Headnote
NP 11-203 – MI 61-101 – take-over bid and subsequent business combination – MI 61-101 requires sending of information circular and holding of meeting in connection with second step business combination – target’s declaration of trust provides that a resolution in writing executed by unitholders holding more than 66 2/3% of the outstanding units valid as if such voting rights had been exercised at a meeting of unitholders – relief granted from requirement that information circular be sent and meeting be held – minority approval to be obtained albeit in writing rather than at a meeting of unitholders.
Applicable Legislative Provisions
Multilateral Instrument 11-102 – Passport System
National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdiction
MI 61-101 – Protection of Minority Security Holders in Special Transactions
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 TAKE-OVER BID FOR ART IN MOTION INCOME FUND BY CLARKE INC.
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Clarke Inc. (the “Filer”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”), in connection with a take-over bid (the “Bid”) for Art In Motion Income Fund (the “Fund”), for a decision that the requirements of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) that:
(1) a Compulsory Acquisition or Subsequent Acquisition Transaction (each as defined below), as applicable, be approved at a meeting of the unitholders of the Fund (the “Unitholders”); and
(2) an information circular be sent to the Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable;
be waived (the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(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 Quebec.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a company incorporated under, and governed by, the federal laws of Canada and is a reporting issuer or equivalent in all provinces and territories of Canada. The Filer’s principal office is located at 6009 Quinpool Road, 9th Floor, Halifax, Nova Scotia, B3K 5J7. To the best of its knowledge, the Filer is not in default of any requirements of the Legislation.
The Fund is a trust established under the laws of the Province of British Columbia pursuant to the Declaration of Trust (as defined below) and is a reporting issuer or equivalent in all provinces of Canada. The Fund’s head office is located at 1200 – 200 Burrard Street, Vancouver, British Columbia, V7X 1T2.
As at the date of the commencement of the Bid, the Filer holds 60.13% of the voting securities of the Fund.
The Filer entered into a Support Agreement with the Fund on July 29, 2008 which set forth the terms and conditions upon which the Bid was to be made by the Filer.
On August 18, 2008, a take-over bid circular (the “Bid Circular”) and a trustees’ circular, each dated August 14, 2008, and related documents (collectively, the “Offer Documents”), were mailed to the Unitholders. Pursuant to the Offer Documents, the Bid is set to expire on September 23, 2008 (the “Expiration Date”).
The outstanding trust units of the Fund (the “Units”) are held by CDS Clearing and Depository Services Inc. in book-entry only form.
The Bid includes the following terms and conditions:
(a) the Bid is for all of the issued and outstanding Units, other than any Units owned, directly or indirectly, by the Filer and its affiliates, at a price of $0.75 in cash per Unit; and
(b) one of the conditions of the Bid is that there shall have been validly deposited under the Bid and not withdrawn as at the expiry of the Bid, such number of Units which constitutes at least: (A) 66 ⅔% of the issued and outstanding Units (calculated on a fully-diluted basis), including Units directly or indirectly owned by the Filer; and (B) a majority of the outstanding Units that are held by persons whose Units may be included as part of any minority approval (being the approval of Unitholders other than the Filer and any associate, affiliate or insider of or joint actor with the Filer or any of their respective directors or senior officers) of a Subsequent Acquisition Transaction (as defined below), if minority approval is required under applicable laws (the “Minimum Tender Condition”).
Under the Fund’s Declaration of Trust (the “Declaration of Trust”), if within 60 days after the date of the Bid, the Minimum Tender Condition has been satisfied and the Bid is accepted by Unitholders representing not less than 90% of the outstanding Units, other than Units held at the date of the Offer by or on behalf of the Filer or an affiliate or associate of the Filer, then the Filer is entitled to acquire the Units held by Unitholders who did not accept the Offer (the “Dissenting Unitholders”) on the same terms as the Filer acquired the Units of Unitholders who accepted the Offer (a “Compulsory Acquisition”).
Under the Declaration of Trust, in order to effect a Compulsory Acquisition, the Filer must send, by registered mail, a notice to each of the Dissenting Unitholders in the form prescribed by the Declaration of Trust (the “Offeror’s Notice”) and the Dissenting Unitholders have 21 days from the date of the sending of the Offeror’s Notice to transfer their Units to the Filer. In connection with either a Compulsory Acquisition, if available and if the Filer elects to proceed thereunder, or a Subsequent Acquisition Transaction (as defined below), the Filer currently intends to amend the Declaration of Trust by the Written Resolution (as defined below) to provide that Units held by Dissenting Unitholders will be deemed to have been transferred to the Filer immediately on the sending of the Offeror’s Notice in respect of a Compulsory Acquisition or a Subsequent Acquisition Transaction and that those Dissenting Unitholders will cease to have any rights as Unitholders from and after that time, other than the right to be paid the same consideration that the Filer would have paid to the Dissenting Unitholders if the Dissenting Unitholders had tendered their Units to the Bid (the “Notice Amendment”).
If a Compulsory Acquisition as permitted under the Declaration of Trust is not available to the Filer or the Filer elects not to proceed under those provisions, the Filer currently intends to acquire the Units not deposited to the Bid by:
(a) causing the Declaration of Trust to be amended (the “Declaration of Trust Amendment”) in one or more of the following ways: (a) to permit the Fund, notwithstanding anything to the contrary contained in the Declaration of Trust, to redeem all outstanding Units in cash or in kind at a redemption price equal to the cash consideration paid for Units taken up under the Bid in connection with a Subsequent Acquisition Transaction (as defined below), (b) to reorganize the unit capital of the Fund, (c) to permit the Fund, notwithstanding anything to the contrary contained in the Declaration of Trust, to sell all or substantially all of its assets, or to permit or consent to the sale of all or substantially all of the assets of any of the Fund’s subsidiaries, to the Filer and/or one or more of its affiliates immediately prior to the redemption of Units, the proceeds of which shall be used, in whole or in part, to fund such redemption, (d) to authorize and effect the winding-up or termination of the Fund, and the sale of all or substantially all assets by the Fund and/or one or more of the Fund’s subsidiaries and redemption of Units in connection therewith, and (e) to lower the threshold to effect a Compulsory Acquisition to 66 ⅔% of the outstanding Units (the acquisition following such amendment referred to herein as a “Subsequent Acquisition Transaction”); and
(b) proceeding with the Subsequent Acquisition Transaction in respect of the Units not deposited to the Bid as permitted by the Declaration of Trust, as so amended.
In order to effect either a Compulsory Acquisition, if available and if the Filer elects to proceed thereunder, or a Subsequent Acquisition Transaction in accordance with the foregoing, rather than seeking the Unitholders’ approval at a special meeting of the Unitholders to be called for such purpose, the Filer intends to rely on Section 11.10 of the Declaration of Trust, which specifies that a resolution in writing executed by Unitholders holding more than 66⅔% of the outstanding Units at any time (the “Written Resolution”) is as valid as if such resolution had been passed at a meeting of Unitholders duly called and convened; which Written Resolution will approve, among other things, the Declaration of Trust Amendment and the Notice Amendment and any Compulsory Acquisition or Subsequent Acquisition Transaction undertaken in accordance therewith, as applicable.
If the Filer decides not to pursue either the Compulsory Acquisition or the Subsequent Acquisition Transaction in the manner described above, the Filer reserves the right, to the extent permitted by applicable law, to purchase additional Units in the open market, in privately negotiated transactions, in another take-over bid or otherwise. Alternatively, the Filer may sell or otherwise dispose of any or all Units acquired pursuant to the Bid or otherwise.
In order to effect either a Compulsory Acquisition or Subsequent Acquisition Transaction, if the Minimum Tender Condition is satisfied, in accordance with the foregoing, rather than seeking Unitholder approval at a special meeting of the Unitholders called for such purpose, the Filer intends to rely on Section 11.10 of the Declaration of Trust, which would permit the special resolutions to be approved in writing by Unitholders holding not less than 66 ⅔% of the issued and outstanding Units.
A Compulsory Acquisition or a Subsequent Acquisition Transaction would be a “business combination” under MI 61-101.
To effect either a Compulsory Acquisition or Subsequent Acquisition Transaction, the Filer will comply with the provisions of MI 61-101 and, specifically, will obtain minority approval (as that term is defined in MI 61-101) in accordance with the terms of Part 8 MI 61-101 (“Minority Approval”) by Written Resolution rather than at a meeting if Unitholders.
The Bid Circular contains all disclosure required by applicable Legislation, including without limitation, the take-over bid provisions and form requirements of the Legislation, including the provisions of MI 61-101 relating to the disclosure required to be included in a disclosure document for a formal bid in respect of a second-step business combination.
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 Minority Approval shall have been obtained by Written Resolution.
“Naizam Kanji”
Name: Naizam Kanji
Manager, Ontario Securities Commission