Exemption Orders (Discretionary)
CANADIAN ROYALTIES INC.
2001 BCSECCOM 781
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - relief from the prospectus requirement to allow the first trades in securities previously acquired from an issuer under statutory exemptions to be traded on conditions paralleling the SHAIF Rules.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 76
BCI 45-506
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND BRITISH COLUMBIA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF CANADIAN ROYALTIES INC.
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in the provinces of Alberta and British Columbia (the “Jurisdictions”) has received an application from Canadian Royalties Inc. ("CRI") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that certain trades in securities of CRI be exempt, under certain conditions, from the requirement under the Legislation to file and receive a receipt for a prospectus (the “Prospectus Requirement”);
2. AND WHEREAS pursuant to 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 CRI has represented to the Decision Makers that:
3.1 CRI is a corporation incorporated under the Business Corporations Act (Alberta);
3.2 CRI’s head office is located in Calgary, Alberta;
3.3 CRI is a reporting issuer under the Legislation and has been a reporting issuer in Alberta since February 9, 1999;
3.4 CRI is not in default of any of the requirements of the Legislation;
3.5 the authorized capital of CRI consists of an unlimited number of common shares and an unlimited number of preferred shares, of which as of June 11, 2001, there were 12,835,026 common shares (the “Common Shares”) outstanding;
3.6 the Common Shares are listed and posted for trading on the Canadian Venture Exchange Inc. (“CDNX”);
3.7 CRI holds varying interests in over 70 mining properties located in North America (the “CRI Interests”);
3.8 where CRI Interests are held pursuant to certain option or purchase agreements (as the assigned optionor or vendor), it is the optionee (or the purchaser as the case may be), and not CRI, that is entitled to incur exploration and development costs on the CRI Interests;
3.9 CRI’s consolidated audited financial statements for the fiscal year ended December 31, 2000 report revenues of $88,761;
3.10 Novawest Resources Inc. (“Novawest”) is a company:
3.10.1 incorporated under British Columbia charter in 1984;
3.10.2 that is engaged in the business of mining;
3.10.3 that is a reporting issuer in British Columbia; and
3.10.4 whose securities are listed and posted for trading on the CDNX;
3.11 Dumont Nickel Inc. (“Dumont”) is a company:
3.11.1 incorporated under Québec charter in 1998;
3.11.2 that is engaged in the business of mining;
3.11.3 that is a reporting issuer in British Columbia, Alberta, Ontario and Québec; and
3.11.4 whose securities are listed and posted for trading on the CDNX;
3.12 CRI, as assignee under certain agreements (the “Novawest Agreements”) between CRI and Novawest, is entitled to a net smelter return (“NSR”) royalty payment of 3% on all minerals extracted from the mineral properties, including the Phoenix Prospect property, that are subject to the Novawest Agreements (the “Raglan Group”);
3.13 Novawest’s consolidated audited financial statements for the year ended October 31, 2000 report that Novawest incurred $1,428,143 in deferred exploration and development expenditures on the Raglan Group, including $130,088 spent on exploration and development regarding the Phoenix Prospect property;
3.14 as a result of Novawest’s failure to maintain the Phoenix Prospect property in good standing, CRI’s 3% NSR royalty interest in the property has increased and CRI currently owns a 100% interest in the Phoenix Prospect property;
3.15 CRI, as assignee under an agreement (the “Dumont Agreement”) dated April 30, 1998 between CRI and 9061-6616 Quebec Inc. (now called Dumont), is entitled to a NSR royalty payment of 2% on all minerals extracted from the mining properties that are subject to the Dumont Agreement;
3.16 Dumont’s consolidated audited financial statements for the year ended March 31, 2000, report that Dumont incurred $2,030,933 in deferred exploration expenditures on certain properties subject to the Dumont Agreement, including $24,213 spent on exploration and development regarding the Labrador Trough – Due Diligence Prospect, PEM 1002 (“Labrador Trough”) property;
3.17 as of July 13, 2001, Dumont has not filed its consolidated audited financial statements for the year ended March 31, 2001;
3.18 as a result of Dumont’s failure to maintain the Labrador Trough property in good standing, CRI’s 2% NSR royalty interest in the property has increased and CRI currently owns a 100% interest in the Labrador Trough property;
3.19 effective July 11, 2001, CRI entered into subscription agreements with 43 purchasers (the “Purchasers”) under which the Purchasers subscribed for and purchased:
3.19.1 3,500,000 flow through special A warrants exercisable into 3,500,000 common shares and 1,750,000 one year warrants, entitling the holders to acquire 1,750,000 common shares at a price of $0.40 per common share for a period of one year from closing;
3.19.2 666,666 special B warrants exercisable into 666,666 common shares and 666,666 two year warrants, entitling the holders to acquire 666,666 common shares at a price of $0.40 for a period of two years from closing;
3.19.3 16,167 compensation warrants to Yorkton Securities Inc. (the “Agent”), exercisable into 16,167 common shares for a period of one year from closing;
3.19.4 416,666 agents options, exercisable into 416,666 agents warrants which entitle the Agent to acquire 416,666 common shares at a price of $0.40 per share for a one year period from closing; and
3.19.5 75,000 corporate finance warrants, exercisable into 75,000 common shares at no additional cost for a period of one year from the date of closing
(collectively, the “Private Placement”);
3.20 the Private Placement was completed relying on exemptions under the Legislation from the Prospectus Requirement;
3.21 under the Legislation first trades in securities previously acquired under an exemption from the Prospectus Requirement are deemed to be distributions unless, among other things, a 12 month hold period (the “Hold Period”) has elapsed from the relevant dates referred to in the Legislation;
3.22 under the Legislation, the Hold Period can be reduced from 12 months to four months if the issuer distributing the securities is a qualifying issuer (“Qualifying Issuer”) under the Legislation and complies with the terms of the Legislation (the “Applicable Resale Rules”);
3.23 as CRI’s consolidated audited financial statements for the fiscal year ended December 31, 2000 report that CRI did not meet the required revenue or expenditure tests under the Legislation for Qualifying Issuers, CRI does not meet the definition of Qualifying Issuer under the Legislation and cannot rely on the Applicable Resale Rules to reduce the Hold Period regarding the first trades in securities of CRI acquired by the Purchasers under the Private Placement (the “First Trades”); and
3.24 CRI would meet the definition of Qualifying Issuer and be able to rely on the Applicable Resale Rules to reduce the Hold Period regarding the First Trades if CRI had incurred the exploration and development costs incurred by Novawest on the Phoenix Prospect property and Dumont on the Labrador Trough property;
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 pursuant to the Legislation is that the First Trades are exempt from the Prospectus Requirement provided that:
6.1 at the time of the First Trades, CRI:
6.1.1 is a reporting issuer under the Legislation;
6.1.2 has equity securities listed or quoted on a recognized market;
6.1.3 has filed a current annual information form prepared in accordance with the Legislation governing the Applicable Resale Rules together with all supporting documents; and
6.1.4 has filed all documents that it is required to file under the continuous disclosure requirements of the Legislation;
6.2 no unusual effort is made to prepare the market or to create a demand for the securities making up the First Trades;
6.3 no extraordinary commission or other consideration is paid to a person or company other than the vendor of the securities in respect of the First Trades;
6.4 the First Trades are not from the holdings of a control person; and
6.5 a period of at least four months has elapsed from the date of the Private Placement.
DATED this 13th day of July, 2001.
Glenda A. Campbell, Vice-Chair John W. Cranston, Member