Subsection 74(1) - Application pursuant to Mutual Reliance Review System for ExemptiveRelief Applications - Relief granted from registration and prospectus requirement inconnection with first trades of a spun off issuer subject to certain conditions.
Section 83.1 - Issuer spun off from a reporting issuer in connection with a plan ofarrangement deemed to be a reporting issuer where parent company has been a reportingissuer for more than 12 months and the assets that will make up the business of the spinoff issuer (and comprised the core assets of the parent company) have been subject toreporting in the continuous disclosure filings of the parent company. Prospectus leveldisclosure of the spun off entity to be provided in the information circular.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 53, 72(5), 74(1), & 83.1.
Business Corporations Act, R.S.O. 1990, c. B.16, as am.
Rule 45-501 Exempt Distributions
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
KAZAKHSTAN MINERALS CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec,New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Yukon Territory,Northwest Territories and Nunavut (the "Jurisdictions") has received an application fromKazakhstan Minerals Corporation ("KazMinCo") (the "Filer") for a decision under thesecurities legislation of the Jurisdictions (the "Legislation") that:
(1) the registration and prospectus requirements of the Legislation shall not apply tocertain trades made in connection with or subsequent to a proposed plan ofarrangement (the "Arrangement") under the Business Corporations Act (Yukon) (the"YBCA") involving Kazakhstan and ARDS Resources Corporation ("ARDS"); and
(2) in Ontario, British Columbia, Alberta and Nova Scotia, ARDS shall be deemed tobe a reporting issuer as of the effective time of the Arrangement;
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:
1. KazMinCo was incorporated under the Business Corporations Act (Ontario) (the"OBCA") on October 13, 1987 and was continued under the YBCA on November1, 1995. KazMinCo's administrative office is located in England. It is a reportingissuer in British Columbia, Alberta and Ontario, is subject to the continuousdisclosure requirements in the Yukon Territory and is not in default of anyrequirements of the Legislation. Its common shares (the "KazMinCo CommonShares") are listed on The Toronto Stock Exchange.
2. The authorized share capital of KazMinCo consists of an unlimited number ofcommon shares with no par value. As at June 12, 2000, 29,771,156 KazMinCoCommon Shares were issued and outstanding, of which 3,275,027 KazMinCoCommon Shares were held in escrow pending release on September 28, 2000. Inaddition, there are outstanding options to purchase an aggregate of 805,000KazMinCo Common Shares granted in the ordinary course to directors, officers,employees and consultants under KazMinCo's stock option plan (the "KazMinCoOption Plan").
3. KazMinCo is a junior resource company engaged in the acquisition, exploration andevaluation of natural resources such as minerals and oil through its ownership ofits principal subsidiaries, Three K Exploration and Mining Limited (a Barbadoscorporation), 3K Exploration and Mining Limited (a United Kingdom corporation),Almaty Exploration Limited (a British Virgin Islands corporation), Kazminco OilLimited (a British Virgin Islands corporation) and KMC Mineral Exploration Ltd. (aHungarian corporation) (collectively, the "Principal Subsidiaries").
4. ARDS was incorporated under the YBCA on July 6, 2000 and its registered officeis located in the Yukon Territory. The authorized capital of ARDS consists of anunlimited number of common shares without par or nominal value. As of July 12,2000, the issued and outstanding share capital of ARDS consisted of one ARDSshare held by KazMinCo.
5. Pursuant to the Arrangement, the steps set forth below will occur in the followingorder:
(a) KazMinCo will transfer to ARDS all of its assets including all outstandingshares of certain of its subsidiaries (collectively the "Mineral Business"),other than cash amounting to approximately £950,000, shares ofTradeReach Limited ("TradeReach") and loans advanced by KazMinCo toTradeReach. ARDS will issue to KazMinCo that number of ARDS commonshares (the "ARDS Shares") equal to the aggregate number of KazMinCoCommon Shares issued and outstanding as at the close of business on theArrangement record date (excluding the number of KazMinCo CommonShares in respect of which KazMinCo shareholders have duly exerciseddissent rights in accordance with the plan of arrangement) less one share;
(b) KazMinCo and 31927 Yukon Inc. ("Subco") will be amalgamated to formTradeReach Group Holdings Limited ("Amalco"), and on such amalgamationeach KazMinCo shareholder (a "KazMinCo Shareholder") will exchange itsKazMinCo Common Shares for Amalco common shares (the "AmalcoCommon Shares") on the basis of one Amalco Common Share for eachKazMinCo Common Share held, and each outstanding share of Subco willbe cancelled without any repayment of capital in respect thereof;
(c) the stated capital account maintained by Amalco for the Amalco CommonShares will be reduced by an amount equal to the fair market value of all ofthe issued and outstanding ARDS Shares held by Amalco, as determined bythe board of directors of KazMinCo as at the close of business on theArrangement record date and, on such reduction of stated capital, Amalcowill distribute the ARDS Shares to the KazMinCo Shareholders of record asat the close of business on the Arrangement record date; and
(d) each of Amalco and ARDS will be continued as a corporation under the lawsof the British Virgin Islands.
6. The Arrangement must be approved by the Supreme Court of the Yukon Territoryand by the KazMinCo Shareholders and holders of options of KazMinCo grantedunder the KazMinCo Option Plan.
7. Pursuant to an acquisition agreement among KazMinCo, TradeReach and NorbertBaumker, Roger Selman and Salahi Ozturk dated as of July 19, 2000 (the"Acquisition Agreement"), KazMinCo has agreed to acquire all of the outstandingshares of TradeReach and all of the outstanding options of TradeReach will besurrendered for cancellation. TradeReach is a private corporation governed by thelaws of England and Wales. TradeReach is developing a business-to-business("B2B") e-commerce sector project which consists of an international tradingplatform within the B2B marketplace.
8. Pursuant to the Acquisition Agreement and related agreements, KazMinCo willacquire all of the outstanding shares of TradeReach (other than those shares ofTradeReach owned by KazMinCo) in consideration for, in the case of TradeReachshares held by Norbert G. Baumker and Roger M. Selman, either KazMinCoCommon Shares or debentures convertible into KazMinCo Common Shares, andin the case of TradeReach shares held by all other TradeReach shareholders,KazMinCo Common Shares, and KazMinCo will issue options to purchaseKazMinCo Common Shares in consideration of the surrender and cancellation ofthe outstanding TradeReach options such that, after completion of the Acquisition,the shareholders and optionholders of TradeReach will own and have the right toacquire 50% of the issued and outstanding KazMinCo Common Shares, plus oneshare (with a right to increase such percentage to a maximum of 60% if certainconditions are met) and the KazMinCo Shareholders will own and have the right toacquire the remaining approximately 50% (40% if certain conditions are met),calculated, in both cases, on a fully-diluted basis. It is a condition of the transactionthat, at closing, KazMinCo will have approximately £950,000 in cash, after paymentof all costs associated with the transaction.
9. The Mineral Business will be transferred by KazMinCo to ARDS, and the shares ofARDS distributed to the KazMinCo Shareholders, because KazMinCo intends tosegregate the Mineral Business from the B2B e-commerce business to provide theKazMinCo Shareholders with the opportunity to maximize the value of theirinvestment in each business and facilitate the ongoing funding of each business.
10. ARDS will be managed and operated in a fashion which will endeavour to realizethe maximum value of ARDS' assets.
11. ARDS has applied to have the ARDS Shares listed on the Canadian VentureExchange ("CDNX") as of the effective time of the Arrangement. KazMinCo hasapplied to have the KazMinCo Common Shares and the Amalco Common Shareslisted on CDNX and to cease to have the KazMinCo Common Shares listed on theTSE as of the closing of the Acquisition.
12. The Management Information Circular (the "Circular") that will be provided to allKazMinCo Shareholders and holders of options of KazMinCo granted under theKazMinCo Option Plan, and filed in each of the Jurisdictions in connection with theArrangement, will contain prospectus-level disclosure of ARDS (including a detaileddescription of the ARDS Shares) and of TradeReach, which disclosure will ensurethat an adequate public information record will exist with respect thereto.
13. The Mineral Business has been the subject of financial and descriptive disclosureon an ongoing basis in KazMinCo's continuous disclosure documents for more thantwelve months pursuant to KazMinCo's obligations as a reporting issuer, includingdisclosure in KazMinCo's interim and annual financial statements, annual reports,annual information forms and management's discussion and analysis. It is intendedthat pro forma financial statements for ARDS will be included in the Circular.
14. Pursuant to the Acquisition Agreement it was agreed that KazMinCo will not file theArticles of Arrangement to give effect to the Arrangement unless, among otherthings, it has obtained the decisions requested by this application that ARDS bedeemed to be a reporting issuer in each of the provinces of Ontario, BritishColumbia and Alberta and that the first trade of the ARDS Shares by KazMinCoShareholders shall not be a distribution under applicable securities legislation.
15. The Arrangement must be approved by the KazMinCo Shareholders and holdersof options of KazMinCo granted under the KazMinCo Option Plan, and by theSuperior Court of the Yukon Territory which will consider, among other things, thefairness and reasonableness of the Arrangement to the KazMinCo Shareholders.
16. The KazMinCo Shareholders, will have the right to dissent from the Arrangementunder section 195 of the YBCA, and the Circular will disclose full particulars of thisright in accordance with applicable law.
17. Exemptions from registration and prospectus requirements of the Legislation inrespect of trades made in connection with the Arrangement, and exemptions fromprospectus requirements of the Legislation in respect of the first trades in AmalcoCommon Shares and ARDS shares following the Arrangement, are not otherwiseavailable in all Jurisdictions.
18. ARDS will not be a reporting issuer within the definition of all of the applicableJurisdictions at the time the Arrangement becomes effective.
19. In respect of the Yukon Territory, a Jurisdiction in which an issuer cannot bedeemed to be a reporting issuer under the Legislation, ARDS will, from and after thecompletion of the Arrangement, make the same continuous disclosure filings as arerequired by reporting issuers or issuers having a status equivalent to that of areporting issuer, subject to any exemptive relief granted.
AND WHEREAS under the System, this MRRS Document evidences the decisionof 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:
(a) all trades in connection with the Arrangement shall not be subject to theregistration and prospectus requirements of the Legislation;
(b) except in Manitoba, the first trade of Amalco Common Shares and the firsttrade of ARDS Shares acquired by KazMinCo Shareholders in connectionwith the Arrangement in a Jurisdiction shall be deemed distributions ordistributions to the public, as the case may be, under the Legislation of suchJurisdiction except that where:
(i) if such first trade occurs in whole or in part in Ontario, BritishColumbia, Alberta or Nova Scotia, Amalco or ARDS, as the case maybe, is a reporting issuer in such Jurisdiction at the time of such firsttrade and if the seller is in a special relationship (where such term isdefined in the Legislation of such Jurisdiction) with Amalco or ARDS,as the case may be, the seller has reasonable grounds to believe thatAmalco or ARDS, as the case may be, is not in default of anyrequirement of the Legislation of such Jurisdiction;
(ii) no unusual effort is made to prepare the market or to create ademand for the securities and no extraordinary commission orconsideration is paid in respect of the first trade; and
(iii) if such first trade occurs in whole or in part in Saskatchewan, Quebec,New Brunswick, Prince Edward Island, Newfoundland, NorthwestTerritories, the Yukon Territory or Nunavut, such trade is executedthrough the facilities of a stock exchange located outside suchJurisdiction,
then such a first trade shall be a distribution or distribution to the public, asthe case may be, in a Jurisdiction (except Quebec) only if it is from theholdings of any person, company or combination of persons or companiesholding a sufficient number of securities of Amalco or ARDS, as the casemay be, to affect materially the control of such company but any holding ofmore than 20 per cent of the outstanding voting securities of such companyshall, in the absence of evidence to the contrary, be deemed to affectmaterially the control of such company; and
(c) in Ontario, British Columbia, Alberta and Nova Scotia, that ARDS be deemedto be a reporting issuer as of the effective time of the Arrangement.
August 16th, 2000.
"J. A. Geller" "R. Stephen Paddon"