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Jaguar Mining Inc.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from the requirement to call a shareholders' meeting to consider a proposed related party transaction and to send an information circular to such shareholders -- proposed subscription by a related party under a non-brokered private placement offering constitutes a related party transaction subject to minority approval requirement under MI 61-101 -- issuer disclosed the details of the proposed related party transaction, and the offering as a whole, in a material change report and disclosure document filed on SEDAR, both of which contain the information required by MI 61-101 -- issuer has received comfort from disinterested shareholders holding a majority of the common shares of the issuer eligible to be counted in determining minority approval under Part 8 of MI 61-101 that they will provide signed written consents to the proposed related party transaction -- disclosure document will be provided to each shareholder from whom consent is sought -- exemption sought granted, subject to conditions, including that the issuer will not close the offering (including the proposed related party transaction) unless and until (i) the consenting parties have had 14 days to review the disclosure document, and (ii) 14 days have elapsed from the date the disclosure document, form of written consent and material change report were filed on SEDAR.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.3, 5.6, 8.1 and 9.1(2).
Companion Policy 61-101CP to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, s. 3.1.
October 15, 2015
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 JAGUAR MINING 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) exempting the Filer from the requirement in subsection 5.3(2) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) to call a meeting of holders of common shares of the Filer (the Common Shares) to consider a proposed related party transaction, and to send an information circular to such holders (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 Québec.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 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:
1. The Filer is a corporation existing under the laws of the Province of Ontario. The head office of the Filer is located at 67 Yonge Street, Suite 1203, Toronto, Ontario, M5E 1J8.
2. The Filer is a reporting issuer in each of the provinces of Canada and is not in default of securities legislation in any such jurisdiction.
3. The Filer's authorized capital consists of an unlimited number of Common Shares. Each Common Share carries the right to one vote at all meetings of holders of Common Shares. As at September 24, 2015, the Filer had 111,136,038 Common Shares issued and outstanding.
4. The Common Shares are listed on the TSX Venture Exchange (the TSXV) under the symbol "JAG".
5. On September 14, 2015, the Filer announced its intention to complete a non-brokered private placement (the Offering) of units of the Filer, with each unit being comprised of U.S.$1,000 principal amount of senior secured notes of the Filer and Common Share purchase warrants for aggregate proceeds of up to U.S.$20,000,000.
6. The Filer announced on September 18, 2015 that, due to investor feedback, the Filer was amending the terms of the Offering such that the Filer would no longer be conducting a non-brokered private placement of units, but would instead be conducting a non-brokered private placement of approximately U.S.$20,000,000 aggregate principal amount of senior secured convertible debentures (the Debentures). The Debentures will be convertible into Common Shares at a conversion price of Cdn.$0.15 per Common Share, reflecting a conversion rate of approximately 8,781 Common Shares per U.S.$1,000 principal amount of Debentures based on an exchange rate of U.S.$0.7592 per Cdn.$1.00.
7. The board of directors of the Filer (the Board) approved the issuance of up to U.S.$21,500,000 aggregate principal amount of Debentures under the Offering. As at October 5, 2015, the Filer received non-binding commitments to subscribe for U.S.$21,500,000 aggregate principal amount of Debentures.
8. The Filer plans to use the net proceeds of the Offering to repay all amounts outstanding under its U.S.$8,400,000 credit facility with Renvest Global Resources Fund c/o Renvest Mercantile Bancorp Inc., with the remainder of the net proceeds to be used for general corporate purposes and to advance asset optimization plans in conjunction with the Filer's ongoing development and producing activities at its assets in Brazil.
9. The Board consists of a total of seven directors, five of whom are "independent directors" (as defined in MI 61-101) with respect to the Proposed Transaction (as defined below), being Richard D. Falconer, Edward V. Reeser, Luis Ricardo Miraglia, Jared Hardner, and Robert J. Chadwick.
10. The Filer established a special committee of its Board (the Special Committee) in December 2014 to initiate a strategic review process to explore alternatives for the enhancement of shareholder value. The Special Committee is comprised of four members, being Messrs. Reeser, Miraglia, Chadwick (together, the Independent Committee Members) and Mr. Stephen Hope.
11. The Filer determined to proceed with the Offering following an exhaustive review of strategic alternatives by the Filer, working in conjunction with Origin Merchant Partners, the exclusive financial advisor to the Special Committee in conjunction with the strategic review process. Mr. Hope did not represent the Filer in negotiations with respect to the Offering and recused himself with respect to the consideration of the Offering by the Independent Committee Members. The Offering (including the Proposed Transaction and the Dupont Subscription, as defined below) were unanimously approved (with Mr. Hope abstaining) by both the Independent Committee Members and by the Board.
12. Two insiders, and accordingly, related parties, of the Filer, Dupont Capital Management Corp. (Dupont Capital) and Outrider Management, LLC (Outrider Management), have indicated to the Filer that they intend to subscribe for Debentures under the Offering.
13. Dupont Capital holds 12,037,763 Common Shares (representing approximately 10.83% of the issued and outstanding Common Shares) through funds it manages, and intends to subscribe for 1,500 Debentures for an aggregate subscription amount of U.S.$1,500,000 (the Dupont Subscription) under the Offering.
14. Outrider Management holds 36,045,291 Common Shares (representing approximately 32.4% of the issued and outstanding Common Shares) through Outrider Master Fund, L.P., a fund that Outrider Management manages. Outrider Master Fund, L.P. intends to subscribe for such number of Debentures sufficient to enable it to maintain its pro rata ownership interest in the Filer, up to a maximum of 6,500 Debentures and an aggregate subscription amount of U.S.$6,500,000 (the Proposed Transaction).
15. Assuming the conversion of the maximum of 6,500 Debentures that Outrider Management has indicated that it may subscribe for under the Offering, the holdings of Outrider Management would increase by 57,077,625 Common Shares, representing an increase in Outrider Management's percentage holdings of the issued and outstanding Common Shares from approximately 32.4% to (a) approximately 55.4% of all of the issued and outstanding Common Shares on a partially-diluted basis (i.e., giving effect only to the conversion of maximum number of Debentures that Outrider Management intends to purchase under the Proposed Transaction), and (b) approximately 31.0% of all of the issued and outstanding Common Shares on a fully-diluted basis (i.e., giving effect only to the conversion of the approximately 21,500 Debentures anticipated to be issued under the Offering).
16. The Dupont Subscription constitutes a "related party transaction" for the purposes of MI 61-101 but is exempt from (a) the formal valuation requirement set out in section 5.4 of MI 61-101 pursuant to paragraph 5.5(b) of MI 61-101, and (b) the minority approval requirement set out in section 5.6 of MI 61-101 pursuant to paragraph 5.7(1)(b) of MI 61-101.
17. The Proposed Transaction also constitutes a "related party transaction" for the purposes of MI 61-101, requiring the provision of a formal valuation and the receipt of minority approval in the absence of exemptions therefrom.
18. The Proposed Transaction is exempt from the formal valuation requirement set out in section 5.4 of MI 61-101 pursuant to paragraph 5.5(b) of MI 61-101. However, there are no exemptions available from the disinterested minority approval requirement set out in section 5.6 of MI 61-101 in respect of the Proposed Transaction. Accordingly, the Filer is required to by section 5.6 of MI 61-101 to obtain "minority approval" (as defined in MI 61-101) in accordance with Part 8 of MI 61-101 (the Minority Approval).
19. Subsection 5.3(2) of MI 61-101 requires that issuers proposing to carry out a related party transaction in respect of which minority approval is required under section 5.6 of MI 61-101 call a meeting of holders of the affected securities and send an information circular to those holders.
20. The Filer will obtain Minority Approval in respect of the Proposed Transaction by way of written consent as opposed to at a meeting of holders of the Common Shares.
21. As at September 24, 2015, 75,090,747 Common Shares, or approximately 67.6% of the issued and outstanding Common Shares, were held by holders who are not interested parties, related parties of interested parties, or joint actors of interested parties or related parties of interested parties to the Proposed Transaction.
22. The Filer has received comfort from certain holders of Common Shares (each, a Consenting Party and collectively, the Consenting Parties) that they will consent to the Proposed Transaction, which consent will be evidenced through the execution of a form of written consent (the Consent) that will accompany the Disclosure Document (as defined below). Each Consenting Party is a sophisticated investor and satisfies the "accredited investor" requirements set forth in section 1.1 of National Instrument 45-106 Prospectus Exemptions.
23. While certain of the Consenting Parties are participating in the Offering and/or are related parties of the Filer, no Consenting Party is: (a) an interested party; (b) a related party of an interested party, unless the related party meets that description solely in its capacity as a director or senior officer of one or more entities that are neither interested parties nor issuer insiders of the Filer; or (c) a joint actor with a person or company referred to in (a) or (b) above in respect of the Proposed Transaction.
24. No Consenting Party (including those Consenting Parties that are not related parties of the Filer) has received, or will receive, any collateral benefit in respect of the Proposed Transaction or in connection with agreeing to execute the Consent.
25. The Filer understands that the Consenting Parties hold Common Shares representing, in the aggregate, approximately 36.2% of the issued and outstanding Common Shares and approximately 53.6% of the issued and outstanding Common Shares held by holders of Common Shares eligible to provide the Minority Approval required for the Proposed Transaction, which exceeds the simple majority requirement set out in MI 61-101 for such approval.
26. The Filer concluded that it is not required to exclude the votes attached to the Common Shares held by Dupont Capital for the purposes of determining whether Minority Approval has been obtained on the basis that: (a) in respect of the Proposed Transaction, Dupont Capital is not an "interested party" for the purposes of MI 61-101; and (b) the Dupont Subscription and the Proposed Transaction are separate transactions that have been entered into with the Filer at arm's length and that neither subscription is conditional on the completion of the other.
27. The ability of any person, and in particular, the Consenting Parties, to participate in the Offering is not conditional upon the agreement of such person to consent to any and all aspects in respect of the Offering that require the receipt of minority approval, including: (a) Minority Approval with respect to the Proposed Transaction; and (b) the shareholder approval with respect to the potential subscription of Tocqueville Gold Fund (Tocqueville) for U.S.$7,500,000 aggregate principal amount of Debentures pursuant to the Offering, which would result in Tocqueville holding up to 65,858,798 Common Shares upon the conversion of all of the Debentures purchased by Tocqueville, or 37.2% of the issued and outstanding Common Shares on a partially-diluted basis, thereby triggering the shareholder approval requirements under section 1.12 of Policy 4.1 -- Private Placements of the TSXV Corporate Finance Manual.
28. No subscription of any person or entity under the Offering is conditional upon the subscription of any other person or entity under the Offering.
29. Each of the Consenting Parties whose consent for the Proposed Transaction will be sought, will be provided with a copy of the Consent and a disclosure document pertaining to the Proposed Transaction (the Disclosure Document), the contents of which comply with the disclosure requirements set out in subsection 5.3(3) of MI 61-101. The Disclosure Document and Consent will set out the relevant details of the Proposed Transaction and will include an acknowledgement from the Consenting Party that (a) the Disclosure Document describes the Proposed Transaction in sufficient detail to allow shareholders to make an informed decision regarding approval of the Proposed Transaction, and (b) that such Consenting Party has had a minimum of 14 days to review the Disclosure Document.
30. On September 24, 2015, the Filer filed copies of the Disclosure Document, a form of written consent and a material change report pertaining to the Proposed Transaction (the Material Change Report) on System for Electronic Document Analysis and Retrieval (SEDAR). The Material Change Report contains the information required by section 5.2 of MI 61-101.
31. On October 7, 2015, Staff at the Ontario Securities Commission requested that the form of written consent filed on SEDAR be updated (and become the "Consent" referred to herein) to: (a) reflect the aggregate non-binding commitments to subscribe for Debentures received by the Filer; (b) include a statement that the ability of the Consenting Party to participate in the Offering (if applicable) has not been conditioned upon the agreement of such Consenting Party to consent to any and all aspects in respect of the Offering that require the receipt of minority approval; and (c) include a statement that the Consenting Party has had a minimum of 14 days to review the Disclosure Document. The amended form of Consent was filed on SEDAR on October 13, 2015.
32. The Filer will not close the Offering (including the Proposed Transaction) unless and until (a) the Consenting Parties have had 14 days to review the Disclosure Document, and (b) 14 days have elapsed from the date the Disclosure Document, Consent and Material Change Report were filed on SEDAR.
33. The Filer will send a copy of the Disclosure Document to any holder of Common Shares who requests a copy.
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:
(a) the Filer has received executed copies of Consents from holders of Common Shares representing a majority of the holders of Common Shares eligible to provide the Minority Approval required for the Proposed Transaction;
(b) each Consenting Party received a copy of the Consent and Disclosure Document;
(c) the Disclosure Document contains the information required pursuant to section 5.3 of MI 61-101 and also discloses that:
(i) the Filer will be obtaining Minority Approval by way of written consent;
(ii) written consent will be obtained from the Consenting Parties; and
(iii) the Filer has applied for the Exemption Sought;
(d) no Consenting Party (including those Consenting Parties that are not related parties of the Filer) has received, or will receive, any collateral benefit in respect of the Proposed Transaction or in connection with agreeing to execute the Consent;
(e) the ability of any Consenting Party to participate in the Offering (if applicable) has not been conditioned upon the agreement of such Consenting Party to consent to any and all aspects in respect of the Offering that require the receipt of minority approval;
(f) the Filer will not close the Offering (including the Proposed Transaction) unless and until (i) the Consenting Parties have had 14 days to review the Disclosure Document, and (ii) 14 days have elapsed from the date the Disclosure Document, Consent and Material Change Report were filed on SEDAR;
(g) a copy of the Disclosure Document will be sent to any holder of Common Shares who requests a copy; and
(h) each Consenting Party receives a copy of this decision.
"Naizam Kanji"
Director, Office of Mergers & Acquisitions
Ontario Securities Commission