GFL Environmental Inc. – s. 6.1 of NI 62-104
Headnote
Section 6.1 of NI 62-104 -- Issuer bid -- relief from requirements applicable to issuer bids in Part 2 of NI 62-104 -- issuer proposes to purchase up to 10% of its subordinate voting shares from registered investment dealers in connection with underwritten secondary offerings -- offering terms determined by arms' length negotiations between underwriters and selling shareholders -- purchases to be made at offering price and therefore at a discount to prevailing market price -- issuer will not purchase more than 50% of shares sold per offering -- issuer will not purchase any shares unless recommended by a special committee of independent directors -- requested relief granted, subject to conditions.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990, c.S.5, AS AMENDED
AND
IN THE MATTER OF
GFL ENVIRONMENTAL INC.
ORDER
(Section 6.1 of National Instrument 62-104)
UPON the application (the "Application") of GFL Environmental Inc. (the "Filer") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") exempting the Filer from the requirements applicable to issuer bids in Part 2 of NI 62-104 (the "Issuer Bid Requirements") in respect of purchases by the Filer of up to an aggregate of 38,157,045 of its subordinate voting shares ("SVS"), representing 10% of the issued and outstanding SVS, from one or more registered investment dealers located in Ontario (each, together with its affiliates, an "Underwriter") in connection with one or more underwritten secondary offerings of SVS (each, an "Offering") at the Offering Price (as defined below) and in the same manner as any other prospective purchaser of SVS under the Offering (each such purchase by the Filer, a "Secondary Acquisition") as further described below (the "Exemption Sought");
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Filer having represented to the Commission that:
1. The Filer is a corporation existing and in good standing under the Business Corporations Act (Ontario) (the "OBCA"). The Filer's registered and head office is located at Suite 500, 100 New Park Place, Vaughan, Ontario, L4K 0H9.
2. The Filer is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirements of securities legislation in the jurisdictions in which it is a reporting issuer. The Filer is also a registrant with the SEC and is subject to the requirements of the 1934 Act. The Filer is not in default of any requirement of U.S. federal securities law.
3. The authorized capital of the Filer consists of:
(a) an unlimited number of SVS, of which 381,570,455 SVS were issued and outstanding as of February 28, 2025;
(b) an unlimited number of multiple voting shares ("MVS"), of which 11,812,964 MVS were issued and outstanding as of February 28, 2025;
(c) an unlimited number of preferred shares, issuable in series;
(d) 28,571,428 Series A perpetual convertible preferred shares ("Series A Convertible Preferred Shares"), of which 10,401,871 Series A Convertible Preferred Shares were issued and outstanding as of February 28, 2025; and
(e) 8,196,721 Series B perpetual convertible preferred shares (the "Series B Convertible Preferred Shares" and, together with the Series A Convertible Preferred Shares, the "Convertible Preferred Shares"), of which 8,196,721 Series B Convertible Preferred Shares were issued and outstanding as of February 28, 2025.
4. Holders of SVS are entitled to one vote per SVS and holders of MVS are entitled to 10 votes per MVS on all matters upon which holders of SVS and MVS are entitled to vote. Each holder of the Convertible Preferred Shares is entitled to vote, to the greatest extent possible, with holders of SVS and MVS as a single class. Each Convertible Preferred Share is entitled to one vote per share and, for the purpose of voting at any meeting at which such holder is entitled to vote, each holder of Convertible Preferred Shares will be deemed to hold such number of Convertible Preferred Shares that is equal to the number of SVS into which the holder's Convertible Preferred Shares are convertible pursuant to the terms of the Convertible Preferred Shares as of the applicable record date.
5. Each outstanding MVS may at any time, at the option of the holder, be converted into one SVS. Additionally, in certain circumstances each MVS will convert automatically into one SVS.
6. The SVS are listed on the Toronto Stock Exchange (the "TSX") and the New York Stock Exchange (the "NYSE" and, together with the TSX, the "Exchanges") under the trading symbol "GFL". Neither the MVS nor the Convertible Preferred Shares are listed on any stock exchange.
7. The Filer is party to a Fifth Amended and Restated Registration Rights Agreement dated December 17, 2021 (the "RRA") with certain of its significant shareholders, being BCEC-GFL Borrower (Cayman) LP (an entity affiliated with BC Partners Advisors L.P.) ("BC Partners"), Ontario Teachers' Pension Plan Board ("Ontario Teachers"), GFL Borrower II (Cayman) LP ("GIC"), Poole Private Capital, LLC ("Poole Private Capital"), affiliates of funds advised or managed by HPS Investment Partners, LLC ("HPS"), and certain holding entities beneficially owned and controlled by Patrick Dovigi (the President, Chief Executive Officer, and Chairman of the board of directors of the Filer (the "Board")), his family members and discretionary trusts settled by family members of Mr. Dovigi (the "Dovigi Group" and, together with BC Partners, Ontario Teachers, GIC, Poole Private Capital, and HPS, the "RRA Shareholders").
8. To the knowledge of the Filer:
(a) the Dovigi Group holds 11,812,964 MVS and 78,860 SVS, representing all of the issued and outstanding MVS, approximately 2.9% of the issued and outstanding SVS (assuming the conversion of all MVS into SVS), and approximately 22.7% of the total outstanding voting rights of all classes of securities as of February 28, 2025;
(b) BC Partners holds 90,367,940 SVS, representing approximately 21.9% of the issued and outstanding SVS and approximately 17.4% of the total outstanding voting rights of all classes of securities as of February 28, 2025;
(c) Ontario Teachers holds 35,357,367 SVS, representing approximately 8.6% of the outstanding SVS and approximately 6.8% of the total outstanding voting rights of all classes of securities as of February 28, 2025;
(d) GIC holds 21,235,659 SVS, representing approximately 5.1% of the outstanding SVS and approximately 4.1% of the total outstanding voting rights of all classes of securities as of as of February 28, 2025;
(e) Poole Private Capital holds 9,716,399 SVS, representing approximately 2.4% of the outstanding SVS and approximately 1.9% of the total outstanding voting rights of all classes of securities as of February 28, 2025; and
(f) HPS holds 10,401,871 Series A Convertible Preferred Shares and 8,196,721 Series B Convertible Preferred Shares, representing all of the issued and outstanding Convertible Preferred Shares and approximately 3.9% of the total outstanding voting rights of all classes of securities as of February 28, 2025.
9. The terms of the RRA require, among other things, that the Filer use its reasonable best efforts to qualify or be able to register securities pursuant to a Registration Statement on Form S-3 (or, if applicable, a Registration Statement on Form F-3 or other similar form, or Registration Statement on Form F-10) (collectively, a "Form S-3") under the 1933 Act and/or a short-form prospectus (a "Canadian Short-Form Prospectus") under National Instrument 44-101 Short Form Prospectus Distributions.
10. At any time while the Filer is eligible to qualify or register securities pursuant to a Registration Statement on Form S-3 or a Canadian Short-Form Prospectus, any holder of demand registration rights thereunder may exercise its rights under the RRA to require the Filer to prepare and file a Registration Statement that is a "shelf" Registration Statement, or to file a Canadian Short-Form Prospectus used to qualify a distribution of securities in Canada pursuant to National Instrument 44-102 Shelf Distributions (a "Canadian Shelf Prospectus").
11. Subject to the terms of the RRA, each holder of demand registration rights thereunder may deliver notice under the RRA of its intention to sell some or all of its SVS (each, a "Take-Down Notice") and, subject to certain customary exceptions, require the Filer, as soon as practical thereafter, to amend or supplement the Canadian Shelf Prospectus as necessary to enable an Offering. Pursuant to customary tag along rights, all of the RRA Shareholders may elect to participate in an Offering in accordance with their pro rata holdings of SVS. For a Take-Down Notice to be effective, the RRA Shareholders that participate in the Offering (the "Selling Shareholders") must receive gross proceeds of at least US$50,000,000 (or the Canadian dollar equivalent thereof).
12. Secondary offerings under the RRA are intended to facilitate the sale of SVS by the RRA Shareholders in an orderly manner, where liquidity might not otherwise be available having regard to the significant number of SVS held and sold thereby.
13. Since completing its initial public offering in 2020, certain of the RRA Shareholders have delivered a Take-Down Notice and completed an Offering on four separate occasions.
14. As of the date hereof, BC Partners has the right to deliver up to one Take-Down Notice, Ontario Teachers has the right to deliver up to three Take-Down Notices, GIC has the right to deliver up to two Take-Down Notices, the Dovigi Group has the right to deliver up to two Take-Down Notices, and HPS has the right to deliver up to three Take-Down Notices.
15. The Dovigi Group has advised the Filer that it will not participate as a seller in any Offering.
16. In connection with any Offering, it is in the sole discretion of:
(a) the applicable RRA Shareholders, and not the Filer, as to whether to deliver a Take-Down Notice and/or to participate in an Offering, and in turn, to agree in arms' length negotiations with the Underwriters as to the number of SVS to be sold to the Underwriters (the "Offered SVS") and the price per SVS to be sold to the Underwriters (the "Underwriter Purchase Price"); and
(b) the Underwriters, and not the Filer, to set the price at which the Offered SVS will be offered for sale by the Underwriters to the public (the "Offering Price").
17. The difference between the Underwriter Purchase Price and the Offering Price represents the gross profit to the Underwriters in connection with an Offering (the "Offering Spread"). No commission or other fees are paid to the Underwriters by the Selling Shareholders or by the Filer in connection with an Offering.
18. The Filer believes that the market price of the SVS has been adversely affected by the market perception that one or more of the RRA Shareholders will sell all or a portion of their SVS, creating an "overhang" in the SVS that artificially depresses the market price for the SVS given the potential for future dilution and downward pressure on the price of the SVS.
19. The Filer has publicly announced its intention to opportunistically purchase up to $2.25 billion of SVS, including, among other things, with a view to addressing the overhang associated with the holdings of the RRA Shareholders. These purchases may be made through a normal course issuer bid (an "NCIB"), a substantial issuer bid (an "SIB"), and/or pursuant to Secondary Acquisitions, subject to receipt of the Exemption Sought.
20. On February 27, 2025, the Filer announced that the TSX has authorized it to make an NCIB for the 12-month period commencing on March 3, 2025 to purchase up to 28,046,256 SVS, representing approximately 10% of the Filer's public float (as defined in Section 628(1)(xi) of the TSX Company Manual) and approximately 7.4% of the issued and outstanding SVS, in each case, as of the date specified in the Notice of Intention to Make a Normal Course Issuer Bid.
21. The Filer believes that, by having the option to purchase SVS in connection with an Offering pursuant to a Secondary Acquisition, which purchases would be made from the Underwriters at the Offering Price and therefore at a discount to the closing price of the SVS on the Exchanges on the date that the Offering Terms (as defined below) are agreed to and the Announcement News Release (as defined below) is issued and filed (the "SVS Market Price"), the Filer will have the opportunity to effectively and efficiently address the overhang in a manner that would improve its per share financial metrics more favourably relative to alternative means of purchasing SVS, including an NCIB or an SIB.
22. An Offering involving a potential Secondary Acquisition will entail the following sequence of events:
(a) the Selling Shareholders and the Underwriters will agree on the number of Offered SVS and the Underwriter Purchase Price (the "Offering Terms");
(b) the Selling Shareholders will deliver a Take-Down Notice to the Filer;
(c) the Filer will issue and file a news release announcing the Offering and the number of Offered SVS (an "Announcement News Release");
(d) the Underwriters will contact prospective purchasers, including the Filer, to determine their respective demand for Offered SVS in a manner that will allow the Underwriters to sell the Offered SVS at the greatest Offering Spread, and if demand for SVS at the Offering Price exceeds the number of Offered SVS, the Underwriters and the Selling Shareholders may agree to increase the number of Offered SVS to permit the Underwriters to satisfy such demand (any such increase, an "Upsize");
(e) the Underwriters and the Filer will agree on the number of Offered SVS, if any, to be purchased by the Filer at the Offering Price;
(f) the Selling Shareholders and the Underwriters will formally enter into an underwriting agreement, which will reflect (i) the Underwriter Purchase Price, which will be unchanged from the Underwriter Purchase Price agreed to by the Selling Shareholders and the Underwriters prior to the delivery of the Take-Down Notice to the Filer, and (ii) the number of Offered SVS, factoring in any Upsize;
(g) the Filer will issue and file a news release that will include disclosure of (i) the final terms of the Offering, including the Offering Price and the total number of Offered SVS, (ii) if applicable, the number of Offered SVS to be purchased, and the aggregate purchase price to be paid, by the Filer in connection with the Secondary Acquisition, and (iii) if applicable, the basis on which the Special Committee (as defined below) and the Board determined that the Secondary Acquisition is in the best interests of the Filer;
(h) the Filer will file a supplement to the Canadian Shelf Prospectus (a "Supplement") in connection with the Offering; and
(i) the parties will close the Offering.
23. In connection with an Offering involving a Secondary Acquisition:
(a) the Underwriters will distribute the Offered SVS to the public as principal, and not as an agent for any Selling Shareholder;
(b) the Offering Terms will be determined by arms' length negotiations between the Underwriters and the Selling Shareholders;
(c) there will be no agreement, arrangement, or understanding as between the Filer (including its representatives and agents) and any Selling Shareholder or any Underwriter (including their respective representatives and agents) regarding whether and to what extent the Filer may purchase SVS pursuant to a Secondary Acquisition before the Underwriters have committed to purchase the Offered SVS from the Selling Shareholders at the Underwriter Purchase Price and the Selling Shareholders have delivered the Take-Down Notice to the Filer;
(d) the Offering Price will be determined solely by the Underwriters and will be at a discount to the SVS Market Price at the time that the Filer agrees to purchase any Offered SVS;
(e) the number, if any, of Offered SVS desired to be purchased by the Filer will be determined solely by the Filer, and in no event will the Filer purchase from the Underwriters more than 50% of the number of Offered SVS disclosed in the Announcement News Release (which, for greater certainty, shall not be subject to increase in the event of an Upsize) per Offering;
(f) no commission will be payable to the Underwriters by the Selling Shareholders or the Filer in connection with the Offering; and
(g) all SVS purchased by the Filer pursuant to a Secondary Acquisition will be promptly cancelled.
24. As each Underwriter that may sell SVS to the Filer is resident in the Province of Ontario, a Secondary Acquisition would constitute an "issuer bid" (as such term is defined in section 1.1 of NI 62-104) by the Filer.
25. The Filer believes that Secondary Acquisitions will not have a material adverse effect on the Filer, its financial position, or its ability to achieve its business objectives.
26. The SVS are "highly-liquid securities" within the meaning of section 1.1 of OSC Rule 48-501Trading during Distributions, Formal Bids and Share Exchange Transactions ("OSC Rule 48-501") and section 1.1 of the Universal Market Integrity Rules ("UMIR").
27. In connection with a Secondary Acquisition, the Filer will rely on the exemption set out in paragraph 3.2(e) of OSC Rule 48-501 from the restrictions in section 2.2 of OSC Rule 48-501 related to bidding for or purchasing a restricted security (as such term is defined in OSC Rule 48-501) during an issuer-restricted period (as such term is defined in OSC Rule 48-501).
28. In connection with a Secondary Acquisition, the Filer would be eligible to rely on the liquid market exemption set out in paragraph 3.4(b) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") from the formal valuation requirement (the "Liquid Market Exemption").
29. To the extent that a Secondary Acquisition may constitute a related party transaction (as such term is defined in MI 61-101) for the Filer, the Filer will rely on the exemptions set out in paragraphs 5.5(a) and 5.7(1)(a) of MI 61-101 from the formal valuation and minority approval requirements, respectively.
30. Prior to the Filer agreeing to purchase any Offered SVS pursuant to a Secondary Acquisition, the Board will establish a special committee consisting of directors that are independent of each RRA Shareholder (a "Special Committee") to consider whether the Filer would be interested in purchasing Offered SVS, and if so in what number, having regard to the Offering Price and other relevant circumstances. The Filer will not proceed with a Secondary Acquisition unless the Special Committee concludes that the Secondary Acquisition is in the best interests of the Filer and recommends that the Board approve the Secondary Acquisition.
31. At the time that the Filer agrees to purchase Offered SVS pursuant to a Secondary Acquisition, none of the Filer, the RRA Shareholders, or the Underwriters will be aware of any "material fact" or "material change" (each as defined in the Securities Act (Ontario)) with respect to the Filer that has not been generally disclosed. As SVS will be distributed pursuant to a Supplement (and a corresponding Registration Statement on F-10) that will be filed on SEDAR+ and EDGAR, all market participants will have access to full, true, and plain disclosure of all material facts relating to the Filer and the SVS at the time of the Secondary Acquisition.
32. Secondary Acquisitions would not require the approval of the Filer's shareholders under the requirements of the OBCA, the Exchanges, or applicable securities legislation, subject to receipt of the Exemption Sought. Any Secondary Acquisition completed in accordance with the Exemption Sought will otherwise comply with applicable U.S. and Canadian securities laws.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 6.1 of NI 62-104 that the Filer be exempt from the Issuer Bid Requirements in connection with any Secondary Acquisition provided that:
(a) the Filer does not purchase, in the aggregate, more than 38,157,045 SVS in reliance on the Exemption Sought;
(b) the Exemption Sought applies only to the purchase of SVS by the Filer pursuant to a Secondary Acquisition that is completed within 12 months of the date of this order;
(c) the Filer does not purchase from the Underwriters more than 50% of the number of Offered SVS disclosed in the Announcement News Release (which, for greater certainty, shall not be subject to increase in the event of an Upsize) per Offering;
(d) the Offering Price is less than the SVS Market Price at the time that the Filer agrees to purchase any Offered SVS;
(e) the Filer issues and files a news release promptly, and in any case not later than one business day following receipt of the Exemption Sought, (i) setting out the terms of the Exemption Sought and the conditions applicable thereto, and (ii) disclosing the Filer's intentions to purchase SVS through methods that are available to it, including through an NCIB, an SIB, or as permitted by the Exemption Sought;
(f) the Filer issues and files a news release at least once quarterly updating the market as to its intentions, as applicable, to purchase SVS through methods that are available to it, including through an NCIB, an SIB, or as permitted by the Exemption Sought; and
(g) at the time of any Secondary Acquisition, (i) the SVS are "highly-liquid securities" within the meaning of section 1.1 of OSC Rule 48-501 and section 1.1 of the UMIR, and (ii) the Filer would be eligible to rely on the Liquid Market Exemption.
DATED at Toronto, Ontario this 13th day of March, 2025.
"David Mendicino"
Manager, Corporate Finance Division
Ontario Securities Commission