Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – An issuer proposes to complete a reverse take-over transaction with a target company – The proposed transaction, if completed, will serve as the issuer’s qualifying transaction under Policy 2.4 Capital Pool Companies of the TSX Venture Exchange (TSXV) – In connection with the transaction, target company will also complete an acquisition of mining claims (Property) from a vendor - The issuer applied for relief from the requirements in section 4.10(2)(a)(ii) of National Instrument 51-102 Continuous Disclosure Obligations and Item 5.2 of Form 51-102F3 Material Change Report to file historical audited annual financial statements of the Property – Mineral claims comprising the Property were held in various entities within the vendor’s group of companies and the expenses for those claims were also incurred in various legal entities – Vendor has not prepared historical financial statements for the Property or for the vendor – Vendor has represented that historical financial statements in compliance with IFRS would be difficult if not impossible to prepare – Issuer to provide alternative financial disclosure of Property - Relief granted, subject to conditions. Applicable Legislative Provisions National Instrument 51-102 Continuous Disclosure Obligations, section 4.10(2)(a)(ii). Form 51-102F3 Material Change Report, Item 5.2.
February 1, 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
ANDOR MINING INC.
(Andor or 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 in subparagraph 4.10(2)(a)(ii) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and item 5.2 of Form 51-102F3 Material Change Report (Form 51-102F3) to file audited annual financial statements for each of the three most recently completed financial years for the Property (defined below) (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 (the Principal Regulator), 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 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 meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Filer
The Filer was incorporated under the Business Corporations Act (Ontario) on January 4, 2011. The Filer is a capital pool company whose common shares (Andor 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. The Filer’s financial year end is December 31.
The head office of the Filer is located at 50 Richmond Street East, Suite 101, Toronto, Ontario, M5C 1N7.
The Filer is a reporting issuer under the Legislation in each of the Jurisdictions and is not in default of securities legislation in any Jurisdiction.
Trident
Trident Gold Corp (Trident) was incorporated under the Canada Business Corporations Act on November 30, 2010. Entities in the Trident group of companies commenced operations on June 9, 2010. Trident’s financial year end is December 31. Trident is a privately held company and is not a reporting issuer in any jurisdiction in Canada. Trident is not in default of securities legislation in any jurisdiction.
On October 12, 2011, Trident Gold Corporation N.V., a wholly-owned subsidiary of Trident organized under the laws of Curaçao, entered into an option agreement (the Option Agreement) with Bullet Holding Corp. (Bullet), a privately held corporation organized under the laws of Panama. Pursuant to the Option Agreement, Trident was granted the right to acquire up to a 51% interest in certain mineral claims that comprise the Marquesa Gold Project (the Property) for aggregate consideration of $2,000,000, to be paid to Bullet or as expenditures on the Property in accordance with the Option Agreement. To date, Trident has earned a 49% interest in the Property.
Pursuant to an agreement dated December 31, 2012 (the Share Exchange Agreement), Bullet has agreed to transfer its remaining 51% interest in the Property to Trident in exchange for such number of common shares of Trident (Trident Shares) as will result in Bullet holding 51% of the issued and outstanding Trident Shares immediately prior to the completion of the Qualifying Transaction, and such number of share purchase warrants of Trident (Trident Warrants) as will result in Bullet holding Trident Warrants representing 51% of the aggregate number of Trident Warrants and options to acquire Trident Shares outstanding immediately prior to the completion of the Qualifying Transaction. Upon completion of this transaction, Trident will own a 100% beneficial interest in the Property.
The negotiation of the Option Agreement and the Share Exchange Agreement and Trident’s acquisition of the Property was conducted at arm’s length. At the time of the Qualifying Transaction, the Property will be Trident’s sole asset.
Qualifying Transaction
On November 8, 2012, the Filer entered into an amalgamation agreement, amended as of December 6, 2012 (the Amalgamation Agreement) with its wholly-owned subsidiary, 2302557 Ontario Inc. and Trident. Pursuant to the Amalgamation Agreement, Trident will amalgamate with 2302557 Ontario Inc. and all of the outstanding Trident Shares will be exchanged for Andor Shares on the basis of one Andor Share for every 10.75 Trident Shares (the Transaction), after giving effect to the consolidation of the Andor Shares on a 0.220:1 basis. The outstanding Trident Warrants and Trident Options will also be exchanged for warrants and options of Andor on a 1:10.75 basis.
Upon completion of the Transaction, Andor (the Resulting Issuer) will carry out the business previously carried out by Trident, being the exploration and development of the Property.
The Transaction will be a “reverse takeover” as defined in NI 51-102 and will serve as the Filer's “qualifying transaction” under TSXV Policy 2.4 Capital Pool Companies. In connection with the qualifying transaction, the Filer will be filing its filing statement (the Filing Statement) in the form of Form 3B2 Information Required in a Filing Statement for a Qualifying Transaction (TSXV Form 3B2) pursuant to the policies of the TSXV. TSXV Form 3B2 requires disclosure of financial statements of the Filer and Trident prescribed by National Instrument 41-101 General Prospectus Requirements (NI 41-101) and Form 41-101F1 Information Required in a Prospectus (Form 41-101F1). In addition to applying to the Principal Regulator for the Exemption Sought, the Filer has also applied to the TSXV for a waiver from the equivalent financial statement requirements in TSXV Form 3B2.
Historical Financial Statements
- The Filer will include in the Filing Statement the following financial statements (the Filer Financial Statements):
(a) audited annual financial statements of the Filer for the period from incorporation on January 4, 2011 to December 31, 2011;
(b) unaudited (reviewed) interim financial statements of the Filer for the nine-month period ended September 30, 2012 (with comparatives); and
(c) pro forma financial statements of the Filer required by item 48 of TSXV Form 3B2, including a pro forma balance sheet as at the date of the Filer’s most recent balance sheet (September 30, 2012) included in the Filing Statement as if the acquisition had taken place as at that date.
The Filer will be relying on the exception contained in item 48.2 of TSXV Form 3B2 and will not be including a pro forma income statement of the Filer in the Filing Statement.
- Trident will include in the Filing Statement the following financial statements (the Trident Financial Statements):
(a) audited annual consolidated financial statements of Trident for (i) the period from incorporation of the first entity in the Trident Group on June 9, 2010 to December 31, 2010 and (ii) the twelve-month period ended December 31, 2011; and
(b) unaudited (reviewed) consolidated interim financial statements for Trident for the nine-month period ended September 30, 2012.
- Subsection 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]
Item 5.2 of Form 51-103F3 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.
The financial statement requirements for a prospectus are found in NI 41-101 and Form 41-101F1. Item 32.1 of Form 41-101F1 includes the following requirements:
The financial statements of an issuer required under this item to be included in a prospectus must include:
(a) the financial statements of any predecessor entity that formed, or will form, the basis of the business of the issuer, even though the predecessor entity is, or may have been, a different legal entity, if the issuer has not existed for 3 years,
(b) the financial statements of a business or businesses acquired by the issuer within 3 years before the date of the prospectus or proposed to be acquired, if a reasonable investor reading the prospectus would regard the primary business of the issuer to be the business or businesses acquired, or proposed to be acquired, by the issuer, [emphasis added] and
(c) …
Subsection 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.
As the Property will be the sole asset of the Resulting Issuer upon completion of the Qualifying Transaction, it may be concluded that a reasonable investor would regard the Property as the primary business of Trident. Accordingly, absent the Exemption Sought, the Filer will be required to file audited financial statements for the Property in accordance with item 32.2 of Form 41-101F1 including, inter alia, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows for certain periods preceding the acquisition of the Property by Trident.
Trident acquired the Property from Bullet through arm’s length negotiations. No other assets were transferred nor were any liabilities assumed by Trident in connection with the acquisition of the Property.
Bullet, the prior owner of the Property, has not prepared historical financial statements for the Property or for the Bullet group of companies generally. The mineral claims comprising the Property were held by various entities within the Bullet group of companies and the expenses for those claims were also incurred in various different legal entities. Consequently, it would be extremely difficult, if not impossible, for Bullet to prepare financial statements for the mineral claims comprising the Property. Bullet is certain that it could not prepare accurate historical financial statements in compliance with IFRS.
Further, Bullet has confirmed that even if historical financial statements of the group were prepared, a combination of the following factors would render the audit of Bullet annual financial statements, consisting of an income statement, a statement of retained earnings and a cash flow statement for the twelve-month period ended December 31, 2009, the twelve-month period ended December 31, 2010 and the period from January 1, 2011 to October 11, 2012, extremely difficult if not impossible to conduct as:
(a) stand-alone group or individual IFRS compliant financial statements were not prepared for the Bullet group or the relevant subsidiaries, as indicated in paragraph 19;
(b) for the twelve-month period ended December 31, 2009, the twelve-month period ended December 31, 2010 and for the period January 1, 2011 to October 11, 2012, Bullet has confirmed that although basic source documents for these periods may exist, it would be extremely difficult if not impossible to locate sufficient source documentation in the degree necessary to conduct a “stand alone audit”, and it is not possible to obtain detailed supporting analysis, including but not limited to, objective external evidence with respect to (i) Bullet general assets (for clarification not allocable to any particular project) on hand at these points in time (including fixed assets and consumables, which require physical verification), (ii) cut off procedures for the Bullet group of companies as a whole, (iii) stage of exploration and development and potential liabilities of other properties within the extensive Bullet portfolio of properties, and (iv) allocating assets (capitalization of costs), liabilities, and expenses to the respective entities or group for that matter; and
(c) a significant number of management and staff of Bullet during the periods in question are no longer employed by Bullet and are thus not available to answer audit questions or help reconstruct related supporting information. As Bullet is a complex group with multiple ongoing projects at any one time, reliance on these management and staff would be required to satisfy an auditor in connection with an audit of financial statements.
- In lieu of audited financial statements containing the requirements specified in item 32.2 of Form 41-101F1 as identified in paragraph 17 above, the Filer will include in the Filing Statement the following (the Proposed Financial Disclosure):
(a) an audited statement of exploration expenditures (expensed) for the Property with related notes for the following periods:
(i) the twelve month-period ended December 31, 2009;
(ii) the twelve month-period ended December 31, 2010; and
(iii) the period from January 1, 2011 to October 11, 2011, being the date prior to the entering into of the Option Agreement and the formation of the joint venture between Trident and Bullet; and
(b) disclosure of the estimated future overhead expenditures to be incurred by the Resulting Issuer on the Property.
The Filer Financial Statements, the Trident Financial Statements and the Proposed Financial Disclosure, together with the other disclosure prescribed by TSXV Form 3B2, will provide disclosure of all material facts relating to the Filer, Trident, the Resulting Issuer and the Property and will contain sufficient information to permit investors to make a reasoned assessment of the Resulting Issuer’s business following completion of the Transaction.
In connection with the Transaction and pursuant to the requirements of the TSXV, Trident has submitted a technical report prepared by GeoServa Exploration Ltd. on the Property dated December 13, 2012 (the Technical Report) to the TSXV. The Technical Report complies with the requirements in National Instrument 43-101 Standards of Disclosure for Mineral Projects.
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 Exemption Sought is granted provided that:
the Filing Statement includes the Proposed Financial Disclosure; and
the Filing Statement and the Technical Report are filed on SEDAR forthwith following acceptance by the TSXV.
“Shannon O’Hearn”
Manager, Corporate Finance
Ontario Securities Commission