The Westaim Corporation

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Reporting issuer seeking relief from requirement under section 3.2 of NI 52-107 to permit the issuer to voluntarily file financial statements of an investee entity prepared in accordance with U.S. GAAP -- Relief granted, subject to conditions.

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 3.2.

March 29, 2016

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 THE WESTAIM CORPORATION (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) providing exemptive relief from the requirements of section 3.2 of National Instrument 52-107 -- Acceptable Accounting Principles and Auditing Standards (NI 52-107) to permit the Filer to voluntarily file on its directory on the System for Electronic Document Analysis and Retrieval (SEDAR), the annual audited financial statements (the HIIG Financial Statements) of Houston International Insurance Group, Ltd. (HIIG), in each case, prepared using U.S. GAAP as opposed to IFRS (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 (the Principal Regulator); 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon (collectively, the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions, MI 11-102 and NI 52-107 have the same meaning if used in this decision, unless otherwise defined herein.

Representations

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

1. The Filer is a corporation existing under the Business Corporations Act (Alberta) with its head office at 70 York Street, Suite 1700, Toronto, Ontario M5J 1S9.

2. The Filer is a Canadian investment company specializing in providing long-term capital to businesses operating primarily within the global financial services industry which invests directly and indirectly through acquisitions, joint ventures and other arrangements, with the objective of providing its shareholders with capital appreciation and real wealth preservation.

3. The Filer is a reporting issuer or equivalent in the Jurisdiction and each Passport Jurisdiction and is not an SEC issuer.

4. To the best of its knowledge, the Filer is not in default of any requirement of securities laws in any jurisdiction of Canada.

5. As of the date hereof, the Filer's investments include significant interests in HIIG and the Arena Investors group of companies.

6. HIIG is a Delaware corporation with its principal place of business being located in Houston, Texas.

7. HIIG is a foreign issuer and not a reporting issuer or equivalent or an SEC issuer.

8. On July 31, 2014, the Filer, in combination with third party investors, completed the acquisition of an indirect significant equity interest in HIIG (the Acquisition).

9. The Filer prepared and filed a business acquisition report (BAR) in respect of the Acquisition on October 8, 2014 (the Initial BAR). The Initial BAR contained audited consolidated balance sheets of HIIG as at December 31, 2013 and 2012 and audited consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity and cash flows for the years ended December 31, 2013 and 2012 (the Initial BAR Audited Statements), an unaudited interim consolidated balance sheet of HIIG as at June 30, 2014 and unaudited interim consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity and cash flows for the six months ended June 30, 2014 and 2013 (the Initial BAR Unaudited Statements and collectively with the Initial BAR Audited Statements, the Initial BAR Statements).

10. On January 14, 2015, the Filer, in combination with third party investors, acquired an additional indirect equity interest in HIIG (the Additional Acquisition).

11. The Filer prepared and filed a BAR in respect of the Additional Acquisition on March 31, 2015 (the Subsequent BAR). The Subsequent BAR contained audited consolidated balance sheets of HIIG as at December 31, 2014 and 2013 and audited consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity and cash flows for the years ended December 31, 2014 and 2013 (the Subsequent BAR Audited Statements and collectively with the Initial BAR Statements, the BAR Statements).

12. The Filer currently owns an indirect approximate 44.1% equity interest in HIIG.

13. The BAR Statements were prepared in accordance with U.S. GAAP and the Initial BAR Audited Statements and the Subsequent BAR Audited Statements were audited in accordance with U.S. AICPA GAAS.

14. The Filer's investment in HIIG represented approximately 43.5% of its aggregate assets as at December 31, 2015.

15. The annual financial statements of the Filer are in compliance with IFRS and are audited in accordance with Canadian GAAS.

16. IFRS 10 provides an exception to the consolidation requirements for entities that meet the definition of an investment entity and requires such an entity to measure its investments in particular subsidiaries at fair value through profit or loss instead of consolidating those subsidiaries in its financial statements. The Filer has determined that it meets the definition of investment entity in IFRS 10, and as a result the Filer does not consolidate the results of HIIG in its financial statements.

17. At this time, in addition to the fact that security holders of HIIG have access to the HIIG Financial Statements, given that the Filer's investment in HIIG represents a material portion of the Filer's aggregate assets, the Filer considers that the HIIG Financial Statements will provide relevant information for investors in assessing the financial position and performance of the Filer. As such, the Filer is desirous of providing, for the benefit of its security holders and the investing public generally, access to the HIIG Financial Statements.

18. The Filer currently intends to accomplish the foregoing by filing, on a voluntary basis, the HIIG Financial Statements on SEDAR under the Filer's directory commencing in 2016 in respect of HIIG's financial year ended December 31, 2015 (each, a Voluntary HIIG Filing).

19. A Voluntary HIIG Filing is not a requirement under securities legislation.

20. Should the Filer effect a Voluntary HIIG Filing, in order to comply with NI 52-107, the HIIG Financial Statements would be required to be prepared in accordance with IFRS (rather than U.S. GAAP).

21. If HIIG were an SEC issuer, the Filer would be permitted by section 3.7 of NI 52-107 to file the HIIG Financial Statements prepared in accordance with U.S. GAAP.

22. If the HIIG Financial Statements were "acquisition statements", as defined in NI 52-107, the Filer would be permitted by section 3.11 of NI 52-107 to file the HIIG Financial Statements prepared in accordance with U.S. GAAP.

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 to the Filer provided that:

(a) the HIIG Financial Statements are prepared in accordance with U.S. GAAP and are audited in accordance with U.S. AICPA GAAS or U.S. PCAOB GAAS, respectively;

(b) the filing of the HIIG Financial Statements under the Filer's SEDAR directory is voluntary; and

(c) HIIG Financial Statements filed by the Filer in respect of any given financial year are filed on or before the filing deadline applicable to the Filer's annual financial statements under the Legislation for that financial year.

The Exemption Sought applies to HIIG Financial Statements commencing in 2016 in respect of HIIG's financial year ended December 31, 2015.

"Cameron McInnis"
Chief Accountant
Ontario Securities Commission