POCML 1 Inc. (Re), 2012 CanLII 78000

Headnote

National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – decision granting relief from requirement to file financial statements for mining claims – mining claim dormant – mining claim to be acquired in an arm’s length transaction – no other assets or liabilities with mining claim acquired – historical financial statements for mining claims not previously prepared – relief granted from subsection 4.10(2)(a)(ii) of National Instrument 51-102 – Continuous Disclosure Obligations, subject to condition that filing statement is filed on SEDAR.

Applicable Legislative Provisions

National Instrument 51-102 – Continuous Disclosure Obligations, section 4.10(2)(a).

October 11, 2012

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 POCML 1 Inc. (the Filer)

DECISION

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) for an exemption from the requirements of section 4.10(2)(a) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and Item 5.2 of Form 51-102F3 Material Change Report to file financial statements for the Property (defined below) (the Requested Relief).

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

(i) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and

(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of Alberta and British Columbia (together with Ontario, the Jurisdictions).

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

1The Filer was incorporated on March 15, 2011. The Filer is a capital pool company whose common shares (Shares) are listed on the TSX Venture Exchange (TSXV). As a result, the principal business of the Filer to date has been to identify and evaluate businesses and assets with a view to completing a Qualifying Transaction, as that term is defined in Policy 2.4 of the TSXV Corporate Finance Manual.

2The head office of the Filer is located at 130 King Street West, Suite 2210, Toronto, Ontario.

3The Filer is a reporting issuer under the Legislation in each of Ontario, Alberta and British Columbia.

4The Filer is not in default of securities legislation in any Jurisdiction.

̶ Mason Graphite

5Mason Graphite Corp. (Mason Graphite) was incorporated on March 14, 2012. Mason Graphite is a privately held company and is not a reporting issuer in any jurisdiction in Canada.

6On April 5, 2012, Mason Graphite acquired the claims that comprise the Lac Gueret property (the Property) from Quinto Mining Corporation (Quinto), a subsidiary of Cliffs Natural Resources Inc. (Cliffs), for aggregate consideration of $15,000,000 (to be paid in instalments upon the occurrence of certain events) and the issuance of 2,041,571 warrants of Mason Graphite to Quinto. Mason Graphite’s acquisition of the Property from Quinto was conducted at arm’s length.

7The Property is Mason Graphite’s sole asset. Mason Graphite did not acquire any entity that held claims, but rather acquired the claims directly.

̶ Qualifying Transaction

8On July 16, 2012, the Filer announced that it had entered into an amalgamation agreement (the Amalgamation Agreement) with its wholly-owned subsidiary, 2331417 Ontario Inc. and Mason Graphite. Pursuant to the Amalgamation Agreement, Mason Graphite will amalgamate with 2331417 Ontario Inc. and all of the outstanding common shares of Mason Graphite will be exchanged for Shares on a one for one basis (the Transaction). As a result, 56,896,645 Shares will be issued by the Filer to former Mason Graphite shareholders, on a non-diluted basis, and the Transaction will be treated as a “reverse takeover” of the Filer.

9The Transaction will constitute the Filer’s “qualifying transaction” for the purposes of TSXV Policy 2.4. The Transaction is an arm’s length transaction, and as a result the Filer will prepare a filing statement (the Filing Statement) in accordance with Form 3B2 of the TSXV Corporate Finance Manual.

10The Filing Statement will include audited financial statements for the Filer for the period ending March 31, 2011 and for the year ended March 31, 2012, and unaudited comparative interim financial report for the Filer for the interim period ended June 30, 2012. In addition, the Filing Statement will also include audited financial statements for Mason Graphite for the period from its incorporation to May 31, 2012, which statements will reflect the acquisition of the Property by Mason Graphite.

11The Filing Statement will not contain financial statements for the Property as such financial statements have not historically been prepared for the Property. However, the Filing Statement will contain disclosure with respect to the recommended work program on the Property together with an estimate of corporate and administrative expenses.

12The Filing Statement will be filed on SEDAR, together with a technical report for the Property prepared in compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).

13Subsection 4.10(2)(a) of NI 51-102 provides that if a reporting issuer completes a reverse takeover, it must file the following financial statements for the reverse takeover acquirer, unless the financial statements have already been filed:

(i) financial statements for all annual and interim periods ending before the date of the reverse takeover and after the date of the financial statements included in an information circular or similar document, or under Item 5.2 of the Form 51-102F3 Material Change Report, prepared in connection with the transaction; or

(ii) if the reporting issuer did not file a document referred to in subparagraph (i), or the document does not include the financial statements for the reverse takeover acquirer that would be required to be included in a prospectus, the financial statements prescribed under securities legislation and described in the form of prospectus that the reverse takeover acquirer was eligible to use prior to the reverse takeover for a distribution of securities in the jurisdiction. [emphasis added].

14Item 5.2 of Form 51-102F3 Material Change Report requires a material change report filed in respect of a closing of the Transaction to include, for each entity that results from the Transaction, disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that the entity would be eligible to use.

15The financial statement requirements for a prospectus are found in National Instrument 41-101 General Prospectus Requirements (NI 41-101). Item 32 of Form 41-101F1 requires a prospectus of an issuer to include financial statements of a business acquired by an issuer within three years before the date of the prospectus if a reasonable investor reading the prospectus would regard the primary business of the issuer to be the business acquired. Paragraph 5.3(1) of the Companion Policy to NI 41-101 notes that both a reverse takeover and a qualifying transaction for a Capital Pool Company are examples of when a reasonable investor might regard the primary business of the issuer to be the acquired business.

16Paragraph 8.1(4) of the Companion Policy to NI 51-102 provides guidance regarding the meaning of the term “business”. It notes that the term “business” should be evaluated in light of the facts and circumstances involved:

We generally consider that a separate entity, a subsidiary or a division is a business and that in certain circumstances a smaller component of a company may also be a business, whether or not the business previously prepared financial statements. In determining whether an acquisition constitutes the acquisition of a business, a reporting issuer should consider the continuity of business operations, including the following factors:

(a) whether the nature of the revenue producing activity or potential revenue producing activity will remain generally the same after the acquisition; and

(b) whether any of the physical facilities, employees, marketing systems, sales forces, customers, operating rights, production techniques or trade names are acquired by the reporting issuer instead of remaining with the vendor after the acquisition.

17Accordingly, absent the Requested Relief, the Filer will be required to file financial statements for the Property.

18Mason Graphite acquired the Property through an arm’s length transaction. Neither Cliffs nor Consolidated Thompson Iron Mines Limited (Consolidated Thompson), the previous owner of the Property, prepared financial statements for the Property. In addition, Cliffs did not attribute any value to the Property in its financial statements when it acquired the Property through its acquisition of Consolidated Thompson.

19Mason Graphite acquired only an interest in the mineral claims comprising the Property, and did not assume any corporate entity, facilities, employees, machinery or other tangible or intangible assets, nor assume any liabilities of the Property. Furthermore, the acquisition of the Property by Mason Graphite was not accounted for as a continuity of interests.

20The Property does not currently generate any revenue, and is not expected to generate revenue for some time. The Property constitutes an exploration property that does not have proven or probable reserves. It is not an operating mine. Furthermore, since 2006, no exploration or other activities have been carried on by Cliffs or Consolidated Thompson with respect to the Property that would be relevant for an income statement or a cash flow statement. As a result, the Filer submits that the Property should be considered as “dormant”.

Decision

The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Requested Relief is granted, provided that the Filing Statement is:

(a) prepared in accordance with paragraphs 10 and 11, and

(b) filed by the Filer on SEDAR within the time period prescribed by section 4.10(2)(b) of NI 51-102 following acceptance by the TSXV.