Subsection 74(1) - Application pursuant to Mutual Reliance Review System forExemptive Relief Applications - Relief granted from registration and prospectusrequirement in connection with first trades of a spun off issuer subject to certainconditions.
Section 83.1 - Issuer spun off from a reporting issuer in connection with a plan ofarrangement deemed to be a reporting issuer where parent company has been areporting issuer for more than 12 months and the assets that will make up thebusiness of the spun off issuer have been subject to segmented reporting in thecontinuous disclosure filings of the parent company. Prospectus level disclosureof the spun off entity to be provided in the information circular.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 53, 72(5), 74(1), & 83.1.
Business Corporations Act, R.S.O. 1990, c. B.16, as am.
Rule 45-501 Exempt Distributions
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
JANNOCK LIMITED, JANNOCK PROPERTIES LIMITED AND 1386517 ONTARIO LIMITED
WHEREAS the local securities regulatory authority or regulator (the"Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Quebec, Nova Scotia, New Brunswick, Prince Edward Island,Newfoundland, the Northwest Territories, the Yukon Territory and Nunavut (the"Jurisdictions") has received an application from Jannock Limited ("Jannock"),Jannock Properties Limited ("Splitco") and 1386517 Ontario Limited ("Subco")(collectively, the "Filer") for a decision under the securities legislation of theJurisdictions (the "Legislation") that:
1. The registration and prospectus requirements of the Legislation shall notapply to certain trades made in connection with or subsequent to a proposedplan of arrangement (the "Arrangement") under the Business CorporationsAct (Ontario) (the "OBCA") involving Jannock, Splitco and Subco; and
2. In those Jurisdictions in which the Legislation contains the concept of areporting issuer, Splitco shall be deemed to be a reporting issuer as of theeffective time of the Arrangement;
AND WHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is theprincipal regulator for this application;
AND WHEREAS the Filer has represented to the Decision Makers that:
1. Jannock is a corporation governed by the OBCA, and its head office is inToronto, Ontario. It is a reporting issuer or the equivalent in each provinceof Canada and is not in default of any requirements of the Legislation. Itscommon shares (the "Common Shares") and Second Preference Shares arelisted on The Toronto Stock Exchange, and its Common Shares are alsoquoted on the NASDAQ National Market System.
2. Jannock has an unlimited number of authorized Common Shares, of which34,554,708 were issued and outstanding as of December 17, 1999. Jannockalso has outstanding Second Preference Shares and Fourth PreferenceShares. The Second Preference Shares are redeemable by Jannock, andthe Fourth Preference Shares are convertible into Common Shares.
3. Jannock is engaged in the manufacture and distribution of metal buildingproducts for the construction industry. Jannock sold its brick manufacturingand distribution business in May, 1999, and its vinyl manufacturing anddistribution business in September, 1999.
4. American Buildings Company ("ABC") is a corporation governed by the lawsof the State of Delaware, and its head office is in Alabama. It is not areporting issuer in any Jurisdiction and its securities are not publicly traded.
5. Subco is a subsidiary of ABC. It is a corporation governed by the OBCA,and its head office is in Toronto. Subco does not carry on a business, andits only asset is an approximate 4.6% holding of the Common Shares ofJannock.
6. In May, 1999, Jannock announced that it had received a requisition fromshareholders holding more than 50 per cent of the issued Common Shares,requesting that the directors of Jannock call a meeting of shareholders. Thepurpose of the meeting would be to consider a special resolution to reducethe stated capital of Jannock to $5 million and to distribute the amount ofsuch reduction to the common shareholders on a pro rata basis.
7. In early June, 1999, the board of directors of Jannock engaged Merrill Lynch& Co. ("Merrill Lynch") as advisors to assist the management of Jannock inpursuing measures to maximize shareholder value. A number of alternativeswere considered, culminating in the decision announced on June 14, 1999,that it would be in the best interests of the shareholders to offer the companyfor sale, and to conduct an auction process for this purpose. Merrill Lynchwas retained to assist Jannock's management and board in the search forpurchasers and to aid in the analysis of proposals received.
8. On June 22, 1999, Jannock announced that it had received writtennotification from the shareholders that had requisitioned a meeting ofshareholders, confirming that such requisition had been withdrawn.
9. As a result of this auction process, Jannock commenced negotiations withABC concerning the proposed transaction outlined below, which would resultin Jannock becoming a subsidiary of ABC by way of a plan of arrangement.
10. Pursuant to the Arrangement, the steps set forth below will occur in thefollowing order:
(a) Jannock will sell its real estate development business, along withcertain other assets which do not relate to its metal business(collectively the "Non-Core Assets") to Splitco, a newly-createdcorporation governed by the OBCA. Splitco will issue commonshares (the "Splitco Shares") to Jannock as the consideration for theNon-Core Assets. The Non-Core Assets will consist of the following:
(i) Jannock's real estate development business (the "Real EstateBusiness") (which has historically been subject to segmenteddisclosure), which involves the redevelopment for residentialand commercial uses of various parcels of real property whichwere previously used by Jannock in its brick business; and
(ii) a "non-control" investment by way of preferred shares andcommon shares of Survivor Technologies Group, Inc., aprivate Delaware corporation, which were received by Jannockas part of the sale of Jannock's vinyl business in September,1999 (the "Survivor Shares"). The preferred shares haveissue consideration of U.S. $26.2 million, and the commonshares have issue consideration of U.S. $600,000.
(b) Jannock will distribute, as a dividend in kind to its holders of CommonShares (the "Shareholders"), one Splitco Share for each CommonShare held.
(c) Jannock will redeem all of its issued and outstanding SecondPreference Shares at their redemption price as set forth in the articlesof Jannock. The holders of the Fourth Preference Shares will agreeto convert those shares into Common Shares prior to theimplementation of the Arrangement.
(d) All outstanding employee and director stock options of Jannock willbe cancelled. The holders of such options (the "Option Holders") willbe entitled to receive, in respect of each Common Share subject tosuch options, the following:
(i) if the exercise price of the relevant option (the "ExercisePrice") is less than the Cash Amount (as defined in paragraph(e) below), the Option Holder will be entitled to receive thedifference between Cash Amount and the Exercise Price incash, together with one senior subordinated note of Subco (a"Note") in the principal amount of the Note Amount (as definedin paragraph (e) below) and one Splitco Share;
(ii) if the Exercise Price is greater than the Cash Amount but lessthan the sum of the Cash Amount and the Note Amount (the"Total Amount"), the Option Holder will be entitled to receiveone Note in the principal amount equal to the differencebetween the Total Amount and the Exercise Price, and oneSplitco Share; and
(iii) if the Exercise Price is greater than the Total Amount, thenupon payment by the Option Holder to Jannock of thedifference between the Exercise Price and the Total Amounton or before the effective date of the Arrangement, the OptionHolder will be entitled to receive one Splitco Share.
(e) Each Common Share held by a Shareholder (other than those heldby Subco) will be exchanged with, and acquired by, Subco for aspecified amount of cash (the "Cash Amount") and a Note in aspecified principal amount (the "Note Amount").
(f) Jannock will amalgamate with Subco to form an amalgamatedcorporation governed by the OBCA ("Amalco"), the assets of whichwill be substantially comprised of the current assets of Jannockrelating to its metal business.
(g) On the amalgamation, all of the Common Shares will be cancelled,and all of the common shares of Subco will be converted, share forshare, into common shares of Amalco. Amalco will become asubsidiary of ABC.
(h) On the amalgamation, the Notes will become the obligations ofAmalco as the successor corporation to Subco.
(i) The Arrangement must be approved by the Ontario Superior Courtand by the Jannock shareholders.
11. The Non-Core Assets are being transferred by Jannock to Splitco, and theshares of Splitco distributed to the Shareholders, because ABC does notview these assets as relevant to Jannock's metal business and is notprepared to pay for these Non-Core Assets.
12. Splitco will be managed and operated in a fashion which will endeavour torealize maximum value on Splitco's assets in a timely fashion, and todistribute the net proceeds realized from those assets to Splitco'sshareholders.
13. Splitco and Subco intend to apply to have the Splitco Shares and the Notes,respectively, listed on the Canadian Venture Exchange as of the effectivetime of the Arrangement.
14. The Management Information Circular (the "Circular") that will be providedto all Shareholders and filed in the Jurisdictions will contain prospectus-leveldisclosure of Splitco and Amalco, including a detailed description of theSplitco Shares and the Notes.
15. The Real Estate Business has been the subject of segmented financial anddescriptive disclosure on an ongoing basis in Jannock's continuousdisclosure documents for more than 12 months pursuant to Jannock'sresponsibilities as a reporting issuer, including disclosure in Jannock'sinterim and annual reports, annual information forms and management'sdiscussion and analysis. The Survivor Shares, which were acquired byJannock in September, 1999, and represent a "non-control" interest in aprivate company (approximately an 11% voting interest on a fully dilutedbasis), will be fully described in the Circular. Public disclosure of theacquisition of the Survivor Shares was made in a press release and amaterial change report issued by Jannock at the time of the acquistion, andthe Survivor Shares have been referenced in the continuous disclosuredocumentation of Jannock since their acquisition.
16. The assets of Amalco have been the subject of continuous disclosure on anongoing basis for more than 12 months pursuant to Jannock'sresponsibilities as a reporting issuer.
17. It is a condition of the Arrangement that the Splitco Shares and Notes will befreely tradable throughout Canada at the effective time of the Arrangement,in order that the Shareholders do not lose the ability to liquidate theirholdings as a result of the Arrangement.
18. The Shareholders will have the right to dissent from the Arrangement undersection 185 of the OBCA, and the Circular will disclose full particulars of thisright in accordance with applicable law.
19. Exemptions from registration and prospectus requirements of the Legislationin respect of trades made in connection with the Arrangement, andexemptions from prospectus requirements of the Legislation in respect of thefirst trades in Splitco Shares and Notes following the Arrangement, are nototherwise available in all Jurisdictions.
20. Splitco will not be a reporting issuer within the definitions of all of theapplicable Jurisdictions at the time the Arrangement becomes effective.
21. In respect of those Jurisdictions in which an issuer cannot be deemed to bea reporting issuer under the Legislation, Splitco and Amalco will, from andafter the completion of the Arrangement, make the same continuousdisclosure filings as are required by reporting issuers or issuers having astatus equivalent to that of a reporting issuer, subject to any exemptive reliefgranted by the Jurisdictions.
AND WHEREAS under the System, this MRRS Document evidences thedecision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the testcontained in the Legislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that:
(a) all trades made in connection with the Arrangement shall not be subject tothe registration and prospectus requirements of the Legislation;
(b) the first trades of Splitco Shares and Notes acquired by Shareholders andOption Holders in connection with the Arrangement in a Jurisdiction shall bedistributions under the Legislation of such Jurisdiction except that where:
(i) if the seller is in a special relationship with Splitco or Amalco, as thecase may be , as defined in the Legislation, the seller has reasonablegrounds to believe that Splitco or Amalco are not in default of anyrequirement of the Legislation; and
(ii) no unusual effort is made to prepare the market or to create ademand for the securities and no extraordinary commission orconsideration is paid in respect of the first trades;
then such a first trade shall be a distribution only if it is from theholdings of any person, company or combination of persons orcompanies holding a sufficient number of securities of Splitco orAmalco, as the case may be, to affect materially the control of Splitcoor Amalco, but any holding of any person, company or combinationof persons or companies holding more than 20 percent of theoutstanding voting securities of Splitco or Amalco shall, in theabsence of evidence to the contrary, be deemed to affect materiallythe control of Splitco or Amalco;
(c) in those Jurisdictions in which an issuer can be deemed to be a reportingissuer under the Legislation, Splitco shall be deemed to be a reporting issueras of the effective time of the Arrangement.
January 26th, 2000.
"J. A. Geller" "R. Stephen Paddon"