Exemption Orders (Discretionary)
GOLDEN RULE RESOURCES LTD.
2001 BCSECCOM 443
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from the registration and prospectus requirements in connection with the distribution of securities by the issuer in settlement of a class action lawsuit filed against the issuer and certain directors – first trades in securities subject to restrictions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 48 and 76
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, BRITISH COLUMBIA, SASKATCHEWAN, MANITOBA, ONTARIO, QUÉBEC, NOVA SCOTIA, NEW BRUNSWICK, PRINCE EDWARD ISLAND AND NEWFOUNDLAND
AND
IN THE MATTER OFTHE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF GOLDEN RULE RESOURCES LTD.
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of Alberta, British Columbia, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland (the “Jurisdictions”) has received an application from Golden Rule Resources Ltd. (“Golden Rule”) for a decision under the securities legislation of the Jurisdictions (the “Legislation”) that the requirements under the Legislation to be registered to trade in a security (the “Registration Requirement”) and to file and obtain a receipt for a preliminary prospectus and a prospectus (the “Prospectus Requirement”) shall not apply to the issuance by Golden Rule of certain securities in settlement of outstanding litigation;
2. AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Alberta Securities Commission is the principal regulator for this application;
3. AND WHEREAS Golden Rule has represented to the Decision Makers that:
3.1 Golden Rule is a corporation incorporated under the Business Corporations Act (Alberta);
3.2 the head office of Golden Rule is in Calgary, Alberta;
3.3 the authorized capital of Golden Rule consists of an unlimited number of common shares (the “Common Shares”);
3.4 26,654,081 Common Shares were issued and outstanding as of February 5, 2001;
3.5 the Common Shares are listed for trading on The Toronto Stock Exchange (the “TSE”) and quoted on the National Association of Securities Dealers OTC Bulletin Board;
3.6 the TSE suspended trading in the Common Shares on February 21, 2001 for failure to meet continuing listing requirements;
3.7 Golden Rule has applied to the Canadian Venture Exchange (“CDNX”) to list the Common Shares on the CDNX. The CDNX is in the process of considering the application;
3.8 Golden Rule is a reporting issuer or the equivalent in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec and Nova Scotia;
3.9 Golden Rule is subject to the reporting requirements under the Securities Exchange Act of 1934 in the United States of America (the “United States”);
3.10 Golden Rule is not in default of any of the requirements of the Legislation;
3.11 on February 23, 1998, Herman Krangel and Lillian Krangel (the “Representative Plaintiffs”) commenced a lawsuit (the “Class Action”) against Golden Rule and certain of its directors (the “Defendants”) in the United States District Court for the Eastern District of Pennsylvania (the “Court”);
3.12 the Representative Plaintiffs brought the Class Action on behalf of all purchasers of Common Shares during the period from October 3, 1996 to May 14, 1997 who suffered damage thereby (the “Plaintiff Class”);
3.13 the Class Action alleged that the Defendants had, among other things, failed to disclose certain facts regarding Golden Rule in violation of applicable securities laws of the United States;
3.14 on November 30, 1999, the Representative Plaintiffs and the Defendants agreed, subject to the approval of the Court, to the settlement of the claims of the Representative Plaintiffs under the Class Action and to the release and discharge of the Defendants (the “Settlement Agreement”);
3.15 the Settlement Agreement provided for the denial by the Defendants of all liability or wrongdoing and the acceptance of such by the Representative Plaintiffs;
3.16 on July 27, 2000, the Court issued an order approving the Settlement Agreement and dismissing the Class Action (the “Order”);
3.17 the terms of the Settlement Agreement will require Golden Rule to:
3.17.1 create an administration fund of up to US$250,000 for the purpose of paying the expenses actually and reasonably incurred by the Representative Plaintiffs in effecting the settlement of the Class Action; and
3.17.2 issue to the members of the Plaintiff Class 1,500,000 Common Shares and 3,000,000 warrants to purchase Common Shares (“Warrants”);
3.18 each Warrant will be exercisable to purchase one Common Share at a price of $0.65 for a period of five years from the date of issuance;
3.19 the Warrants will only be exercisable if the closing price of the Common Shares on the TSE or such other exchange upon which the Common Shares are listed equals or exceeds $0.65 for twenty consecutive trading days priory to their expiry;
3.20 the Common Shares and Warrants will be allocated to members of the Plaintiff Class in accordance with a formula set out in the Settlement Agreement;
3.21 the Settlement Agreement excludes the following entities from the Plaintiff Class:
3.21.1 the Defendants;
3.21.2 members of the immediate family of any individual Defendant;
3.21.3 directors, officers, affiliates and subsidiaries of Golden Rule;
3.21.4 any entity in which any of the above has a controlling interest; and
3.21.5 the legal representatives, heirs, successors or assigns of any of the above;
3.22 prior to the granting of the Order, Golden Rule provided each member of the Plaintiff Class of record with a form of notice (the “Notice”) detailing the history of the Class Action, the terms of the Settlement Agreement and the right of each member of the Plaintiff Class to lodge objections and review documents filed with the Court;
3.23 prior to the granting of the Order, Golden Rule published a summary form of the Notice in the national editions of The Globe and Mail and The Wall Street Journal for the purpose of providing notice of the Class Action and Settlement Agreement to members of the Plaintiff Class who may not have received the Notice;
3.24 prior to the granting of the Order, each member of the Plaintiff Class was afforded the opportunity to voluntarily exclude themselves from the Plaintiff Class and the effect of the Settlement Agreement. No member of the Plaintiff Class requested that they be so excluded;
3.25 there are 154 members of the Plaintiff Class resident in the United States;
3.26 there are 415 members of the Plaintiff Class resident in the Jurisdictions, distributed as follows:
British Columbia 180
Alberta 50
Saskatchewan 23
Manitoba 13
Ontario 60
Québec 45
Nova Scotia 23
New Brunswick 5
Prince Edward Island 3
Newfoundland 13
3.27 1,152,211 Common Shares will be issued to members of the Plaintiff Class resident in the Jurisdictions under the Settlement Agreement, distributed as follows:
British Columbia 86,439
Alberta 314,932
Saskatchewan 23,698
Manitoba 9,666
Ontario 549,692
Québec 86,191
Nova Scotia 50,921
New Brunswick 2,879
Prince Edward Island 1,329
Newfoundland 26,464
3.28 2,257,307 Warrants will be issued to members of the Plaintiff Class resident in the Jurisdictions under the Settlement Agreement, distributed as follows:
British Columbia 172,879
Alberta 629,864
Saskatchewan 47,396
Manitoba 19,356
Ontario 1,099,384
Québec 172,242
Nova Scotia 101,841
New Brunswick 5,758
Prince Edward Island 2,659
Newfoundland 5,928
4. AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
5. AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
6. THE DECISION of the Decision Makers under the Legislation is that the distribution of Common Shares and Warrants to members of the Plaintiff Class under the terms of the Settlement Agreement shall not be subject to the Registration Requirement and the Prospectus Requirement provided that:
6.1 the first trade in a Jurisdiction of Warrants distributed in reliance on this Decision shall be deemed a distribution or primary distribution to public under the Legislation of such Jurisdiction; and
6.2 the first trade in a Jurisdiction of Common Shares distributed in reliance on this Decision and Common Shares acquired upon the exercise of Warrants distributed in reliance on this Decision shall be deemed a distribution or primary distribution to the public under the Legislation of such Jurisdiction (the “Applicable Legislation”) unless:
6.2.1 at the time of the first trade, Golden Rule is and has been a reporting issuer or the equivalent under the Applicable Legislation for the 12 months immediately preceding the trade or, if Golden Rule is not a reporting issuer or the equivalent under the Applicable Legislation, Golden Rule has filed all continuous disclosure documents filed by it in the Jurisdictions in which it is a reporting issuer or the equivalent with the Decision Maker of the Jurisdiction;
6.2.2 no unusual effort is made to prepare the market or create a demand for the Common Shares;
6.2.3 no extraordinary commission or consideration is paid to a person or company in respect of the trade;
6.2.4 if the seller of the securities is an insider or officer Golden Rule, the seller has no reasonable grounds to believe that Golden Rule is in default of any requirement of the Applicable Legislation; and
6.2.5 except in Quebec, the trade is not a trade from the holdings of any person, company or combination of persons or companies that holds a sufficient number of securities of Golden Rule so as to affect materially the control of Golden Rule or more than twenty percent of the outstanding voting securities of Golden Rule, except where there is evidence showing that the holding of those securities does not affect materially the control of Golden Rule.
DATED this 14th day of March, 2001.
Glenda A. Campbell, Vice-Chair John W. Cranston, Member