Ivory Energy Inc. - MRRS Decision

Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - variation of previous decision for relief granted from the requirement to provide audited financial statements in a business acquisition report on the condition that acceptable alternative disclosure is provided.

Applicable Legislative Provisions

National Instrument 51-102, Part 8, s. 13.1.

Citation: Ivory Energy Inc., 2008 ABASC 28

January 17, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

IVORY ENERGY INC.

(THE FILER)

 

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) varying a previously-issued MRRS decision document dated November 14, 2007 (a copy of which is attached as Schedule A hereto) (the Prior Decision) so as to remove as a condition to the relief provided therein the requirement that certain of the financial information to be included in a business acquisition report (BAR) be audited, such that pursuant to that prior decision, as varied by this decision, the Filer is exempted from the requirement to include in the BAR certain financial information in respect of a significant acquisition made by the Filer, on the condition that the Filer include in the BAR certain alternative financial information, all as more particularly described below (the Requested Relief).

Principal Regulator System

2. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Alberta Securities Commission is the principal regulator for the Filer;

(b) the Filer is relying on the exemption in Part 3 of MI 11-101 in British Columbia, Saskatchewan and Manitoba; and

(c) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

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

(a) The Filer is a corporation amalgamated under the Business Corporations Act (Alberta). Its head office is located in Calgary, Alberta.

(b) The Filer is an independent oil and gas company engaged in the business of exploring for, developing, and producing petroleum and natural gas reserves in Alberta and Saskatchewan.

(c) The Filer is a reporting issuer in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba and Ontario and is not, to its knowledge, in default of its obligations as a reporting issuer under the securities legislation of such provinces other than the requirement to have filed a BAR in respect of the Acquisition (as defined below) on or before November 16, 2007.

(d) On July 19, 2007, the Filer indirectly acquired certain oil and gas properties and related assets (the Assets) from Empire Resources Inc. (the Vendor) by purchasing all of the issued and outstanding shares of a corporation organized to facilitate the acquisition in a manner that achieved certain tax and commercial efficiencies for the Vendor (the Acquisition).

(e) The Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102). Accordingly, the Filer is required under section 8.2 of NI 51-102 to file a BAR in respect of the Acquisition containing the information prescribed in Form 51-102F4.

(f) The Vendor is a private company and is not, to the Filer's knowledge after due inquiry, a reporting issuer (or the equivalent) in any jurisdiction.

(g) On November 14, 2007, the Filer obtained exemptive relief from the Decision Makers with respect to the financial information to be included in the BAR that the Filer is required to file in respect of the Acquisition.

(h) The particulars of the relief previously granted are set forth in the Prior Decision, which requires as a condition thereto that the BAR include the following information in lieu of the financial statements and other information required pursuant to Item 3 of Form 51-102F4:

(i) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the years ended June 30, 2006 and 2005;

(ii) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 and an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2005;

(iii) an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended June 30, 2007;

(iv) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the year ended December 31, 2006 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(v) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the six months ended June 30, 2007 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(vi) a description of the Assets and disclosure regarding the annual oil and gas production volumes from the Assets, as contemplated in clauses 8.10(3)(e)(iii) and (iv) of NI 51-102; and

(vii) information regarding estimated reserves and related future net revenue attributable to the Assets and estimated oil and gas production volumes therefrom, as contemplated in paragraph 8.10(3)(g) of NI 51-102

(collectively, the Alternative Financial Disclosure).

(i) In order to obtain an auditor's report on the schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 (the December 2006 Information) as contemplated in clause 4(h)(ii) above, the Filer requires access to the records and personnel of the Vendor.

(j) Subsequent to the form of the Prior Decision having been determined, the Vendor advised the Filer that it cannot assemble the historical accounting records and other information necessary to complete an audit of the December 2006 Information. More particularly, the Filer has been advised that after closing of the Acquisition the Vendor ceased operations and dismantled its administrative infrastructure, which included terminating all accounting and other administrative staff arrangements, giving up its office premises, and transferring all historical financial records to an offsite, out-of-town storage facility.

(k) The Filer has made every reasonable effort to obtain access to, or copies of, the historical accounting records and other information necessary to audit the December 2006 Information.

(l) Accordingly, the Filer is unable to satisfy the condition set forth in the Prior Decision regarding the inclusion of audited (versus unaudited) December 2006 Information in the Alternative Financial Disclosure.

(m) Although the Filer does not have access to the justificatory material needed to complete an audit of the December 2006 Information, the information itself is available to the Filer in reviewed form. A reviewed schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 was prepared in connection with the financing and completion of the Acquisition, was included in the short form prospectus of the Filer dated July 11, 2007, and will be included in the BAR that the Filer files in respect of the Acquisition.

(n) In light of the above circumstances, the Filer proposes to include in the BAR to be filed in respect of the Acquisition:

(i) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the years ended June 30, 2006 and 2005;

(ii) an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 and 2005;

(iii) an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended June 30, 2007;

(iv) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the year ended December 31, 2006 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(v) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the six months ended June 30, 2007 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(vi) a description of the Assets and disclosure regarding the annual oil and gas production volumes from the Assets, as contemplated in clauses 8.10(3)(e)(iii) and (iv) of NI 51-102; and

(vii) information regarding estimated reserves and related future net revenue attributable to the Assets and estimated oil and gas production volumes therefrom, as contemplated in paragraph 8.10(3)(g) of NI 51-102

(collectively, the Revised Financial Disclosure).

(o) The only difference between the Alternative Financial Disclosure contemplated by the Prior Decision and the Revised Financial Disclosure contemplated herein is that the December 2006 Information will not be audited.

(p) The Filer has confirmed, after having made due inquiries of the Vendor and the Filer's chief financial officer, that it will be able to provide the Revised Financial Disclosure.

(q) Except as modified by the information set forth in paragraph 4(c) and by the fact that the Filer proposes to include in the BAR the Revised Financial Disclosure as set forth in paragraph 4(n) above instead of the Alternative Financial Disclosure contemplated by the Prior Decision, all of the facts represented by the Filer in the Prior Decision remain true.

(r) The Filer seeks a decision of the Decision Makers under the Legislation varying the Prior Decision so as to remove as a condition to the relief provided therein the requirement that the December 2006 Information be audited, such that pursuant to the Prior Decision, as varied by this decision, Ivory is exempted from the requirement to include in the BAR to be filed in respect of the Acquisition the financial statements and other information required pursuant to Item 3 of Form 51-102F4, provided that the BAR includes the Revised Financial Disclosure.

(s) The Filer acknowledges that any rights of action available to any person or company or securities regulatory authority against the Filer from the date on which the default occurred until the date of the filing of the BAR in accordance with this decision document are not terminated or altered as a result of this decision.

Decision

5. The Decision Makers being satisfied that they have jurisdiction to make this decision and that the relevant test under the Legislation has been met, the decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Filer includes the Revised Financial Disclosure in the BAR to be filed in respect of the Acquisition.

"Blaine Young"
Associate Director, Corporate Finance
Alberta Securities Commission

 

SCHEDULE A

Citation: Ivory Energy Inc., 2007 ABASC 838

November 14, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

IVORY ENERGY INC.

(THE FILER)

 

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement to include in a business acquisition report (BAR) certain financial information in respect of a significant acquisition made by the Filer, on the condition that the Filer include in the BAR certain alternative financial information as more particularly described below (the Requested Relief).

Principal Regulator System

2. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Alberta Securities Commission is the principal regulator for the Filer;

(b) the Filer is relying on the exemption in Part 3 of MI 11-101 in British Columbia, Saskatchewan and Manitoba; and

(c) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

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

(a) The Filer is a corporation amalgamated under the Business Corporations Act (Alberta). Its head office is located in Calgary, Alberta.

(b) The Filer is an independent oil and gas company engaged in the business of exploring for, developing, and producing petroleum and natural gas reserves in Alberta and Saskatchewan.

(c) The Filer is a reporting issuer in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba and Ontario and is not, to its knowledge, in default of its obligations as a reporting issuer under the securities legislation of such provinces.

(d) The Filer is a "venture issuer" within the meaning of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).

(e) On March 15, 2007, a wholly-owned subsidiary of the Filer entered into a share purchase and sale agreement (as amended on May 23, 2007, the Acquisition Agreement) with Empire Resources Inc. (the Vendor) providing for the indirect acquisition (the Acquisition) by the Filer of certain oil and gas properties and related assets (the Assets). The Acquisition closed on July 19, 2007 with an effective date of March 1, 2007 for purchase price or working capital adjustment purposes.

(f) Pursuant to the Acquisition Agreement, the Filer acquired 100% of the issued and outstanding shares (the AcquisitionCo Shares) of 101091129 Saskatchewan Ltd. (AcquisitionCo), a corporation incorporated for the purpose of facilitating the Acquisition.

(g) Subsequent to the entering into of the Acquisition Agreement and prior to the closing of the Acquisition, the Vendor transferred the Assets to AcquisitionCo. Accordingly, at the time of closing the Assets were held by AcquisitionCo.

(h) The transfer of the Assets from the Vendor to AcquisitionCo was made for the purpose of facilitating the Acquisition in a manner that achieved certain tax and commercial efficiencies for the Vendor.

(i) The Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102. Accordingly, the Filer is required under section 8.2 of NI 51-102 to file a BAR in respect of the Acquisition.

(j) Substantially concurrently with the closing of the Acquisition, the Filer completed the purchase of all of the issued and outstanding shares of Zenith Petroleum Corp.

(k) The Filer's acquisition of Zenith Petroleum Corp. did not constitute a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102, and together with the Acquisition did not constitute an "acquisition of related businesses" as defined therein.

(l) The financial year end of the Filer is December 31 and the financial year end of the Vendor was June 30.

(m) The required content of the BAR is prescribed in Form 51-102F4.

(n) Pursuant to Item 3 of Form 51-102F4 and Part 8 of NI 51-102, the Filer would, absent the Requested Relief, be required to include in its BAR for the Acquisition, subject to the exemptions provided therein:

(i) an income statement, a statement of retained earnings and a cash flow statement for each of the two most recently completed financial years in respect of the Assets, a balance sheet as at the end of each such financial year, and notes to the financial statements;

(ii) an auditor's report on the income statement, statement of retained earnings and cash flow statement for the most recently completed financial year in respect of the Assets and the balance sheet as at the end of such financial year;

(iii) a pro forma balance sheet of the Filer as at June 30, 2007 that gives effect to the Acquisition as if it had taken place as at such date;

(iv) a pro forma income statement of the Filer for the financial year ended December 31, 2006 and for the six month interim period ended June 30, 2007, in each case that gives effect to the Acquisition as if it had taken place at January 1, 2006, together with pro forma earnings per share.

(o) Subsection 8.10(3) of NI 51-102 provides an exemption from the financial statement disclosure requirements that would otherwise apply under Part 8 of 51-102 if the significant acquisition is of a business that is an interest in an oil and gas property, provided that, among other things, the acquisition is not an acquisition of securities of another issuer and the issuer includes in the BAR certain alternative financial disclosure in respect of the interests acquired.

(p) All of the conditions set forth in subsection 8.10(3) of NI 51-102 are satisfied in the circumstances of the Acquisition except that: (i) the Acquisition is an acquisition of securities of another issuer; and (ii) with respect to financial periods and audit requirements the Filer proposes to include in the BAR for the Acquisition historical operating statements in respect of the Assets and pro forma operating statements of the Filer as set forth in paragraph 40 below instead of what would otherwise be required under NI 51-102.

(q) The Acquisition was, in substance, an acquisition by the Filer of an interest in oil and gas properties constituting a business. But for certain tax and commercial efficiencies achieved by structuring the Acquisition as a purchase by the Filer of the AcquisitionCo Shares with the Vendor transferring the Assets to AcquisitionCo prior to closing, the Filer would have acquired the Assets directly from the Vendor and availed itself of the exemption provided in subsection 8.10(3) of NI 51-102 with respect to the kind of financial disclosure to be included in the BAR.

(r) The Filer proposes to include in the BAR to be filed in respect of the Acquisition:

(i) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the years ended June 30, 2006 and 2005;

(ii) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 and an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2005;

(iii) an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended June 30, 2007;

(iv) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the year ended December 31, 2006 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(v) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the six months ended June 30, 2007 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(vi) a description of the Assets and disclosure regarding the annual oil and gas production volumes from the Assets, as contemplated in clauses 8.10(3)(e)(iii) and (iv) of NI 51-102; and

(vii) information regarding estimated reserves and related future net revenue attributable to the Assets and estimated oil and gas production volumes therefrom, as contemplated in paragraph 8.10(3)(g) of NI 51-102

(collectively, the Alternative Financial Disclosure).

(s) The Filer seeks a decision of the Decision Makers under section 13.1 of NI 51-102 exempting the Filer from the requirement to include in the BAR to be filed in respect of the Acquisition the financial statements and other information required pursuant to Item 3 of Form 51-102F4, provided that the BAR includes the Alternative Financial Disclosure.

Decision

5. The Decision Makers being satisfied that they have jurisdiction to make this decision and that the relevant test under the Legislation has been met, the decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Filer includes the Alternative Financial Disclosure in the BAR to be filed in respect of the Acquisition.

"Blaine Young"
Associate Director, Corporate Finance
Alberta Securities Commission