Headnote MI 11-102 and NP 11-203 – Application for exemption from issuer bid requirements and insider reporting requirements – issuer has established employee share purchase plan – issuer has appointed wholly owned subsidiary to act as plan trustee – plan trustee will purchase and sell common shares in the open market with employee and employer contributions in accordance with the instructions of plan participants – plan trustee will be purchaser and legal owner of all shares acquired under the Plan until shares are disposed of or distributed in kind to participants – acquisition of shares by plan trustee may be an “issuer bid” since acquisition of shares may be viewed as an indirect acquisition of shares by the Issuer – acquisition of shares may in certain circumstances trigger insider reporting requirements – relief from issuer bid requirements and insider reporting requirements granted subject to conditions Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss. 93 to 99.1 and 104(2)(c) Securities Act, R.S.O. 1990, c. S.5, as am., ss. 107 and 121(2)(a)(ii)
Multilateral Instrument 11-102 Passport System
August 12, 2008
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 GREY HORSE CORPORATION (the Issuer)
AND
EQUITY TRANSFER AND TRUST COMPANY (ETT)
DECISION DOCUMENT
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Issuer and ETT (collectively, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Filers be exempt from the Issuer Bid Requirements and the Insider Reporting Requirements (as such terms are defined below) in connection with acquisitions and dispositions by ETT of Common Shares (as defined below) pursuant to the Plan (as defined below) (the Exemptions Sought), subject to certain conditions.
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 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.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in the decision.
Representations
This decision is based on the following facts represented by the Filers:
The Issuer is a corporation existing under the Canada Business Corporations Act with its head office located in Toronto, Ontario.
The Issuer, through its subsidiaries, provides financial services to the corporate and institutional market.
The Issuer is a reporting issuer in British Columbia, Alberta and Ontario. The Issuer is not in default of any requirements of the Legislation.
The common shares in the capital of the Issuer (the Common Shares) are listed and posted for trading on the Toronto Stock Exchange under the trading symbol “GHC”. As at December 31, 2007, the Issuer had approximately 6,675,225 Common Shares issued and outstanding.
On November 29, 2007, the Issuer approved an employee share purchase plan (the Plan) under a Trust and Agent Services Agreement (the Trust Agreement) to be entered into between the Issuer, ETT and Solium (defined below) to establish the trust (the Trust) in connection with the Plan. The Plan is designed to, among other things, provide an opportunity for employees of the Issuer and its subsidiaries
(a) to accumulate savings through automatic payroll deductions and by sharing in the profits of the Issuer and its subsidiaries, and
(b) to increase ownership in the Issuer and participate in its growth.
The Issuer will file the Trust Agreement on SEDAR and will similarly file any amendments to the Trust Agreement on SEDAR.
The Plan is open to eligible employees of the Issuer and its subsidiaries, as determined under the Plan, who enrol as a participant under the Plan (a Participant). Participation in the Plan is voluntary. Employees are not induced to participate by an expectation of employment.
The Issuer has appointed ETT to act as trustee of the Trust established under the Trust Agreement (the Plan Trustee). ETT is a wholly owned subsidiary of the Issuer that has been licensed as a trust company under the Trust and Loan Companies Act (Canada). ETT provides transfer agent and corporate trust services to public issuers in the North American capital markets.
The Issuer and the Plan Trustee have retained Solium Capital Inc. (Solium or the Administrative Agent) to act as administrative agent for the Plan Trustee. Solium is a plan administrator that provides administration services to issuers in connection with their equity based compensation plans. Solium is a reporting issuer in the Provinces of Alberta, British Columbia and Ontario and its common shares are listed on the Toronto Stock Exchange. Neither the Issuer nor ETT is affiliated with Solium.
The assets of the Trust will consist of cash contributions made by the Participants or the Issuer in accordance with the Plan and all property acquired with such contributions, together with all earnings and profits thereon. The Plan Trustee will hold all trust property, including the Common Shares, in trust for the benefit of the Participants in accordance with the terms of the Plan and the Trust Agreement.
The Plan Trustee currently does not hold any Common Shares, as part of the Trust. The Plan currently does not provide any restrictions as to the number of Common Shares that may be acquired pursuant to the Plan. The number of Common Shares to be acquired pursuant to the Plan is dependent on the personal contributions made by Participants and the associated employer contributions.
Under the Plan, the Plan Trustee will purchase and sell Common Shares in the open market with employee and employer contributions in accordance with the instructions of the Participants and the rules of the Plan. The Plan Trustee will establish a brokerage account with Canaccord Capital Corporation ("Canaccord") for the purpose of facilitating the acquisition and disposition of the Common Shares on the open market. Solium, as agent for the Plan Trustee, will provide instructions to Canaccord with respect to the acquisition and sale of Common Shares on the basis of the instructions received from the Participants and the rules of the Plan.
ETT (in its capacity as Plan Trustee) will be the purchaser and legal owner of all Common Shares acquired under the Plan until such time as the Common Shares are disposed of or distributed in kind to the Participants.
Under the Plan, Common Shares acquired from employer contributions on behalf of a Participant will generally be subject to a 12-month vesting requirement. Common Shares held in the Plan that have not yet vested are referred to as “Unvested Shares” (the Unvested Shares). Common Shares purchased from a Participant’s personal contributions and lump sum payments, and Unvested Shares that have vested, are referred to as “Unrestricted Shares” (the Unrestricted Shares).
The Plan provides that a Participant shall be the “beneficial owner” of all Unrestricted Shares purchased on his or her behalf, shall be allocated any dividends or other distributions with respect to those Unrestricted Shares, and shall be entitled to direct the voting of those Unrestricted Shares at any meeting of the holders of the Common Shares.
None of the Issuer, ETT or Solium will have any right to direct the voting of any Common Shares under the Plan. Specifically, the Unvested Shares held under the Plan will not be voted. ETT, as the registered holder of the Unrestricted Shares, shall not be entitled to vote any Unrestricted Shares allocated to a Participant's personal account except in accordance with the written direction of the Participant.
None of the Issuer, ETT or Solium will make any decisions or exercise any independent investment judgment in connection with any purchases or sale of the Issuer’s Common Shares under the Plan. Such purchases and sales will be executed automatically by Canaccord in accordance with the Participants’ instructions without any involvement of the Issuer or ETT in determining the timing or manner of execution of such transactions.
The acquisition of Common Shares by ETT in accordance with the Plan may be an “issuer bid” as defined in the Legislation since the purchase of Common Shares may be viewed as an indirect acquisition of Common Shares by the Issuer pursuant to the “issuer bid” definition in the Legislation. Accordingly, the acquisition of Common Shares by ETT in accordance with the Plan may trigger the issuer bid requirements in the Legislation (the Issuer Bid Requirements). The Issuer has determined that none of the exemptions from the Issuer Bid Requirements in the Legislation is available for the acquisitions of Common Shares by ETT in accordance with the Plan.
If ETT acquires beneficial ownership of, or the power to exercise control or direction over, a sufficient number of Common Shares of the Issuer as to result in ETT becoming subject to the early warning requirements (the Early Warning Requirements) of the Legislation, ETT will comply with the Early Warning Requirements. ETT is an “eligible institutional investor” for the purposes of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103) and may file reports under the alternative monthly reporting system in accordance with NI 62-103 in these circumstances.
Although the Participants are beneficiaries of the Trust and have a beneficial interest in the property of the Trust, including the Common Shares held in the Trust, the Filers have concluded that, as a matter of law, it is unclear as to whether a beneficiary of a trust can be viewed as having an interest in specific assets of a trust in all circumstances. Accordingly, the Filers believe it is unclear whether, as a matter of law, the Participants or the Plan Trustee may be viewed as having “beneficial ownership” of the Unvested Shares and/or the Unrestricted Shares for the purposes of the insider reporting requirements (the Insider Reporting Requirements) contained in the Legislation.
The acquisition of Common Shares by ETT pursuant to the Plan may trigger the Insider Reporting Requirements since
(a) ETT may, depending on the number of Common Shares to be acquired pursuant to the Plan, be viewed as having acquired beneficial ownership of, or control or direction over, a sufficient number of Common Shares of the Issuer as to result in ETT being considered an “insider” under the Legislation.
(b) ETT may be viewed as having acquired beneficial ownership of Common Shares of the Issuer held in the Plan with the result that the Issuer may be deemed to have acquired beneficial ownership of its own securities for the purposes of the definition of “insider” in the Legislation.
(c) To the extent the Issuer is otherwise an insider of itself, the Issuer may be required to file insider reports in respect of Plan transactions involving its own securities.
To the extent that Participants are insiders of the Issuer, the Exemption Sought will not exempt such insiders from the insider reporting requirements that may otherwise apply to purchases and sales of Common Shares by ETT or the Plan Administrator in accordance with insider Participants’ instructions. The Issuer will advise its insiders that they need to consider the potential application of the insider reporting requirements under the Legislation to Plan transactions involving securities of the Issuer.
Certain directors, officers and employees of the Issuer are also directors, officers and employees of ETT. However, the Issuer and ETT will each establish and maintain appropriate policies and procedures to ensure that ETT will not be making any purchases or sales of Common Shares under the Plan pursuant to a decision that is made or participated in by any officer, director or employee of ETT who has actual knowledge of material undisclosed information about the Issuer.
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 Exemptions Sought are granted, provided that:
(a) none of the Issuer, ETT or Solium makes any decisions or exercises any independent investment judgment in connection with any purchase or sale of the Issuer’s Common Shares under the Plan;
(b) none of the Issuer, ETT or Solium exercises any right to vote or direct the voting of any Common Shares held under the Plan except that ETT may, as the Plan Trustee, vote Unrestricted Shares allocated to a Participant's personal account in accordance with the written direction of the Participant;
(c) Solium, on behalf of ETT, maintains a record of Plan transactions involving securities of the Issuer, and ETT or Solium, on behalf of ETT, will maintain a record of Participants’ written directions relating to voting, and undertakes to make available such records to the principal regulator upon request;
(d) the Issuer discloses in each management information circular the existence and material terms of the Plan and the number of securities of the Issuer held in the Plan as of a date that is within 60 days of the date of the filing; provided that, if the Issuer does not file a management information circular within a period of 12 months from the date of filing of the most recently filed management information circular, the Issuer discloses this information in another public filing on SEDAR; and
(e) in the event of a material change in the terms of the Plan, the Decision will expire 60 days from the date of such material change.
“James E.A. Turner” “Carol S. Perry”
Vice Chair Commissioner