Hmi Nickel Inc. (Re), 2008 CanLII 53874

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – application from subsidiary (Subco) of parent company (Parent) for a decision under section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exempting Subco from the requirements of NI 51-102; for a decision under section 4.5 of Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (MI 52-109) exempting Subco from the requirements of MI 52-109; for a decision under section 121(2)(a)(ii) of the Securities Act (Ontario) exempting the insiders of Subco from the insider reporting requirements of the Act; and for a decision under section 6.1 of National Instrument 55-102 System for Electronic Disclosure by Insiders exempting the insiders of Subco from the requirement to file an insider profile – Subco is a wholly-owned subsidiary of Parent – Subco is a reporting issuer and has warrants outstanding – Warrants entitle holder to acquire common shares of Parent – Warrants do not qualify as “designated exchangeable securities” under exemption in section 13.3 of NI 51-102 – relief granted on conditions substantially similar to the conditions contained in section 13.3. of NI 51-102.

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 107 and 121(2)(a)(ii)

National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1 and 13.3

Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings s. 4.5

National Instrument 55-102 System for Electronic Disclosure by Insiders, s. 6.1

October 21, 2008

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION)

AND

IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF Hmi Nickel Inc. (FORMERLY SKYE RESOURCES INC.) (THE FILER)

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:

(a) the Filer be exempt from continuous disclosure obligations under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and related Legislation (the Continuous Disclosure Requirements);

(b) the Filer be exempt from requirements for the certification of disclosure in annual and interim filings under Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (Ml 52-109) (the Certification Requirements);

(c) the insiders of the Filer be exempt from the requirement to file an insider profile under National Instrument 55-102 System for Electronic Disclosure by Insiders (NI 55-102) (the Insider Profile Requirement) in respect of securities of the Filer; and

(d) the insiders of the Filer be exempt from the insider reporting requirements under the Legislation (the Insider Reporting Requirements) in respect of securities of the Filer,

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer is a corporation existing under the laws of the Province of British Columbia and was formed by the amalgamation (the Amalgamation) of Skye Resources Inc. (Old Skye) and 0828275 B.C. Ltd. (HudBay Subco), which was a wholly-owned subsidiary of HudBay Minerals Inc. (HudBay), pursuant to the plan of arrangement (the Arrangement) between Old Skye, HudBay and HudBay Subco. The Arrangement was completed at 12:01 a.m. (Vancouver time) (the Effective Time) on August 26, 2008 (the Effective Date) under Section 288 of the Business Corporations Act (British Columbia). The Filer’s head office is located at 1 Adelaide Street East, Suite 2501, Toronto, Ontario M5C 2V9. The Filer is authorized to issue an unlimited number of common shares (the New Skye Shares), of which all of the issued and outstanding New Skye Shares are owned by HudBay. As of September 26, 2008, the Filer also had outstanding 3,105,000 common share purchase warrants (the New Skye Warrants) expiring January 26, 2009, each New Skye Warrant currently exercisable at a price of $15.13 into 0.61 of a HudBay Share and cash of $0.001. The Filer has no outstanding securities other than the New Skye Shares and the New Skye Warrants. The Filer is a reporting issuer or the equivalent in each of the Provinces of Canada (the Reporting Issuer Jurisdictions) and the New Skye Warrants are listed and traded on the Toronto Stock Exchange (the TSX) under the symbol “HBM.WT”.
HudBay, the parent company of the Filer, is a corporation existing under the laws of Canada. HudBay is authorized to issue an unlimited number of HudBay Shares and an unlimited number of preference shares, of which, as at September 26, 2008, 152,995,125 HudBay Shares were issued and outstanding. As at September 26, 2008, HudBay also had 22,521 non-listed common share purchase warrants outstanding, each 30 of which are exercisable for one HudBay Share. HudBay is a reporting issuer or the equivalent in each of the Reporting Issuer Jurisdictions and the HudBay Shares are listed and traded on the TSX under the symbol “HBM”.
Immediately prior to the Effective Time, Old Skye was a corporation existing under the laws of British Columbia and had the following issued and outstanding securities:

(a) 63,983,667 common shares (the Old Skye Shares);

(b) 3,531,400 options (the Old Skye Options), each exercisable into one Old Skye Share;

(c) 3,105,000 common share purchase warrants (the Old Skye Warrants) expiring January 26, 2009, each Old Skye Warrant exercisable at a price of $15.13 into one Old Skye Share; and

(d) 146,367.50 deferred share units (the Old Skye DSUs), each whole Old Skye DSU exercisable into one Old Skye Share or the cash equivalent.

Old Skye was a reporting issuer or the equivalent in each of the Reporting Issuer Jurisdictions immediately prior to the Effective Time and the Old Skye Shares and Old Skye Warrants were listed and traded on the TSX under the symbols “SKR” and “SKR.WT.A”, respectively.
Immediately prior to the Effective Time, HudBay Subco was a corporation existing under the laws of British Columbia and was a wholly-owned subsidiary of HudBay.
At the Effective Time, HudBay acquired all of the issued and outstanding Old Skye Shares (other than those held by HudBay) pursuant to the Arrangement.
Under the Arrangement, in addition to other matters, the following occurred as of the Effective Time:

(a) HudBay acquired all of the issued and outstanding Old Skye Shares held by the holders of the Old Skye Shares (the Old Skye Shareholders) (other than HudBay) in exchange for the payment thereto of 0.61 of a HudBay Share and $0.001 in cash for each Old Skye Share and HudBay was recorded as the registered holder of the Old Skye Shares so transferred and was deemed to be the legal owner of such Old Skye Shares;

(b) each Old Skye Option outstanding immediately prior to the Effective Time, whether or not vested, was exchanged for an option (a Converted HudBay Option) of HudBay to acquire (on the same terms and conditions as were applicable to such Old Skye Option immediately before the Effective Time under the Skye stock option plan and the agreement evidencing the grant except to the extent that such Converted HudBay Option will expire on the expiry date for such option) 0.61 of a HudBay Share (rounded down to the nearest whole number). The exercise price per HudBay Share subject to such Converted HudBay Option was adjusted in accordance with the terms of the Arrangement;

(c) the Old Skye DSU Plan was amended, as of the Effective Time, to provide that each outstanding Old Skye DSU shall thereafter relate to 0.61 of a HudBay Share, all references to “Shares” in the Old Skye DSU Plan were deemed to be references to HudBay Shares or to the number of HudBay Shares so determined and such other changes were made to give effect to the foregoing and to ensure that it qualifies as a plan described in regulation 6801(d) under the Income Tax Act (Canada). The Old Skye DSUs have subsequently been settled for cash and are no longer outstanding;

(d) each Old Skye Share held by HudBay, including the Old Skye Shares acquired pursuant to the Arrangement, were transferred to HudBay Subco in consideration of the issue by HudBay Subco to HudBay of one common share (a Subco Share) of HudBay Subco for each Old Skye Share so transferred;

(e) Old Skye and HudBay Subco amalgamated to form one corporate entity, the Filer; and

(f) HudBay received on the Amalgamation one New Skye Share in exchange for each Subco Share previously held and all of the issued and outstanding Old Skye Shares were cancelled.

On August 26, 2008, 31,295,685 additional HudBay Shares were listed and posted for trading on the TSX as a result of the Arrangement, and 4,048,204 HudBay Shares were reserved for issuance upon exercise of the New Skye Warrants and the Converted HudBay Options. The Old Skye Shares and Old Skye Warrants were delisted from the TSX at the close of business on August 27, 2008. The New Skye Warrants commenced trading on the TSX at the opening of business on August 28, 2008.
The Arrangement was approved at a special meeting of Old Skye Shareholders, holders of Old Skye Options and holders of Old Skye DSUs held on August 19, 2008, and the Supreme Court of British Columbia granted its final approval of the Arrangement on August 22, 2008.
On completion of the Arrangement, the Filer became a reporting issuer as Old Skye, one of the amalgamating companies, was a reporting issuer for a period of at least twelve months prior to the Amalgamation. Consequently, as a result of the Arrangement, the Filer is required to comply with the Continuous Disclosure Requirements and Certification Requirements.
Upon completion of the Arrangement, the Old Skye Warrants became the New Skye Warrants, which are the only securities of the Filer that are held publicly held.
Pursuant to the terms of the indenture governing the Old Skye Warrants (the Indenture), each holder of an Old Skye Warrant outstanding immediately prior to the Effective Date became entitled upon completion of the Arrangement, to receive, upon the exercise of such holder’s warrant, for the same aggregate consideration payable for the Old Skye Warrants (being $15.13 per warrant) in lieu of each Old Skye Share to which such holder was previously entitled, 0.61 of a HudBay Share plus $0.001 cash for each Old Skye Warrant, subject to adjustment.
In accordance with the terms of the Indenture, HudBay and the Filer entered into a supplemental warrant indenture (the Supplemental Indenture) dated as of the Effective Date whereby the Filer covenanted, acknowledged and agreed, among other things, that it remains liable for, and shall continue to perform its obligations under the Indenture.
Pursuant to the terms of the Supplemental Indenture, HudBay covenanted, acknowledged and agreed, among other things, that it is liable for, and shall perform the obligations of the Filer under the Indenture with respect to the issuance of HudBay Shares on the exercise of the New Skye Warrants.
The Indenture included a covenant of Old Skye that it would remain a reporting issuer in such of the provinces of Canada in which Old Skye was a reporting issuer for so long as the Old Skye Warrants remained outstanding. The same covenant applies to the New Skye Warrants.
Neither the terms of the Indenture or the Supplemental Indenture include any obligation of Old Skye or any successor thereof such as the Filer to deliver to holders of warrants any continuous disclosure materials of Old Skye or its successor.
However, as a consequence of remaining a reporting issuer, the Filer is required to prepare financial statements and other continuous disclosure materials pursuant to NI 51-102.
The Filer cannot rely on the exemption available in section 13.3 of NI 51-102 for issuers of exchangeable securities because the New Skye Warrants are not "designated exchangeable securities" as defined in NI 51-102. The New Skye Warrants do not provide their holders with voting rights in respect of HudBay.
The Filer has no intention of accessing the capital markets in the future by issuing any further securities to the public, and has no intention of issuing any securities other than those that were outstanding on completion of the Arrangement.
The Filer and HudBay are not in default of any requirement under securities legislation in the Reporting Issuer Jurisdictions.
It is the continuous disclosure information relating to HudBay, and not to the Filer, that is of importance to holders of New Skye Warrants as the New Skye Warrants are exercisable into HudBay Shares, along with a nominal amount of cash. In addition, the Filer became a wholly-owned subsidiary of HudBay on completion of the Arrangement. HudBay will consolidate the Filer with HudBay for purposes of financial statement reporting. As such, the disclosure required by the Continuous Disclosure Requirements and the Insider Reporting Requirements would not be meaningful or of any significant benefit to the holders of the New Skye Warrants and would impose a significant cost on the Filer.

Decision

The principal regulator is satisfied that the decision meets the test contained in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

in respect of the Continuous Disclosure Requirements,

(a) HudBay is the beneficial owner of all of the issued and outstanding voting securities of the Filer;

(b) HudBay is a reporting issuer in a designated Canadian jurisdiction (as defined in NI 51-102) and has filed all documents it is required to file under NI 51-102;

(i) the New Skye Warrants;

(ii) securities issued to and held by HudBay or an affiliate of HudBay;

(iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or

(iv) securities issued under exemptions from the registration requirement and prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions;

(d) the Filer files in electronic format,

(i) a notice indicating that it is relying on the continuous disclosure documents filed by HudBay and setting out where those documents can be found in electronic format; or

(ii) copies of all documents HudBay is required to file under securities legislation, other than in connection with a distribution, at the same time as the filing by HudBay of those documents with a securities regulatory authority or regulator;

(e) the Filer concurrently sends to all holders of the New Skye Warrants all disclosure materials that would be required to be sent to holders of any similar warrants of HudBay in the manner and at the time required by securities legislation;

(f) HudBay

(i) complies with Canadian securities legislation in respect of making public disclosure of material information on a timely basis; and

(ii) immediately issues in Canada and files any news release that discloses a material change in its affairs; and

(g) the Filer issues in Canada a news release and files a material change report in accordance with Part 7 of NI 51-102 for all material changes in respect of the affairs of the Filer that are not also material changes in the affairs of HudBay.

in respect of the Certification Requirements,

(a) the Filer is not required to, and does not, file its own interim filings and annual filings (as those terms are defined under MI 52-109);

(b) the Filer files in electronic format under its SEDAR profile either (i) copies of HudBay's annual certificates and interim certificates at the same time as HudBay is required under Ml 52-109 to file such documents; or (ii) a notice indicating that it is relying on HudBay’s annual certificates and interim certificates and setting out where those documents can be found for viewing on SEDAR; and

(c) the Filer is exempt from or otherwise not subject to the Continuous Disclosure Requirements and the Filer and HudBay are in compliance with the conditions set out in paragraph 1 above.

in respect of the Insider Profile Requirement and the Insider Reporting Requirements,

(a) if the insider is not HudBay,

(i) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning HudBay before the material facts or material changes are generally disclosed; and

(ii) the insider is not an insider of HudBay in any capacity other than by virtue of being an insider of the Filer;

(b) HudBay is the beneficial owner of all of the issued and outstanding voting securities of the Filer;

(c) if the insider is HudBay, the insider does not beneficially own any New Skye Warrants other than securities acquired through the exercise of the New Skye Warrants and not subsequently traded by the insider;

(d) HudBay is a reporting issuer in a designated Canadian jurisdiction (as defined in NI 51-102); and

(e) the Filer has not issued any securities, and does not have any securities outstanding, other than:

(i) the New Skye Warrants;

(ii) securities issued to and held by HudBay or an affiliate of HudBay;

(iv) securities issued under exemptions from the registration requirement and prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions; and

(f) the Filer is exempt from or otherwise not subject to the Continuous Disclosure Requirements and the Filer and HudBay are in compliance with the conditions set out in paragraph 1 above.

As to the Exemption Sought (other than from the statutory Insider Reporting Requirements):

“Margo Paul” Director, Corporate Finance

As to the Exemption Sought from the statutory Insider Reporting Requirements:

“David L. Knight” Commissioner Ontario Securities Commission

“Paul K. Bates” Commissioner Ontario Securities Commission