Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions 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 transaction pursuant to which, among other things, a wholly-owned subsidiary will be transferred to a related party and persons acting jointly with the related party, and the shares of the issuer held by the related party and persons acting jointly with the related party will be acquired by the issuer for cancellation, constitutes a related party transaction subject to the minority approval requirement under MI 61-101 – issuer disclosed the details of the proposed related party transaction in a material change report and disclosure document filed on SEDAR, both of which contained the applicable 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 was provided to each shareholder from whom consent is being sought – exemption sought granted, subject to conditions, including that the issuer will not close 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 last of the disclosure document, form of written consent and material change report was filed on SEDAR.
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,
October 4, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SAMCO GOLD LIMITED
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) pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) exempting the Filer from the requirement in subsection 5.3(2) of MI 61-101 to call a meeting of holders of common shares of the Filer (the Common Shares, and such holders, the Shareholders) 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 Alberta, Manitoba and New Brunswick.
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.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation existing under the laws of the British Virgin Islands. The head office of the Filer is located at 3 Hanover Square, 4th Floor, London, England, W1S 1HD.
2. The Filer is a reporting issuer in the provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador and is not in default of securities legislation in any such jurisdiction.
3. The authorized capital of the Filer consists of an unlimited number of Common Shares, each of which carries the right to one vote at all meetings of Shareholders. As at September 13, 2017, a total of 65,076,075 Common Shares were issued and outstanding. The Common Shares are listed and posted for trading on the TSX Venture Exchange (the TSXV) under the symbol “SGA”.
4. On September 13, 2017, the Filer announced that it entered into a definitive agreement with Ricardo Auriemma, María Amalia Leguizamón (Ms. Leguizamón), Estanislao Auriemma, Martin Auriemma, Facundo Auriemma, Anoki Venture Ltd., and Safyre Management Ltd. (collectively, the Auriemma Shareholders) pursuant to which (a) the Filer will dispose of all of the shares of its wholly-owned Argentinean subsidiary, 5R S.A. (such shares, the 5R Shares), which is the registered titleholder of the Filer’s El Dorrado Monserrat properties in Santa Cruz, Argentina (the EDM Properties), (b) all of the Common Shares held by the Auriemma Shareholders will be returned to the Filer for cancellation (the Share Cancellation), (c) the Litigation Claims (as defined below) will be withdrawn, and the parties to the Litigation Claims will release each other from all claims in connection therewith, and (d) the Filer will retain a 1.5% net smelter return royalty over the EDM Properties (such transactions collectively, the Proposed Transaction).
5. One of the conditions of the Proposed Transaction is the amendment of the participation and option agreement dated January 10, 2014 between Ricardo Auriemma and the Filer (the PO Agreement) such that, inter alia, the quantum of expenses payable by Ricardo Auriemma to the Filer pursuant to the PO Agreement, which had been the subject of dispute between the parties, be fixed at US$200,000.
6. A material change report in respect of the Proposed Transaction that contains the information required by section 5.2 of MI 61-101 (the Material Change Report) was filed on the System for Electronic Document Analysis and Retrieval (SEDAR) on September 19, 2017.
7. Estanislao Auriemma was the President of two wholly-owned subsidiaries of the Filer, 5R S.A. and of Samco Gold S.A. (SGSA), until his dismissal from such positions in June 2016 and May 2016, respectively. In September 2016, Estanislao Auriemma filed a lawsuit against the Filer in Argentina for loss of office claiming an unspecified amount for unpaid salaries, fines and damages (the Estanislao Litigation).
8. Each of Martin Auriemma and Facundo Auriemma were employed by SGSA to provide technical geological services until their termination in October 2015. In August 2016, Martin Auriemma and Facundo Auriemma filed a lawsuit in Argentina against the Filer alleging wrongful dismissal and claiming damages of approximately US$400,000 in the aggregate (the Martin and Facundo Litigation, and together with the Estanislao Litigation, the Litigation Claims).
9. The Filer deemed the Litigation Claims to be without merit and took actions to defend such claims in the Argentinean courts. Notwithstanding the Filer’s position on the merits of the Litigation Claims, the Filer engaged in settlement discussions with the Auriemma Shareholders in an attempt to arrive at an acceptable and expedient resolution of the Litigation Claims, which discussions culminated in the Proposed Transaction.
10. At a meeting of the board of directors of the Filer (the Board) held on April 14, 2017, management of the Filer presented the Proposed Transaction (including a draft letter of intent describing the material terms of the Proposed Transaction (the Letter of Intent)) to the Board. Michel Marier, an employee of Sentient Executive GP IV, Limited (Sentient), the general partner of Sentient Global Resources Fund IV, L.P. (the Sentient Fund), which will own or control more than 20% of the outstanding Common Shares and become a “Control Person” of the Filer (as that term is defined in the policies of the TSXV) as a result of the Share Cancellation, declared his interest in the Proposed Transaction and abstained from voting on the resolution authorizing the Filer to proceed with the Proposed Transaction (the Transaction Resolution). Charles Koppel (Mr. Koppel), Executive Chairman and Chief Executive Officer of the Filer, also abstained from voting on the Transaction Resolution in light of the possibility that, when aggregated with other transactions then contemplated by the Filer but which were ultimately not pursued, the Proposed Transaction could result in him owning or controlling greater than 20% of the outstanding Common Shares. Accordingly, John Hick (Mr. Hick) and Kevin Tomlinson, the remaining independent directors of the Filer, neither of whom are interested parties in respect of the Proposed Transaction, considered, voted upon and approved the Transaction Resolution and authorized and directed the Letter of Intent to be delivered to the Auriemma Shareholders in the form presented to the Board.
11. The definitive agreement evidencing the Proposed Transaction is substantially the same as the Letter of Intent, with no material changes having been made to the terms set out in the Letter of Intent, and was negotiated by Mr. Hick, in his capacity as chair of the Filer’s audit committee, with the advice of legal counsel to the Filer.
12. The Auriemma Shareholders have represented to the Filer that they have beneficial ownership of, or control or direction over, 18,450,000 Common Shares, representing approximately 28.4% of the issued and outstanding Common Shares.
13. The Share Cancellation is not an “issuer bid” under the Legislation as none of the Auriemma Shareholders is resident in any province or territory of Canada.
14. Ms. Leguizamón, one of the Auriemma Shareholders, directly or indirectly, beneficially owns, or has control or direction over, an aggregate of 14,500,000 Common Shares, representing approximately 22.3% of the issued and outstanding Common Shares. Accordingly, Ms. Leguizamón is a “control person” of the Filer under the Legislation and a related party of the Filer for the purposes of MI 61-101. The Filer believes that the Auriemma Shareholders are acting jointly or in concert with each other.
15. As one of the Auriemma Shareholders is a related party of the Filer, the Proposed Transaction 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.
16. 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 minority approval requirement set out in 5.6 of MI 61-101 in respect of the Proposed Transaction. Accordingly, the Filer is required by section 5.6 of MI 61-101 to obtain minority approval for the Proposed Transaction in accordance with Part 8 of MI 61-101 (the Minority Approval).
17. 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.
18. The Filer will obtain Minority Approval in respect of the Proposed Transaction by way of written consent as opposed to at a meeting of Shareholders.
19. As at September 13, 2017, 46,626,075 Common Shares, or approximately 71.6% of the issued and outstanding Common Shares, were held by persons who are not interested parties, related parties of interested parties, or joint actors with interested parties or related parties of interested parties in respect of the Proposed Transaction.
20. Mr. Koppel has beneficial ownership of, or control or direction over, 8,373,085 Common Shares. Sentient, as general partner of the Sentient Fund, has beneficial ownership of, or control or direction over, 12,949,200 Common Shares. The Filer has received comfort from Mr. Koppel and Sentient, as well as one other Shareholder with beneficial ownership of, or control or direction over, 4,200,000 Common Shares (such party together with Mr. Koppel and Sentient, the Consenting Parties and each a Consenting Party) that each of them will consent to the Proposed Transaction and will evidence such consent by executing the form of written consent (the Consent) accompanying the Disclosure Document (as defined below).
21. 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.
22. 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.
23. In aggregate, the Consenting Parties have beneficial ownership of, or control or direction over, 25,522,285 Common Shares, representing approximately 39.2% of the issued and outstanding Common Shares on a non-diluted basis and approximately 54.7% of the issued and outstanding Common Shares held by Shareholders 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.
24. Each of the Consenting Parties whose consent for the Proposed Transaction is being sought was provided with a copy of the Consent and a news release pertaining to the Proposed Transaction whose contents satisfy and comply with the disclosure requirements set out in subsection 5.3(3) of MI 61-101 (the Disclosure Document). The Disclosure Document and Consent set out the relevant details of the Proposed Transaction and included an acknowledgement from the Consenting Party that such Consenting Party has had a minimum of 14 days to review the Disclosure Document.
25. In addition to the Minority Approval, the Proposed Transaction will also require:
(a) the approval of a majority of Shareholders pursuant to section 175 of the Business Companies Act, 2004 (British Virgin Islands) (the BVI Approval);
(b) the approval of disinterested Shareholders pursuant to TSXV Policy 5.3 – Acquisitions and Dispositions of Non-Cash Assets on the basis that (i) the Proposed Transaction constitutes a sale of more than 50% of the Filer’s assets to one or more “Non-Arm’s Length Party” and to “associates” of such Non-Arm’s Length Party (as those terms are defined in the TSXV Corporate Finance Manual), and (ii) satisfactory evidence of value in the form required by the TSXV was not provided to the TSXV in connection with the Proposed Transaction (together, the TSXV Disposition Approval); and
(c) the approval of disinterested Shareholders pursuant to TSXV Policy 3.2 – Filing Requirements and Continuous Disclosure on the basis that, as a result of the Proposed Transaction, Sentient will own or control more than 20% of the outstanding Common Shares, which will constitute a change of control of the Filer within the meaning of that term under the policies of the TSXV (the TSXV Change of Control Approval, and together with the TSXV Disposition Approval, the TSXV Approvals).
26. The BVI Approval may be evidenced by written consent of a majority of Shareholders and the Filer has obtained comfort that it will obtain written consents sufficient to satisfy the BVI Approval. In accordance with the requirements of the Business Companies Act, 2004 (British Virgin Islands), the Filer will provide a copy of the form of resolution used for the purposes of the BVI Approval to all Shareholders, including those from whom written consent was not sought.
27. The TSXV has confirmed to the Filer that the TSXV Approvals may be evidenced by the written consent of a majority of Shareholders excluding (a) the Auriemma Shareholders, in the case of the TSXV Disposition Approval, and (b) Sentient, in the case of the TSXV Change of Control Approval. The Filer has obtained comfort that it will obtain written consents sufficient to satisfy each of the TSXV Approvals.
28. On September 13, 2017, the Filer filed copies of the Disclosure Document and form of Consent on SEDAR. The Filer will send a copy of the Disclosure Document to any Shareholder who requests a copy.
29. The Filer will not close 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 latest of the Disclosure Document, Consent and Material Change Report was filed on SEDAR.
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 Consents from Shareholders representing a majority of Shareholders 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 Filer will not close 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 latest of the Disclosure Document, Consent and Material Change Report was filed on SEDAR;
(f) a copy of the Disclosure Document will be sent to any Shareholder who requests a copy;
(g) each Consenting Party receives a copy of this decision;
(h) the Filer has obtained written consents sufficient to satisfy the BVI Approval and a copy of the form of resolution used for the purposes of the BVI Approval will be delivered to all Shareholders in accordance with the laws of the British Virgin Islands, including those Shareholders from whom written consent was not sought;
(i) the Filer has obtained written consents sufficient to satisfy each of the TSXV Approvals; and
(j) there are no other approvals required in respect of the Proposed Transaction which must be obtained at a meeting of Shareholders and are not permitted to be evidenced by written consent.
Director, Office of Mergers & Acquisitions
Ontario Securities Commission