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 Transaction
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 InStorage Real Estate Investment Trust by Canadian Storage Partners, ULC
(the Filer)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer, in connection with a take-over bid (the Offer) for InStorage Real Estate Investment Trust (InStorage) for a decision under the securities legislation of the Jurisdiction (the Legislation) that the following requirements of Section 4.2 of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (MI 61-101) be waived (the Exemption Sought):
(1) a Compulsory Acquisition or Subsequent Acquisition Transaction (each as defined below), as applicable, be approved at a meeting of the holders of units and special voting units of InStorage (the Voting Unitholders); and
(2) an information circular be sent to the Voting Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) 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 Québec.
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 was incorporated under the laws of the Province of Nova Scotia on September 29, 2008 and has not carried on any business prior to the date hereof other than in respect of matters directly relating to the making of the Offer. The Filer is not a reporting issuer in any of the provinces or territories of Canada. The registered office of the Filer is 1300-1969 Upper Water Street, Purdy's Wharf Tower II, Halifax, Nova Scotia B3J 2V1. The Filer is not in default of securities legislation in any jurisdiction.
The Filer is a subsidiary of Canada TKG-StorageMart Partners, L.P., a limited partnership formed under the laws of the State of Delaware. Canada TKG-StorageMart Partners, L.P. is indirectly owned by the following individuals: E. Stanley Kroenke, Michael G. Burnam, P. Crismon Burnam, Timothy Burnam and Kimberly Flower.
InStorage is an unincorporated open-ended real estate investment trust formed under the laws of the Province of Ontario pursuant to a declaration of trust (the Declaration of Trust) dated June 20, 2006. InStorage's head office is located at 350 Bay Street, Suite 1000, Toronto, Ontario M5H 2S6. InStorage is a reporting issuer in all of the provinces of Canada. InStorage is authorized to issue:
(a) an unlimited number of trust units (the Units), which are listed on the Toronto Stock Exchange under the trading symbol "IS.UN" and held by CDS Clearing and Depository Services Inc. in non-certificated inventory; and
(b) an unlimited number of special voting units (the Special Voting Units). Special Voting Units may only be issued to holders of Class B LP Units (defined below) for the purpose of providing voting rights with respect to InStorage to the holders of such securities. Special Voting Units are attached to the Class B LP Units to which they relate and are not transferable separately from such Class B LP Units.
As at October 10, 2008, there were issued and outstanding 24,348,519 Units and 1,238,245 Special Voting Units. As at the date of the Offer, the Filer, together with its affiliates, owned 4,763,900 Units representing approximately 19.57% of the outstanding Units.
InStorage Limited Partnership, a subsidiary of InStorage, is authorized to issue an unlimited number of class B limited partnership units (the Class B LP Units) and an unlimited number of class C limited partnership units (the Class C LP Units). The Class B LP Units and the Class C LP Units are indirectly exchangeable into Units on a one-to-one basis and are non-transferable, except in connection with an exchange for Units. As at October 10, 2008, there were issued and outstanding 1,238,245 Class B LP Units and 300,000 Class C LP.
On February 20, 2008, the trustees of InStorage adopted a unitholder rights plan (the Rights Plan), which was ratified, as amended on May 5, 2008, by holders of Units and Special Voting Units (the Voting Unitholders).
On October 16, 2008, the Filer (i) commenced the Offer by publishing an advertisement containing a brief summary of the Offer in The National Post and La Presse and (ii) requested from InStorage and its transfer agent a list of holders of InStorage Units and a list of holders of securities convertible into InStorage Units.
On October 22, 2008, the Filer received from counsel to InStorage copies of the lists referred to in the preceding paragraph. On October 24, 2008, the Filer sent to all persons whose names appear on such lists the Circular (defined below) and the related letter of transmittal and notice of guaranteed delivery.
Pursuant to the Filer's offer and related take-over bid circular (the Circular) dated October 16, 2008 and filed on SEDAR:
(a) the Filer made an Offer, subject to certain terms and conditions, to purchase at a price of Cdn.$3.75 per Unit all of the Units (together with any associated rights under the Rights Plan) other than any Units owned directly or indirectly by the Filer or its affiliates, including all Units issued or conditionally issued before the expiry of the Offer upon the exercise, exchange or conversion of securities exercisable, exchangeable or convertible into Units (other than any rights under the Rights Plan, the Convertible Securities);
(b) the Offer is open for acceptance until 5:00 p.m. (Toronto time) on Friday, November 21, 2008, unless the Offer is extended or withdrawn;
(c) the Offer is conditional upon, among other things, there having been validly deposited under the Offer and not withdrawn at the expiry of the Offer (i) such number of Units which constitutes, together with the Units owned by the Filer and its affiliates, at least 66 2/3% of the Units outstanding (on a fully-diluted basis) and (ii) at least a majority of the Units (on a fully-diluted basis), the votes attached to which would be included in the minority approval of a second step business combination under MI 61-101;
(d) if the conditions to the Offer are satisfied (or waived by the Filer) and the Filer takes up and pays for Units deposited pursuant to the Offer, the Filer currently intends to: (i) acquire all the Units that are held by non-tendering Unitholders on the terms on which the Filer acquired the Units of Unitholders who accepted the Offer and (ii) require the automatic exchange of Convertible Securities to Units and acquire such Units issued as a result of such automatic exchange on the same terms as the Units acquired pursuant to (i) above ((i) and (ii), collectively, a Compulsory Acquisition) as permitted by Section 14.6 of the Declaration of Trust if, within 120 days after the date the Offer is made, the Offer is accepted by Unitholders who in aggregate hold at least 90% of the Units (on a fully-diluted basis, assuming the exchange of all Convertible Securities for Units) other than Units beneficially owned, or over which control or direction is exercised, on the date of the Offer, by the Filer or any affiliate or associate of the Filer;
(e) if the conditions to the Offer are satisfied (or waived by the Filer), the Filer takes up and pays for Units deposited pursuant to the Offer and the right of Compulsory Acquisition is not available to the Filer or the Filer chooses not to avail itself of such right, the Filer currently intends to acquire the Units not acquired under the Offer (a Subsequent Acquisition Transaction) by, among other means:
(i) amending Section 14.6 of the Declaration of Trust to provide that (i) a Compulsory Acquisition may be effected if, within 120 days after the date the Offer is made, the Offer is accepted by the holders of at least 66 2/3% of the Units (on a fully-diluted basis, assuming the exchange of all Convertible Securities), and (ii) in the event the Filer elects to effect a Compulsory Acquisition, Units held by non-tendering Unitholders will be deemed to have been transferred to the Filer immediately upon the sending by the Filer of the applicable notice to non-tendering Unitholders (as opposed to upon the transfer by InStorage of the Units held by the non-tendering Unitholders to the Filer referred to above) and that the non-tendering Unitholders will cease to have any rights as Unitholders from and after that time, other than the right to be paid the consideration that the Filer would have paid to the non-tendering Unitholders had they accepted the Offer (the Compulsory Acquisition Amendment);
(ii) amending the Declaration of Trust to provide that any Units not deposited under the Offer may be redeemed immediately upon notice in writing provided by InStorage and upon the payment in cash of an amount equal to the price per Unit paid by the Filer under the Offer less any applicable withholding taxes (the Redemption Amendment); and
(iii) approving any other Subsequent Acquisition Transaction that may be undertaken by the Filer in accordance with the Declaration of Trust, as amended in accordance with the foregoing (the Subsequent Acquisition Transaction Amendment); and
(f) in order to effect either a Compulsory Acquisition or a Subsequent Acquisition Transaction, in accordance with the foregoing, rather than seeking the approval of the Voting Unitholders at a special meeting of Voting Unitholders to be called for such purpose, the Filer intends to rely on Section 12.13 of the Declaration of Trust, which specifies that a resolution in writing circulated to all Voting Unitholders not less than 10 days prior to its effective date and executed by Voting Unitholders holding more than two-thirds of the outstanding Units and Special Voting Units entitled to be voted on such resolution, if such resolution is a special resolution, will be as valid and binding for all purposes of the Declaration of Trust as if such resolution had been passed at a meeting of Voting Unitholders duly called for such purpose, which written resolution (the Written Resolution) will approve, among other things, the Compulsory Acquisition Amendment, the Redemption Amendment and the Subsequent Acquisition Transaction Amendment.
Notwithstanding that Section 12.13 of the Declaration of Trust permits certain actions of InStorage, including the Compulsory Acquisition Amendment, the Redemption Amendment and the Subsequent Acquisition Transaction Amendment, to be authorized by the Written Resolution, Section 4.2 of MI 61-101 requires in certain circumstances that a Subsequent Acquisition Transaction, such as the Compulsory Acquisition Amendment, the Redemption Amendment and the Subsequent Acquisition Transaction Amendment, be approved at a meeting of Voting Unitholders called for such purpose and, in connection therewith, that an information circular containing certain prescribed disclosure be sent to Voting Unitholders.
It is a condition of the Offer that minority approval (as contemplated in Part 8 of MI 61-101) shall have been obtained. Minority approval (as contemplated in Part 8 of MI 61-101) will be obtained by the Written Resolution rather than at a meeting of Voting Unitholders.
Other than as identified in a letter from the Filer's counsel to the OSC dated November 10, 2008, the Circular contains all the disclosure required by applicable securities laws, including the take-over bid provisions and form requirements of the Legislation and the provisions of MI 61-101 relating to the disclosure required to be included in an information circular distributed in respect of a business combination under MI 61-101.
The Circular contains the text of the Written Resolution.
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 (as contemplated in Part 8 of MI 61-101) shall have been obtained by the Written Resolution.
“Naizam Kanji”
Naizam Kanji
Manager, Mergers and Acquisitions
Ontario Securities Commission