Headnote
MRRS – Relief granted to IDS issuers from including financial statements required by NI 51-102 with a BAR – Filers made a “significant acquisition” for purposes of NI 51-102 as a result of increasing economic and voting stake in underlying business – Filers had already been filing separate annual and interim financial statements for the company holding the underlying business for the two years since it had acquired its original economic and voting stake in the underlying business – - Filer had filed on SEDAR consolidated financial statements which included the acquired business at their most recent year end.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, s. 8.3
Dated: November 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 New Flyer Industries Inc.
Decision
Background
The principal regulator in the Jurisdiction has received an application from New Flyer Industries Inc (the “Filer”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) that the Filer will not be required to include financial statement disclosure required under section 8.4 of National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) in the Business Acquisition Report (the “BAR”) of the Filer relating to the September 2008 Acquisition (as defined herein) (the “Requested Relief”).
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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador and the Yukon (the “Jurisdictions”).
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
The decision is based on the following facts represented by the Filer:
The initial public offering of 20,000,000 IDSs (the “IPO”) of the Filer and New Flyer Industries Canada ULC (“NFI ULC”) closed on August 19, 2005. The net proceeds of the IPO were used by the Filer to acquire an approximate 36.9% economic interest and a 51% voting interest in New Flyer Holdings, Inc. (the “Company”) through ownership of Class A common shares of the Company (“Class A Shares”). The remaining approximate 63.1% economic interest and 49% voting interest in the Company was held indirectly by the former owners of the underlying business through New Flyer Transit, L.P. (“Transit LP”) and New Flyer LLC (“NFL LLC”, together with Transit LP, the “Retained Interest Holders”), in the form of Class B common shares of the Company (“Class B Shares”) and Class C common shares of the Company (“Class C Shares”). As described in detail in the IPO prospectus, the agreements entered into in connection with the IPO granted the Retained Interest Holders the right, in certain circumstances, to require the Company to use its best efforts to obtain a financing commitment to allow it to acquire or purchase for cancellation all or part of such shares (the “Liquidity Right”), most likely through the issuance of additional IDSs.
The Filer is a reporting issuer in each of the Jurisdictions and the Filer is not in default of its obligations as reporting issuers (or equivalent status) in any Jurisdiction. The IDSs are listed and traded on the Toronto Stock Exchange.
The Filer holds no material investments other than its interest in the Company.
The Filer filed a BAR relating to the acquisition of the underlying business of the Company on October 27, 2005.
On July 12, 2007, the Filer and NFI ULC issued 9,410,000 IDSs for aggregate proceeds of approximately C$110 million pursuant to a short form prospectus in connection with an exercise of the Liquidity Right by the Retained Interest Holders (the “2007 Offering”). The net proceeds of the 2007 Offering were used by the Filer to purchase additional Class A Shares and to permit the purchase for cancellation of 10,490,293 Class C Shares (the “2007 Acquisition”). As a result of the 2007 Acquisition, the economic and voting interest of the Filer in the Company increased to approximately 55.3% and the economic and voting interest of the Retained Interest Holders decreased to approximately 44.7%.
On September 25, 2007, the Filer obtained exemptive relief from the requirement to include financial statement disclosure under section 8.4 of NI 51-102 in the BAR relating to the 2007 Acquisition (the “2007 Decision Document”). On the same date, in accordance with the 2007 Decision Document, the Filer filed a BAR relating to the 2007 Acquisition which did not include the financial statement disclosure required under section 8.4 of NI 51-102.
On April 10, 2008, the Filer and NFI ULC issued 8,770,000 IDSs for aggregate proceeds of approximately C$100 million pursuant to a short form prospectus in connection with an exercise of the Liquidity Right by the Retained Interest Holders (the “April 2008 Offering”). The net proceeds of the April 2008 Offering were used by the Filer to purchase additional Class A Shares and to permit the purchase for cancellation of 10,830,901 Class C Shares (the “April 2008 Acquisition”). As a result of the April 2008 Acquisition, the economic and voting interest of the Filer in the Company increased to approximately 74.85% and the economic and voting interest of the Retained Interest Holders decreased to approximately 25%. Applying the tests for significance set out in Part 8 of N1 51-102, the Filer determined that the April 2008 Acquisition was not a “significant acquisition” requiring the filing of a BAR.
On September 3, 2008, the Filer and NFI ULC issued 9,143,100 IDSs for aggregate proceeds of approximately $102 million pursuant to a short form prospectus in connection with an exercise of Liquidity Rights by Transit LP (the “September 2008 Offering”). The net proceeds of the September 2008 Offering were used by the Filer to purchase additional Class A Shares and to permit the purchase for cancellation of 2,098,654 Class B Shares and 8,210,820 Class C Shares held by Transit LP, being all of the remaining Class B Shares and Class C Shares held by Transit LP (the “September 2008 Acquisition”). As a result of the September 2008 Acquisition, the economic and voting interest of the Filer in the Company increased to approximately 94.95% and the economic and voting interest of NFL LLC, the sole remaining Retained Interest Holder, remained unchanged at approximately 5.05%.
Applying the tests for significance set out in Part 8 of N1 51-102, the Filer has determined that the September 2008 Acquisition is a “significant acquisition” requiring the filing of a BAR. Under section 8.4 of NI 51-102, the Filer is required to include historical and pro forma financial statements in the BAR.
For a period of approximately two years following the IPO, the Filer filed separate annual and interim financial statements for the Filer on the one hand, and the Company and its consolidated subsidiaries on the other. Under the applicable variable interest entity accounting rules, the Filer was not permitted to file consolidated financial statements including the financial information of the Company and its subsidiaries because the Filer was deemed not to hold the “majority economic interest” in the Company.
As a result of the 2007 Acquisition, the Filer was deemed to hold the “majority economic interest” in the Company under the applicable variable interest entity accounting rules and as such, for periods ending after July 12, 2007, the Filer began filing consolidated annual and interim financial statements of itself and its subsidiaries (including the Company).
The inclusion of the financial statements required under section 8.4 of NI 51-102 would not provide investors with any incremental material information relating to the financial performance of the Filer or its underlying business that is not already otherwise publicly available. This is because (i) the historical annual and interim financial statements of the Company have already been filed on SEDAR and provided to investors, (ii) the financial information of the Company has been consolidated in the Filer’s most recent annual financial statements that have been filed, and (iii) aside from the impact of the reduction in the number of outstanding Class B Shares and Class C Shares and the corresponding increase in the number of outstanding IDSs, as described in the prospectus for the September 2008 Offering, the pro forma financial statements would not contain any material substantive adjustments to the existing historical financial statements of the Filer and the Company.
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.
“Kelly Gorman”
Kelly Gorman
Manager, Corporate Finance Branch
Ontario Securities Commission