R&R Venture Partners II, LLC

NI 62-104 s. 6.1(1) – Filer exempt from the take-over bid requirements in Part 2 of NI 62-104 in connection with proposed normal course purchases of the common shares of the Issuer, subject to conditions – Filer acquired large block of Issuer’s common shares in connection with Issuer’s Qualifying Acquisition pursuant to TSXV Policy 2.4 – Filer seeking flexibility to purchase additional common shares in market and to provide liquidity in common shares – Filer granted relief to acquire common shares in normal course provided that such purchases satisfy the requirements of section 4.1 of NI 62-104, except that, for the purpose of calculating the 5% purchase limit, the common shares acquired by the Filer pursuant to the Issuer’s Qualifying Acquisition will be excluded.

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids, Part 2 and s. 6.1(1).

December 14, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the “Jurisdiction”)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
R&R VENTURE PARTNERS II, LLC
(“the Filer”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for an exemption (the “Exemption Sought”), pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (“NI 62-104”), from the requirements applicable to take-over bids in Part 2 of NI 62-104 in connection with certain normal course market purchases of common shares (“Common Shares”) of Five Star Diamonds Limited (“FSD”) by the Filer.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(b)           the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in Alberta and British Colombia.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.

Representations

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

1.             The Filer is a limited liability corporation organized under the laws of Delaware with a registered head office at 767 Fifth Avenue, Suite 4200 New York, NY 10153 United States.

2.             The Filer is a private venture capital company based in the United States and is not a reporting issuer or a registrant in any jurisdiction of Canada.

3.             FSD is a corporation incorporated under the laws of British Columbia with its head office located at 390 Bay Street, Suite 806 Toronto, ON M5H 2Y2 and its registered office located at Suite 704 – 595 Howe Street, Vancouver, British Columbia, V6C 2T5. FSD is a reporting issuer in British Columbia, Alberta and Ontario.

4.             FSD’s authorized share capital consists of an unlimited number of Common Shares without par value. As of November 2, 2017, 128,927,096 Common Shares were issued and outstanding.

5.             The Common Shares are listed for trading on the TSX Venture Exchange (the “TSXV”). Based on the closing price of $0.21 of the Common Shares on the TSXV on October 31, 2017, the current market capitalization of FSD is approximately $27,074,690.

6.             FSD completed its Qualifying Transaction (as defined in TSXV Policy 2.4) on April 20, 2017 pursuant to which it acquired all of the ordinary shares (“BVI Shares”) of Five Star Diamond Ltd (“Five Star BVI”), by way of a three-cornered amalgamation. Pursuant to the Qualifying Transaction, each of the shareholders of Five Star BVI exchanged all of their BVI Shares for Common Shares.

7.             Five Star BVI is a corporation incorporated under the British Virgin Islands on May 27, 2014. The registered head office of Five Star BVI was at 2nd Floor, Abbott Building, Waterfront Drive, Road Town, Tortola, British Virgin Islands.

8.             Five Star BVI is not a reporting issuer in any jurisdiction and none of Five Star BVI’s securities are listed for trading on any marketplace. Immediately prior to the Qualifying Transaction, there were 104,279,944 BVI Shares issued and outstanding.

9.             Five Star BVI and FSD were acting at arm’s length in agreeing to and completing the Qualifying Transaction.

10.          Immediately prior to the Qualifying Transaction, the Filer held 33,875,014 BVI Shares, approximately 32% of the issued and outstanding ordinary shares, of which 20,000,000 BVI Shares were acquired by the Filer on May 26, 2015, 6,250,000 BVI Shares were acquired by the Filer on December 9, 2015 and 6,250,000 BVI Shares were acquired on May 4, 2016. 1,375,014 additional BVI Shares were issued to the Filer on April 13, 2017 pursuant to price adjustment provisions that attached to the shares issued on May 26, 2015.

11.          Pursuant to the Qualifying Transaction, the Filer exchanged its BVI Shares for 33,875,014 Common Shares. On completion of the Qualifying Transaction, the Filer held 33,875,014 Common Shares or approximately 26.3% of the issued and outstanding Common Shares.

12.          The Filer has not acquired any Common Shares subsequent to the completion of the Qualifying Transaction.

13.          As a result of the Common Shares acquired by the Filer pursuant the Qualifying Transaction, the Filer exercises control or direction over more than 20% of the issued and outstanding Common Shares. As such, any additional purchase by the Filer of Common Shares would constitute a take-over bid under NI 62-104 requiring the Filer to comply with the formal take-over bid requirements in Part 2 of NI 62-104, unless an exception from those requirements is available.

14.          The Filer is unable to acquire additional Common Shares through normal course purchases in the market pursuant to the take-over bid exemption in Section 4.1 of NI 62-104 (the “Normal Course Purchase Exemption”) until April 20, 2018, being the date which is 12 months after the date that the Filer acquired the Common Shares pursuant to the Qualifying Transaction. The Filer would like the flexibility to acquire additional Common Shares by way of market purchases through the facilities of the TSXV prior to April 20, 2018.

15.          Subject to applicable law and depending on the prices at which the Common Shares are trading, the Filer intends to acquire up to 5% of the issued and outstanding Common Shares pursuant to normal course market purchasers.

16.          The interest of the Filer in being able to acquire Common Shares is not to increase its control position in FSD but instead to preserve its ability to purchase Common Shares, depending on the prices at which Common Shares are trading, and to provide liquidity to the market.

17.          The Filer does not have any current intention of making a take-over bid for all of the issued and outstanding Common Shares, or otherwise acquiring all of the issued and outstanding Common Shares by way of a plan of arrangement or other similar voting transaction.

18.          The Filer will not purchase Common Shares at any time when it has knowledge of any material fact or material change about FSD which has not been generally disclosed.

19.          FSD is aware that an application has been submitted for the Exemption Sought and management of FSD supports the Exemption Sought on the basis that normal course purchases of the Common Shares will provide additional liquidity in the market.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the acquisitions of Common Shares by the Filer in the market comply with the Normal Course Purchase Exemption, except that, for the purpose of determining the number of Common Shares acquired by the Filer within the 12-month period preceding the date of any such purchase of Common Shares in the market, the Common Shares acquired by the Filer pursuant to the Qualifying Acquisition shall be excluded in the calculation of acquisitions of Common Shares otherwise made by the Filer within the previous 12-month period.

“Naizam Kanji”
Director, Office of Mergers & Acquisitions
Ontario Securities Commission