Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- The acquired business has recently emerged from bankruptcy -- Current management of the business and the Filer are denied access to the historical accounting records -- Relief granted from the requirement to include certain financial statements with a business acquisition report subject to certain conditions.

Ontario Rules

National Instrument 51-102 -- Continuous Disclosure Obligations, Part 8

Ontario Policies

Companion Policy to National Instrument 51-102 -- Continuous Disclosure Obligations, section 8.9(4)(b)

April 14, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO AND ALBERTA (the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MAGNIFOAM TECHNOLOGY INTERNATIONAL INC. (the Filer)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the requirement to include financial statements of an acquired business for two years in a business acquisition report (the BAR) required to be filed under Part 8 of National Instrument 51-102 (NI 51-102) in connection with the Filer's acquisition of all of the assets of the Groendyk division of RBX Industries Inc. (RBX) of Roanoke, Virginia completed on August 30, 2004 (the Acquisition) (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer was continued under the laws of the Province of Ontario on November 22, 1995.

2. The Filer's head office is located in Mississauga, Ontario.

3. The Filer is engaged in the research, development and production of low-density, flexible silicone foam as well as the design and fabrication of energy management systems using a variety of flexible, cellular materials.

4. The Filer is a reporting issuer in the Provinces of Ontario and Alberta and its common shares are listed and posted for trading on The Toronto Stock Exchange (the TSX) under the symbol "MTI".

5. Except for not filing the BAR, the Filer is not in default of the Legislation in any of the Jurisdictions.

6. The Filer completed the Acquisition on August 30, 2004.

7. Satisfaction of the income test at the 20% level or greater has given rise to the Filer's requirement to file a BAR in connection with the Acquisition.

8. Pursuant to section 8.2 of Part 8 of NI 51-102, the deadline for filing the BAR is 75 days after completion of the Acquisition, which was November 15, 2004 (the Filing Deadline).

9. RBX, and its parent RBX Corporation, had filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code on February 24, 2004 in the U.S. Bankruptcy Court, Western District of Virginia, Roanoke Division.

10. The consolidated financial statements of RBX have not been audited since December 31, 2002.

11. RBX did not historically prepare separate financial statements beyond the plant contribution level for its divisions, including its Groendyk division.

12. In connection with the bankruptcy proceedings and the ensuing windup of RBX, which included the sale to third parties of all six of its divisions, documents containing financial information relating to RBX and its divisions, including the Groendyk division, were placed into storage in the State of Virginia.

13. As a result of the difficulty in retrieving the documents necessary to complete the audit of the financial statements of the Groendyk division, and as a result of the loss of certain required documents, the Filer was unable to file the BAR by the Filing Deadline due to the inability of the auditor to complete the audit of the financial statements, whereupon the Principal Regulator noted the Filer to be in default of its continuous disclosure obligations.

14. As a result of RBX's lack of financial and human resources available to retrieve certain required documents, the loss of certain required documents, the unavailability of staff of RBX to provide required explanations to the auditor in respect of certain documents, and the lack of preparation of audited financial statements of RBX since December 31, 2002, the auditor has advised the Filer that such audit cannot be completed.

15. The Filer has made every reasonable effort to obtain access to, or copies of, the historical accounting records necessary to audit the financial statements but such efforts have been unsuccessful.

16. Apart from the requirement to include financial statements of the Acquisition, the Filer is otherwise able to prepare and file the BAR in accordance with NI 51-102. The Filer will include in the BAR additional disclosure requirements as set out under section 8.9(4)(b) of the Companion Policy of NI 51-102.

17. The Filer issued a press release in respect of its audited consolidated financial statements for the fiscal year ended December 31, 2004 (the Audited Annual Financial Statements) on February 23, 2005 and filed the Audited Annual Financial Statements and related management's discussion and analysis on SEDAR on March 9, 2005. The Audited Annual Financial Statements reflect the consolidated financial position and results of the Filer after giving effect to the Acquisition on August 30, 2004.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Filer discloses in the BAR

a) the fact that the business has recently emerged from bankruptcy; and

b) current management of the business and the Filer are denied access to the historical accounting records.

"John Hughes"
Manager, Corporate Finance
Ontario Securities Commission