Securities Law & Instruments

Headnote

Section 144 -- application for variation of cease trade order -- issuer cease traded due to failure to file with the Commission annual financial statements -- issuer has applied for a variation of the cease trade order to permit the issuer to proceed with a private placement -- potential investors to be accredited investors and to receive copy of cease trade order and partial revocation order prior to making investment decision -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O., c. S.5, as am., ss. 127, 144.

National Instrument 45-106 Prospectus and Registration Exemptions.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the Act)

AND

IN THE MATTER OF

NORTHEASTERN HOTEL GROUP INC.

 

ORDER

(Section 144 of the Act)

WHEREAS the securities of Northeastern Hotel Group Inc. (the Applicant) are subject to a temporary cease trade order dated August 20, 2003 made under paragraph 2 of subsection 127(1) and subsection 127(5) of the Act and a further cease trade order made by the Director dated August 29, 2003 under subsection 127(1) of the Act directing that trading in the securities of the Applicant cease unless revoked by a further order of revocation (the Cease Trade Order);

AND WHEREAS the Applicant has applied to the Ontario Securities Commission (the Commission) under section 144 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 was incorporated on July 7, 1989 under the Canada Business Corporations Act. The Applicant maintains a registered office at 220 Bay Street, Suite 500, Toronto Canada, M5J 2W4. The Applicant's records are currently located at 220 Bay Street, Suite 500, Toronto Canada, M5J 2W4.

2. The authorized share capital of the Applicant consists of an unlimited number of common shares, of which 12,295,655 common shares are issued and outstanding as of June 18, 2009.

3. The Applicant is a reporting issuer or the equivalent under the securities legislation of the province of Ontario. The Applicant is not a reporting issuer in any other jurisdiction in Canada.

4. The common shares of the Applicant are not listed or quoted on any exchange or market in Canada or elsewhere.

5. The Applicant was listed on the Canadian Dealing Network (now TSX Venture Exchange) when it was delisted.

6. The Cease Trade Order was issued due to the failure by the Applicant to file with the Commission audited annual financial statements for the year ended March 31, 2003, as required by the Act (the Statements). The Applicant has further failed to file interim financial statements and related MD&A for subsequent periods to date (together with the Statements, the Financial Statements). The Applicant is also in default of the requirement to file the certifications required under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.

7. The Financial Statements were not filed with the Commission due to a lack of funds to pay for the preparation and, in respect of the annual financial statements, audit of year-end Financial Statements.

8. A special meeting of shareholders of the Applicant was held on June 18, 2009. The Applicant's shareholders were asked to approve, among other items, (i) remove the incumbent directors and elect new directors, and (ii) a share consolidation on a basis of one new common share for every ten common shares outstanding (the Share Consolidation).

9. The Applicant acknowledges that, by sending to shareholders an information circular describing the proposed Share Consolidation and holding a shareholder meeting to approve the Share Consolidation, the Applicant was in contravention of the Cease Trade Order.

10. The Applicant does not intend to proceed with the Share Consolidation prior to a full revocation of the Cease Trade Order.

11. The Applicant intends to complete a private placement (the Private Placement) of a convertible debenture (the Debenture) to a private Ontario corporation, Cardon Equities Inc., of $70,000 after purchasing all 6,235,000 of the outstanding common shares of the Applicant held by Transpacific Resources Inc. for a nominal price. Distribution of the Debenture will be effected under the accredited investor exemption in section 2.3 of National Instrument 45-106 Prospectus and Registration Exemptions.

12. The Debenture will mature one year from the date of issue, bearing an interest rate at 10% per annum. The Debenture will be convertible into common shares of the Applicant at a rate of $0.005 per common share.

13. The Applicant proposes to trade in securities in Ontario.

14. The Private Placement is to be completed in compliance with all applicable securities legislation.

15. The Applicant will use the proceeds from the Private Placement to complete the preparation audit and filing of the Financial Statements, bring its continuous disclosure records up to date and improve the Applicant's financial position.

16. The Applicant further intends to, within a reasonable time following closing of the Private Placement, apply to the Commission for a full revocation of the Cease Trade Order.

17. The Applicant believes that it will have sufficient resources to complete its required continuous disclosure documents and pay all related outstanding fees.

18. The use of proceeds is estimated to be applied as follows:

a.
Fees and penalties for past late filing of materials:
$30,000
 
b.
Accounting fees to produce quarterly financial statements and audited year-end financial statements for March 31, 2003 and subsequent up to June 30, 2009:
$5,500
 
c.
Payment of Transfer Agent Fees arrears:
$4,000
 
d.
Legal fees to document the convertible debenture, effect the filing of the continuous disclosure materials and review of same, preparation of materials to procure an order from the OSC for the full lifting of the CTO:
$29,500

19. The Applicant has not been previously subject to a cease trade order by the Commission.

20. As the Private Placement and the proposed share purchase would involve a trade of securities and acts in furtherance of trades, the Private Placement could not be completed without a partial revocation of the Cease Trade Order.

21. Upon issuance of this Order, the Applicant will issue a press release and file a material change report announcing the Private Placement and this Order.

22. The Applicant is not in default of any requirements of the Cease Trade Order or the Act or the rules and regulations, subject to the deficiencies outlined in paragraphs 6 and 9 above.

23. 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.

AND WHEREAS considering the application and the recommendation of the staff of the Commission;

AND WHEREAS the Director is 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 be and is hereby varied solely to permit trades and acts in furtherance of trades in connection with the Private Placement as to the issuance of the Debenture, but not the conversion thereof, nor as to the issuance of any other securities by the Applicant, and the acquisition by Cardon Equities Inc. of the 6,253,000 common shares held by Transpacific Resources Inc. provided that:

(i) prior to the completion of the Private Placement and purchase of the issued shares, each potential investor:

a. receives a copy of the Cease Trade Order and this Order;

b. receives written notice from the Applicant, and provides a written acknowledgement to the Applicant, that all of the Applicant's securities, including the Debenture and any securities of the Applicant issued upon conversion of the Debenture, will remain subject to the Cease Trade order until it is revoked;

(ii) the Applicant will obtain and provide to the Commission a signed and dated acknowledgement from the participant in the Private Placement, which clearly states that the issuance of a partial revocation order does not guarantee the issuance of a full revocation order in the future; and

(iii) this Order will terminate on the earlier of the closing of the Private Placement and 60 days from the date hereof.

DATED September 18, 2009.

"Michael Brown"
Assistant Manager, Corporate Finance
Ontario Securities Commission