Urbanfund Corp. - s. 9.1 of MI 61-101 Protection of Minority Security Holders in Special Transactions
Headnote
Related party transaction -- issuer to raise $10 million through private placement offering but, due to market conditions, unable to raise sufficient proceeds -- two related parties of the issuer are willing to partially fund the offering shortfall in exchange for receiving common shares of the issuer - proposed funding by related parties and their subscription for common shares constitutes a "related party transaction" under MI 61-101 and is subject to minority approval requirements - issuer has disclosed details of the transaction in a disclosure document filed on SEDAR and press release and will file a material change report upon closing of the offering -- outside shareholders who are not "interested parties" intend to provide written consents to the proposed related party transaction, representing approx. 62% of the common shares held by all minority shareholders - approval of the transaction by majority of minority shareholders at a shareholders' meeting would be foregone conclusion -- issuer will provide a copy to all outside shareholders considering the transaction and send a copy to any shareholder who requests it -- exemption from holding shareholders' meeting and formal delivery of information circular granted, provided written consent is obtained.
Statutes Cited
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.6, 8.1, 9.1.
Companion Policy 61-101CP to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, s. 3.1.
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S.5, AS AMENDED (the Act)
AND
IN THE MATTER OF
MULTILATERAL INSTRUMENT 61-101
AND
IN THE MATTER OF
URBANFUND CORP.
ORDER
(SECTION 9.1)
UPON the application (the Application) of Urbanfund Corp. (Urbanfund) to the Director pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (the Instrument) for a decision that the requirements in section 5.6 of the Instrument that:
(a) the Proposed Transaction (as defined below) be approved at a meeting of the shareholders of Urbanfund, and
(b) an information circular be sent to shareholders of Urbanfund in connection with the Proposed Transaction,
be waived (the Requested Relief);
AND UPON considering the application and the recommendation of staff of the Commission;
AND WHEREAS defined terms contained in the Instrument have the same meaning in this order unless they are defined in this order;
AND UPON Urbanfund having represented to the Director as follows:
1. Urbanfund is a corporation existing under the laws of the Province of Ontario. Urbanfund is a reporting issuer under the Securities Act (Ontario), the Securities Act (Alberta) and the Securities Act (British Columbia).
2. Urbanfund's authorized capital consists of an unlimited number of common shares (the Common Shares), an unlimited number of first preferred shares issuable in series and an unlimited number of second preferred shares issuable in series. Each Common Share carries the right to one vote. The preferred shares do not carry voting rights. As of the date hereof, the Applicant's issued and outstanding share capital consists of 10,200,000 Common Shares and 11,000,000 first preferred, series A shares (the Series A First Preferred Shares).
3. Urbanfund's Common Shares are listed on the TSX Venture Exchange.
4. Urbanfund entered into an engagement letter with Blackmont Capital Inc., pursuant to which Blackmont Capital Inc. together with a syndicate of investment dealers including M Partners Inc. (collectively, the Agents) agreed to act as agents in respect of a best efforts, private placement offering of Urbanfund's Common Shares for gross proceeds of up to $10,000,000 (the Offering).
5. The Offering was disclosed in a press release dated October 17, 2007 and pricing of the Offering was disclosed in a press release dated January 16, 2008.
6. The proceeds of the Offering are intended to be used, in part, by Urbanfund to acquire two commercial properties in furtherance of Urbanfund's stated business objectives.
7. Due to current market conditions and uncertainty as to the total firm commitments to be received pursuant to the Offering, Urbanfund anticipates that the gross proceeds from the Offering will be less than $10,000,000 (and the amount by which the gross proceeds are less than $10,000,000 is hereinafter referred to as the Shortfall).
8. In order to partially fund the Shortfall, certain insiders of the Applicant, namely Mitchell Cohen (Cohen), the Applicant's President and Chief Executive Officer, and Westdale Construction Co. Limited (Westdale), the Applicant's controlling shareholder and an entity controlled by Ronald S. Kimel (Kimel), the Applicant's Chairman, have advised the Applicant and the Agents that they will collectively subscribe for Common Shares pursuant to the Offering in the amount of $300,000 and $5,000,000, respectively (collectively, the Proposed Transaction).
9. Urbanfund has four directors who are each an "independent director" (as defined in the Instrument). Approval of more than two-thirds of such independent directors was obtained at a meeting of Urbanfund's board of directors held to approve the Proposed Transaction. Unanimous approval was obtained of each of the independent directors present at the board meeting.
10. Kimel is the Applicant's Chairman and directly and indirectly (through Westdale) beneficially owns 4,165,000 Common Shares representing 40.8% of the issued and outstanding Common Shares and 7,425,000 Series A First Preferred Shares representing 67.5% of the issued and outstanding Series A First Preferred Shares. Since Kimel and his affiliate, Westdale, own 10% or more of the Common Shares, each of Kimel and Westdale is a "related party" of Urbanfund. Following the completion of the Proposed Transaction, Kimel's and Westdale's holdings of Common Shares will increase from 40.8% to 53.5% of all issued and outstanding Common Shares (on a non-diluted basis).
11. Cohen holds neither Common Shares nor Series A First Preferred Shares. Cohen is a "related party" of Urbanfund due to his position as a senior officer of Urbanfund. Following the completion of the Proposed Transaction, Cohen's holdings of Common Shares will increase from 2.6% of all issued and outstanding Common Shares (on a non-diluted basis).
12. Since each of Kimel, Westdale and Cohen is a "related party" of Urbanfund, the Proposed Transaction will constitute a "related party transaction" within the meaning of the Instrument and, consequently, the Instrument requires that Urbanfund obtain a formal valuation for, and minority approval of, the Proposed Transaction, in the absence of exemptions therefrom.
13. Implementation of the Proposed Transaction is exempt from the valuation requirement of the Instrument pursuant to section 5.5(b) of the Instrument. However, there are no available exemptions from the minority approval requirements of the Instrument for the Proposed Transaction.
14. To effect the Proposed Transaction, Urbanfund will obtain minority approval, as that term is defined in the Instrument, calculated in accordance with the terms of Part 8 of the Instrument, albeit not at a shareholders' meeting, but by written consent (the Minority Approval).
15. Perma Corp. is the beneficial holder of 2,400,000 Common Shares and 3,300,000 Series A First Preferred Shares.
16. Steven G. Isenberg (Isenberg), an Urbanfund director, is the beneficial holder of 1,175,835 Common Shares and 137,500 Series A First Preferred Shares.
17. Barry Lyon (Lyon), an Urbanfund director, is the beneficial holder of 200,000 Common Shares.
18. Neither Perma Corp., Isenberg nor Lyon is: (i) an "interested party" (as such term is defined in the Instrument), (ii) a related party of an interested party, unless the related party meets that description solely in its capacity as a director or senior officer of one or more entities that are neither interested parties nor issuer insiders of Urbanfund, or (iii) a joint actor with a person or company referred to in (i) or (ii) in respect of the Proposed Transaction.
19. Urbanfund has received indication that each of Perma Corp., Isenberg and Lyon will consent to the Proposed Transaction, which represents approval of: (i) 62% of the Common Shares; and (ii) 96% of the Series A First Preferred Shares, held by disinterested minority shareholders with respect to the Proposed Transaction. Such approval is in excess of the simple majority requirement in the Instrument for purposes of obtaining minority approval.
20. Due to the uncertainty regarding total firm commitments to be received pursuant to the Offering and the corresponding amount of the Shortfall to be funded by Westdale and Cohen via the Proposed Transaction, certain disclosure documents as required by the Instrument will be filed publicly on SEDAR immediately prior to or upon closing of the Offering, which is currently expected to occur on February 15, 2008, as follows:
(a) a disclosure document (and press release advising of such filing) pertaining to the Proposed Transaction (the Disclosure Document), attaching the form of consent (the Consent) to be provided to shareholders of Urbanfund in connection with seeking their approval of the Proposed Transaction, and the contents of which shall comply with the disclosure requirements contained in section 5.3 of the Instrument; and
(b) a material change report pertaining to the Offering and the Proposed Transaction, the contents of which shall comply with the disclosure requirements contained in section 5.2 of the Instrument (the Material Change Report).
21. Each of Perma Corp., Isenberg and Lyon will receive a copy of the Consent and Disclosure Document. The Disclosure Document will be posted on SEDAR and will be sent to any shareholder who requests a copy.
22. The Consent will provide relevant details of the Proposed Transaction and include an acknowledgement that the Disclosure Document describes the Proposed Transaction in sufficient detail to allow shareholders of Urbanfund to make an informed decision.
23. In order to ensure that shareholders of Urbanfund are provided with sufficient notice and time to consider the Proposed Transaction and to allow them to make an informed decision, the proceeds received by Urbanfund from the Proposed Transaction shall be held in escrow for a period of 14 days following completion of the Offering.
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS DECIDED by the Director pursuant to section 9.1 of the Instrument that the Requested Relief is granted, provided that:
(a) Minority Approval shall have been obtained by written consent;
(b) each of: (i) Perma Corp., (ii) Isenberg and (iii) Lyon receives a copy of the Consent and Disclosure Document;
(c) the Disclosure Document, the Material Change Report and any other required disclosure documents are filed on SEDAR as described in paragraph 20 above;
(d) the proceeds in respect of the Proposed Transaction are held in escrow for a period of 14 days following completion of the Offering; and
(e) Urbanfund complies with the other provisions of the Instrument.
DATED February 15th, 2008.