Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for exemption from the prospectus requirement in connection with the first trade of shares of issuer through exchange or marketplace outside Canada or to person or company outside Canada -- issuer acquiring all outstanding shares of Canadian company under plan or arrangement -- Canadian shareholders will receive shares of issuer in exchange for their shares of Canadian company -- Canadian company not a reporting issuer in any jurisdiction in Canada -- issuer not a reporting issuer in any jurisdiction in Canada -- conditions of exemption in s. 2.14 of National Instrument 45-102 Resale of Securities not satisfied as residents of Canada will own more than 10% of the outstanding shares of the issuer following completion of plan of arrangement -- relief restricted to securities of issuer acquired under plan of arrangement -- relief subject to conditions, including condition that residents of Canada, excluding current shareholders of Canadian company, do not hold more than 10% of outstanding securities or represent more than 10% of the number of securityholders of the issuer at the date of distribution and that the first trade be made through an exchange or market outside of Canada or to a person or company outside of Canada.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 53, 74(1).

National Instrument 45-102 Resale of Securities, s. 2.14.

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

XTRACT ENERGY PLC

(THE APPLICANT)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Applicant for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the prospectus requirement contained in the Legislation will not apply to the first trade of ordinary shares of the Applicant to be issued to current shareholders of Elko Energy Inc. (Elko) in connection with its proposed indirect acquisition (the Proposed Transaction) of all of the outstanding common shares of Elko not already owned by the Applicant or its affiliates by way of a plan of arrangement (the Plan of Arrangement) under section 182 of the Business Corporations Act (Ontario) and on exercise of the Replacement Options (as such term is defined below, and such requested relief referred to herein as, the Exemption Sought).

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

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

(b) the Applicant 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 British Columbia, Alberta and Nova Scotia.

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 Applicant:

The Applicant

1. The Applicant is a company incorporated under the laws of the United Kingdom pursuant to the Companies Act 2006 (United Kingdom).

2. The head office of the Applicant is located in London, England.

3. The authorized share capital of the Applicant currently consists of one class of ordinary shares (the Xtract Shares).

4. 914,965,026 Xtract Shares are issued and outstanding.

5. 40,500,000 Xtract Shares are issuable upon the exercise of options to acquire Xtract Shares.

6. The Applicant has confirmed with the registrar for the Xtract Shares that there are no registered holders of Xtract Shares resident in Canada.

7. Based on its searches of nominee accounts for underlying registered shareholders of Xtract Shares, the Applicant has concluded that, to the best of its knowledge, Canadian residents currently hold less than 1% of the outstanding Xtract Shares and represent less than 1% of the total number of owners of Xtract Shares.

8. There are no Canadian residents who own, directly or indirectly, any outstanding options to acquire Xtract Shares.

9. The Applicant is not and has no present intention of becoming a reporting issuer, or the equivalent, under the securities legislation of any jurisdiction of Canada. The Applicant has never completed any offering of Xtract Shares in Canada and has no present intention to complete any offering of shares in Canada.

10. The Xtract Shares are admitted to trading on AIM, a market operated by London Stock Exchange plc (AIM) under the symbol "XTR". Xtract Shares are not listed or quoted on any other exchange or marketplace (as such term is defined in National Instrument 21-101 - Marketplace Operation) in Canada or elsewhere and the Applicant has no present intention to apply for a listing in Canada or elsewhere.

11. As at the date hereof and following the Plan of Arrangement, the mind and management of the Applicant are and will be located in Fetcham, England. The Applicant has no operations in Canada or other connection to Canada and has no present intention of establishing a market presence or operations in Canada.

Elko

12. Elko is a corporation incorporated under the Business Corporations Act (Ontario) (the OBCA).

13. The registered office of Elko is located in Toronto, Ontario. All of Elko's subsidiaries and assets are located outside of Canada. Elko's executive management is based in Fetcham, England, two of its directors are Canadian residents and all of its operations are located outside of Canada.

14. Upon completion of the Plan of Arrangement, Elko will not have any operations, employees or directors in Canada, other than resident Canadian director(s) to comply with the residency requirements for the board of directors under the OBCA.

15. Elko is not a reporting issuer, or the equivalent, under the securities legislation of any jurisdiction of Canada. Elko is not an "offering corporation" under the OBCA.

16. The authorized capital of Elko consists of an unlimited number of common shares without par value (Elko Common Shares) and an unlimited number of special shares without par value, issuable in series (Elko Special Shares).

17. There are 100,010,049 Elko Common Shares issued and outstanding, which are held by an aggregate of 165 persons. No Elko Special Shares are issued and outstanding.

18. Since Elko's inception, it has completed a total of four offerings of, and two investments by the Applicant in, Elko Common Shares or Elko Warrants. The exemption from the prospectus requirement relied upon for each investor who participated in such offerings was the accredited investor exemption. In addition to the share issuances under the offerings, a small number of Elko Common Shares were issued pursuant to the exercise of Elko Options (as defined below), in exchange for outstanding debt (in one instance) and upon the exercise of a liquidation entitlement issued to certain holders of Elko Common Shares as part of an earlier offering.

19. The Applicant, together with its affiliates, owns 49,975,000 Elko Common Shares, representing approximately 49.97% of the outstanding Elko Common Shares. The largest single holder of Elko Common Shares (other than the Applicant) holds 9,900,000 Elko Common Shares, representing approximately 9.90% of the outstanding Elko Common Shares.

20. 7,742,500 Elko Common Shares are reserved for issuance upon the exercise of options to acquire Elko Common Shares (Elko Options). There are currently 10 holders of Elko Options, each of whom is a former employee or current director, advisor or consultant of Elko.

21. 460,000 Elko Common Shares are reserved for issuance upon the exercise of warrants to acquire Elko Common Shares (Elko Warrants). There is currently one holder of Elko Warrants.

22. No securities of Elko are listed or quoted on any stock exchange or marketplace (as such term is defined in National Instrument 21-101 - Marketplace Operation) in Canada or elsewhere.

23. The current shareholders of Elko include residents of Ontario (88), British Columbia (21), Alberta (16), Nova Scotia (2) and jurisdictions outside of Canada (38).

24. The current holders of Elko Options include residents of Ontario (3) and jurisdictions outside of Canada (7) and the current holder of Elko Warrants is a resident of a jurisdiction outside of Canada.

Proposed Transaction

25. Pursuant to the Proposed Transaction, the Applicant proposes to indirectly acquire all of the issued and outstanding Elko Common Shares not already owned by the Applicant or its affiliates. The Proposed Transaction is proposed to be effected pursuant to the Plan of Arrangement under which each holder of Elko Common Shares (except those held by shareholders who exercise rights of dissent) will be entitled to receive seven Xtract Shares for each Elko Common Share.

26. Under the Plan of Arrangement, all outstanding Elko Options will be exchanged for options to purchase Xtract Shares (Replacement Options) and all outstanding Elko Warrants will be exchanged for warrants to purchase Xtract Shares (Replacement Warrants), each such exchange to be effected on the seven-to-one exchange ratio described in the immediately above paragraph.

27. Upon closing of the Proposed Transaction and payment of the aggregate consideration by the Applicant (and assuming on a pro forma basis the exercise of all Replacement Options and Replacement Warrants), the Applicant expects that 130 residents of Canada will own directly or indirectly an aggregate of 149,401,790 Xtract Shares (including those shares to be held by holders of Elko Common Shares who receive Xtract Shares in connection with the Proposed Transaction), representing approximately 10.96% of the Xtract Shares issued and outstanding on a fully-diluted basis and approximately 3.70% of the total number of owners directly or indirectly of Xtract Shares.

28. The Xtract Shares issued in connection with the Proposed Transaction or issuable from time to time on exercise of Replacement Options or Replacement Warrants will be listed on AIM.

29. Upon closing of the Proposed Transaction, the Applicant will provide holders of Xtract Shares resident in Canada the same information and materials that AIM requires the Applicant to provide to all other holders of Xtract Shares.

30. The issuance of the Xtract Shares under the Proposed Transaction is subject to approval by the stockholders of the Applicant. The Proposed Transaction is also subject to approval by the shareholders of Elko. In addition, the Plan of Arrangement is subject to approval by the Ontario Superior Court of Justice.

31. In the absence of the Exemption Sought, the first trade of Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on exercise of Replacement Options will be deemed a distribution pursuant to National Instrument 45-102 - Resale of Securities (NI 45-102) unless, among other things, the Applicant has been a reporting issuer for four months immediately preceding the trade in one of the jurisdictions set forth in Appendix B to NI 45-102, which include, among others, the Jurisdiction. As the Applicant is not a reporting issuer, or the equivalent in Canada, the Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on exercise of Replacement Options would be subject to an indefinite hold period.

32. Shareholders of Elko resident in Canada will not be able to rely on the prospectus exemption set out in section 2.14 of NI 45-102 for a first trade of Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on the exercise of Replacement Options because, following the Proposed Transaction, residents of Canada will, collectively, own, directly or indirectly, more than 10% of the Xtract Shares issued and outstanding on a fully-diluted basis.

33. Except for the requirements set out in subsections 2.14(1)(b) and 2.14(2)(c) of NI 45-102, all applicable conditions to the resale of the Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on exercise of Replacement Options contained in section 2.14 of NI 45-102 will be satisfied.

34. As required by the rules of AIM, holders of Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on the exercise of Replacement Options who are residents of Canada will receive copies of all materials and information provided to all other holders of Xtract Shares.

35. Any resale of Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on exercise of Replacement Options is expected to be effected through the facilities of AIM.

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:

(a) the Applicant (i) was not a reporting issuer in any jurisdiction of Canada at the distribution date or (ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(b) the first trade of Xtract Shares issued under the Plan of Arrangement in exchange for Elko Common Shares or issuable from time to time on exercise of Replacement Options is executed through the facilities of AIM or another exchange or market outside of Canada or to a person or company outside of Canada; and

(c) at the distribution date of such Xtract Shares, after giving effect to the issue of the Xtract Shares pursuant to the Plan of Arrangement, residents of Canada (excluding holders of Elko Common Shares):

(i) did not own directly or indirectly more than 10 percent of the outstanding Xtract Shares; and

(ii) did not represent in number more than 10 percent of the total number of owners directly or indirectly of Xtract Shares.

DATED this 24th day of June, 2011.

"Mary G. Condon"
Vice-Chair
Ontario Securities Commission
 
"James D. Carnwath"
Commissioner
Ontario Securities Commission