The Intertain Group Limited
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Filer wants to put in place a credit support issuer structure, but is unable to rely on the exemption for credit support issuers in applicable securities legislation – Relief granted from continuous disclosure requirements, certification requirements, insider reporting requirement, audit committee requirements and corporate governance requirements – Filer unable to rely on exemption for credit support issuers in applicable securities legislation since it has securities outstanding that are not designated credit support securities – Relief subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, ss. 107, 121(2)(a)(ii).
National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1, 13.4.
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, s. 8.6.
National Instrument 52-110 Audit Committees, s. 8.1.
National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), s. 6.1.
National Instrument 55-104 Insider Reporting Requirements and Exemptions, s. 10.1(2).
National Instrument 58-101 Disclosure of Corporate Governance Practices, s. 3.1.
May 9, 2017
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
THE INTERTAIN GROUP LIMITED
(the Filer)
DECISION
Background
1. 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, subject to certain conditions:
(a) the Filer be exempt from continuous disclosure obligations under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and related Legislation (the Continuous Disclosure Relief);
(b) the Filer be exempt from the requirements for the certification of disclosure in annual and interim filings under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109) (the Certification Relief);
(c) the Filer be exempt from the requirements relating to the composition and obligations of audit committees contained in National Instrument 52-110 Audit Committees (NI 52-110) (the Audit Committee Relief);
(d) the insiders of the Filer be exempt from
(i) the insider reporting requirements under the Legislation and pursuant to National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104) in respect of securities of the Filer; and
(ii) the requirement to file an insider profile under National Instrument 55-102 System for Electronic Disclosure by Insiders (NI 55-102) in respect of securities of the Filer,
(collectively, the Insider Reporting Requirements); and
(e) the Filer be exempt from the requirements contained in National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) (the Corporate Governance Relief);
(collectively, the Exemptive Relief 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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Québec and New Brunswick.
Interpretation
2. 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
3. This decision is based on the following facts represented by the Filer:
The Relevant Entities
(a) The Filer is a corporation incorporated under the laws of Ontario. The Filer is the continuing corporation resulting from the amalgamation on January 25, 2017 of ExchangeCo and Intertain Holdings Inc. (each as defined below);
(b) The Filer’s registered and head office was located at 24 Duncan Street, Floor 2, Toronto, Ontario, M5B 2B8.
(c) The Intertain Group Limited (Original Intertain) was a corporation incorporated under the laws of Ontario on November 26, 2010;
(d) Jackpotjoy plc (Jackpotjoy) is a company incorporated under the laws of England and Wales on July 29, 2016;
(e) Intertain CallCo ULC (CallCo) is an unlimited liability company incorporated under the Companies Act (Nova Scotia) on August 16, 2016. Jackpotjoy was, and following the Plan of Arrangement (as defined below), remains, the sole owner of the common shares of CallCo;
(f) Intertain ExchangeCo Limited (ExchangeCo) was a corporation incorporated under the laws of Ontario. CallCo was the sole holder of common shares of ExchangeCo prior to the Plan of Arrangement;
(g) CallCo and ExchangeCo were each incorporated specifically in connection with the Plan of Arrangement and the Exchangeable Share structure discussed below and neither of them has carried on, nor will CallCo carry on, any business other than in connection with the Exchangeable Share structure. Neither CallCo nor ExchangeCo had any shares listed or posted for trading on any stock exchange, nor was either of them a reporting issuer or the equivalent in any of the provinces or territories of Canada prior to the effective date of the Plan of Arrangement;
The Plan of Arrangement
(h) Original Intertain and Jackpotjoy, among others, entered into an agreement dated August 17, 2016 pursuant to which Original Intertain agreed to, among other things, implement a plan of arrangement pursuant to the Business Corporations Act (Ontario), as amended (the Plan of Arrangement);
(i) Original Intertain was a reporting issuer in each of the provinces of British Columbia, Alberta, Ontario, Québec and New Brunswick, and its common shares and convertible debentures were each listed on the Toronto Stock Exchange (the TSX). To the knowledge of the Filer, Original Intertain was not in default of the securities legislation of Ontario, British Columbia, Alberta, Québec and New Brunswick;
(j) Original Intertain prepared, filed and mailed to its shareholders a management information circular dated August 19, 2016 which set out the particulars of the Plan of Arrangement and other matters in accordance with applicable Canadian securities laws, including disclosure with respect to the Exchangeable Shares and the structure by which the Exchangeable Shares would be governed, including the ownership of the Underlying Shares by Intertain JerseyCo Ltd (JerseyCo) and the ownership of all of the voting securities of CallCo by Jackpotjoy;
(k) on September 23, 2016, the special resolution of the shareholders of Original Intertain in relation to, among other things, the Plan of Arrangement, was approved by approximately 99.98% of the votes cast at the meeting either in person or by proxy;
(l) on September 27, 2016, Original Intertain received a final order of the Ontario Superior Court of Justice approving the Plan of Arrangement;
(m) on January 20, 2017, Jackpotjoy published its prospectus in connection with the admission of its ordinary shares (the Ordinary Shares) to the standard listing segment of the Official List of the UK’s Financial Conduct Authority and to trading on the Main Market for listed securities of the London Stock Exchange plc (the LSE and, collectively, the Admission);
(n) on January 25, 2017, effective as of 3:00 a.m. (Toronto time):
(i) the Admission occurred, such that the Ordinary Shares are now listed and trading on the LSE; and
(ii) the Plan of Arrangement became effective;
(o) pursuant to the Plan of Arrangement, among other things:
(i) Original Intertain amalgamated with ExchangeCo and Intertain Holdings Inc. to form the Filer;
(ii) the Filer became an indirect subsidiary of Jackpotjoy (which holds all of the issued and outstanding shares in the capital of CallCo) and a direct subsidiary of CallCo;
(iii) Jackpotjoy issued an aggregate of 73,718,942 Ordinary Shares, with 19,564,276 Ordinary Shares being issued to JerseyCo in connection with the establishment of the Exchangeable Share structure (as discussed below) and 54,154,666 in connection with the acquisition of the remaining Original Intertain common shares;
(iv) the Filer issued an aggregate of 19,564,276 Class C exchangeable shares (the Exchangeable Shares) to those former shareholders of Original Intertain who had validly elected to receive Exchangeable Shares in exchange for the Original Intertain common shares held by such former shareholders; and
(v) the Filer issued a further 54,154,676 Class A common shares (Class A Shares) to CallCo, representing all of the issued and outstanding voting securities of CallCo such that CallCo was (and remains) the sole holder of Class A Shares.
(p) The Exchangeable Shares provide for, among other things:
(i) economic entitlements that are ultimately substantially economically equivalent to those of the Ordinary Shares (subject to certain differences in respect of distributions); and
(ii) through the mechanics provided in the VETA (as defined and discussed below), the right to direct the exercise of the votes attaching to one Ordinary Share for each Exchangeable Share held on the same basis and in the same circumstances as if the holder held one Ordinary Share;
(q) the Exchangeable Shares are listed and trade on the TSX, such that the Filer continues to be a reporting issuer in each of the provinces of British Columbia, Alberta, Ontario, Québec and New Brunswick (being the jurisdictions in which Original Intertain was a reporting issuer prior to the implementation of the Plan of Arrangement);
(r) following the implementation of the Plan of Arrangement, Jackpotjoy:
(i) indirectly holds all of the voting shares of the Filer and the only business of Jackpotjoy is the business of the Filer;
(ii) is subject to applicable reporting requirements under the applicable laws of England and Wales and to the reporting requirements of the LSE;
(iii) became a reporting issuer in each of the provinces of British Columbia, Alberta, Ontario, Québec and New Brunswick (being the jurisdictions in which Original Intertain was a reporting issuer prior to the implementation of the Plan of Arrangement);
(iv) had more than 10% of its shareholders resident in Canada, either through ownership of Ordinary Shares or Exchangeable Shares. Jackpotjoy is therefore a “foreign issuer” for purposes of Canadian securities laws, and is not eligible to be considered a “designated foreign issuer” at this time; and
(v) is required to prepare and file annual financial statements and other continuous disclosure documents required by Securities Legislation;
The Exchangeable Share Structure
(s) in connection with the establishment of the Exchangeable Share structure, Jackpotjoy issued 19,564,276 Ordinary Shares to JerseyCo (the Underlying Shares), such number being equal to the number of Exchangeable Shares issued by the Filer pursuant to the Plan of Arrangement;
(t) pursuant to the Plan of Arrangement, JerseyCo entered into a voting and exchange trust agreement with Jackpotjoy, Intertain and Computershare Trust Company of Canada (as trustee) (the VETA), which provides for, among other things, that JerseyCo will not exercise any of the voting rights attaching to the Underlying Shares and that such rights will be exercised (if at all) by the trustee only on the direction of the relevant holder of Exchangeable Shares and that JerseyCo will not transfer or otherwise deal with the Underlying Shares except as directed by Jackpotjoy;
The Convertible Debentures
(u) immediately prior to the implementation of the Plan of Arrangement, there was approximately $2,168,000 principal amount in unsecured subordinated convertible debentures of Original Intertain outstanding and listed for trading on the TSX under the symbol “IT.DB” (each such debenture, a Convertible Debenture). Each $1,000 face value Convertible Debenture accrues interest at a rate of 5.0% per annum, payable semi-annually in arrears and was convertible at the holder’s option into Original Intertain common shares at a conversion price of $6.00 per share at any time prior to maturity, being December 31, 2018;
(v) holders of Convertible Debentures who wished to acquire Exchangeable Shares (together with certain ancillary rights) rather than Ordinary Shares upon conversion of Convertible Debentures had the option, at any point prior to 5:00 pm on January 17, 2017, to convert their Convertible Debentures into Original Intertain common shares and follow the same procedure to receive Exchangeable Shares as a holder of Original Intertain common shares;
(w) $17,500,000 principal amount of Convertible Debentures were issued on December 19, 2013, when the Convertible Debentures were originally issued. $15,632,000 principal amount of Convertible Debentures were converted into Original Intertain common shares and are no longer an outstanding obligation of the Filer and only $1,868,000 principal amount of Convertible Debentures remain outstanding;
(x) as of the effective date of the Plan of Arrangement, Jackpotjoy, Intertain and Computershare Trust Company of Canada entered into a supplemental convertible debenture indenture in connection with the arrangement to provide for the issuance of Ordinary Shares upon conversion of the Convertible Debentures;
(y) pursuant to the Plan of Arrangement, the Convertible Debentures became convertible into Ordinary Shares but otherwise remain unchanged. Accordingly, the conversion price in respect of the Convertible Debentures continues to be $6.00, such that approximately 166.67 Ordinary Shares will be issued for each $1,000 principal amount of Convertible Debentures so converted, and rounded down to the nearest whole number of Ordinary Shares. The Convertible Debentures are also currently redeemable at a redemption price of 102.5% (i.e., $1,025 for each $1,000 of each principal amount of Convertible Debentures) plus accrued and unpaid interest until December 31, 2017 and thereafter at par (plus accrued and unpaid interest) until their maturity on December 31, 2018;
(z) the Convertible Debentures continue to be listed on the TSX;
(aa) the Convertible Debentures are exchangeable into Ordinary Shares. Given the trading price of the Original Intertain common shares prior to the implementation of the Plan of Arrangement and the trading price of the Ordinary Shares following the effective date (each of which is well in excess of the $6.00 conversion price under the Convertible Debentures), the 166.67 Ordinary Shares that would be received on the conversion of each $1,000 in principal amount of the Convertible Debentures would have a value significantly higher than the redemption amount of $1,025.00 per $1,000;
(bb) Jackpotjoy has fully and unconditionally guaranteed (the Parent Guarantee) the payment and performance when due of all obligations of the Filer under the Convertible Debentures. The Parent Guarantee entitles the holders of the Convertible Debentures to receive payment from Jackpotjoy within 15 days of any failure by the Filer to make a payment;
(cc) the situation of the Filer is closely analogous to credit support issuers that are exempted from the requirements of NI 51-102 pursuant to the provisions of section 13.4 of NI 51-102. However, the exemption set forth in section 13.4 is not available to the Filer solely because the Exchangeable Shares do not qualify as designated credit support securities or any other security of a type enumerated in section 13.4(2)(c) of NI 51-102;
(dd) the Filer has no current intention of: (i) accessing the capital markets in the future by issuing any further securities to the public; or (ii) issuing any securities other than those that are currently outstanding;
(ee) the Filer is an indirect subsidiary of Jackpotjoy and its operational and financial results are consolidated with the operational and financial results of Jackpotjoy for the purposes of Jackpotjoy’s satisfaction of its continuous disclosure obligations; and
(ff) continuous disclosure about Jackpotjoy is more relevant to holders of Exchangeable Shares than continuous disclosure about the Filer because the economic value of the Exchangeable Shares is ultimately determined by the operational and financial performance of Jackpotjoy and not the Filer, and because the Exchangeable Shares are directly exchangeable for Ordinary Shares.
Decision
4. The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
5. The decision of the principal regulator under the Legislation is that the Exemptive Relief Sought is granted provided that:
(a) in respect of the Continuous Disclosure Relief, the Certification Relief, the Audit Committee Relief and the Corporate Governance Relief,
(i) Jackpotjoy is the direct or indirect beneficial owner of all of the issued and outstanding voting securities of the Filer, and no party other than Jackpotjoy, CallCo or other wholly-owned subsidiary of Jackpotjoy will have any direct or indirect ownership of the issued and outstanding voting securities of the Filer;
(ii) Jackpotjoy is a reporting issuer in a designated Canadian jurisdiction (as defined in NI 51-102) and has filed all documents it is required to file under NI 51-102;
(iii) the Filer does not issue any securities other than:
(A) Exchangeable Shares;
(B) designated credit support securities (as such term is defined in NI 51-102), including the Convertible Debentures;
(C) securities issued to and held by Jackpotjoy or an affiliate of Jackpotjoy;
(D) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; and
(E) securities issued under exemptions from the registration requirement and prospectus requirement in Section 2.35 of National Instrument 45-106 Prospectus Exemptions;
(iv) the Filer does not have any securities outstanding other than the types of securities described in paragraph 5(a)(iii) above;
(v) the Filer files in electronic format:
(A) a notice indicating that the Filer is relying on the continuous disclosure documents filed by Jackpotjoy and setting out where those documents can be found for viewing in electronic format; or
(B) copies of all documents that Jackpotjoy is required to file under securities legislation, other than in connection with a distribution, at the same time as the filing by Jackpotjoy of those documents with a securities regulatory authority or regulator;
(vi) Jackpotjoy, the Filer or the Trustee concurrently sends to all registered and beneficial holders of Exchangeable Shares all disclosure materials that are sent to the holders of Ordinary Shares, in the manner and at the time required by securities legislation;
(vii) Jackpotjoy, the Filer or the Trustee concurrently sends to all holders of the Convertible Debentures all disclosure materials that are sent to the holders of similar debt of Jackpotjoy in the manner and at the time required by securities legislation;
(viii) Jackpotjoy complies with Canadian securities legislation in respect of making public disclosure of material information on a timely basis, and immediately issues in Canada and files any news release that discloses a material change in its affairs; and
(ix) the Filer issues a news release and files a material change report in accordance with Part 7 of NI 51-102 for all material changes in respect of the Filer’s affairs that are not also material changes in Jackpotjoy’s affairs;
(x) all or substantially all of the assets of the business carried on by Jackpotjoy are held by the Filer or controlled affiliates of the Filer;
(xi) no person or company other than Jackpotjoy has provided a guarantee or alternative credit support (as such term is defined in NI 51-102) for the payments to be made under any issued and outstanding securities of the Filer; and
(b) in respect of the Insider Reporting Relief:
(i) if the insider is not Jackpotjoy: (A) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning Jackpotjoy before the material facts or material changes are generally disclosed; and (B) the insider is not an insider of Jackpotjoy in any capacity other than by virtue of being an insider of the Filer;
(ii) Jackpotjoy is the beneficial owner, directly or indirectly, of all the issued and outstanding voting securities of the Filer;
(iii) if the insider is Jackpotjoy, Jackpotjoy does not beneficially own any designated credit support securities of the Filer;
(iv) Jackpotjoy is a reporting issuer in a designated Canadian jurisdiction and has filed all documents it is required to file under NI 51-102;
(v) the Filer has not issued any securities other than the types of securities described in paragraph 5(a)(iii) above; and
(vi) the Filer does not have any securities outstanding other than the types of securities described in paragraph 5(a)(iii) above.
As to the Exemptive Relief Sought (other than the Insider Reporting Relief):
“Marie-France Bourret”
Acting Manager, Corporate Finance
Ontario Securities Commission
As to the Insider Reporting Relief:
“Timothy Moseley” “Peter W. Currie”
Commissioner Commissioner
Ontario Securities Commission Ontario Securities Commission