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 claims dormant – mining claims acquired in an arm’s length transaction – no other assets or liabilities in connection with mining claim acquired – historical financial statements for mining claim not previously prepared – mining claims no longer assets of company – relief granted from subparagraph 4.10(2)(a)(ii) of National Instrument 51-102 – Continuous Disclosure Obligations, subject to condition that Circular is filed on SEDAR. Applicable Legislative Provisions National Instrument 51-102 Continuous Disclosure Requirements, paragraph 4.10(2)(a)
March 22, 2013
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
FOXPOINT CAPITAL CORP. (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 a decision that the requirements of paragraph 4.10(2)(a) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) not apply to the Filer, in so far it would require the Filer to file financial statements for the Telegraph 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
The Filer was incorporated on December 16, 2009. The Filer is a capital pool company whose common shares (Shares) are listed on the NEX board of 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.
The head office of the Filer is located at Suite 200, 83 Yonge Street, Toronto, Ontario, M5C, 1S8.
The Filer is a reporting issuer under the Legislation in each of Ontario, Alberta and British Columbia.
The Filer is not in default of securities legislation in any Jurisdiction.
̶ Telegraph Gold Inc.
Telegraph Gold Inc. (Telegraph) was incorporated on January 29, 2010. Telegraph is a privately held company and is not a reporting issuer in any jurisdiction in Canada.
The Castle Mountain property located in San Bernardino County, California (the Castle Mountain Property) is the only material property of Telegraph.
On January 26, 2011, Telegraph entered into an option agreement, which was later amended on May 30, 2012 (Telegraph Option Agreement) with Lazarus Mining LLC (Lazarus), pursuant to which Telegraph acquired an earn-in option to purchase 75% of Lazarus’ right, title and interest in and to the block of claims known as the Telegraph block (Telegraph Block) and a buy-in option to acquire Lazarus’ remaining 25% ownership stake. The Telegraph Option Agreement provided for the payment of cash consideration and the payment of certain expenditures (to be paid in instalments upon the occurrence of certain events). In addition, it provided for the issuance of certain warrants upon the completion of a going public event. On January 31, 2013, the board of directors of Telegraph decided to terminate the Telegraph Option Agreement pursuant to its terms. On January 28, 2011, Telegraph entered into a purchase agreement with Linda M. Langley pursuant to which Telegraph acquired 100% of the right, title and beneficial interest in and to the block of claims known as the Excelsior block (Excelsior Block) for a total purchase price of US$350,000 (including a US$50,000 deposit paid by Telegraph on the signing of the agreement). On July 6, 2011, Telegraph entered into a purchase agreement with John A. Hamilton, Karen M. Hamilton and Charles B. Kaiser pursuant to which Telegraph acquired 100% of the right, title and beneficial interest in and to the block of claims known as the Mount Vernon block (Mount Vernon Block) (collectively, with the Telegraph Block and Excelsior Block, the Telegraph Property) for a total purchase price of US$350,000 (including a US$25,000 deposit paid by Telegraph on the signing of the agreement). In acquiring the Telegraph Property, Telegraph did not acquire any entity that held claims, but rather acquired the claims directly. Telegraph’s acquisition of the Telegraph Property was conducted at arm’s length and no other assets and no liabilities were transferred or assumed by Telegraph in respect of the acquisition of the Telegraph Property.
Telegraph, Lazarus and Mr. Patrick Fagen (the manager of Lazarus and one of its stakeholders) entered into a settlement agreement dated effective February 18, 2013. The agreement set out the parties rights, responsibilities and obligations following the termination of the Telegraph Option Agreement. In addition, the agreement provided for the transfer to Lazarus of the Excelsior Block and the Mount Vernon Block. Accordingly, the Telegraph Property is no longer an asset of Telegraph.
̶ Qualifying Transaction
On November 5, 2012, the Filer announced that it had entered into an acquisition agreement (the Acquisition Agreement) with its wholly-owned subsidiary, 2308800 Ontario Inc. and Telegraph. Pursuant to the Acquisition Agreement, Telegraph will amalgamate with 2308800 Ontario Inc. and all of the outstanding common shares of Telegraph will be exchanged for Shares on a one for one basis (the Transaction). As a result, 48,290,068 Shares will be issued by the Filer to former Telegraph shareholders, on a non-diluted basis, and the Transaction will be treated as a “reverse takeover” of the Filer. The Acquisition Agreement was amended by a consent and amending agreement dated February 1, 2013.
The Transaction will constitute the Filer’s “qualifying transaction” for the purposes of TSXV Policy 2.4 entitled Capital Pool Companies. The Transaction is an arm’s length transaction but a “related party transaction” for the purposes of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions and, as a result, the Filer will prepare a management information circular (the Circular) in accordance with Form 3B1 of the TSXV.
The Circular will include audited consolidated financial statements for the Filer for the years ended December 31, 2011 and 2010, and interim unaudited consolidated financial statements for the Filer for the interim period ended September 30, 2012. In addition, the Circular will also include audited consolidated financial statements for Telegraph for the years ended December 31, 2011 and 2010, which statements will reflect the acquisition of the Telegraph Property by Telegraph, and interim unaudited consolidated financial statements for Telegraph for the interim period ended September 30, 2012.
The Circular will not contain financial statements for the Telegraph Property as such financial statements have not historically been prepared for the Telegraph Property. The Circular will not contain disclosure with respect to the recommended work program on the Telegraph Property as the board of directors of Telegraph decided to terminate the Telegraph Option Agreement and transfer to a third party the Excelsior Block and Mount Vernon Block. Telegraph’s main focus is on the Castle Mountain Property, its only other property.
The Circular will be filed on SEDAR, together with a technical report for the Castle Mountain Property prepared in compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects.
Paragraph 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].
The 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 Information Required In a Prospectus 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 (as defined in TSXV Policy 2.4) are examples of when a reasonable investor might regard the primary business of the issuer to be the acquired business.
Paragraph 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.
The Filer will be required to file financial statements for the Telegraph Property unless the Requested Relief is granted.
As noted above, Telegraph acquired the Telegraph Property through an arm’s length transaction. The previous owners of the Telegraph Property did not prepare financial statements for the Telegraph Property.
Telegraph acquired only an interest in the mineral claims comprising the Telegraph Property, and did not assume any corporate entity, facilities, employees, machinery or other tangible or intangible assets, nor assume any liabilities of the Telegraph Property. Furthermore, the acquisition of the Telegraph Property by Telegraph was not accounted for as a continuity of interests.
The Telegraph Property did not generate any revenue while owned by Telegraph. The Telegraph Property constituted an exploration property that did not have proven or probable reserves. It was not an operating mine. Furthermore, the Telegraph Property was dormant at the time of the acquisition by Telegraph and had been dormant for the three years prior to the acquisition. No exploration or other activities have been carried on the Telegraph Property by the previous owners that would be relevant for an income statement or a cash flow statement. As a result, the Filer submits that the Telegraph Property should be considered as “dormant”.
In addition, the board of directors of Telegraph decided to terminate the Telegraph Option Agreement pursuant to its terms and the Excelsior Block and Mount Vernon block have been transferred. Telegraph’s main focus is on the Castle Mountain Property, its only other property.
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 Request Relief is granted, provided that the Circular is:
(a) prepared in accordance with representations 11 and 12, and
(b) filed by the Filer on SEDAR within the time period prescribed by paragraph 4.10(2)(b) of NI 51-102 following the conditional acceptance by the TSXV.
”Jo-Anne Matear”
Manager, Corporate Finance
Ontario Securities Commission