Exemption Orders (Discretionary)
THE ZONE ENTERTAINMENT GROUP INC.
2001 BCSECCOM 520
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – an extension of one month to file and mail annual audited financials due to a significant uncertainty that could affect the presentation of the financials on a going concern basis.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 91(1)(b)
Securities Rules, B.C. Reg. 194/97, s. 145
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ALBERTA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF THE ZONE ENTERTAINMENT GROUP INC.
MRRS DECISION DOCUMENT
[para 1]
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia and Alberta (the “Jurisdictions”) has received an application from The Zone Entertainment Group Inc. (the “Corporation”) for a decision under the securities legislation of the Jurisdictions (the “Legislation”) extending to June 20, 2001, the time limit under the Legislation for filing with the securities regulatory authorities in the Jurisdictions and mailing to the registered holders of its securities its audited financial statements for the fiscal year ended December 31, 2000 and auditor’s report thereon (the “2000 Financial Statements”);
[para 2]
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the British Columbia Securities Commission is the principal regulator for this application;
[para 3]
AND WHEREAS the Corporation has represented to the Decision Makers that:
1. the Corporation was incorporated as 725380 Alberta Ltd. by Certificate of Incorporation issued pursuant to the Business Corporations Act (Alberta) (the "ABCA") on January 30, 1997; the Corporation subsequently changed its name to E-Tech Investments Inc. by way of Certificate of Amendment issued pursuant to the ABCA on May 9, 1997;
2. the Corporation became a reporting issuer in Alberta by the issuance of a receipt for a junior capital pool prospectus; the Corporation subsequently acquired The Zone Entertainment Group Inc. as its major transaction and changed its name to The Zone Entertainment Group Inc. by a Certificate of Amendment issued pursuant to the ABCA on April 16, 1999;
3. the Corporation is a reporting issuer in British Columbia and Alberta and is not in default of any requirement of the Legislation;
4. the authorized capital of the Corporation consists of an unlimited number of common shares, of which 5,692,705 were issued and outstanding as of May 10, 2001;
5. the common shares of the Corporation are listed and posted for trading on the Canadian Venture Exchange (“CDNX”);
6. the Corporation recently closed down the business operations of its wholly-owned subsidiaries, the Corporation Bowling Center (Kelowna) Ltd. and the Big River Brew Pub Kelowna Ltd. (collectively the "Kelowna Subsidiaries");
7. in connection with the closing down of the Kelowna Subsidiaries, the landlord has commenced legal action against the Corporation and a related party for the recovery of rent in the amount of $450,000 pursuant to a guarantee under the lease of the Kelowna premises previously occupied by the Kelowna Subsidiaries (the “Lease Guarantee”);
8. the Corporation has also been exposed to contingent obligations of approximately $1.6 million through guarantees of the Kelowna Subsidiaries’ borrowing from both the Royal Bank of Canada and the Deutsche Bank (the “Bank Guarantees”) (the Lease Guarantee and the Bank Guarantees are collectively referred to as the “Guarantees”);
9. the auditors have advised that the potential liability of the Corporation under the Guarantees constitutes significant uncertainty that could affect the basis of presentation of the Corporation as a going concern in the 2000 Financial Statements;
10. the Corporation is awaiting the completion of a legal opinion that will comment upon the potential liability of the Corporation under the Guarantees; if the legal opinion is favourable for the Corporation, then the 2000 Financial Statements will be presented on a going concern basis; if the legal opinion is not favourable for the Corporation, then the 2000 Financial Statements will be presented on a liquidation basis and the 2000 Financial Statements will not be accompanied by an auditor's report;
11. the 2000 Financial Statements are required under the Legislation to be filed with the securities regulatory authorities in the Jurisdictions and mailed to the Corporation’s registered shareholders by May 20, 2001 (the “Financial Disclosure Requirements”); however, the legal opinion will not be completed in time to enable the Corporation to meet these requirements;
12. the legal opinion is expected to be completed within a time period that will permit the auditors to complete the 2000 Financial Statements by June 20, 2001, at the earliest;
13. to file the 2000 Financial Statements prior to obtaining the legal opinion may result in the 2000 Financial Statements being misleading;
[para 4]
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
[para 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;
[para 6]
THE DECISION of the Decision Makers under the Legislation is to extend the time limit with respect to the filing of the 2000 Financial Statements with the securities regulatory authorities in the Jurisdictions and the mailing thereof to the Corporation's registered shareholders until June 20, 2001, provided the Corporation issues a press release disclosing the reasons why it cannot satisfy the Financial Disclosure Requirements.
[para 7]
DATED May 22, 2001.
Derek E. Patterson
Acting Director