, Earthstone Acquisition, Lynden or the Depositary will notify the applicable Lynden Shareholder and remit any unapplied consideration including any unapplied balance of the net proceeds of such sale.

If any certificate which prior to the Effective Date represented outstanding Lynden Shares or Lynden Options which were exchanged pursuant to Section 3.1 or Section 3.3 has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed, the Depositary will issue in exchange for such lost, stolen or destroyed certificate, certificates representing shares of Earthstone Common Stock deliverable in respect thereof as determined in accordance with Section 3.1 or Section 3.3, as applicable.  When seeking such certificate in exchange for any lost, stolen or destroyed certificate, the person to whom certificates representing shares of Earthstone Common Stock are to be issued will, as a condition precedent to the issuance thereof, give a bond satisfactory to Earthstone and its transfer agent, in such sum as Earthstone may direct or otherwise indemnify Earthstone and its transfer agent in a manner satisfactory to Earthstone and its transfer agent against any claim that may be made against Earthstone or its transfer agent with respect to the certificate alleged to have been lost, stolen or destroyed.

Notwithstanding anything herein to the contrary, it is the intention of each of Earthstone, Earthstone Acquisition and Lynden that the issuance and delivery of the shares of Earthstone Common Stock to the holders of Lynden Shares and Lynden Options pursuant to the Arrangement shall either be: (i) exempt from the registration requirements of the U.S. Securities Act pursuant to the exemption from registration afforded by Section 3(a)(10) of the U.S. Securities Act (or pursuant to any other applicable exemption), and in compliance with all applicable state securities laws; or (ii) to be registered pursuant to an effective registration statement under the U.S. Securities Act.

Article 6
AMENDMENT

 

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This Plan of Arrangement may be withdrawn prior to the Effective Time in accordance with the terms of the Arrangement Agreement.

 

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