FAX Capital Corp. (Re), 2022 ONSC 4366

COURT FILE NO.: CV-22-00680875-00CL

DATE: 20220629

ONTARIO

SUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

IN THE MATTER OF an application under section 192 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended;

AND IN THE MATTER OF Rule 14.05(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194;

AND IN THE MATTER OF a proposed arrangement of FAX Capital Corp. involving its shareholders, 13998037 Canada Inc., Fax Investments Inc., and Federated Capital Corp.

BEFORE: Kimmel J.

COUNSEL: Matthew Fleming and Ara Basmadjian, for the Special Committee of the Board of Directors of the Applicant, Fax Capital Corp.

Andrew Mccomb, for FAX Capital Corp.

Max Munoz, for 13998037 Canada Inc., Fax Investments Inc. and Federated Capital Corp.

HEARD: June 29, 2022

ENDORSEMENT

[1] The special committee of the board of directors of FAX Capital Corp. (“FAX” or the “Company”) seeks a final order approving a proposed plan of arrangement (the "Arrangement") pursuant to section 192 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended (the "CBCA").

[2] Pursuant to the Arrangement, Federated Capital Corp. ("FCC") and Fax Investments Inc. ("FII") will acquire all of FAX's outstanding Subordinate Voting Shares not currently owned by FII or FAX's CEO, Blair Driscoll. The Company to cease to be a reporting issuer and to “go private”. This will entail a number of steps to be implemented in the context of the Arrangement.

[3] As of April 29, 2022, the Driscoll family held, directly or indirectly, 3.92% of the issued and outstanding Subordinate Voting Shares, 100% of the issued and outstanding Multiple Voting Shares, and 94.76% of the voting rights attached to all of the issued and outstanding Shares. By virtue of this ownership, the Driscoll family has effective control over all Company matters submitted to Shareholders, including the election of directors, and exercises significant control over all policies and affairs.

[4] Pursuant to my interim order made May 18, 2022 (the “Interim Order”), the relevant materials detailing the Arrangement were circulated to holders (the "Shareholders") of Subordinate Voting Shares and Multiple Voting Shares. A special meeting (the "Meeting") of the Shareholders was held on June 24, 2022 and to vote on a special resolution approving the Arrangement.

[5] The Meeting was called, held virtually, and conducted in accordance with the Interim Order, the CBCA, the Notice of Meeting, and the articles and by-laws of FAX.

[6] Three shareholders and proxyholders, representing 51.06% of the shares entitled to vote at the Meeting, were virtually present at the Meeting. As such, a quorum (being not less than two persons, each of whom a Shareholder or a duly appointed proxy or representative for an absent Shareholder, representing in the aggregate not less than 5% of the outstanding shares in the Company entitled to vote at the Meeting) was present at the Meeting in accordance with the Interim Order. The outcome of the vote was as follows:

a. 277,434,952 votes, representing 99.98% of all votes cast, voted in favour of the Arrangement Resolution; and

b. 7,054,595 votes (excluding shares held or controlled by the Continuing Shareholders and any other Shares required to be excluded pursuant to MI 61-101), representing 99.30% of all votes cast by SVS Shareholders, voted in favour of the Arrangement Resolution.

[7] In the result, the Arrangement Resolution was passed by the Shareholders in accordance with the requirements of the Interim Order.

[8] The Director has been advised of, and has not objected to, the Arrangement or the proposed order approving it and no regulator has expressed any objection to the Arrangement. None of the Shareholders served a notice of appearance indicating an intention to appear at the hearing of the application for the final order. None of the Shareholders served a notice of dissent.

Analysis

[9] To grant the requested approval of the Arrangement, the court must be satisfied that: (i) statutory and court-ordered requirements have been complied with; (ii) the application has been put forward in good faith; and (iii) the arrangement is fair and reasonable. See: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, paras. 137 and 150; Steel Canada Inc. (Re), 2014 ONSC 4285, para. 25.

[10] Each of the elements of the test for court approval is satisfied in the circumstances of this case. I will briefly address each, in turn.

a) Compliance with Statutory and Court-Ordered Requirements

[11] To approve a plan of arrangement under section 192 of the CBCA, the Court must be satisfied that the following statutory requirements are met: (i) the proposed arrangement constitutes an "arrangement" as defined under subsection 192(a) of the CBCA; (ii) the "solvency" test set out in subsection 192(2) of the CBCA is met or will be met at the time of the final order; (iii) it is not practicable for the applicant to effect a fundamental change in the nature of an arrangement under any other provision of the CBCA; and (iv) the applicant gave notice of the application to the Director appointed under section 260 of the CBCA. See: Re St. Lawrence & Hudson Railway, (1998), 82 A.C.W.S. (3d) 895 (Ont. Gen. Div. - Comm. List), para. 12.

[12] These statutory requirements were considered and found to have been satisfied when the Interim Order was granted and there has been no material change since that time that would lead to a different conclusion for purposes of the final approval order sought today. By way of brief summary:

a. The Arrangement involves “an exchange of securities of a corporation for property, money or other or securities of another body corporate" and “a going private transaction”. The exchange of the Subordinate Voting Shares for cash consideration as part of a going private transaction under the Plan of Arrangement constitutes an “arrangement” as defined under s. 192(1) of the CBCA.

b. The evidence establishes that FAX is able to pay its liabilities as they become due and is solvent within the meaning of s. 192(2) of the CBCA.

c. This Court was satisfied that the impracticability test under s. 192(3) of the CBCA was met when the Interim Order was made. The test continues to be met, having regard to the importance of the implementation of a series of steps in time sequence under the Plan of Arrangement in circumstances where it would be inconvenient or less advantageous to proceed under other provisions of the CBCA, which is this case here.

d. The Director has been provided with the relevant materials required pursuant to s. 192(5) of the CBCA and has not deemed it necessary to appear at either hearing, for the Interim Order or the final order.

[13] The court ordered requirements for the approval of the Arrangement under the Interim Order have been met. In particular:

a. the Meeting Materials were disseminated and distributed in accordance with the Interim Order;

b. FAX called, held and conducted the Meeting to consider and vote on the Arrangement in accordance with the CBCA and the Interim Order; and

c. the Arrangement was approved by more than two-thirds (66%) of the votes cast by Shareholders, and by more than a simple majority (50% plus one) of the votes cast by Shareholders, excluding certain votes that were required to be excluded pursuant to applicable securities laws.

b) The Arrangement has been put forward in Good Faith

[14] The Arrangement is the result of arm's length negotiations.

[15] Prior to approval of the Arrangement by the Shareholders, the Special Committee of independent directors, based on advice from independent legal and financial advisors, unanimously determined that the Arrangement is in the best interest of the Company and that the Arrangement is fair, from a financial point of view, to Shareholders. The Special Committee considered a number of factors in arriving at its recommendation to Shareholders to approve the Arrangement, including (among many other factors):

a. the attractive premium that the consideration represents against various closing prices of the Subordinate Voting Shares on the TSX in the lead up to the announcement of the Arrangement Agreement and even when compared to the highest ever closing price of the Subordinate Voting Shares;

b. the Scotiabank formal valuation and fairness opinion which concluded, having considered various different valuation approaches, that the consideration to be received pursuant to the Arrangement is fair, from a financial point of view, to the SVS Shareholders (other than the Continuing Shareholders), and that it represented an amount at the high-end of the formal valuation;

c. the independent legal and financial advice received by the independent directors; and

d. the liquid nature of the cash consideration to be received in contrast with the relatively small size of the public float which makes it difficult to attract institutional investors for the Subordinate Voting Shares, and the resulting absence of liquidity in the public market for the Subordinate Voting Shares and the difficulty for holders of Subordinate Voting Shares to dispose of their shares and realize a rate of return on their investment.

[16] The court was satisfied at the time of the Initial Order that the Arrangement was being put forward in good faith. The applicants have continued to demonstrate their good faith in the material filed for this hearing. The court remains satisfied that the Arrangement has been put forward in good faith and for good business purposes.

c) The Arrangement is Fair and Reasonable

[17] An arrangement is fair and reasonable if the Court is satisfied that: (i) the arrangement has a valid business purpose; and (ii) the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way. See BCE Inc., (Re), at paras. 138 and 143.

[18] The Arrangement serves a valid business purpose, namely: to facilitate a going private transaction in accordance with the Plan of Arrangement. The Arrangement also resolves the objections of those whose legal rights are being arranged in a fair and balanced way. Shareholders were provided with the opportunity to exercise dissent rights and to appear at the hearing for the final order to object to it.

[19] In assessing the fairness and reasonableness of an arrangement, the Supreme Court of Canada has recognized that although no single factor is conclusive, the outcome of the shareholder vote is an "important indicator of whether a plan is fair reasonable", which can be given "considerable weight", particularly if the margin is large. See BCE Inc., (Re), at paras. 138, 141 and 150.

[20] The Shareholder vote in this case is a strong indication of the fairness and reasonableness of the Arrangement. The Arrangement was overwhelmingly approved by more than 99% of all votes cast at the Meeting.

[21] Various other factors identified by the Supreme Court of Canada as potentially relevant to the assessment of the fairness of the Arrangement are also present in this case, such as:

a. the Special Committee unanimously recommending the Arrangement to Shareholders.

b. the Circular providing Shareholders with the information necessary to permit them to make an informed decision with respect to whether to vote for or against the Arrangement.

c. No Shareholders indicated that they intend to appear and oppose the Arrangement, and no Shareholder delivered a notice of dissent.

[22] Having regard to all of the foregoing factors, the court is satisfied that the Arrangement is fair and reasonable and in the best interests of the Shareholders of FAX.

Approval Order

[23] The Final Approval Order is granted. Order to go as signed by me today. This order is effective from today’s date and is enforceable without the need for entry and filing.

Kimmel J.

Date: June 29, 2022