Mutual Reliance Review System for Exemptive Relief Applications - relief fromregistration and prospectus requirements in connection with issuance of non-votingshares to unsecured creditors pursuant to a proposal under the Bankruptcy andInsolvency Act (Canada) - first trades deemed a distribution unless company areporting issuer for 12 months and certain other conditions met.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25, 53, 72(5), and 74(1).
Business Corporations Act, R.S.O. 1990, c. B.16 as am. ss. 186.
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
ROYAL OAK MINES INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Saskatchewan, Manitoba, Ontario, New Brunswick,Nova Scotia, Newfoundland and the Northwest Territories (the "Jurisdictions") hasreceived an application from Royal Oak Mines Inc. (the "Filer") for a decision under thesecurities legislation of the Jurisdictions (the "Legislation") that the dealer registrationrequirement and prospectus requirement contained in the Legislation (respectively, the"Registration Requirement" and the "Prospectus Requirement") shall not apply to certaintrades by the Filer of non-voting shares (the "Non-voting Shares") to the unsecuredcreditors of the Filer resident in the Jurisdictions (the "Unsecured Creditors") pursuant toa proposal (the "Proposal") made under the Bankruptcy and Insolvency Act (Canada) (the"BIA");
AND WHEREAS under the Mutual Reliance Review System for Exemptive ReliefApplications (the "System"), the Ontario Securities Commission is the principal regulatorfor this Application;
AND WHEREAS the Filer has represented to the Decision Makers that:
Royal Oak Mines Inc.
1. The Filer is a corporation that was incorporated under the Business CorporationsAct (Ontario) (the "OBCA") on July 23, 1991, and is a reporting issuer or theequivalent thereof in each of the provinces and territories of Canada.
2. The share capital of the Filer consists of an unlimited number of common shares(the "Common Shares") and special shares ("Special Shares"), of which there areapproximately 163 million Common Shares outstanding and no Special Sharesoutstanding.
3. The common shares of a predecessor to the Filer, which merged to become theFiler on July 23, 1991 were originally listed on The Toronto Stock Exchange onSeptember 4, 1987. On April 16, 1999 The Toronto Stock Exchange suspendedtrading of the Common Shares.
4. The securities of the Filer were subject to cease trade orders (the "Cease TradeOrders") in the provinces of Ontario, British Columbia, Alberta, Manitoba andQuébec (the "Cease Traded Jurisdictions") for failing to file interim financialstatements during the course of the CCAA and BIA proceedings described below.
CCAA and BIA Proceedings
5. On February 15, 1999, the Filer acknowledged its insolvency and submitted anapplication under the Companies' Creditors' Arrangement Act (Canada) (the"CCAA") seeking an opportunity to present a plan of compromise or arrangementto its creditors. Its application was granted and the Ontario Superior Court ofJustice granted an Initial Order under the CCAA on February 15, 1999.
6. In compliance with the CCAA, the Initial Order appointed PricewaterhouseCoopersInc. ("PwC") as Monitor.
7. Following the Initial Order, the Filer continued mining operations and continuedcapital expenditure programs which included the construction of its tailings dam inaccordance with the requirements of the British Columbia government. It preparedcash-flow forecasts which were reviewed by PwC and which were the subject ofPwC's reports to the Court. PwC also reported to the Court and to the Filer'screditors concerning the Filer's financial performance on a receipts anddisbursements basis.
8. Stakeholders of the Filer lost confidence in the ability of the Board of Directors andmanagement to effect a compromise. As a result, the management of the Filerbrought a motion to the Court for the appointment of an interim receiver.
9. On April 16, 1999, PwC was appointed by court order as interim receiver of theproperty, assets and undertaking of the Filer pursuant to section 47 of the BIA.Under that court order, PwC was directed to market the Filer's business for saleeither on the basis of a restructuring or on the basis of an asset sale.
10. As interim receiver, PwC submitted its marketing plan to the Court for approval,which approval was granted on May 3, 1999.
11. At the time of the order by the Court appointing PwC as interim receiver, the Filer'smajor assets consisted of four operating mines, two mines on "care andmaintenance" status, a number of exploration and development properties, anumber of investments in publicly traded stocks, and its wholly-owned subsidiary,Arctic Precious Metals, Inc. By far the most significant asset owned by the Filer isits interest in the Kemess Mine in northern British Columbia.
12. Following extensive marketing efforts, PwC received and accepted the best offersmade for the purchase of the Filer's assets. Substantially all of the assets, otherthan the Kemess Mine have been sold or otherwise disposed of.
13. PwC received an acceptable offer for the Kemess Mine in the marketing process.However, rather than complete that sale, and with the concurrence of the KemessMine asset purchaser PwC sought approval of the Court to file the Proposal underthe BIA to compromise the claims of creditors and to provide for the continuationof the Filer's mining business at Kemess by the Filer. The restructuring of the Filerwould provide greater benefits to all of the stakeholders than would a sale of theKemess Mine in accordance with the accepted offer.
14. By order dated November 22, 1999, the Court authorized PwC to file the Proposalon behalf of the Filer. As noted above, the Proposal was filed in accordance withthe BIA on December 3, 1999, accepted by all classes of creditors at meetings heldon December 14, 1999 and approved by the Court, on notice to all creditors andshareholders, on January 4, 2000. PwC was appointed Trustee under theProposal.
15. Prior to approval of the Proposal by the Court, registered shareholders andcreditors of the Filer received the Trustee's report which contained near prospectuslevel disclosure regarding the Filer and the Proposal.
16. Under the terms of the Proposal, the capital structure, assets and liabilities of theFiler will be completely restructured. The Proposal allows for the compromise orsatisfaction of claims of the Filer's creditors, permits the Filer to continue as a goingconcern with the Kemess Mine as the Filer's principal asset and allows for thepossibility of new business to be introduced to the Filer in the future.
17. The reorganization of the capital and assets of the Filer and compromise of theFiler's liabilities as set out in the Proposal will be accomplished in the followingsteps:
(a) the sale of a royalty interest in the Kemess Mine to Northgate ResourcesLimited ("Northgate"), or its nominee, equal to 95% of the net cash flow ofthe Kemess Mine and subject to the transfer and conversion rights containedin a Royalty Agreement;
(b) the transfer of all remaining assets of the Filer, other than the Kemess Mine,or relating to the Kemess Mine, to a wholly-owned subsidiary which assetsare to be sold and the proceeds distributed to certain creditors; and
(c) the satisfaction or assumption of outstanding indebtedness of the Filerthrough the distribution of a portion of the purchase price for the royalty andthe issuance of Common Shares and Non-voting Shares.
18. With respect to paragraph 16(c), the implementation of the Proposal requires thefollowing distributions of securities of the Filer take place:
(a) Trilon Financial Corporation ("Trilon"), a secured creditor of the Filer, willreceive Common Shares representing 48.5% and Non-voting Shares suchthat Trilon's equity interest will total 67% of the restructured Filer inexchange for a release of $15 million of indebtedness;
(b) the holders of certain notes issued by the Filer will receive a payment of $1.0million in cash in repayment of costs plus Non-voting Shares representinga 30% equity interest in the restructured Filer, in exchange for andsatisfaction of their approximately $263 million of secured and unsecuredcreditor claims; and
(c) the Unsecured Creditors will receive a cash payment of $2.0 million andNon-voting Shares equal to a 2% equity interest in the restructured Filer,calculated on a fully-diluted basis, in exchange for and satisfaction ofapproximately $424 million of Unsecured Creditor claims, includinggovernment claims.
19. The total number of Non-voting Shares to be issued to Unsecured Creditorsresident in each Jurisdiction will not exceed 1% of the equity interest in the Filer ineach Jurisdiction following the reorganization.
20. All of the distributions contemplated by the Proposal have been approved by theCourt under the BIA and will be effected through a reorganization under section 186of the OBCA to be effected on February 11, 2000.
21. Prior to the reorganization the Common Shares were consolidated on a 100 for 1basis resulting in existing shareholders holding 51.5% of the voting shares of therestructured Filer representing a 1% equity interest.
22. As a consequence of the implementation of the Proposal, virtually all of the debt ofthe Filer and to creditors affected by the Proposal will either be compromised orassumed.
23. No exemption from the Registration Requirement and Prospectus Requirement isavailable to permit the trades in the Non-voting Shares to the Unsecured Creditorspursuant to the Proposal.
24. All of the Unsecured Creditors are at arm's length to the Filer.
25. The exemption requested herein is similar to the exemption available under theLegislation for the distributions under the Proposal to secured creditors and allother security holders of the Filer, except that the Unsecured Creditors are notholders of securities of the Filer.
26. Notwithstanding this Decision, the distributions of Non-voting Shares under theProposal to Unsecured Creditors resident in the Cease Traded Jurisdictions will notbe permitted until an order has been granted under the applicable Legislation bythe securities regulatory authority in such Cease Traded Jurisdiction which revokesor partially revokes the Cease Trade Order to permit such distributions.
AND WHEREAS under the System this MRRS Decision Document evidences thedecision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;
The Decision of the Decision Makers under the Legislation is that:
1. The Registration Requirement and Prospectus Requirement shall not apply to anytrade in Non-voting Shares of the Filer to Unsecured Creditors, provided that theFiler provides to each of the Unsecured Creditors a copy of this decision documenttogether with a statement that as a consequence of this decision document, certainprotections, rights and remedies provided by the Legislation, including statutoryrights of rescission or damages, will not be available in respect of the Non-votingShares issued to Unsecured Creditors pursuant to this decision document.
2. The first trade trade of Non-voting Shares is a distribution under the Legislation inwhich the trade takes place (the "Applicable Legislation"), unless:
(a) at the time of such trade the Filer is a reporting issuer under the ApplicableLegislation and has been a reporting issuer for the 12 months immediatelypreceding such trade;
(b) such first trade is not a trade from the holdings of any person or companyholding a sufficient number of securities to affect materially the control of theFiler, but any holding of any person, company or combination of persons orcompanies holding more than 20% of the outstanding voting securities of theFiler shall, in the absence of evidence to the contrary, be deemed to affectmaterially the control of the Filer under the Applicable Legislation;
(c) if the seller is in a "special relationship" with the Filer, as that term is definedin the Applicable Legislation, the seller has reasonable grounds to believethat the Filer is not in default of any requirement under the ApplicableLegislation;
(d) no unusual effort is made to prepare the market or create a demand for theNon-voting Shares; and
(e) no extraordinary commission or other consideration is paid in respect of thetrade.
February 29th, 2000.
"J. A. Geller" "Robert W. Davis"