Order No. • Date: January~ / . 2011 In the Matter of The Securities Legislation of Manitoba and Ontario (the " Jurisdictions" ) And In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisd icti ons And In the Matter of Nordic Oil ~rnd Gas Ltd. (the " Nordic") And Dutchess Opportunity Cayman Fund , Ltd ("Dutchess") And Dutchess Ca pital Management II, LC (the " Manager" and, together with Nordic and Dutchess, the " Filers") DECISION Background The securities regulatory authority or regulator in each of the Jurisdictions ("Decision Makers") has received an application (the "Application") from the Filers for a decision under the securities legislation of the Jurisdictions (the "Legislation") that: (a) the following disclosure requirements under the Legislation (the "Prospectus Disclosure Requirements") do not fully apply to Nord ic in connection with the Distribution (as defined below): 1. the statement in the Prospectus Supplement (as defined below) respecting statutory rights of withdrawal and rescission required by section 18.1 of National Instrument 41-101 - General Prospectus Requirements and section 60 of the Securities Act (Ontario) (the "OSA") in the form prescribed by item 20 of Form 44-101F1 of National Instrument 44-1 01 - Short Form Prospectus Distributions ("NI 44-101 "); and
ii. the statements required by Subsections 5.5(2) and (3) of National Instrument 44-102 - Shelf Distributions ("NI 44-102"); (b) the prohibition from acting as a dealer unless the person is registered as SUv ,. 1 h fthe un,,. .. 1,_.. o,c _~ ..·. ; str--•• o~ o- ..... :~ I \ ll ....,c;cuc; 1 I .. Cl LI II Dutchess and the Manager in connection with the Distribution; and (c) the requirement that a dealer send a copy of the Prospectus (as defined below) to a subscriber or purchaser in the context of a distribution (the "Prospectus Delivery Requirement") does not apply to Dutchess and the Manager or the dealer(s) through whom Dutchess distributes the Shares (as defined below) and, as a result, rights of withdrawal or rights of rescission, price revision, or damages for non-delivery of the Prospectus do not apply in connection with the Distribution ; (collectively, the "Exemptive Relief Sought"). Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application): (a) The Manitoba Securities Commission is the principal 1eguiatoi fm this application, (b) the Filers have provided notice Instrument 11-102 Passport System ("Ml 11 -1 02") is intended to be relied upon in all of the provinces and territories of Canada except for Quebec (collectively with Manitoba and Ontario, the "Provinces"), and (c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario. Interpretation Terms defined in National Instrument 14-101 Definitions and Ml 11-102 have the same meaning if used in this decision, unless otherwise defined in this decision. Representations This decision is based on the following facts represented by the Filers: Nordic 1. Nordic is incorporated under the laws of Manitoba and has its head office and registered office located at 4727 Roblin Blvd., 'v'Vinnipeg , MB, R3R OG2. 2. Nordic is an independent Manitoba based oil and gas company engaged in the exploration, development and production of oil, natural gas and coal c ll - I -C ll • ") u ..u Jc-:; -; -:, nV-• '"C"tUll l l d ~ , o f·· J I·Y· . l ' ( -) that section 4.7(1) of Multilateral
bed methane in the provinces of Saskatchewan and Alberta. 3. Nordic is currently a reporting issuer under the securities leg islation of each of the provinces of Manitohri Saskatchewan, Alberta and British Columbia and is not in defau lt of any requ irements under the securities in any jurisdiction in Canada. 4. Nordic's authorized share capita l consists of an unlimited number Class A common shares ("Shares") and an unlimited number of convertible preferred shares, of which 69 ,741,626 Shares and ni l convertible preferred sha res were outstanding as at November 9, 2010. s. The Shares are listed for trading on the TSX Venture Exchange (the .. Exchange") under the symbol "NOG"; based on the closing price of $0 .075 of the Shares on the Exchange on November 8, 2010, the current market capitalization of Nordic is approximately $5,230,621. 6. Upon the filing of an annual information form for the year ended December 31 , 2009, Nordic will be qualified to fi le a short form prosrectus under section 2.2 of t\l l 44-101 anrl therefore will be qualified to fi le <=1 base shelf prospectus under NI 44-102. 7. Nordic intends to file with the securities regulators in some or 2111 of the Provinces a base shelf prospectus (such base shelf prospectus and any amendments thereto is referred to as the "Base Shelf Prospectus.'). 8. The statements in subsection 5.5(2) and (3) of NI 44-102 included in the Base Shelf Prospectus wi ll be qualified by adding the following ", except in cases where an exemption from such delivery requirements has been obtained." Dutchess and the Manager 9. Dutchess is an investment fund established as a Cayman Islands exempt limited partnership and its head office is located at Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive P.O. Box 2681, Grand Cayman KY1 -1111 , Cayman Islands. 1o . Dutchess is managed by the Manager, a limited liability corporation incorporated under the laws of Delaware, having its head office at 50 Commonwealth Ave, Suite 2, Boston, Massachusetts, USA. The Manager is an affi liate of Dutchess under applicable securities laws. 11. Dutchess is one of a number of investment funds managed by the Manager. The Manager is the investment manager for funds which have made direct investments in growth-stage and mature public companies which span a wide array of sectors using various investment structures such as equity line facilities, equity-linked notes and direct placements.
12. Neither Dutchess nor the Manager is a reporting issuer or registered as a registered firm as defined in National Instrument 31 -1 03 - Registration Requirements and Exemptions in any jurisdiction of Canada. 13. Dutchess and the ivianager are not in defauit of securities legisiation in any jurisdiction of Canada. Proposed Distribution Arrangement 14. Nordic and Dutchess propose to enter into an equity line facility agreement (the "Distribution Agreement"), pursuant to which Dutchess will agree to subscribe for, and Nordic will have the right but not the obligation to issue and sell, up to C$10 million of Shares (the "Aggregate Commitment Amount") over a period of 36 months in a series of drawdowns. Nordic will be entitled to request, in respect of each drawdown, a maximum amount equal to the greater of: (i) $500,000; or {ii) 200% of the average daily volume of the Shares as traded on the Exchange, multiplied by the average of the three daily closing prices immediately preceding the date of such put, subject to the Aggregate Commitment Amount. 15. The Distribution Agreement will provide Nordic with the ability to raise capital as needed from time to time. Dutchess regularly engages in such transactions. Dutchess will , in most cases, finance its commitment to subscribe for Shares on a drawdown through short-sales or resales out of existing holdings of Nordic's securities. 16. Nordic will have the sole ability to determine the timing and the amount of each drawdown, subject to certain conditions, including a maximum investment amount per drawdown and the Aggregate Commitment Amount. 17. The subscription price per Share and therefore the number of Shares to be issued to Dutchess for each drawdown will be calculated based on a predetermined percentage discount from the lowest daily volume-weighted average price per Share on the Exchange over a period of five consecutive trading days following a drawdown notice sent by Nordic (the "Drawdown Pricing Period"). Specifically, the Shares will be issued at a subscription price equal to the lowest daily volume-weighted average price per Share on the Exchange during the Drawdown Pricing Period multiplied by 95%. Nordic may fix in such drawdown notice a minimum subscription price below which it will not issue any Shares. Nordic and Dutchess can mutually agree in writing to amend the minimum price set forth in a drawdown notice during the applicable Drawdown Pricing Period. Notwithstanding the foregoing, the subscription price per Share may not be lower than the volume-weighted average price per Share on the Exchange over a period of five consecutive trading days immediately
preceding the appl icable drawdown notice. less the permitted discount under the private placement rules contained in the Exchange Company Manuci l (the "Floor Price"). 18. Subject to earl ier settlement in certain circumstances, on the ' 7th trading day following the date of each drawdown notice (each. a "Settlement Date"), the amount of the drawdown consideration for the relevant number of newly issued Shares. 19. The Distribution Agreement wil l provide that, at the t ime of each drawdown notice and at each Settlement Date, Nord ic 'Ni ll make a representation to Dutchess that the Base Shelf "Prospectus"), contains full, true and plain disclosure of all material facts relating to Nordic and the Shares being distributed . Nordic would therefore be unable to issue, or decide to issue, Shares when it is in possession of undisclosed information that would constitute a materia l fact or a material change . 20. On or after each Settlement Date, Dutchess may seek to sell ;:i ll or a port ion of the ShGires subscribed for under the clra1.tVdown 21 . During the term of the Distribution Agreement, Dutchess and its affiliates. associates or insiders, as a group, will not own at any time, directly or indirectly , Shares representing outstanding Shares. 22 . Dutchess and its affil iates, associates or insiders. will not hold a "net short position" in Shares during the term However, Dutchess may, after the rece ipt of a drawdown notice, seek to short-sell Shares to be subscribed for under the drawdown, or engage in hedging strategies, in order to reduce the economic risk associated with its commitment to subscribe (a) Dutchess complies with applicable rules of the Exchange and appl icable securities regulations; (b) Dutchess and its affil iates, associates or insiders, wil l not during the period between a drawdown Settlement Date, directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertib le into or exchangeable for Shares, in an amount exceeding the number of Shares to be subscribed drawdown; and (c) notwithstanding the foregoing, associates or insiders, wi ll not, directly or indirectly, sel l Shares or will be paid by Dutchess in Prospectus, as supplemented (the more than 9.9% of the issued and of the Distribution Agreement. for Shares, provided that: notice and the corresponding by Dutchess under the applicable Dutchess and its affi liates,
grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for Shares, between the time of delivery of a drawdown notice and the filing of the press release announcing the drawdown. 23 . Disclosure of the activities of Dutchess and its affiliates, associates or insiders, as well as the restrictions thereon, the whole as described in paragraph 22 above, will be included in the Base Shelf Prospectus. In addition, Nordic will include in the Base Shelf Prospectus a risk factor that explains that Dutchess may engage in short-sales, resales or other hedging strategies to reduce or eliminate investment risks associated with a drawdown and that such risk factor will disclose the possibility that such transactions may result in significant dilution to existing shareholders and could have a significant effect on the price of the Shares. 24. No extraordinary commission or consideration will be paid by Dutchess or the Manager to a person or company in respect of the disposition of Shares by Dutchess to purchasers who purchase them from Dutchess through the dealer(s) engaged by Dutchess through the Exchange (the "Exchange Purchasers"). 25. Dutchess and the Manager will also agree, in effecting any disposition of Shares, not to engage in any sales. marketing or solicitation activities of the type undertaken by dealers in the context of a public offering. More specifically, each of Dutchess and the Manager will not (a) advertise or otherwise hold itself out as a dealer, (b) purchase or sell securities as principal from or to customers, (c) carry a dealer inventory in securities, (d) quote a market in securities, (e) extend, or arrange for the extension of credit, in connection with transactions of securities of Nordic, (f) run a book of repurchase and reverse repurchase agreements. (g) use a carrying broker for securities transactions, (h) lend securities for customers, (i) guarantee contract performance or indemnify Nordic for any loss or liability from the fai lure of the transaction to be successfully consummated, U) participate in a selling group; (k) effect any disposition of Shares which would not be in compliance with Canadian or United States securities legislation , (I) provide investment advice or (m) issue or originate securities. 26. Dutchess and the Manager will not solicit offers to purchase Shares in any jurisdiction of Canada and will sell the Shares to Exchange Purchasers through one or more dealer(s) unaffiliated with Dutchess, the Manager and Nordic. The Prospectus Supplements 27. Nordic intends to file with the securities regulator in some or all of the
Provinces a prospectus supplement to the 8ase Shelf Prospectus (each, a "Prospectus Supplement") with in two business days after thP. Settlement Date for each drnwdown under the Distribution Agreement. 28. The Prospectus Supplemen t wi ll include (i) the number of Shares issued to Dutchess, (ii) the price per Share paid by Dutchess, (ii i) the information requi red by NI 44-102, including the disclosure required by subsection 9.1( 3) of NI 44-1 02, and (iv) the fo llowing statement: Securities legislation in certa in of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities This right may be ·exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions , revisions of the price or damages if the prospectus and any amendment are not del ivered to thP. purchaser. provided that the remedies for rescission. 1cvisions of the price or dzirm:ig2s are exercised by the purchaser within the time lim it prescribed by the securi ties legislation of the purchaser's province. However, such rights and remedies will not be available to purchasers of common shares distr ibuted under this prospectus because the prospectus will not be delivered to purchasers , as permitted under a decision document issued by the Man itoba Sec urities Commissi on on , , 2010 . The securities legislation further provides a pu rchaser with remedies for rescission or, in some jurisdictions. revisions of the price or damages if the prospectus and any amendment contain a misrepresentation, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser with in the time limit prescribed by the securities legislation of the purchaser's province. Such remedies remain unaffected by the nondel ivery of the prospectus, as permitted under the decision document referred to above. The purchaser should refer to any appl icable provisions of the securities legislation of the purchaser's province for the particulars of these rights or consult with a legal adviser. (the "Amended Statement of Rights") 29. The Base Shelf Prospectus, as supplemented by each Prospectus
Supplement, will (a) qualify the distribution of Shares to Dutchess on the Settlement Date of the drawdown disclosed in the relevant Prospectus Supplement, and (b) qualify the distribution of such Shares to Exchange Purchasers during the period that commences on the date of issuance of a drawdown notice to Dutchess and ends on the eariier of (i) the date on which the distribution of such Shares has ended or (ii) the 40th day following the Settlement Date (collectively, a "Distribution"). 30. The Prospectus Delivery Requirement is not workable in the context of the Distribution because the Exchange Purchasers will not be readily identifiable as the dealer(s) acting on behalf of Dutchess may combine the sell orders made under the Prospectus with other sell orders and the dealer(s) acting on behalf of the Exchange Purchasers may combine a number of purchase orders. 31. The Prospectus Supplement will contain an underwriter's certificate in the form set out in section 2.2 of Appendix B to NI 44-1 02, signed by Dutchess. 32. At least three business days prior to the filing of any Prospectus Supplement, Nordic wiil provide for comment to the Decision Makers a draft of such Prospectus Supplement. Press Re/eases I Continuous Disclosure 33. Following the execution of the Distribution Agreement, Nordic will: i. promptly issue and file a press release on SEDAR disclosing the material terms of the Distribution Agreement, including the Aggregate Commitment Amount; and !L \Mith in ten rl-:>llc -:>~er c-:>irl ovol"• •+;,._..,. ww1 .. 1111f .,,_,,-""'JV \,Al\, ..... I V'"-"'IU """"''-"'V\..4\.IVll , 1. file a copy of the Distribution Agreement on SEDAR; and 2. file a material change report on SEDAR disclosing at a minimum the information required in subparagraph (i) above. 34. Nordic will promptly issue and file a press release on SEDAR upon the issuance of each drawdown notice, regardless of the size of the drawdown, disclosing the aggregate amount of the drawdown, the maximum number of Shares to be issued, the minimum price per Share, if any, the Floor Price as well as the fact that the Base Shelf Prospectus is available on SEDAR and specifying how a copy of this document can be obtained. 35. Nordic will promptly issue and file a press release on SEDAR upon amending the minimum price set forth in a drawdown notice disclosing the
amended minimum pricP. per Share and the maximum number of Shares to be issued 36. Nord ic will: 1. issue and file a press release on SEDAR on, or as soon as practicable after, the last day of the Drawdown Pricing P8riod, disclosing: 1. the number of Shares issued to, and the price per Share paid by, Dutchess; 2 . t11at the Base Shelf Prospectus and the relevant Prospectus Supplemont will be available on SEDAR and specifying how a copy of these documents can be obtained ; and 3. the Amended Statement of Rights; and 11. file a mc:iterial change report on SEDAR within ten days of the Settlement Date, if the relevant Distribution constitutes a material change; under applicable securities legislation. d isclosing at a minimum the information required in subparagraph (i) above . 37 . Nordic will also disclose in its financial statements and management's discussion and analysis filed on SEDAR under National Instrument 51 -102 _ Continuous Oisciosure Obligations, fo r each financ ial period , the number and price of Shares issued to Dutchess pursuant to the Distribution Agreement. Deliveries upon Request 38. Nordic will deliver to the Decision Makers and to the Exchange, upon request, a copy of each drawdown notice delivered by Nordic to Dutchess under the Distribution Agreement. 39. Dutchess and the Manager will provide to the Decision Makers, upon request, full particulars of trading and hedging activities by Dutchess or the Manager (and, if required, trading and hedging activities by their respective affi liates, associa tes or insiders) in relation to securities of Nordic during the term of the Distribution Agreement. Decision Each of the Decision Makers is sa tisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision. The decision of the Decision Makers under the Legisla tion is that the Exemptive Relief Sought is granted provided that:
(a) as it relates to the Prospectus Disclosure Requirement: (i) Nordic comply with the representations in paragraphs 8, 23, 28, 29, 33 , 34, 35, 36 and 38; and (ii) The number of Shares distributed by Nordic under the Distribution Agreement does not exceed , in any 12 month period, 19.9% of the aggregate number of Shares outstanding calculated at the beginning of such period ; (b) As it relates to the Prospectus Delivery Requirement and the Dealer Registration Requirement, Dutchess and/or the Manager, as the case may be, comply with the representations in paragraph 22, 24 , 25, 26, 31 and 39; and (c) This decision will terminate 36 months after the execution of the Distribution Agreement. Chris Besko Deputy Director - Legal The Manitoba Securities Commission
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