Court File and Parties
COURT FILE NO.: CV-23-00705981-00CL DATE: 20231024 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO), R.S.O. 1990, CHAP. B.16, AS AMENDED
AND IN THE MATTER OF RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE
AND IN THE MATTER OF A PROPOSED PLAN OF ARRANGEMENT INVOLVING TERRA FIRMA CAPITAL CORPORATION AND GM CAPITAL CORP.
RE: Terra Firma Capital Corporation, Applicant AND GM Capital Corp., Respondent
BEFORE: Peter J. Osborne J.
COUNSEL: Ryan A. Morris and Linda Tu, for the Applicant Tom A. Friedland and Mark Spiro, for the Respondent
HEARD: October 24, 2023
Endorsement
Terra Firma Capital Corporation (“Terra Firma” or the “Applicant”) has brought this application pursuant to section 182 of the Business Corporations Act, R.S.O. 1990, c.B.16, as amended, (the “OBCA”) for approval of a plan of arrangement (the “Arrangement”) proposed by Terra Firma and described in the Terra Firma Management Information Circular (the “Circular”).
The Arrangement will result in, among other things, the acquisition by GM Capital Corp. (“GM” or “the Buyer”) of all of the issued and outstanding common shares in Terra Firma it does not already own.
Defined terms have the meaning given to them in the factum and motion materials filed by Terra Firma on this motion.
On September 19, 2022, Justice Cavanagh granted an interim order authorizing the Applicant to hold a special meeting to consider and vote on special resolutions to approve the Arrangement (the “Interim Order”).
Terra Firma is an Ontario corporation with its corporate office in Toronto. It operates as a publicly traded real estate finance company providing customized debt and equity solutions to the real estate industry across Canada and in the United States. Its common shares are listed and trade on the TSX Venture Exchange.
GM is also an Ontario corporation incorporated for the sole purpose of completing the transactions contemplated by the Plan of Arrangement. It is controlled by Mr. Dov Meyer, the Executive Chairman of Terra Firma, and Seth Greenspan, the Managing Director of Terra Firma, and their respective associates.
The particulars of the Plan of Arrangement are set out in detail in the Application materials, and in particular, in the Circular. Terra Firma entered into the Arrangement Agreement with the Buyer and Guarantors Dov Meyer and Lornglen Developments Limited on August 31, 2023. It was amended on September 14, 2023. In summary: a. the Buyer will acquire all of the common shares of Terra Firma it does not already own; b. Terra Firma will become a wholly-owned subsidiary of the Buyer; c. holders of Shares will receive $7.30 in cash per Share; d. all outstanding Terra Firma deferred share units, whether vested or unvested, will be deemed to be assigned and transferred to Terra Firma in exchange for $7.30 in cash, and such DSUs will then be cancelled; e. all outstanding options to purchase Shares, whether vested or unvested, shall be deemed to be vested and exercisable, assigned and transferred to Terra Firma in exchange for a cash payment equal to the amount by which $7.30 exceeds the exercise price per Share of such Option and such Option shall then be cancelled.
The Arrangement Agreement is the result of arm’s-length negotiations between the Special Committee and the Buyer. The events leading up to the Arrangement are described in detail in the Circular (see page 20 onward).
On December 22, 2022, Terra Firma issued a press release announcing that the Board had initiated a strategic review process to consider alternatives with a view to maximizing shareholder value and liquidity.
The Special Committee was constituted by the Board on March 15, 2023 and was comprised of independent directors. Its role was to oversee further negotiations with potential acquirors. As part of its work, it engaged Cormark Securities as financial advisor. It also engaged legal advisors.
Through the summer of 2023, the Special Committee received non-binding expressions of interest, offers, increased offers and amended offers, all as set out in the Application materials, and in particular in the Affidavit of Tristen Kingcott sworn September 15, 2023 and the Supplementary Affidavit of Tristen Kingcott sworn October 20, 2023, each with their respective exhibits.
On August 26, 2023, the Special Committee received an increased offer from Mr. Meyer for $7.30 per Share. Notwithstanding that this offer remained $0.10 per Share below the offer received from another party, the increase had materially closed the gap between the two offers then being considered. The Special Committee also considered various other factors affecting the two offers, including that the other offer would likely entail further due diligence and uncertainty, and the potential for a significantly greater period of time for Shareholders to realize any cash from that other offer.
On August 31, 2023, having received legal and financial advice, and verbal fairness opinions, and after considering the potential benefits and risks, the Special Committee recommended unanimously that the Board approve the Arrangement Agreement on the basis that it is fair, from a financial point of view, to the Shareholders of Terra Firma other than the Buyer and its affiliates, and is in the best interests of Terra Firma.
On August 31, 2023, the Board, absent Mr. Meyer, unanimously reached the same conclusions and recommended that Shareholders vote for the Arrangement Resolution.
Among the factors considered by the Special Committee and the Board were: a. the value of the consideration payable represents a premium of approximately 5.8% to the closing price of the Shares on the TSXV on the day prior to the announcement of the Arrangement, and a premium of approximately 57% to the closing price prior to the announcement of the strategic review process on December 21, 2022; b. the fact that the consideration is payable entirely in cash to maximize immediate liquidity and certainty of value; c. management’s financial projections and historical achievements of targets, together with the assessment by the Special Committee of the current and anticipated future opportunities and risks to Terra Firma, should it continue as a standalone entity; d. the fairness opinions of Cormark Securities and the independent fairness opinion of MNP; e. the Board’s continuing ability to engage or participate in discussions or negotiations with a third party making an acquisition proposal that constitutes or could reasonably be expected to constitute or lead to, a Superior Proposal and, in certain circumstances, to accept such Superior Proposal; f. Minority Shareholders will have an opportunity to vote on the Arrangement; g. in the view of the Special Committee, the termination fee applicable to the Buyer would not preclude a third party from making a potential unsolicited Superior Proposal; h. the ability of Registered Shareholders, subject to certain conditions and in certain circumstances, to exercise dissent rights and receive fair value for their Shares; and i. the fact that the Arrangement is expected to benefit employees of Terra Firma based upon the plan and intention of the Buyer to honour and comply with the obligations of Terra Firma under employment agreements with current or former employees.
Prior to the meeting authorized by the Interim Order, Terra Firma distributed the Circular and all other Meeting Materials.
I am satisfied on the basis of the materials filed by the Applicant in support of the relief sought today that notice as given was appropriate and in accordance with the Interim Order, with one non-fatal exception as described in the materials. The materials were delivered late to the holders of Options and DSUs. However, this is secured by paragraph 14 of the Interim Order, and in any event no such recipient has filed a Notice of Appearance, responding materials, or even indicated informally any intention to oppose.
The meeting was held on October 19, 2023, both virtually and in person, in accordance with the terms of the Interim Order as well as the bylaws of the company. Quorum was established.
Approval required two-thirds of the votes cast by the shareholders represented in person and/or by proxy, and a simple majority of votes cast by Shareholders excluding persons described in subparagraphs (a) through (d) of section 8.1(2) of Multilateral Instrument 61-101 (“Minority Shareholders”).
The Arrangement Resolutions received overwhelming approval by 99.74% of the votes cast by Shareholders and 99.68% of the votes cast by Minority Shareholders.
The evidence today discloses that no shareholders exercised any dissent rights, notwithstanding that the right to dissent, as contemplated in section 185 of the OBCA as modified by the Plan and the Interim Order, were provided. Moreover, no shareholder, or for that matter any affected party, has filed a Notice of Appearance or any responding materials.
In short, those parties principally affected by the relief sought today have overwhelmingly approved the Arrangement and none has indicated any objection or challenge.
Although technically not a requirement under the OBCA, Terra Firma is not insolvent as it is able to pay its liabilities as they become due, and the realizable value of its assets is not less than the aggregate of its liabilities and stated capital of all classes.
The Director received the Plan of Arrangement and draft order together with other materials and confirmed by letter (the notice of non-appearance) filed and in the Record that the Director did not intend to appear before the Court, and the Director has not done so.
Analysis and Consideration of Factors
Section 182 of the OBCA gives the Court the power to make any order it thinks appropriate in connection with an application for advice and directions in connection with an arrangement, including an order approving the arrangement pursuant to section 182(5)(f).
In making such an order, the Court must be satisfied that: a. the statutory procedures and any court-ordered requirements have been met; b. the application has been put forward in good faith; and c. the arrangement is fair and reasonable. See: Re Magna International Inc., 2010 ONSC 4123 at paras 99-105, aff’d 2010 ONSC 4685 at paras. 31-41; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at para. 137; and Steel Canada Inc. (Re) 2014 ONSC 4285 at para. 85.
I will address each of these requirements in turn although in so doing I note that all of these 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 the purposes of the final approval order sought today.
Terra Firma is a “corporation” as defined in the OBCA.
The Arrangement is an “Arrangement” within the meaning of section 182 of the OBCA (i.e., subsection (1)(f): an exchange of securities of a corporation for property, money or other securities of the corporation or property, money or other securities of another body corporate).
The statutory procedures and any court-ordered requirements have been met. In particular here, the terms of the Interim Order have been complied with. Copies of the Meeting Materials were provided in accordance with the terms of the Interim Order.
The Meeting itself was called, held and conducted in accordance with the requirements of the Interim Order. As noted above, the Arrangement was approved overwhelmingly by the requisite majorities.
The Arrangement is put forward in good faith. There is no evidence otherwise.
In my view, the Arrangement is fair and reasonable. There is clearly a valid business purpose.
The factors identified by the Supreme Court of Canada that may be relevant to the test for the assessment of the fairness and reasonableness of a proposed arrangement include: a. the vote by security holders on the arrangement; b. the impact on the rights of those security holders; c. the approval of the arrangement by the corporation’s directors and the presence of a fairness opinion; and d. the access of shareholders to dissent and appraisal remedies. (see BCE Inc., (Re), at paras. 138-143 and 150-152).
Each of these factors is satisfied here. The Arrangement was approved not just by the requisite majorities of shareholders present in person or by proxy at the Meeting, but overwhelmingly.
As observed by Blair, J. in Re St. Lawrence & Hudson Railway Co., 1998 O.J. 3934 at para. 27, what better litmus test then, for assessing whether [a shareholder] might reasonably approve of the plan, than the votes of those whose interests are actually at stake. Such votes are not conclusive but are an important indicator of fairness, as are the lack of dissent or objection.
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 and reasonable", which can be given "considerable weight", particularly if the margin is large: BCE Inc., (Re), at paras. 141 and 150. The Shareholder vote in this case is a strong indication of the fairness and reasonableness of the Arrangement.
The approval of the Directors, both as a full Board and the Special Committee, was clear. That approval was supported by financial and legal advice provided to both, as well as supported by the fairness opinions which were to the effect that the Arrangement is in the best interests of Terra Firma and is fair to Terra Firma shareholders. The approval of each of the Special Committee and the Board was unanimous.
In the aggregate, all of these factors suggest that the rights of interested parties have been fairly and reasonably balanced. Additional comfort can be drawn from the fact that the form of order sought here is consistent with the Model Order of this Court.
Having considered all of the foregoing factors, the Court is satisfied that the Arrangement is fair and reasonable and is in the best interests of Terra Firma and its shareholders.
Approval Granted
The Final Approval Order is granted, approving the Arrangement pursuant to section 182(5) of the OBCA.
Order to go as signed by me today, which is effective from today’s date and is enforceable without the necessity of issuing and entering.
Osborne J.