ARC Energy Venture Fund 4 and ARC Energy Fund 5 have applied to the Alberta and Ontario securities commissions to seek an order to address the “improper” effects that a private placement by Profound Energy Inc. to Paramount Energy Trust, issued in connection with Paramount’s take-over bid for Profound, will have on the voting results in a second stage amalgamation transaction, ARC Financial Corp. said Tuesday.

The funds are seeking orders from the regulators to restrict Paramount’s ability to vote the shares it acquired in the private placement, which Paramount has indicated it will vote in order to reach the threshold to approve the amalgamation.

The funds are pursuing the application “in defence of the rights of shareholders of Profound, which have been circumvented by the inappropriate structure and tactics used in this transaction. As this transaction could set a harmful precedent, the ARC Funds are also more generally acting in defence of the established rules governing corporate acquisitions in Canada,” ARC stated.

The funds together hold more than 11.5 million shares of Profound, which constituted approximately 31% of the outstanding shares of Profound prior to the private placement to Paramount.

On March 31, 2009, Paramount and Profound jointly announced the signing of a support agreement, pursuant to which Paramount made a take-over bid for all of the outstanding shares of Profound, for a combination of cash and Paramount trust units, valued at that time at $1.34 per Profound share. In connection with the bid, Profound issued a private placement provided exclusively to Paramount, through the issuance of special warrants priced at 75¢ and convertible one-for-one into Profound common shares, which, upon conversion represented a pro forma 19.9% ownership interest in Profound. Concurrently, Profound adopted a shareholder rights plan, which restricted the acquisition of 20% or more of the shares of Profound, and severely limited purchases by existing shareholders with an interest already above 20%.

The ARC funds believe that Paramount should not be permitted to vote the newly issued private placement shares in favour of the amalgamation.

“If the transaction is allowed to proceed without a restriction placed on the voting of the private placement shares (or other equivalent restrictions), then the tactics used by Profound and Paramount will have had a detrimental and irreversible effect on the rights of the shareholders of Profound,” ARC said.

Calgary-based ARC Financial Corp. is an energy-focused private equity firm with approximately $2.7 billion under management across the six ARC Energy Funds.

IE