In the Matter of Elad Canada Inc., 2011 CanLII 52697

Headnote NP 11-203 – Exemptive relief from prospectus requirements for first trades in non-reporting issuer's common shares issued pursuant to prospectus exemptions - Filer is a subsidiary of a global real estate developer that carries on business through a number of subsidiaries - 88% of the Filer's common shares are owned directly or indirectly by Trusts resident in Canada - none of the ultimate beneficiaries of the Trusts or the ultimate beneficial owner of the Trustee are Canadian residents - Exemptive relief analogous to s. 2.14 of National Instrument 45-102 Resale of Securities (NI 45-102) granted in order to effectively permit direct or indirect holders of Filer's securities that are ultimately beneficially owned by non-residents of Canada to be excluded from share ownership calculation set out in s. 2.14 – Original order revoked and new order issued that more closely follows drafting of NI 45-102 Applicable Legislative Provisions Securities Act,R.S.O. 1990, c.S.5, as am., s. 53, 74(1) National Instrument 45-102 Resale of Securities, s. 2.14

August 9, 2011

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 Elad Canada Inc. (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) for:

(a) a revocation of the decision (the Original Decision) In the Matter of Elad Canada Inc. dated May 11, 2010; and

(b) an exemption under the Legislation from the prospectus requirements contained in the Legislation in connection with first trades of the Filer’s securities distributed under an exemption from the prospectus requirement (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; 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 the provinces of Canada other than Ontario (the Non-Principal Passport Jurisdictions).

Interpretation

In this decision:

(a) terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined; and

(b) the terms “convertible security”, “distribution date”, “exchangeable security”, “multiple convertible security” and “underlying security” have the meanings ascribed to such terms in National Instrument 45-102 Resale of Securities (NI 45-102).

Representations

This decision is based on the following facts represented by the Filer and Y.T. America Israel Investment Ltd. (Elad Israel), where applicable:

Elad Israel and the El-Ad Group

1. Elad Israel is a private company incorporated under the laws of Israel. The shareholders of Elad Israel are not resident in Canada.

2. Elad Israel directly or indirectly controls a number of entities (each an Elad Subsidiary, and collectively with Elad Israel, the El-Ad Group) worldwide in connection with its business of acquiring, developing and owning real estate assets worldwide.

The Filer

3. The Filer was incorporated pursuant to the Business Corporations Act (Ontario) on December 23, 2009. Its registered and head office is located at Suite 1405, 5001 Yonge Street, Toronto, Ontario, Canada M2N 6P6.

4. The Filer owns a portfolio of real estate assets and development projects in Quebec and Ontario. The Filer completed, on August 31, 2010, an initial public offering (the IPO) of its common shares and warrants on the Tel Aviv Stock Exchange (the TASE) by way of a Hebrew language prospectus filed on August 23, 2010 in Israel pursuant to the securities laws of Israel.

5. Subsequent to the IPO, on May 23, 2011 the Filer completed a public offering in Israel of Series A bonds on the TASE by way of a Hebrew language prospectus filed in Israel pursuant to the securities laws of Israel.

6. The Filer’s authorized share capital consists of an unlimited number of common shares and an unlimited number of preferred shares, each without nominal or par value, of which 113,018,100 common shares and no preferred shares are issued and outstanding as at the date hereof. In addition, the Filer has warrants and options issued and outstanding, each of which is exercisable into one common share of the Filer.

7. The Filer currently intends on filing in Israel a Hebrew language shelf prospectus pursuant to the securities laws of Israel (the Shelf Prospectus), expected to be published in August, 2011, relating to the potential future offerings, pursuant to “shelf offering reports”, of common shares, warrants, rights, bonds (convertible and/or non-convertible), options for bonds, and/or commercial debt securities of the Filer (the Offerings).

8. The Filer is not a reporting issuer in any province in Canada and will not become a reporting issuer as a result of the Offerings. The Filer has no current intention of becoming a reporting issuer in Canada.

9. The Common Shares of the Filer are currently listed on the TASE and it has no plans to apply for a listing of any of its securities in Canada.

10. The Filer is not in default of securities legislation in Ontario or the Non-Principal Passport Jurisdictions.

11. The Original Decision provided the Filer with an exemption under the Legislation from the prospectus requirements contained in the Legislation in connection with first trades of the Filer’s Common Shares distributed under an exemption from the prospectus requirements. This decision revokes and replaces the Original Decision.

El-Ad Group’s Holdings of the Filer

12. The El-Ad Group owns securities of the Filer through seven Alberta-resident trusts (collectively, the Trusts), including a portion of such securities that are held indirectly through a Canadian limited partnership (Elad LP), the limited partnership interests of which are held by the Trusts.

13. The sole trustee of each Trust (the Trustee) is a corporation resident in Canada and an Elad Subsidiary. All of the issued and outstanding shares of the Trustee are beneficially owned, indirectly through a complex holding structure, by Elad Israel. The two individual directors of the Trustee are both residents of Canada. One of the two directors of the Trustee is an employee of an Elad Subsidiary.

14. The beneficiaries of each Trust (except Riviera Trust) consist of a subset of members of the El-Ad Group, together with persons who are related, within the meaning of the Income Tax Act (Canada), to existing beneficiaries.

15. Riviera Trust is a discretionary trust with beneficiaries consisting of a member of the El-Ad Group, together with such other beneficiaries as may be determined by the Trustee from time to time.

16. The ultimate beneficiaries of the Trusts and the ultimate beneficial owner of the Trustee are all not resident in Canada.

17. As at the date hereof, the Trusts hold in aggregate, directly or indirectly through Elad LP, approximately 88% of the issued and outstanding common shares and none of the issued and outstanding warrants of the Filer (collectively, the El-Ad Block).

18. Immediately after the IPO, aside from the Trusts and Elad LP, to the best knowledge of the Filer none of the shareholders and none of the warrantholders of the Filer were resident in Canada.

19. Reasonable precautions, consistent with the Interpretation Note issued in respect of former OSC Policy 1.5, were taken in connection with the IPO and will be taken in connection with the Offerings to ensure that the securities issued pursuant to those offerings are not distributed into Canada (other than any rights offerings to securityholders of the Filer who at such time are residents of Canada). These precautions include:

(a) imposing requirements in any underwriting agreement and selling group arrangements that restrict any underwriters and selling group members from soliciting or selling the securities issued in the IPO or to be issued in any Offerings (other than any rights offerings) to Canadian residents and obliging any underwriters to certify that they have not, to the best of their knowledge after reasonable investigation, solicited or sold any such securities being offered to Canadian residents, and

(b) the inclusion of a legend on the cover of the IPO Prospectus, the Shelf Prospectus, any shelf offering reports and the form upon which orders for securities are made and all advertisements regarding the IPO and any Offering (other than any rights offerings) indicating that such offering is unavailable to Canadian residents.

20. A trade in any of the Jurisdictions of common shares from the El-Ad Block will be a distribution under either the Legislation or the securities legislation of one of the non-Principal Passport Jurisdictions. Each Trust and Elad LP has delivered to the Filer an undertaking not to trade the Filer’s common shares unless such trade does not require the filing of a prospectus in Ontario or in a Non-Principal Passport Jurisdiction.

21. The Filer does not intend to issue securities to residents of the provinces and territories of Canada other than:

(a) to employees, executive officers, directors and consultants resident in Ontario and Quebec; and

(b) potentially in any future rights offering to any resident in any province or territory of Canada, including the Trusts and Elad LP, who is a securityholder at the time of such rights offering.

22. The financial reports, proxy materials and other materials distributed to the securityholders pursuant to the securities laws of Israel will be provided to any securityholders resident in Canada in accordance with applicable corporate and securities laws.

23. If the Trusts and Elad LP were not resident in Canada, an exemption would be available from (a) the prospectus requirement pursuant to section 2.14 (the First Trade Exemption) of NI 45-102 for the first trades of any securities distributed in Canada pursuant to any exemption from the prospectus requirement.

24. The conditions to the First Trade Exemption include a requirement that residents of Canada not directly or indirectly own more than 10% of the outstanding securities of the class or series distributed.

25. In the case of the First Trade Exemption, the relevant time for measuring whether the tests set out in the First Trade Exemption are met in respect of a sale of underlying securities is the time of the initial distribution of the convertible security, exchangeable security or multiple convertible security.

26. Because the Trusts will directly or indirectly through Elad LP own more than 10% of the common shares of the Filer and are resident in Canada, the First Trade Exemption will not be available for the first trades of any common shares distributed in Canada, even though:

(a) none of the ultimate beneficiaries of the Trusts nor the ultimate beneficial owner of the Trustee are resident in Canada; and

(b) all common shares that are part of the El-Ad Block will be indirectly beneficially owned by persons not resident in Canada.

27. The Original Decision issued in May 2010 effectively allows first trades in common shares of the Filer (but not other securities) to be treated in accordance with the First Trade Exemption as if the common shares of the Filer held by the Elad Group were held directly by the ultimate (non-Canadian) owners and beneficiaries of the Elad Group. The Original Decision did not address the following securities:

(a) common shares of the Filer issued from time to time upon the exercise of convertible securities, exchangeable securities or multiple convertible securities other than employee stock options; and

(b) securities of the Filer other than common shares that may be owned from time to time by one or more Elad Subsidiaries.

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:

1. the Original Order is revoked;

2. the prospectus requirement does not apply to the first trade of a security of the Filer distributed under an exemption from the prospectus requirement if:

(a) the Filer

(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date; or

(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(b) at the distribution date, after giving effect to the issue of the securities and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security,

(i) residents of Canada did not own directly or indirectly more than 10 percent of the outstanding securities of the class or series;

(ii) despite paragraph (i) above, in calculating the number of outstanding securities owned directly or indirectly by residents of Canada, securities that are directly or indirectly owned by an Elad Subsidiary resident in Canada may be excluded provided that:

(A) if the Elad Subsidiary is a trust, none of the ultimate beneficiaries of the trust are residents of Canada; and

(B) none of the issued and outstanding shares of Elad Israel are beneficially owned by residents of Canada;

(iii) residents of Canada did not represent in number more than 10 percent of the total number of owners directly or indirectly of securities of the class or series;

(iv) despite paragraph (iii) above, in calculating the number of residents of Canada who own directly or indirectly outstanding securities, Elad Subsidiaries resident in Canada that directly or indirectly own securities may be excluded provided that:

(A) if the Elad Subsidiary is a trust, none of the ultimate beneficiaries of the trust are residents of Canada; and

(B) none of the issued and outstanding shares of Elad Israel are beneficially owned by residents of Canada; and

(c) the trade is made

(i) through an exchange, or a market, outside of Canada; or

(ii) to a person or company outside of Canada; and

3. the prospectus requirement does not apply to the first trade of an underlying security of the Filer if:

(a) the convertible security, exchangeable security or multiple convertible security that, directly or indirectly, entitled or required the holder to acquire the underlying security was distributed under an exemption from the prospectus requirement;

(b) the Filer

(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date of the convertible security, exchangeable security or multiple convertible security; or

(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(c) the conditions in paragraph 2(b) would have been satisfied for the underlying security at the time of the initial distribution of the convertible security, exchangeable security or multiple convertible security; and

(d) the condition in paragraph 2(c) is satisfied.

“James E. A. Turner” “Paulette L. Kennedy”

Commissioner Commissioner

Ontario Securities Commission Ontario Securities Commission