Toromont Industries Ltd.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Take-over Bids -- Identical consideration -- Issuer needs relief from the requirement in subsection 97(1) of the Securities Act (Ontario) and section 2.23 of Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids that all holders of the same class of securities must be offered identical consideration -- Under the bid, Canadian resident security holders will receive shares of the offeror; security holders who are residents of the U.S. will receive substantially the same value as Canadian security holders in the form of cash paid to such security holders based on the proceeds from the sale of their shares.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 97(1), 104(2)(c).
November 12, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
TOROMONT INDUSTRIES LTD.
(the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from subsection 2.23(1) of Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (MI 62-104) and subsection 97(1) of the Securities Act (Ontario) (the Identical Consideration Requirement), which require the Filer to offer identical consideration to all of the holders of the same classes of securities that are subject to a take-over bid in connection with the Filer's offer (the Offer) to acquire all of the issued and outstanding trust units (Trust Units) of Enerflex Systems Income Fund (Enerflex) and all of the issued and outstanding class B limited partnership units (Exchangeable LP Units and, together with the Trust Units, the Units) of Enerflex Holdings Limited Partnership (Enerflex LP) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Nunavut and Yukon; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
The decision is based on the following facts represented by the Filer:
1. The Filer is a corporation existing under the Canada Business Corporations Act and its registered and head office is located in Concord, Ontario.
2. The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia and Prince Edward Island and is not in default of any of the requirements of securities legislation applicable to it.
3. The authorized share capital of the Filer consists of an unlimited number of common shares (the Filer Shares) and an unlimited number of preferred shares. As at October 26, 2009, there were 64,731,937 Filer Shares issued and outstanding and no preferred shares were issued and outstanding.
4. The Filer Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX).
5. Enerflex is an open-ended mutual fund trust governed by the laws of the Province of Alberta pursuant to a Deed of Trust dated August 22, 2006 and its head office is located in Calgary, Alberta.
6. Enerflex is a reporting issuer in each of the provinces and territories of Canada.
7. The authorized capital of Enerflex consists of an unlimited number of Trust Units and an unlimited number of special voting units. As at November 1, 2009, there were 44,281,622 Trust Units issued and outstanding and one special voting unit issued and outstanding.
8. The Trust Units are listed and posted for trading on the TSX.
9. Enerflex LP, an indirect subsidiary of Enerflex, is a limited partnership formed under the laws of the Province of Alberta pursuant to a limited partnership agreement dated August 23, 2006. Enerflex LP's head office is located in Calgary, Alberta.
10. Enerflex LP is a reporting issuer in British Columbia, Alberta, Saskatchewan, Québec and Nova Scotia.
11. The authorized capital of Enerflex LP consists of an unlimited number of class A limited partnership units, all of which are held indirectly by Enerflex, and an unlimited number of Exchangeable LP Units. The Exchangeable LP Units are exchangeable for Trust Units on a one-for-one basis. As at November 1, 2009, there were 2,663,422 Exchangeable LP Units issued and outstanding.
12. On October 16, 2009, the Filer publicly announced that it had made a proposal to Enerflex to enter into a business combination transaction whereby the holders of Units would receive cash and Filer Shares representing total consideration of $13.50 per Unit, with at least 50% of the consideration comprised of cash and the balance in Filer Shares.
13. The Filer and Enerflex were not able to successfully negotiate a business combination transaction, and on November 12, 2009, the Filer announced its intention to proceed with the Offer.
14. As consideration for each Unit, the Filer will offer pursuant to the Offer, at the option of the holders of Units, either (i) $13.50 cash or (ii) $0.05 cash plus 0.5098 Filer Shares, subject in each case to pro ration. The maximum amount of cash payable by the Filer pursuant to the Offer will be 50% of the total consideration, and the balance will be payable in Filer Shares.
15. Rule 802 (Rule 802) under the United States (US) Securities Act of 1933 (the 1933 Act), provides an exemption from the registration requirements of the 1933 Act for offers and sales in any exchange offer for a class of securities of a "foreign private issuer" (as defined for purposes of the 1933 Act and the rules and regulations issued by the US Securities and Exchange Commission thereunder) or in any exchange of securities for the securities of a foreign private issuer in any business combination if the holders of the foreign subject company resident in the US hold no more than 10% of the securities that are the subject of the exchange offer or business combination and the other conditions of Rule 802 are satisfied. Rule 802 and the related rules provide that, for the purposes of this calculation, securities held by the offeror are to be excluded. Rule 802 and the related rules also provide that, in the context of a non-consensual exchange offer or proposed business combination transaction, the subject company will be presumed to be a "foreign private issuer" and US holders will be presumed to hold 10% or less of its outstanding subject securities unless (a) the average daily trading volume of the subject securities in the US exceeds 10% of the average daily trading volume of the subject securities on a worldwide basis for the period specified in the rules, (b) the most recent annual report filed by the subject company indicates that US holders hold more than 10% of the outstanding subject securities, or (c) the offeror knows or has reason to know, before the public announcement of the offer, that the level of US ownership exceeds 10% of such securities.
16. The average daily trading volume of the Trust Units in the US for the specified period did not exceed 10% of the average daily trading volume for the Trust Units on a worldwide basis for the specified period. Furthermore, Enerflex has not disclosed in its most recent annual information form that holders of Units in the US (US Unitholders) collectively hold more than 10% of the Trust Units or the Exchangeable LP Units, and the Filer did not know or have reason to know, before the public announcement of its proposal on October 16, 2009, that the level of US ownership of the Trust Units or the Exchangeable LP Units exceeds 10% of such securities. Accordingly, the Filer is entitled to rely on the presumption under Rule 802 and the related rules that Enerflex and Enerflex LP are "foreign private issuers" and that holders of Units in the US do not hold more than 10% of the Trust Units or Exchangeable LP Units. The Filer will satisfy the other requirements of Rule 802. Accordingly, the offer and sale of the Filer Shares in the Offer will be exempt from the registration requirements of the 1933 Act.
17. Because: (a) the Trust Units are not listed on a US stock exchange; (b) the Trust Units are not a registered class of securities under applicable US federal securities laws; and (c) Enerflex is structured as a Canadian "income trust", the Filer has reason to believe that the level of US ownership of Units is low.
18. In order for the exemption provided in Rule 802 to apply, holders resident in the US must be permitted to participate in the exchange offer or business combination on terms at least as favourable to those offered to the other holders of the subject securities, subject to an exception which allows the offeror to offer cash consideration (in lieu of the offered securities) to securityholders resident in states of the US that require registration or qualification of the offered securities under applicable state or local securities laws.
19. There is no general exemption from US state "blue sky" securities laws that corresponds with Rule 802. As a result, the securities laws of a significant number of US states would prohibit delivery of the Filer Shares to US Unitholders without registration of the Filer Shares to be issued to US Unitholders resident in such states unless such holders are otherwise exempt investors under the laws of such states.
20. Registration under applicable state securities laws of the Filer Shares deliverable to US Unitholders would be costly and burdensome to the Filer.
21. The Exemption Sought relates to those US Unitholders that do not qualify as exempt "institutional investors" within the meaning of the securities laws and regulations of such US Unitholders' US jurisdiction (the Ineligible US Unitholders).
22. The Filer Shares issuable under the Offer have not been and will not be registered under the 1933 Act or qualified under any US state "blue sky" securities laws. The offer or sale of Filer Shares under the Offer to Ineligible US Unitholders would violate certain US state securities laws.
23. The Filer proposes, with respect to Ineligible US Unitholders that would otherwise receive Filer Shares in exchange for their Units under the Offer, to, at the sole discretion of the Filer, have such Filer Shares issued on their behalf to a selling agent, which shall, as agent for such Ineligible US Unitholders, as expeditiously as is commercially reasonable thereafter, sell such Filer Shares on their behalf through the facilities of the TSX and have the net proceeds of such sale, less any applicable brokerage commissions, other expenses and withholding taxes, delivered to such Ineligible US Unitholders. Each Ineligible US Unitholder for whom Filer Shares are sold by the selling agent will receive an amount equal to such Unitholder's pro rata interest in the net proceeds of sales of all Filer Shares so sold by the selling agent.
24. Any sale of the Filer Shares described above will be completed as expeditiously as commercially reasonable after the date on which the Filer takes up and pays for the Units tendered by the Ineligible US Unitholders under the Offer and will be done in a manner intended to maximize the consideration to be received from the sale and minimize any adverse impact of the sale on the market for the Filer Shares.
25. The Offer to Ineligible US Unitholders and the sale of the Filer Shares for the benefit of Ineligible US Unitholders in accordance with the procedure set out in paragraphs 23 and 24 (the Vendor Placement) will not violate any applicable US federal or state securities laws.
26. The take-over bid circular to be prepared by the Filer and mailed to all holders of Units in connection with the Offer will disclose the Vendor Placement.
27. There is currently a "liquid market", as that term is defined in Section 1.2 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, for the Filer Shares and the Filer's financial advisor has advised that in its view there will continue to be such a "liquid market" for the Filer Shares following completion of the Offer, any related second-step transaction, and the Vendor Placement.
28. If the Filer increases the consideration offered to holders of Units resident in Canada, the increase in consideration will also be offered to holders of Units resident outside of Canada, including Ineligible US Unitholders, at the same time and on the same basis.
29. Except to the extent that discretionary exemptive relief from applicable securities legislation is granted by securities regulatory authorities or securities regulators, the Offer will be made in compliance with the requirements under the Legislation governing take-over bids.
Decision
Each of the Decision Makers is satisfied that the decision meets the tests set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted so that the Filer is exempt from the Identical Consideration Requirement, provided that Ineligible US Unitholders that would otherwise receive Filer Shares under the Offer instead receive cash proceeds from the sale of those Filer Shares in accordance with the Vendor Placement.