National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – issuer granted relief from the requirement to include audited financial statements of an acquired business in an information circular in connection with a reverse take-over transaction by way of a plan of arrangement. Historical accounting records necessary to prepare audited historical financial statements were not maintained, as assets were not treated nor accounted for as a distinct business. Relief granted, subject to certain conditions including that audited interim financial statements are filed on SEDAR prior to the completion of the transaction and the listing of the issuer’s shares on an exchange.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations. s. 13.1.
Form 51-102F5 Information Circular, Item 14.2.
May 14, 2018
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
BRADMER PHARMACEUTICALS INC.
The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirement in item 14.2 of Form 51-102F5 to include the Required Statements (as defined below) in an information circular to be sent to current holders (Shareholders) of common shares of the Filer in connection with the solicitation by or on behalf of the management of the Filer of proxies for the annual general and special meeting (the Meeting) of the Filer to be held on or about June 11, 2018, to consider, among other things, a special resolution approving a plan of arrangement (the Arrangement) involving the Filer, First Coin Capital Corp. (First Coin), Galaxy Digital LP (Galaxy LP) and Galaxy Digital GP LLC (Galaxy GP).
The Filer has also requested related exemptions from the requirements in subsection 4.10(2)(a)(ii) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) to file the Required Statements (collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) is the principal regulator for this application, and
(b) 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, British Columbia, Manitoba and Quebec (the Passport Jurisdictions and together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 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 Business Corporations Act (Ontario) with its head office located in Toronto, Ontario.
2. The Filer is a reporting issuer in Alberta, British Columbia, Manitoba, Ontario and Quebec and is not in default of any requirement of Canadian securities laws.
3. The Filer is a shell company with no business, no material assets other than cash, and no material liabilities or anticipated spending.
4. The common shares (Shares) of the Filer are listed on the NEX board of the TSX Venture Exchange (TSXV). Trading of the Shares has been halted on the NEX board of the TSXV since October 11, 2017, pending completion of the Arrangement.
5. First Coin is a corporation existing under the Business Corporations Act (British Columbia) with its head office located in Vancouver, British Columbia.
6. The principal business carried on and intended to be carried on by First Coin is the provision of services and technology support to help companies, as clients of First Coin, to raise money in the new digital economy through strategic technology development combined with marketing and advisory services.
7. Galaxy LP is a limited partnership formed on November 30, 2017, under the laws of the Cayman Islands, and did not carry on any substantial business activities prior to January 9, 2018.
8. The general partner of Galaxy LP, Galaxy GP, is a limited liability company existing under the laws of the Cayman Islands.
9. On January 9, 2018, the Filer, First Coin and Galaxy LP entered into a letter of intent, pursuant to which they would combine their respective assets (the Combined Assets) by forming an operating partnership that would be managed by the principals of Galaxy LP. The combination would take place under a plan of arrangement and would constitute a reverse take-over transaction of the Filer under the policies of the TSXV. Upon the completion of the Arrangement, the Filer would acquire and indirectly hold a minority investment in an operating partnership, would change its name to Galaxy Digital Holdings Ltd. (Galaxy Digital) and resume an active listing on the TSXV.
10. In conjunction with this intention, on January 9, 2018, approximately US$300 million of assets (Contributed Assets) were contributed to Galaxy LP by Galaxy Group Investments LLC (Galaxy Group), a New York-based family office investment vehicle owned by Michael Novogratz and related family trusts. The Contributed Assets consisted of direct holdings in bitcoin and other cryptocurrencies, equities of companies in businesses relating to blockchain or cryptocurrency, digital token mining and joint ventures, and interests in third-party-managed fund limited partnerships previously acquired by Mr. Novogratz through his family office.
11. On January 9, 2018, the Filer, First Coin and Galaxy LP also entered into an engagement agreement with GMP Securities L.P., an investment dealer, to conduct an offering of subscription receipts (the Private Placement). The net proceeds of the Private Placement were intended to be used by the Filer to acquire a minority equity interest in a to-be-formed operating partnership that would hold the Combined Assets.
12. During the period of January to February 2018, the Filer undertook the Private Placement of subscription receipts (the Subscription Receipts) for gross proceeds of approximately $305 million. Also during this period, management and advisors of the parties continued to negotiate the terms of the Arrangement, conduct due diligence and prepare relevant documentation including the Arrangement Agreement.
13. On February 14, 2018, the Filer, First Coin, Galaxy LP and Galaxy GP entered into an arrangement agreement (the Arrangement Agreement) to give effect to the Arrangement.
14. Following completion of the Arrangement, the Filer will own a minority equity interest in Galaxy Digital Holdings LP (GDH LP), a Cayman Islands exempted limited partnership that will be created in connection with the Arrangement and which itself will own, directly or indirectly, all of the Combined Assets, and the general partner of GDH LP will manage the Combined Assets and future business related thereto.
15. As a result of the Arrangement, in respect of the economic interest in GDH LP, (i) the Filer’s Shareholders (excluding the former holders of Subscription Receipts) shall, in the aggregate, hold an economic interest percentage equal to approximately 0.05%, (ii) the former holders of Subscription Receipts shall, in the aggregate, hold an economic interest percentage equal to approximately 17.77%, (iii) the current holders of First Coin shares and options shall, in the aggregate, hold approximately 1.60% of the economic interest, (iv) the employees and founders of Galaxy LP shall, in the aggregate, hold approximately 9.03% of the economic interest, (v) an aggregate of approximately 9.07% of the economic interest will be reserved for Galaxy Digital shares issued upon exercise of options, (vi) Galaxy Group Investments LLC shall, in the aggregate, hold approximately 62.27% of the economic interest, and (vii) others will hold approximately 0.22% of the economic interest in GDH LP.
16. The board of directors (the Board) of the Filer has unanimously determined that the Arrangement is fair and reasonable to the Shareholders and that the Arrangement is in the best interests of the Filer.
17. The Arrangement is subject to customary conditions for a transaction of this nature, which include court approvals and the approval of a special resolution approving the Arrangement by at least 66⅔% of the votes cast by Shareholders, voting as a single class, present in person or represented by proxy and entitled to vote at the Meeting.
18. In order to obtain such approval, the Filer must prepare and send an information circular prepared in accordance with Form 51-102F5 (the Circular) to all of its Shareholders in connection with the Meeting.
19. If the Subscription Receipts’ escrow release conditions are not satisfied by 5:00 p.m. (Toronto time) on a prescribed date, currently June 14, 2018, the escrowed proceeds of the Subscription Receipts must be returned to the holders thereof. On or about May 14, 2018, the Filer will send a consent solicitation to holders of Subscription Receipts for approval of an extension such that the escrow release conditions will need to be satisfied by August 13, 2018.
20. Among the escrow release conditions for the Subscription Receipts are that (i) all regulatory approvals (including stock exchange approvals) required for and in connection with the Arrangement will have been received; and (ii) all conditions precedent to the listing of the Shares on the TSXV, other than the release of the escrowed proceeds of the Subscription Receipts, will have been satisfied or waived.
21. In April 20, 2018, the TSXV provided its conditional acceptance of the Filer’s reverse take-over transaction. One of the conditions of acceptance is that the Exemption Sought is granted.
22. In order to achieve the necessary timing for completion of the Arrangement, including the satisfaction of the escrow release conditions for the Subscription Receipts, it is critical that the Circular be sent without delay. The Meeting was called pursuant to an interim order of the Ontario Court of Justice (Commercial List) (the Court) dated April 13, 2018, as amended on May 11, 2018.
23. The TSXV conditional acceptance, the Arrangement Agreement and the associated orders of the Court contemplate the convening of the Meeting in order for Shareholders to consider the Arrangement, and the associated solicitation of proxies for voting at the Meeting.
24. Section 14.2 of Form 51-102F5 provides that if the action to be taken is in respect of a restructuring transaction under which securities are to be changed, exchanged, issued or distributed, the information circular must include disclosure for the company (including financial statements) as prescribed under securities legislation and described in a prospectus that the company would be eligible to use immediately prior to the sending and filing of the information circular.
25. Section 14.5 of Form 51-102F5 provides that a company satisfies section 14.2 if it prepares an information circular in connection with a reverse take-over (as defined in the TSXV policies) provided that the company complies with the policies and requirements of the TSXV in respect of that reverse take-over.
26. TSXV Policy 5.2 Changes of Business and Reverse Takeovers (TSXV Policy 5.2) prescribes certain financial statement disclosure, for which the Filer seeks relief from certain elements of those disclosure requirements (as set out herein). According to section 11.2 of TSXV Policy 5.2, the TSXV cannot waive financial statement requirements in respect of any information circular filed in connection with a reverse takeover. As such the Filer is seeking the Exemption Sought.
27. 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 (Form 41-101F1) 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. Specifically, the Filer is required to provide the same financial statements as would otherwise be required in a prospectus for an issuer, namely audited financial statements for the two most recently completed financial years of the Contributed Assets on the basis that the Filer’s holdings in the GDH LP will be its sole asset upon completion of the Arrangement and that a reasonable investor would regard the business of the GDH LP as the primary business of the Filer. Item 32 of Form 41-101F1 also requires the Filer to include the audited financial statements for Galaxy LP for the period commencing on November 30, 2017 and ending on December 31, 2017 (collectively, the Required Statements).
28. Subsection 4.10(2)(a)(ii) of NI 51-102 provides that if a reporting issuer completes a reverse takeover, it must file 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, if the reporting issuer filed a document that did not include the financial statements for the reverse takeover acquirer that would be required to be included in a prospectus, which would include the Required Statements.
29. The Filer is not including the Required Statements in the Circular for the following reasons:
(a) The Contributed Assets comprised different cryptocurrency- and blockchain-related investments, including cryptocurrency holdings with a liquid trading value, restricted holdings of pre-sold digital tokens, investments in cryptocurrency and blockchain-related funds, venture capital investments and commodity futures positions with a liquid trading value. Most of the Contributed Assets were acquired during 2017 and were held through various branches of the Novogratz family office, including some held personally by Mr. Novogratz, and were not held separately from his other family office assets and investments.
(b) The contribution by Galaxy Group to Galaxy LP on January 9, 2018, was the first time that the Contributed Assets have been aggregated, and this aggregation was undertaken specifically in contemplation of undertaking the reverse take-over transaction and Arrangement in order to create the business described in the Circular.
(c) Galaxy Group, as a family-owned privately held corporation, did not maintain the historical accounting records necessary to prepare audited historical financial statements for or in respect of the Contributed Assets apart from the other family office assets, since historically they were not treated nor accounted for as a distinct business and since the intention to contribute such investments to a public vehicle was not formed until late 2017, the family office did not undertake record keeping activities sufficient to support an audit. The Circular will provide information in respect of the Filer, First Coin, Galaxy LP and the proposed Arrangement that is sufficient to enable a Shareholder of the Filer to make an informed decision regarding the Arrangement. For greater certainty, holders of Subscription Receipts are not entitled to vote on the Proposed Arrangement at the Meeting.
(d) Galaxy LP did not carry on any substantial business activities prior to January 1, 2018.
30. Galaxy LP has prepared an audited statement of assets contributed less liabilities assumed as at January 9, 2018 (the Audited Statement) reflecting the assignment of the Contributed Assets on January 9, 2018, which will be included in the Circular. The Audited Statement provides a description of each asset class and for each material investment position of Galaxy LP, discloses the name of the investment, the number of units and the fair value constituting such material positions.
31. The Circular will include disclosure of the fair value, as at March 31, 2018, of the Contributed Assets (including the proceeds realized from the sale of any Contributed Assets and the value of any assets purchased with any such proceeds), unaudited, estimated by management, and verified by an independent valuator.
32. Galaxy LP will prepare audited interim financial statements for the period from January 1, 2018, to and including March 31, 2018 (the Audited Interim Statements), and after completion of the Arrangement, Galaxy Digital (or GDH LP, as contemplated in condition (vii) below) will henceforth prepare annual and interim financial statements, which will, in each case, include the following:
(a) a description of each asset class;
(b) in the note pertaining to the investment line item in the balance sheet, the fair value of each asset class;
(c) in the fair value note, the fair value hierarchy by asset class;
(d) in the segment note, the fair value of each asset class for each business segment; and
(e) the MD&A associated with such financial statements will include disclosure regarding the trading activities of the operating entity of sufficient specificity to satisfy the general objectives of MD&A as discussed in Part 1 of Form 51-102F1, which may in some circumstances include disclosure of specific material investment positions, including for any such material positions the name of the investment, the number of units and the fair value constituting such material positions.
33. The Filer will issue a news release concurrently with the filing of the Circular, describing this exemptive relief decision, its conditions and undertakings.
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 so long as the completion of the Arrangement and the listing and trading of the Shares of Galaxy Digital on the TSXV shall not occur unless and until:
(i) Galaxy LP has prepared the Audited Statement as at January 9, 2018, which will be included in the Circular;
(ii) the Audited Statement includes an unqualified audit opinion from Davidson & Company LLP;
(iii) Galaxy LP has prepared the Audited Interim Statements;
(iv) The Audited Interim Statements include an unqualified audit opinion from Davidson & Company LLP;
(v) The Audited Interim Statements shall have been generally disclosed by (a) being issued in summary form as part of a news release and (b) being part of a material change report filed by or on behalf of the Filer on SEDAR on or prior to July 27, 2018;
(vi) the completion of the Arrangement and the listing and trading of Galaxy Digital on the TSXV occurs on or before September 28, 2018; and
(vii) GDH LP will have provided and filed on SEDAR an undertaking to each Securities Regulatory Authority in the Jurisdictions, in form and substance satisfactory and acceptable to the Director that, (a) in complying with its reporting issuer obligations, the Filer will treat GDH LP as a subsidiary of the Filer; however, if generally accepted accounting principles (GAAP) used by the Filer prohibit the consolidation of financial information of GDH LP and the Filer, then for as long as GDH LP (including any of its significant business interests) represents a significant asset of the Filer, the Filer will provide separate audited annual financial statements and interim financial reports, prepared in accordance with the same GAAP as the Filer’s financial statements, and related management’s discussion and analysis, prepared in accordance with NI 51-102 or its successor, for GDH LP (including information about any of its significant business interests); (b) GDH LP will require its insiders to file insider trading reports in respect of securities of the Filer; (c) GDH LP will issue a news release and deliver to the Filer for filing a material change report in accordance with applicable securities laws with respect to any material change in GDH LP that would reasonably be expected to have a significant effect on the market price or value of any securities of the Filer, if the Filer does not issue such press release and file such material change report; and (d) GDH LP will annually certify that it has complied with such undertaking and file the certificate on SEDAR concurrently with the filing by the Filer of its annual financial statements.
Manager, Corporate Finance
Ontario Securities Commission