Economic Investment Trust Limited
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from the extension take up requirements in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids -- an issuer conducting an issuer bid requires relief from the requirement not to extend its issuer bid if all terms and conditions are met unless the issuer first takes up all securities validly deposited and not withdrawn under the issuer bid -- requested relief granted, subject to conditions.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, ss. 2.32(4) and 6.1.
September 22, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF ECONOMIC INVESTMENT TRUST LIMITED (the "Filer")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that, in connection with the proposed purchase by the Filer of a portion of its issued and outstanding common shares (the "Shares") pursuant to an issuer bid commenced on August 22, 2022 (the "Offer"), the Filer be exempt from the requirement set out in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") that the Offer not be extended if all of the terms and conditions of the Offer have been complied with or waived, unless the Filer first takes up all of the Shares deposited under the Offer and not withdrawn (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(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, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
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
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation validly existing under the Business Corporations Act (Ontario) and is in good standing.
2. The registered office of the Filer is located at 165 University Avenue, 10th Floor, Toronto, Ontario, M5H 3B8.
3. The Filer is a reporting issuer in the province of Ontario and the Shares are listed for trading on the Toronto Stock Exchange (the "TSX") under the symbol "EVT". The Filer is not in default of any requirement of the securities legislation of the Jurisdiction.
4. The authorized share capital of the Filer consists of (i) an unlimited number of Shares, and (ii) 100,000 Preferred Shares, issuable in series. As at August 16, 2022, the Filer had 5,567,635 Shares and no Preferred Shares issued and outstanding.
5. On August 16, 2022, the last full trading day prior to the date of the announcement of the Offer, the closing price of the Shares on the TSX was $122.49. Based on such closing price, the Shares had an aggregate market value of approximately $681,979,611.15 on such date.
6. The board of the Filer (the "Board") believes that the purchase of Shares pursuant to the Offer constitutes an efficient means of providing value to the holders of Shares (collectively, the "Shareholders") and is in the best interests of the Filer and its Shareholders. The Board further believes that the recent trading price of the Shares is not fully reflective of the underlying value of the Filer or its long term growth prospects. The Offer allows the Filer an opportunity to return up to $20,000,000 of capital to Shareholders who elect to tender their Shares pursuant to the Offer while at the same time increasing the equity ownership of Shareholders who do not elect to tender. The Board believes that the Offer is an advisable use of the Filer's financial resources given its cash requirements and borrowing costs and that, after giving effect to the Offer, the Filer will continue to have sufficient financial resources and working capital to conduct its ongoing business and operations and that the Offer will not preclude the Filer from pursuing its foreseeable business opportunities or the future growth of the Filer's business.
7. The Filer commenced the Offer on August 22, 2022. The issuer bid circular dated August 16, 2022 sent and filed by the Filer in connection with the Offer (the "Circular") specifies that the Filer proposes to purchase, by way of a modified "Dutch auction" procedure in the manner described therein and below, up to $20,000,000 of the issued and outstanding Shares at a purchase price of not less than $120.00 and not more than $140.00 per Share (the "Price Range of Shares").
8. The Filer will fund the purchase of Shares pursuant to the Offer, together with all related fees and expenses of the Offer, from a combination of available cash on hand and cash available to be drawn under the Filer's existing credit facility provided by the Bank of Nova Scotia.
9. Shareholders wishing to tender to the Offer will be able to do so:
(a) by making auction tenders in which the tendering Shareholders specify the number of Shares being tendered at a specified price per Share (the "Auction Price") within the Price Range of Shares in increments of $1.00 per Share (each, an "Auction Tender"); and/or
(b) by making purchase price tenders in which the tendering Shareholders do not specify a price per Share, but rather agree to have a specified number of Shares purchased at the Purchase Price per Share (as defined below) to be determined by the Auction Tenders (each, a "Purchase Price Tender").
10. Shareholders may make both Auction Tenders and Purchase Price Tenders, but not in respect of the same Shares. Shareholders may also make multiple Auction Tenders at different Auction Prices, but not in respect of the same Shares (i.e. Shareholders may tender different Shares at different prices, but cannot tender the same Shares at different prices). If a Shareholder wishes to deposit Shares in separate lots at a different price for each lot, that Shareholder must complete a separate letter of transmittal (and, if applicable, a notice of guaranteed delivery) for each price at which the Shareholder is depositing Shares. Shareholders making Auction Tenders or Purchase Price Tenders may tender less than all of their Shares to the Offer.
11. Shareholders who tender Shares without making a valid Auction Tender or Purchase Price Tender will be deemed to have made a Purchase Price Tender.
12. Any Shareholder that beneficially owns fewer than 100 Shares (an "Odd-Lot Holder") and tenders all of their Shares pursuant to an Auction Tender at a price at or below the Purchase Price or pursuant to a Purchase Price Tender, will be considered to have made an "Odd-Lot Tender".
13. The Filer will determine a single purchase price payable per Share (the "Purchase Price") promptly after the expiry of the Offer by taking into account the number of Shares deposited pursuant to Auction Tenders and Purchase Price Tenders and the Auction Prices specified by Shareholders depositing Shares pursuant to Auction Tenders. For the purpose of determining the Purchase Price, Shares deposited pursuant to a Purchase Price Tender will be deemed to have been deposited at a price of $120.00 per Share (which is the minimum price per Share under the Offer). The Purchase Price will be the lowest price per Share that enables the Filer to purchase the maximum number of Shares validly deposited and not withdrawn pursuant to the Offer having an aggregate Purchase Price not to exceed $20,000,000.
14. Until expiry of the Offer, all information about the number of Shares tendered and the prices at which such Shares are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.
15. If the aggregate Purchase Price for Shares validly deposited and not withdrawn pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders would result in an aggregate Purchase Price in excess of $20,000,000 then such deposited Shares will be purchased as follows:
(a) first, the Filer will purchase all Shares tendered at or below the Purchase Price by Odd-Lot Holders at the Purchase Price; and
(b) second, the Filer will purchase Shares at the Purchase Price on a pro rata basis according to the number of Shares deposited or deemed to be deposited at a price equal to or less than the Purchase Price by the depositing Shareholders, less the number of Shares purchased from Odd-Lot Holders. All Auction Tenders and Purchase Price Tenders will be subject to adjustment to avoid the purchase of fractional Shares.
16. All Shares purchased by the Filer pursuant to the Offer (including Shares tendered at Auction Prices below the Purchase Price) will be purchased at the Purchase Price and payable in cash. All payments to Shareholders will be subject to deduction of applicable withholding taxes.
17. Shares validly deposited by a Shareholder pursuant to an Auction Tender will not be purchased by the Filer pursuant to the Offer if the Auction Price per Share specified by the Shareholder is greater than the Purchase Price.
18. Certificates for all Shares not purchased under the Offer (including Shares deposited pursuant to an Auction Tender at prices greater than the Purchase Price, Shares not purchased because of pro-ration, improper tenders, or Shares not taken up due to the termination of the Offer), or properly withdrawn before the Expiration Time (as defined below), will be returned (in the case of certificates representing Shares all of which are not purchased) or replaced with new certificates or DRS advices representing the balance of Shares not purchased (in the case of certificates representing Shares of which less than all are purchased), promptly after the Expiration Time (or termination of the Offer) or the date of withdrawal of the Shares. In the case of Shares tendered through book-entry transfer into Computershare Trust Company of Canada's account at The Depository Trust Company ("DTC") or CDS Clearing and Depository Services Inc. ("CDS"), the Shares will be credited to the appropriate account maintained by the tendering Shareholder at DTC or CDS, as applicable, without expense to the Shareholder.
19. Assuming the Offer is fully subscribed:
(a) if the Purchase Price is determined to be $120.00, being the minimum Purchase Price under the Offer, the number of Shares that will be purchased by the Filer is 166,666, representing approximately 3.0% of the Filer's issued and outstanding Shares as at August 16, 2022; and
(b) if the Purchase Price is determined to be $140.00, being the maximum Purchase Price under the Offer, the number of Shares that will be purchased by the Filer is 142,857, representing approximately 2.6% of the Filer's issued and outstanding Shares as at August 16, 2022.
20. Shareholders who do not accept the Offer will continue to hold the same number of Shares held before the Offer and their proportionate Share ownership will increase following completion of the Offer, subject to the number of Shares purchased under the Offer.
21. Dominion and Anglo Investment Corporation Limited ("Dominion") exercises control or direction over 1,502,898 Shares (approximately 26.99% of the total number of Shares outstanding as of August 16, 2022). To the knowledge of the Filer, and to the knowledge of its directors and officers, after reasonable inquiry, Dominion will not be tendering any of its Shares to the Offer. If the Purchase Price is determined to be $120 (being the minimum Purchase Price under the Offer) and the maximum number of Shares are repurchased, Dominion will exercise control or direction over 1,502,898 Shares, representing approximately 27.83% of the outstanding Shares. If the Purchase Price is determined to be $140 (being the maximum Purchase Price under the Offer) and the maximum number of Shares are repurchased, Dominion will exercise control or direction over 1,502,898 Shares, representing approximately 27.70% of the outstanding Shares.
22. Dondale Investments Limited ("Dondale") exercises control or direction over 692,000 Shares (approximately 12.43% of the total number of Shares outstanding as of August 16, 2022). To the knowledge of the Filer, and to the knowledge of its directors and officers, after reasonable inquiry, Dondale will not be tendering any of its Shares to the Offer. If the Purchase Price is determined to be $120 (being the minimum Purchase Price under the Offer) and the maximum number of Shares are repurchased, Dondale will exercise control or direction over 692,000 Shares, representing approximately 12.81% of the outstanding Shares. If the Purchase Price is determined to be $140 (being the maximum Purchase Price under the Offer) and the maximum number of Shares are repurchased, Dondale will exercise control or direction over 692,000 Shares, representing approximately 12.76% of the outstanding Shares.
23. Canadian & Foreign Securities Co. Limited ("CFSC") exercises control or direction over 717,713 Shares (approximately 12.89% of the total number of Shares outstanding as of August 16, 2022). To the knowledge of the Filer, and to the knowledge of its directors and officers, after reasonable inquiry, CFSC will not be tendering any of its Shares to the Offer. If the Purchase Price is determined to be $120 (being the minimum Purchase Price under the Offer) and the maximum number of Shares are repurchased, CFSC will exercise control or direction over 717,713 Shares, representing approximately 13.29% of the outstanding Shares. If the Purchase Price is determined to be $140 (being the maximum Purchase Price under the Offer) and the maximum number of Shares are repurchased, CFSC will exercise control or direction over 717,713 Shares, representing approximately 13.23% of the outstanding Shares.
24. E-L Financial Corporation Limited ("ELF") exercises control or direction over 1,348,163 Shares (approximately 24.21% of the total number of Shares outstanding as of August 16, 2022). To the knowledge of the Filer, and to the knowledge of its directors and officers, after reasonable inquiry, ELF will not be tendering any of its Shares to the Offer. If the Purchase Price is determined to be $120 (being the minimum Purchase Price under the Offer) and the maximum number of Shares are repurchased, ELF will exercise control or direction over 1,348,163 Shares, representing approximately 24.96% of the outstanding Shares. If the Purchase Price is determined to be $140 (being the maximum Purchase Price under the Offer) and the maximum number of Shares are repurchased, ELF will exercise control or direction over 1,348,163 Shares, representing approximately 24.85% of the outstanding Shares.
25. To the knowledge of the Filer, after reasonable inquiry, other than Dominion, Dondale, CFSC and ELF, no person or company beneficially owns, or exercises control or direction over, more than 10% of the voting rights attached to all of the Filer's outstanding voting securities.
26. As of August 16, 2022, to the knowledge of the Filer and its directors and officers after reasonable inquiry, no director or officer of the Filer, no insider of the Filer, no associate or affiliate of the Filer or of an insider of the Filer, and no person or company acting jointly or in concert with the Filer, has indicated any present intention to deposit any of such person's or company's Shares pursuant to the Offer.
27. The Offer is subject to the provisions of the United States regulation entitled Regulation 14E adopted under the Securities Exchange Act of 1934, as amended ("Regulation 14E").
28. The Offer is scheduled to expire at 5:00 p.m. (Toronto time) on September 26, 2022 (the "Expiration Time").
29. The Filer may wish to extend the Offer if all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Time but the aggregate Purchase Price for Shares validly tendered pursuant to Auction Tenders and Purchase Price Tenders is less than $20,000,000. The Filer will not extend the Offer if all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Time and the aggregate Purchase Price of the Shares validly tendered and not withdrawn pursuant to Auction Tenders and Purchase Price Tenders is equal to or greater than $20,000,000.
30. Pursuant to subsection 2.32(4) of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all the securities deposited under the issuer bid and not withdrawn.
31. Under Regulation 14E, the Filer must promptly pay for all Shares deposited pursuant to the Offer at the time of expiry of the Offer. Regulation 14E does not provide for extensions of the Offer in the manner required by subsection 2.32(4) of NI 62-104.
32. As the determination of the Purchase Price requires that all Auction Prices and the number of Shares deposited pursuant to both Auction Tenders and Purchase Price Tenders be known and taken into account, the Filer will be unable to take up the Shares deposited and not withdrawn under the Offer as of the Expiration Time prior to extending the Offer because the Purchase Price will not and cannot be known as additional Auction Tenders and Purchase Price Tenders may be made during the extension period that will impact the calculation of the Purchase Price. Accordingly, the Exemption Sought is required in connection with an extension of the Offer to enable the Filer to make a final determination regarding the Purchase Price, taking into account all Shares tendered prior to the Expiration Time and those tendered during any extension period.
33. Shares deposited pursuant to the Offer, including those deposited prior to the Expiration Time, may be withdrawn by the Shareholder at any time prior to the expiration of any extension period in respect of the Offer.
34. The Filer is relying on the exemption from the formal valuation requirements set out in subsection 3.4(b) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101" and such exemption, the "Liquid Market Exemption").
35. There was a "liquid market" for the Shares, as such term is defined in MI 61-101, as of the date the Offer was publicly announced because:
(a) there is a published market for the Shares (i.e. the TSX); and
(b) Cormark Securities Inc. ("Cormark"), a person qualified and independent of all interested parties to the Offer, provided an opinion to the Filer in accordance with section 1.2 of MI 61-101 that there is a liquid market for the Shares as of August 16, 2022 (the "Liquidity Opinion").
36. Cormark also indicated in the Liquidity Opinion that it is reasonable to conclude that, following the completion of the Offer, there will be a market for holders of the Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer. A copy of the Liquidity Opinion was included in the Circular.
37. Based on the maximum number of Shares that may be purchased under the Offer and the Liquidity Opinion, the Board determined that it is reasonable to conclude that, following the completion of the Offer, there will be a market for holders of the Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.
38. The Circular:
(a) discloses the mechanics for the take-up of, and payment for, deposited Shares as described herein;
(b) explains that, by tendering Shares at the lowest price in the Price Range of Shares under an Auction Tender or by making a Purchase Price Tender, a Shareholder can reasonably expect that the Shares so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;
(c) discloses that the Filer has applied for the Exemption Sought;
(d) discloses the manner in which an extension of the Offer will be communicated to Shareholders and the public;
(e) discloses that Shares deposited pursuant to the Offer may be withdrawn at any time prior to the expiration of any extension period in respect of the Offer;
(f) discloses the facts supporting the Filer's reliance on the Liquid Market Exemption, including the Liquidity Opinion; and
(g) includes the disclosure prescribed by the Legislation for issuer bids.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) Shares validly deposited pursuant to the Offer and not withdrawn are taken up and paid for, or dealt with in the manner described above and as set out in the Circular;
(b) the Filer is eligible to rely on the Liquid Market Exemption
(c) The Filer will issue and file a press release announcing receipt of the Exemption Sought promptly, and in any case, no later than one (1) business day following receipt of the Exemption Sought; and
(d) the Filer complies with the requirements of Regulation 14E in respect of the Offer.