Reef Resources Ltd.
Headnote
Section 144 of the Securities Act (Ontario) -- application for a partial revocation of a cease trade order issued by the Commission -- issuer cease traded due to failure to file certain continuous disclosure documents required by Ontario securities law -- issuer has applied for a partial revocation of the cease trade order to permit the issuer to proceed with a private placement of debentures -- issuer will use proceeds from private placement to prepare and file continuous disclosure documents and pay related fees -- partial revocation granted subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127 and 144.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the Act) AND IN THE MATTER OF REEF RESOURCES LTD. (the Applicant)
ORDER (Section 144)
WHEREAS the securities of the Applicant are subject to a cease trade order dated 23rd day of December 2013 made by the Director under paragraph 2 of subsection 127(1) of the Act (the Cease Trade Order), directing that trading in the securities of the Applicant cease until the Cease Trade Order is revoked;
AND WHEREAS the Applicant has applied to the Ontario Securities Commission (the Commission) pursuant to section 144(1) of the Act for a partial revocation of the Cease Trade Order;
AND WHEREAS the Applicant has represented to the Commission that:
1. The Applicant is a corporation that was incorporated pursuant to the Business Corporations Act (Alberta) on November 26, 1996.
2. The Applicant's head office is located at 1220, 700 4th Ave SW Calgary, Alberta, T2P 3G4 and its registered office is located at 1250, 639 -- 5th Avenue SW, Calgary, Alberta, T2P 0M9.
3. The Applicant is a reporting issuer in the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Nova Scotia.
4. The authorized capital of the Applicant consists of an unlimited number of Common Shares and an unlimited number of Preferred Shares. As at the date hereof, 70,500,082 Common Shares (the Shares) and no Preferred Shares are issued and outstanding. There are no securities issued and outstanding as of the date hereof that are convertible into or that give any person the right to acquire any securities of the Corporation.
5. The Applicant is a natural resources issuer with non-producing oil and gas assets located in Huron County, Ontario, all of which assets the Applicant has agreed to sell to Levant Exploration and Production Corp. or its nominee in exchange for $1.00 and the assumption of all environmental liabilities, abandonment and reclamation obligations and taxes with respect to the assets post-transaction and all transfer taxes. Completion of the sale of the assets is subject to a number of conditions including the approval by not less than 66?% of the votes cast by shareholders at a meeting of shareholders of the Applicant. No securities will be exchanged in connection with the sale of assets to Levant Exploration and Production Corp., and therefore such transaction would not constitute an act in furtherance of a trade.
6. No securities of the Applicant are traded in Canada or any other country on a marketplace as defined in National Instrument 21-101 -- Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported.
7. The Applicant is not considering, nor is it involved in any discussion relating to, a reverse take-over, merger, amalgamation or other form of combination or transaction similar to any of the foregoing.
8. The Cease Trade Order was issued as a result of the Applicant's failure to file its annual audited financial statements, annual management's discussion and analysis (MD&A) and certificates required to be filed in respect of the 2013 annual statements under National Instrument 52-109 Certification of Disclosure in Filers' Annual and Interim Filings (the Certificates) for the year ended 31 July 2013 (the 2013 Annual Filings). The Applicant also failed to file subsequent annual and interim filings until it made the filings noted in paragraph (11) hereof.
9. The 2013 Annual Filings and subsequent filings were not filed in a timely manner as a result of the Applicant's financial difficulties.
10. The Applicant is also subject to the cease trade orders from the British Columbia Securities Commission, the Manitoba Securities Commission and the Alberta Securities Commission (the Other CTOs). Applications for partial revocations of the Other CTOs were made concurrently with the application to the Commission.
11. Since the issuance of the Cease Trade Order and the Other CTOs, the Applicant has prepared and filed its annual audited financial statements, annual MD&A and certification of annual filings for the years ended 31 July 2018 and 2017, and has prepared and filed its interim unaudited financial statements, interim MD&A and certifications of interim filings for the period ended 30 April 2019.
12. The Applicant intends to prepare and file annual audited financial statements, annual MD&A and certifications of annual filings for the years ended 31 July 2019, 2020 and 2021 and to prepare and file interim unaudited financial statements, interim MD&A and certifications of interim filings for the interim periods ended 31 October 2021 and 31 January 2022 (the Unfiled Continuous Disclosure).
13. The Applicant is adequately staffed to complete the necessary financial disclosure within a reasonable time, and provision has been made for temporary additional support if required in order to meet the filing targets.
14. The Applicant is seeking to complete a securities issuance to a small number of investors in some or all of the Provinces of Alberta, British Columbia, and Ontario (the Investors) of unsecured, non-convertible debentures (Debentures) having an aggregate principal amount of up to $250,000 (the Debenture Financing). The Debentures will have a maturity date of one year from the date of issuance and will bear interest at a rate of 10% per annum. The Applicant does not expect that there will be more than 10 Investors. The identity of the Investors is not yet known. It is possible that some of the directors of the Applicant will participate in the Debenture Financing.
15. The Debenture Financing will be completed in accordance with all applicable laws.
16. The Applicant intends to rely on the prospectus exemptions set out in the following sections of National Instrument 45-106 -- Prospectus Exemptions:
(a) Section 2.3 -- Accredited investor
(b) Sections 2.5 and 2.6.1 -- Family, friends and business associates
(c) Section 2.24 -- Employee, executive officer, director and consultant.
17. Other than the failure to file the Unfiled Continuous Disclosure, and other than the breach of CTOs resulting from the Applicant having entered into a letter of intent with CBD Acres Manufacturer Inc. in 2019, which letter of intent has been terminated, the Applicant is not in default of any of the requirements of the Act or the rules and regulations made pursuant thereto. The Applicant's SEDAR and SEDI profiles are up to date.
18. Following the granting of this partial revocation order, the Applicant plans to complete the Debenture Financing, and within a reasonable period of time following the completion of the Debenture Financing, the Applicant intends to file the Unfiled Continuous Disclosure and pay all outstanding fees. The Applicant intends to apply to the applicable securities regulators to have the Cease Trade Order and the Other CTOs fully revoked.
19. The following is a breakdown of the use of proceeds from the Debenture Financing based upon raising $250,000:
Description
Estimated Amount ($)
Fees and penalties for filing of Unfiled Continuous Disclosure
60,000
Filing fees for CTO revocation applications, including partial CTO revocations
13,000
Audit fees for annual financial statements 2019, 2020 and 2021
30,000
Accounting expenses (excluding audit expenses) for preparation of Unfiled Continuous Disclosure
3,000
Outstanding fees payable to various service providers, including legal counsel
60,000
Anticipated legal expenses associated with the foregoing
15,000
Transfer agency fees (including payment of fees currently outstanding)
20,000
Working capital (to be used for the maintenance of business) pending full revocation of the CTOs
49,000
TOTAL:
250,000
20. The Applicant reasonably believes that the proceeds from the Debenture Financing will be sufficient to bring its continuous disclosure obligations up to date and pay all related outstanding fees and provide it with sufficient funds to maintain its business.
21. As the Debenture Financing would involve a trade of securities and acts in furtherance of trades, the Debenture Financing could not be completed without a partial revocation of the Cease Trade Order.
22. Upon issuance of this order, the Applicant will issue a press release announcing this order and the intention to complete the Debenture Financing. Upon completion of the Debenture Financing, the Applicant will issue a press release and file a material change report. As other material events transpire, the Applicant will issue appropriate press releases and file material change reports as applicable.
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 144 of the Act that the Cease Trade Order is partially revoked solely to permit trades and acts in furtherance of trades that are necessary for and are in connection with the Debenture Financing and all other acts in furtherance of the Debenture Financing that may be considered to fall within the definition of "trade" within the meaning of the Act, provided that:
(a) Each Investor will, in advance of subscribing for Debentures under the Debenture Financing:
(i) receive copies of the Cease Trade Order and Other CTOs;
(ii) receive copies of this order and the orders revoking the Other CTOs; and
(iii) receive a written notice from the Applicant that all of the Applicant's securities, including the securities issued in connection with the Debenture Financing, will remain subject to the Cease Trade Order and Other CTOs until such orders are revoked and that the issuance of this partial revocation order does not guarantee the issuance of a full revocation order in the future, and each Investor will be required to provide written acknowledgement of receipt from the Applicant of the aforementioned notice.
(b) The Applicant will make available a copy of the written acknowledgement referred to in paragraph (a)(iii) to staff of the Commission on request; and
(c) This order will terminate on the earlier of:
(i) the completion of the Debenture Financing; and
(ii) 60 days from the date hereof.
DATED at Toronto, Ontario on this 16th day of March 2022.
"Lina Creta"
Manager, Corporate Finance
Ontario Securities Commission
OSC File #: 2022/0042