Ivory Energy Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - s. 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) - exemption from the requirement under Part 8 of NI 51-102 to include financial statements in a business acquisition report - the issuer will provide alternative disclosure on the basis that the acquisition was in substance an acquisition by the issuer of an interest in oil and gas properties.

Applicable Legislative Provisions

NI 51-102 Continuous Disclosure Obligations

Citation: Matter of Ivory Energy Inc., 2007 ABASC 838

November 14, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

IVORY ENERGY INC.

(THE FILER)

MRRS DECISION DOCUMENT

Background

1. 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) exempting the Filer from the requirement to include in a business acquisition report (BAR) certain financial information in respect of a significant acquisition made by the Filer, on the condition that the Filer include in the BAR certain alternative financial information as more particularly described below (the Requested Relief).

Principal Regulator System

2. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Alberta Securities Commission is the principal regulator for the Filer;

(b) the Filer is relying on the exemption in Part 3 of MI 11-101 in British Columbia, Saskatchewan and Manitoba; and

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

Interpretation

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

Representations

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

(a) The Filer is a corporation amalgamated under the Business Corporations Act (Alberta). Its head office is located in Calgary, Alberta.

(b) The Filer is an independent oil and gas company engaged in the business of exploring for, developing, and producing petroleum and natural gas reserves in Alberta and Saskatchewan.

(c) The Filer is a reporting issuer in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba and Ontario and is not, to its knowledge, in default of its obligations as a reporting issuer under the securities legislation of such provinces.

(d) The Filer is a "venture issuer" within the meaning of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).

(e) On March 15, 2007, a wholly-owned subsidiary of the Filer entered into a share purchase and sale agreement (as amended on May 23, 2007, the Acquisition Agreement) with Empire Resources Inc. (the Vendor) providing for the indirect acquisition (the Acquisition) by the Filer of certain oil and gas properties and related assets (the Assets). The Acquisition closed on July 19, 2007 with an effective date of March 1, 2007 for purchase price or working capital adjustment purposes.

(f) Pursuant to the Acquisition Agreement, the Filer acquired 100% of the issued and outstanding shares (the AcquisitionCo Shares) of 101091129 Saskatchewan Ltd. (AcquisitionCo), a corporation incorporated for the purpose of facilitating the Acquisition.

(g) Subsequent to the entering into of the Acquisition Agreement and prior to the closing of the Acquisition, the Vendor transferred the Assets to AcquisitionCo. Accordingly, at the time of closing the Assets were held by AcquisitionCo.

(h) The transfer of the Assets from the Vendor to AcquisitionCo was made for the purpose of facilitating the Acquisition in a manner that achieved certain tax and commercial efficiencies for the Vendor.

(i) The Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102. Accordingly, the Filer is required under section 8.2 of NI 51-102 to file a BAR in respect of the Acquisition.

(j) Substantially concurrently with the closing of the Acquisition, the Filer completed the purchase of all of the issued and outstanding shares of Zenith Petroleum Corp.

(k) The Filer's acquisition of Zenith Petroleum Corp. did not constitute a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102, and together with the Acquisition did not constitute an "acquisition of related businesses" as defined therein.

(l) The financial year end of the Filer is December 31 and the financial year end of the Vendor was June 30.

(m) The required content of the BAR is prescribed in Form 51-102F4.

(n) Pursuant to Item 3 of Form 51-102F4 and Part 8 of NI 51-102, the Filer would, absent the Requested Relief, be required to include in its BAR for the Acquisition, subject to the exemptions provided therein:

(i) an income statement, a statement of retained earnings and a cash flow statement for each of the two most recently completed financial years in respect of the Assets, a balance sheet as at the end of each such financial year, and notes to the financial statements;

(ii) an auditor's report on the income statement, statement of retained earnings and cash flow statement for the most recently completed financial year in respect of the Assets and the balance sheet as at the end of such financial year;

(iii) a pro forma balance sheet of the Filer as at June 30, 2007 that gives effect to the Acquisition as if it had taken place as at such date; and

(iv) a pro forma income statement of the Filer for the financial year ended December 31, 2006 and for the six month interim period ended June 30, 2007, in each case that gives effect to the Acquisition as if it had taken place at January 1, 2006, together with pro forma earnings per share.

(o) Subsection 8.10(3) of NI 51-102 provides an exemption from the financial statement disclosure requirements that would otherwise apply under Part 8 of NI 51-102 if the significant acquisition is of a business that is an interest in an oil and gas property, provided that, among other things, the acquisition is not an acquisition of securities of another issuer and the issuer includes in the BAR certain alternative financial disclosure in respect of the interests acquired.

(p) All of the conditions set forth in subsection 8.10(3) of NI 51-102 are satisfied in the circumstances of the Acquisition except that: (i) the Acquisition is an acquisition of securities of another issuer; and (ii) with respect to financial periods and audit requirements the Filer proposes to include in the BAR for the Acquisition historical operating statements in respect of the Assets and pro forma operating statements of the Filer as set forth in paragraph 4(r) below instead of what would otherwise be required under NI 51-102.

(q) The Acquisition was, in substance, an acquisition by the Filer of an interest in oil and gas properties constituting a business. But for certain tax and commercial efficiencies achieved by structuring the Acquisition as a purchase by the Filer of the AcquisitionCo Shares with the Vendor transferring the Assets to AcquisitionCo prior to closing, the Filer would have acquired the Assets directly from the Vendor and availed itself of the exemption provided in subsection 8.10(3) of NI 51-102 with respect to the kind of financial disclosure to be included in the BAR.

(r) The Filer proposes to include in the BAR to be filed in respect of the Acquisition:

(i) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the years ended June 30, 2006 and 2005;

(ii) an audited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2006 and an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended December 31, 2005;

(iii) an unaudited schedule of revenues, royalties and operating expenses in respect of the Assets for the six months ended June 30, 2007;

(iv) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the year ended December 31, 2006 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(v) an unaudited pro forma consolidated schedule of revenues, royalties and operating expenses of the Filer for the six months ended June 30, 2007 giving effect to the Acquisition as if it had taken place at January 1, 2006;

(vi) a description of the Assets and disclosure regarding the annual oil and gas production volumes from the Assets, as contemplated in clauses 8.10(3)(e)(iii) and (iv) of NI 51-102; and

(vii) information regarding estimated reserves and related future net revenue attributable to the Assets and estimated oil and gas production volumes therefrom, as contemplated in paragraph 8.10(3)(g) of NI 51-102.

(collectively, the Alternative Financial Disclosure).

(s) The Filer seeks a decision of the Decision Makers under section 13.1 of NI 51-102 exempting the Filer from the requirement to include in the BAR to be filed in respect of the Acquisition the financial statements and other information required pursuant to Item 3 of Form 51-102F4, provided that the BAR includes the Alternative Financial Disclosure.

Decision

5. The Decision Makers being satisfied that they have jurisdiction to make this decision and that the relevant test under the Legislation has been met, the decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Filer includes the Alternative Financial Disclosure in the BAR to be filed in respect of the Acquisition.