Entertainment One Ltd. (Re), 2016 CanLII 97361

(the “Jurisdiction”)

AND

(the “Applicant”)

Background Information

The principal regulator in the Jurisdiction has received an application from the Applicant for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for an exemption from the prospectus requirement in connection with the first trades of common shares of the Applicant to be issued to certain Canadian Residents (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 Applicant has provided notice that section 4.7(1) of Multilateral Instrument 11-202 – Passport System (“MI 11-202”) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Interpretation

Terms defined in National Instrument 14-101 – Definitions and MI 11-202 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Applicant:

The Applicant was amalgamated under the Canada Business Corporations Act (“CBCA”) on July 15, 2010 and carries on business in the production and distribution of television, films and music. The Applicant’s registered office is 134 Peter Street – Suite 700, Toronto, Ontario M5V 2H2.
As of October 31, 2016, the Applicant’s issued and outstanding share capital consisted of 429,347,553 common shares (“Common Shares”).
The Applicant’s Common Shares are listed on the Premium Listing segment of the London Stock Exchange (“LSE”). The Applicant is a constituent member of the FTSE 250 UK Index Series.
The Applicant is not a reporting issuer in Ontario or in any other province or territory of Canada, and none of its securities are listed or posted for trading on an exchange in Canada. The Applicant has no present intention of becoming listed in Canada or of becoming a reporting issuer in any province or territory of Canada.
On September 22, 2015, Canada Pension Plan Investment Board (the “CPPIB”) acquired approximately 52.9 million Common Shares of the Applicant from Marwyn Value Investors LP and the CPPIB subsequently acquired an additional approximately 27.0 million Common Shares as part of a rights offering completed by the Applicant in October 2015 and an additional approximately 4.7 million Common Shares in two acquisitions in December 2015 (collectively, the “CPPIB Acquisitions”). The CPPIB’s shareholdings are approximately 84.6 million Common Shares and represent approximately 19.70% of the issued and outstanding Common Shares of the Applicant.
As at October 31, 2016: (i) Canadian resident shareholders other than the CPPIB held, directly or indirectly, 26,927,526 Common Shares (of which, 10,024,008 were held by the Applicant’s Chief Executive Officer), representing approximately 6.3% (3.9%, excluding the Common Shares held by the Applicant’s Chief Executive Officer) of the issued and outstanding Common Shares of the Applicant; and (ii) Canadian resident shareholders represented approximately 2.6% of the total number of holders of Common Shares.
Share Based Compensation:

(a) The Applicant has three equity-settled share-based payment schemes approved for its and its subsidiaries employees (“Participants”), including executives and employees of the Applicant, or its subsidiaries, in Canada. These are the Long-Term Incentive Plan (“LTIP”), the Executive Incentive Scheme (“EIS”) and the SAYE Share Option Scheme (“SAYE” and, together with the LTIP and the EIS, the “Plans”). As of October 31, 2016 there are 215 Participants in the Plans that are residents of Canada: 23 in British Columbia, 168 in Ontario, 23 in Québec and 1 in Newfoundland.

(b) Under the LTIP, Participants are issued options (“LTIP Options”) for Common Shares (“LTIP Shares”). Common Shares of up to 10% of the Application’s issues and outstanding share capital have been approved for issuance under the LTIP. As of the date hereof, there are 43 Canadian residents holding outstanding LTIP Options granted since the CPPIB Acquisitions to acquire an aggregate of 2,165,201 Common Shares.

(c) Under the SAYE, from time to time Participants are invited to apply for options (“SAYE Options”). Each application specifies the amount of the monthly savings the Participant will make under a savings contract with a duration of 36 months. In the event the SAYE Options are not exercised, the aggregate monthly savings are retained by the Participant. Common Shares of up to 10% of the Applicant’s issued and outstanding share capital (in aggregate with other Plans) have been approved for issuance under the SAYE. As of the date hereof, there are 185 Canadian residents holding outstanding SAYE Options granted since the CPPIB Acquisitions to acquire an aggregate of 1,623,133 Common Shares.

(d) Under the EIS, Participants are invited to subscribe for shares (“Incentive Shares”) in 7508999 Canada Inc., a wholly-owned subsidiary of the Applicant incorporated under the CBCA. Alternatively, a Participant may be granted the option (“EIS Options”) to acquire a number of Common Shares determined by reference to a number of Incentive Shares for no payment. Subject to certain conditions, Participants exchange their Incentive Shares or exercise their EIS Options for Common Shares (“EIS Shares” and, together with LTIP Shares and SAYE Shares, “Award Shares”). Common Shares of up to 3% of the Applicant’s issued and outstanding share capital have been approved for issuance under the EIS. As of the date hereof, no grants have been made under the EIS.

(e) The LTIP Options, the SAYE Options, the Incentive Shares and the EIS Options are issued to Canadian employees under the employee, executive officer, director and consultant prospectus exemption in section 2.24 of National Instrument 45-106 – Prospectus Exemptions (“NI 45-106”). The Common Shares issued upon the exercise of each of the LTIP Options, SAYE Options, the Incentive Shares and the EIS Options are issued under the conversion, exchange, or exercise prospectus exemption in section 2.42 of NI 45-106.

Earn-Out Shares:

(a) On March 7, 2016, the Applicant entered into a share purchase agreement (“Last Gang Purchase Agreement”) with JT Management Inc., The Donald K. Donald Group Of Labels Inc., Slaight Music Inc., Christopher Taylor, and Margaret Jurocko (collectively, the “Vendors”) and 4384768 Canada Inc. (the “Purchaser”) whereby the Purchaser, a wholly owned subsidiary of the Applicant, acquired from the Vendors all the issued and outstanding shares of Last Gang Management Inc. and Last Gang Publishing Inc. (together, the “Last Gang Companies”). Each Vendor is a resident of Ontario.

(b) The consideration for the acquisition of the Last Gang Companies includes an earn-out provision providing for the potential issuance of Common Shares (the “Earn-Out Shares”) to the Vendors based on the performance of the Last Gang Companies. While the exact number of Earn-Out Shares cannot yet be determined, the Earn-Out Shares are expected to represent less than 0.5% of the issued and outstanding Common Shares of the Applicant.

Consideration Shares:

(a) From time to time the Applicant has acquired companies engaged in the production and distribution of television, films and music from Canadian resident vendors. Acquisitions like these form part of the Applicant’s growth strategy. In many of these past acquisitions Common Shares have formed part of the consideration paid to vendors, and it is desirous that the Applicant be able to issue freely tradeable Common Shares (“Consideration Shares” and, together with the Award Shares, and the Earn Out Shares, the “Affected Shares”) to Canadian vendors in future acquisitions. Prior to the CPPIB Acquisitions, and based on the current list shareholders, most Canadian vendors of companies acquired by the Applicant who received Common Shares as consideration have not held those shares as long-term investments and have typically sold their Common Shares within a few months or years following closing.

(b) Consideration Shares, like the Earn Out Shares, are typically issued under the take-over bid prospectus exemption in section 2.16 of NI 45-106.

As of the date hereof, there are 784,392 Affected Shares, representing approximately 0.2% of the issued and outstanding Common Shares, held by three residents of Canada in aggregate, representing approximately 0.3% of the total number of holders of Common Shares; however, the exact number of Affected Shares to be issued in the future cannot be determined as the number of Award Shares will be determined by satisfaction of performance targets, the number of Earn-Out Shares (if the Applicant opts to satisfy the earn out with Common Shares) will be determined by the performance of the Last Gang Companies, and the Applicant intends to continue to grant LTIP Options, SAYE Options, Incentive Shares, EIS Options and Consideration Shares on an ongoing basis, consistent with past practice.
Notwithstanding the foregoing, based on the shareholdings of the Applicant as at October 31, 2016 and based on the Applicant’s past practices for granting LTIP Options, SAYE Options and Incentive Shares and on historic issuances of Award Shares and Consideration Shares and assuming the maximum number of Earn-Out Shares, residents of Canada other than the CPPIB and the Applicant’s Chief Executive Officer, including Affected Holders (as defined below), would be expected to hold directly or indirectly no more than approximately 10% of the Common Shares and Canadian resident shareholders would be expected to represent no more than approximately 10% of the total number of holders of Common Shares.
Absent an exemption order, the first trade in the Affected Shares by the holders thereof (the “Affected Holders”) will be deemed to be a distribution pursuant to section 2.6 of National Instrument 45-102 – Resale of Securities (“NI 45-102”) unless, among other things, the Applicant has been a reporting issuer in a jurisdiction of Canada for four months preceding such trade.
Section 2.14 of NI 45-102 provides an exemption from the prospectus requirements for the first trade of a security of an issuer distributed under an exemption from the prospectus requirement provided that:

(a) the issuer of the security:

(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 security 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, residents of Canada

(i) did not own directly or indirectly more than 10 % of the outstanding securities of the class or series, and

(ii) did not represent in number more than 10 % of the total number of owners directly or indirectly of securities of the class or series; and

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

(ii) to a person or company outside of Canada.

The Applicant meets all the eligibility criteria for the exemption provided in section 2.14 of NI 45-102 except that, due to the CPPIB Acquisitions, residents of Canada own more than 10% of the issued and outstanding shares of the Applicant.
The Applicant is subject to disclosure obligations pursuant to the securities laws of the United Kingdom and the rules and regulations of the LSE (collectively, “UK Securities Laws”). Canadian shareholders receive the same information that the Applicant is required to provide its other shareholders under UK Securities Laws. The Affected Holders would also receive such information.
There is no market for the Applicant’s Common Shares in Canada and no market is expected to develop, such that any resale of the Affected Shares by the Affected Holders is expected to be made through the LSE in accordance with its rules and regulations.

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 Requested Relief is granted provided that:

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

(b) the trade is executed through the facilities of the LSE or through any other exchange or market outside Canada or to a person or company outside of Canada; and

(c) representation 11 (relating to the expected Canadian shareholder and shareholdings after the issuance of any Affected Shares) remains true in all material respects at the time any Affected Shares are issued.

DATED at Toronto on this 23^rd day of December, 2016.

“Anne Marie Ryan” “Janet Leiper”

Ontario Securities Commission Ontario Securities Commission