Forbidden Spirit Distilling Corp.

Headnote

National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions -- Section 144 of the Securities Act (Ontario) -- application for a partial revocation of a cease trade order -- issuer cease traded due to failure to file audited annual financial statements -- issuer has applied for a partial revocation of the cease trade order to permit the issuer to proceed with a private placement under prospectus exemptions -- 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, 144.

Citation: 2024 BCSECCOM 300

PARTIAL REVOCATION ORDER

FORBIDDEN SPIRIT DISTILLING CORP.

UNDER THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA AND ONTARIO
(the Legislation)

Background

¶ 1 Forbidden Spirits Distilling Corp. (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the regulator or securities regulatory authority in each of British Columbia (the Principal Regulator and Ontario (each a Decision Maker)) respectively on May 8, 2023.

¶ 2 The Issuer has applied to each of the Decision Makers for a partial revocation order of the FFCTO.

¶ 3 This order is the order of the Principal Regulator and evidences the decision of the Decision Maker in Ontario.

Interpretation

¶ 4 Terms defined in National Instrument 14-101 Definitions or in National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions have the same meaning if used in this order, unless otherwise defined.

Representations

¶ 5 This decision is based on the following facts represented by the Issuer:

1. The Issuer was formed by amalgamation on December 16, 2021 in accordance with the provisions of the Business Corporations Act (British Columbia) and obtained a public listing of securities on the TSX Venture Exchange on December 16, 2021 following closing of a qualifying transaction involving Spartan Acquisition Corp. and Forbidden Distillery Inc. On December 20, 2021, the Issuer commenced trading under the symbol VDKA.

2. The Issuer's head office is located in Kelowna, British Columbia.

3. The Issuer is reporting in British Columbia, Alberta and Ontario.

4. The Issuer's authorized capital consists of an unlimited number of common shares (the Common Shares) without par value, of which a total of 61,004,024 Common Shares are issued and outstanding. In addition, the Issuer has 2,000,000 share purchase warrants outstanding which are exercisable into 2,000,000 Common Shares of the Issuer and 5,518,257 stock options exercisable into 5,518,257 Common Shares.

5. The FFCTO was issued by the Decision Makers on May 8, 2023 due to the failure of the Issuer to file its annual financial statements, annual management's discussion and analysis and certification of annual filings for the year ended December 31, 2022 (collectively, the Unfiled Documents).

6. Subsequent to the failure to file the Unfiled Documents, the Issuer also failed to file the following documents (together with the Unfiled Documents, the Unfiled Continuous Disclosure Documents):

(a) the Issuer's interim financial statements and management's discussion and analysis for the three months ended March 31, 2023 and certification of interim filings for the three months ended March 31, 2023,

(b) the Issuer's interim financial statements and management's discussion and analysis for the six months ended June 30, 2023 and certification of interim filings for the six months ended June 30, 2023,

(c) the Issuer's interim financial statements and management's discussion and analysis for the nine months ended September 30, 2023 and certification of interim filings for the nine months ended September, 2023,

(d) the Issuer's annual financial statements, management's discussion and analysis and certification of annual filings for the year ended December 31, 2023, and

(e) the Issuer's interim financial statements and management's discussion and analysis for the three months ended March 31, 2024 and certification of interim filings for the three months ended March 31, 2024.

7. The Issuer's failure to file the Unfiled Continuous Disclosure Documents in a timely manner arose as a consequence of financial difficulties.

8. Other than the failure to file the Unfiled Continuous Disclosure Documents, the Issuer is not in default of the Legislation. The issuer confirms that its SEDAR+ profile and SEDI profiles (as they pertain to the current insiders of the Issuer) are up to date.

9. The Issuer proposes to complete:

(a) a private placement of convertible notes (the Convertible Notes) for aggregate gross proceeds of up to a maximum of $500,000 (the Private Placement). The Convertible Notes shall be issued in aggregate principal amounts of $1,000 and be convertible at the option of the holder into Common Shares at a price of $0.01 per Common Share. The Private Placement will be completed in accordance with all applicable laws. In particular, the Private Placement will be conducted on a prospectus exemption basis with subscribers in British Columbia, Ontario and other Canadian provinces who satisfy the requirements of Section 2.3 (Accredited Investor) of National Instrument 45-106 Prospectus Exemptions (NI 45-106) and, potentially, with subscribers in international jurisdictions in reliance on the prospectus exemption set forth in Section 3 of BC Instrument 72-503,

(b) the Company anticipates paying a finder's fee equal to 8% of the Private Placement amount in cash and 8% in Common Share Purchase Warrants (the Finder Warrants) to Alphanorth Asset Management (the Finder). The Finder Warrants will entitle the holder to acquire one Common Share (subsequent to the full revocation of the FFCTO) at an exercise price of $0.01/share for a period of 24 months from the date of issuance, and

(c) upon completion of the Private Placement, the Issuer will use the funds raised to facilitate payment to the Issuer's service providers, including its legal counsel and auditors in order to have the Issuer's audited financial statements for the fiscal years ended December 31, 2023 and 2022, corresponding MD&A and certification of annual filings completed. The Issuer will also file outstanding interim financial statements and MD&A and otherwise bring forward its continuous disclosure record in order to be in a position to apply for a full revocation of the FFCTO. The Issuer also anticipates using a portion of the funds raised to settle debt obligations arising in connection with this application, ordinary course business expenses and otherwise.

10. The Issuer confirms that the Convertible Notes may only be converted and the Filer Warrants may only be exercised after the full revocation of the FFCTO.

11. The proceeds of the Private Placement (the Proceeds) are intended to be used by the Issuer as follows:

Description	Estimated Amount
Payment of legal, accounting, transfer agent and Exchange fees incurred to date and in connection with the Private Placement, including outstanding auditors fees	$179,500.00
Payment of finder's fee equal to 8% of the Proceeds	$40,000.00
Preparation and filing of the outstanding continuous disclosure documents, applications for a full revocation order and payment of related fees	$35,980.00
Employee (excluding directors and officers) salaries and benefits through end of June 2024	$111,250.00
Fees and expenses related to the calling and holding of the Issuers annual general meeting	$20,000.00
General working capital	$113,270.00
Total:	$500,000.00

12. The Issuer intends to prepare and file the outstanding continuous disclosure documents and pay all outstanding fees within a reasonable period of time following the completion of the Private Placement. The Issuer also intends to make an application to the Decision Makers for a full revocation of the FFCTO. Based on the management's current reasonable estimation, the Issuer believes the proceeds from the Private Placement will be sufficient to enable the Issuer to file the outstanding continuous disclosure documents, pay all related outstanding fees and provide the Issuer with sufficient working capital to continue its business until the FFCTO has been fully revoked.

13. The Private Placement and the issuance of the Finder Warrants would involve a trade of securities of the Issuer and, as such, neither can be completed without a partial revocation of the FFCTO.

14. The Issuer confirms that there are no convertible or debt securities currently outstanding.

15. There have been no material changes in the business, operations or affairs of the Issuer since the issuance of the FFCTO that have not been previously disclosed by news release and/or material change report and filed on the Issuer's SEDAR+ profile.

16. The Issuer will obtain, and provide upon request to the principal regulator, signed and dated acknowledgements from all participants in the proposed trades, which clearly state that the securities of the issuer acquired by the participant will remain subject to the failure-to-file cease trade order until a full revocation order is granted, the issuance of which is not certain.

17. The Issuer also confirms it will provide a copy of the failure-to-file cease trade order and the partial revocation order to all participants in the proposed trades.

18. To the Issuer's knowledge, no participant in the Private Placement is an insider or a related party (as such term is defined in Multilateral Instrument 61-101-Protection of Minority Security Holders in Special Transactions) of the Issuer.

19. Upon issuance of a partial revocation order, the Issuer will issue a press release announcing the partial revocation order and the intention to complete the Private Placement. Upon completion of the Private Placement, the Issuer will issue a press release and file a material change report. As other material events transpire, the Issuer will issue appropriate press releases and material change reports as applicable.

Order

¶ 6 Each of the Decision Makers is satisfied that a partial revocation order of the FFCTO meets the test set out in the Legislation for the Decision Maker to make the decision.

¶ 7 The decision of the Decision Makers under the Legislation is that the FFCTO is partially revoked as it applies to the Issuer solely to permit the Private Placement and the issuance of the Finder Warrants, provided that:

1. Prior to completion of the Private Placement, the Issuer will:

(a) Provide each participant in the Private Placement and the Finder with a copy of the FFCTO and a copy of this partial revocation order.

(b) Obtain a signed and dated acknowledgement from each such participant in the Private Placement and the Finder which clearly states that all of the Issuer's securities will remain subject to the FFCTO until the FFCTO is revoked and that the issuance of this partial revocation order does not guarantee the issuance of a full revocation in the future.

2. The Issuer undertakes to make available a copy of the written acknowledgement to staff of the Decision Makers on request.

¶ 8 July 9, 2024

"Larissa M. Streu"
Manager, Corporate Disclosure Corporate Finance

OSC File #: 2024/0287