Securities Law & Instruments

Headnote

Subsection 74(1) - trades in securities of U.S. issuer to be made pursuant to theexercise of various exchange rights attached to securities issued by Canadiansubsidiaries of U.S. issuer not subject to registration and prospectus requirements -first trade relief provided subject to certain conditions

Applicable Ontario Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 53, 74(1)


IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, C. S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF
HA-LO INDUSTRIES, INC., 3041770 NOVA SCOTIA COMPANY,3041771 NOVA SCOTIA COMPANY, 3041772 NOVA SCOTIA COMPANYAND 3041773 NOVA SCOTIA COMPANY

RULING
(Subsection 74(1))

 


UPON the application (the "Application") of HA-LO Industries, Inc. ("HA-LO"),3041770 Nova Scotia Company ("Exchangeco #1"), 3041771 Nova Scotia Company("Exchangeco #2"), 3041772 Nova Scotia Company ("NSULC #1") and 3041773 NovaScotia Company ("NSULC #2) (collectively, the "HA-LO Companies") to the OntarioSecurities Commission (the "Commission") for a ruling pursuant to Section 74(1) of theSecurities Act (Ontario) (the "Act") that certain trades occurring in connection with theacquisition (the "Transaction") by Exchangeco #1 and Exchangeco #2 from WestminsterInternational Computers Inc. ("Westminster") of 100% of the outstanding securities ofUpshot Integrated Inc. ("Upshot") and approximately 50% of the outstanding securities ofOne-to-One Integrated Technologies Inc. ("One-to-One"), respectively, are not subject tosections 25 or 53 of the Act.

AND UPON considering the Application and the recommendation of staff of theCommission;

AND UPON the HA-LO Companies having represented to the Commission that:

Description of the Parties

1. HA-LO is a company incorporated under the laws of the State of Delaware whichis engaged in the business of promotional products and the provision of marketingand telemarketing services.

2. HA-LO is not, and has no intention of becoming, a "reporting issuer" under the Act.

3. HA-LO's authorized capital includes of 250,000,000 shares of common stock,("HA-LO Shares"), 64,102,666 of which were issued and outstanding as at August25, 2000. The HA-LO Shares are listed on the New York Stock Exchange ("NYSE").HA-LO will apply to the NYSE to list the HA-LO Shares issuable from time to timeupon the exchange of the Exchangeable Shares issued by Exchangeco #1 andExchangeco #2.

4. NSULC #1 is an indirect wholly-owned subsidiary of HA-LO. NSULC #1 is anunlimited liability company under the laws of the Province of Nova Scotia and wasformed to hold all of the common shares of Exchangeco #1 and to hold the variouscall rights related to the Exchangeable Shares issued by Exchangeco #1 describedin paragraphs 14, 15 and 16 below. NSULC #1 is a private company and will remaina private company after the completion of the Transaction.

5. NSULC #2 is a direct wholly-owned subsidiary of HA-LO. NSULC #2 is an unlimitedliability company under the laws of the Province of Nova Scotia and was formed tohold all of the common shares of Exchangeco #2 and to hold the various call rightsrelated to the Exchangeable Shares issued by Exchangeco #2 described inparagraphs 14, 15 and 16 below. NSULC #2 is a private company and will remaina private company after the completion of the Transaction.

6. Exchangeco #1 is a direct wholly-owned subsidiary of NSULC #1. Exchangeco #1is an unlimited liability company under the laws of the Province of Nova Scotia andwas formed to acquire from Westminster the Upshot Shares (as defined below) inconsideration for the issuance by Exchangeco #1 to Westminster of 1,400,000Exchangeable Shares. Exchangeco #1 is a private company and will remain aprivate company after the completion of the Transaction. The Exchangeco Sharesissued by Exchangeco #1 will not be listed on any stock exchange.

7. Exchangeco #2 is a direct wholly-owned subsidiary of NSULC #2. Exchangeco #2is an unlimited liability company under the laws of the Province of Nova Scotia andwas formed to acquire from Westminster the One-to-One Shares (as defined below)in consideration for the issuance by Exchangeco #2 to Westminster of 700,000Exchangeable Shares. Exchangeco #2 is a private company and will remain aprivate company after the completion of the Transaction. The Exchangeco Sharesissued by Exchangeco #2 will not be listed on any stock exchange.

8. Westminster is a private company incorporated under the laws of the Province ofOntario which is engaged in the business of data processing and being a mail shopprovider.

9. Prior to the closing of the Transaction, each of Upshot and One-to-One was a directwholly-owned subsidiary of Westminister. Each of Upshot and One-to-One is aprivate company incorporated under the laws of the Province of Ontario.

Description of the Transaction

10. Pursuant to the Transaction, Westminster sold to Exchangeco #1 all of the issuedshares of Upshot (the "Upshot Shares") in consideration for the issuance toWestminster of 1,400,000 Exchangeable Shares. In addition, Westminster isentitled to receive additional Exchangeable Shares upon certain financial targetsbeing achieved.

11. Pursuant to the Transaction, Westminster sold to Exchangeco #2 51% of the votingshares, 50% of the non-voting preferred shares and 100% of the non-votingtracking shares of One-to-One (collectively, the "One-to-One Shares") inconsideration for the issuance to Westminster 700,000 Exchangeable Shares. Inaddition, Westminster is entitled to receive additional Exchangeable Shares uponcertain financial targets being achieved.

Description of Exchangeable Shares and Collateral Agreements

12. The Exchangeable Shares, together with the agreements described in paragraphs19 through 23 below, provide Westminster with securities of Canadian issuers(Exchangeco #1 and Exchangeco #2) having economic rights which are, as nearlyas practicable, equivalent to those of a HA-LO Share. All continuous disclosurematerial furnished or required, under applicable U.S. securities legislation, to befurnished to holders of HA-LO Shares resident in the United States will be providedto Westminister. The Exchangeable Shares have been received by Westminsteron a tax-deferred rollover basis.

13. The Exchangeable Shares are entitled to a preference over the common shares ofExchangeco #1 and Exchangeco #2 held by NSULC #1 and NSULC #2,respectively, and any other shares ranking junior to the Exchangeable Shares withrespect to the payment of dividends and the distribution of assets in the event of theliquidation, dissolution or winding up of Exchangeco #1 and Exchangeco #2,whether voluntary or involuntary, or any other distribution of assets of Exchangeco#1 and Exchangeco #2 among their shareholders for the purpose of winding uptheir affairs. The rights, privileges, restrictions and conditions attaching to theExchangeable Shares (the "Exchangeable Share Provisions") and theExchangeable Share Support Agreements described in paragraphs 21, 22 and 23below, provide that each Exchangeable Share will entitle Westminster to receivedividends from Exchangeco #1 and Exchangeco #2, as the case may be, equivalentto dividends paid by HA-LO on HA-LO Shares, subject to applicable law. In thecase of a stock dividend declaration on the HA-LO Shares, the board of directorsof each of Exchangeco #1 and Exchangeco #2 will declare a stock dividend oneach Exchangeable Share in such number of Exchangeable Shares for eachExchangeable Share as is equal to the number of HA-LO Shares to be paid as adividend on each HA-LO Share, subject to applicable law.

14. The Exchangeable Shares are retractable at the option of Westminster at any time.Subject to the overriding Retraction Call Right of NSULC #1 and NSULC #2referred to in this paragraph 14, upon retraction the holder will be entitled to receivefrom Exchangeco #1 and Exchangeco #2, as the case may be, for eachExchangeable Share retracted an amount equal to the then current market price ofa HA-LO Share (the "Retraction Price"), to be satisfied by the delivery of one HA-LOShare together with, on the designated payment date therefor, all declared andunpaid dividends on each such retracted Exchangeable Share held by the holderon any prior dividend record date (the "Dividend Amount"). Upon being notified byExchangeco #1 and Exchangeco #2 of a proposed retraction of ExchangeableShares, NSULC #1 and NSULC #2, respectively, will have an overriding retractioncall right (the "Retraction Call Right") to purchase from the holder exercising theretraction right all of the Exchangeable Shares that are the subject of the retractionnotice for a price per share equal to the Retraction Price (to be satisfied by thedelivery of one HA-LO Share) plus the Dividend Amount.

15. Subject to applicable law and the overriding Redemption Call Right of NSULC #1and NSULC #2, as the case may be, referred to in this paragraph 15, Exchangeco#1 and Exchangeco #2 are entitled to redeem all but not less than all of the thenoutstanding Exchangeable Shares on or after the tenth anniversary of the EffectiveDate, or on an earlier date if the board of directors of Exchangeco #1 andExchangeco #2, as the case may be, has accelerated the redemption date in thecircumstances outlined in the Exchangeable Share Provisions. Upon suchredemption, a holder will be entitled to receive from Exchangeco #1 andExchangeco #2 for each Exchangeable Share redeemed an amount equal to thethen current market price of a HA-LO Share, to be satisfied by the delivery of oneHA-LO Share (the "Redemption Price"), together with the Dividend Amount. Uponbeing notified by Exchangeco #1 and Exchangeco #2 of a proposed redemption ofExchangeable Shares, NSULC #1 and NSULC #2, as the case may be, will havean overriding redemption call right (the "Redemption Call Right") to purchase on theredemption date all but not less than all of the then outstanding ExchangeableShares for a price per share equal to the Redemption Price (to be satisfied by thedelivery of one HA-LO Share) plus the Dividend Amount. Upon the exercise of theRedemption Call Right by NSULC #1 and NSULC #2, Westminster will be obligatedto sell its Exchangeable Shares to NSULC #1 and NSULC #2, as the case may be.If NSULC #1 and NSULC #2 exercise their Redemption Call Right, the rights andobligations of Exchangeco #1 and Exchangeco #2 to redeem the ExchangeableShares on the Redemption Date will terminate.

16. Subject to the overriding Liquidation Call Right of NSULC #1 and NSULC #2, as thecase may be, referred to in this paragraph 16, in the event of the liquidation,dissolution or winding up of Exchangeco #1 and Exchangeco #2 or any otherdistribution of the assets of Exchangeco #1 and Exchangeco #2 among theirshareholders for the purpose of winding up their affairs, a holder of ExchangeableShares will be entitled, subject to applicable law, to receive from Exchangeco #1and Exchangeco #2, as the case may be, before any distribution among the holdersof the common shares or any other shares ranking junior to the ExchangeableShares, an amount per share equal to the then current market price of a HA-LOShare, to be satisfied by the delivery of one HA-LO Share, together with theDividend Amount. As an alternative, Westminster will be entitled in suchcircumstances to put the Exchangeable Shares to HA-LO in exchange for HA-LOShares pursuant to the Exchange Agreements (as described in paragraph 19below). Upon a proposed liquidation, dissolution or winding up of Exchangeco #1and Exchangeco #2, NSULC #1 and NSULC #2, as the case may be, will have anoverriding liquidation call right (the "Liquidation Call Right") to purchase fromWestminster all but not less than all of the Exchangeable Shares for a price pershare equal to the then current market price of a HA-LO Share, to be satisfied bythe delivery of one HA-LO Share, together with the Dividend Amount.

17. Upon the liquidation, dissolution or winding up of HA-LO, all Exchangeable Sharesheld by Westminster will be automatically exchanged for HA-LO Shares pursuantto the Exchange Agreements (as described in paragraph 20 below), in order thatWestminster will be able to participate in the dissolution of HA-LO on a pro ratabasis with the holders of HA-LO Shares.

18. The Exchangeable Shares are non-voting (except as required by the ExchangeableShare Provisions or by applicable law).

19. Subject to the Liquidation Call Right of NSULC #1 and NSULC #2, as the case maybe, under exchange agreements entered into with Westminster and each ofExchangeco #1 and Exchangeco #2 (collectively, the "Exchange Agreements"),HA-LO granted to Westminster a right (the "Exchange Right") exercisable uponoccurrence of an insolvency event relating to Exchangeco #1 and Exchangeco #2,to require HA-LO to purchase all or any part of the Exchangeable Shares. Thepurchase price for each Exchangeable Share purchased by HA-LO under theExchange Right will be an amount equal to the then current market price of aHA-LO Share, to be satisfied by the delivery of one HA-LO Share, together with theDividend Amount.

20. Under the Exchange Agreements, on the fifth business day prior to the effectivedate of any liquidation, dissolution or winding-up of HA-LO or any proceedings toeffect any other distribution of assets of HA-LO among its shareholders for thepurpose of winding up its affairs, HA-LO will be required to purchase eachoutstanding Exchangeable Share, and Westminister will be required to sell theExchangeable Shares held by it (such purchase and sale obligations are hereafterreferred to as the "Automatic Exchange Right"), for a purchase price per shareequal to the then current market price of an HA-LO Share to be satisfied by thedelivery of one HA-LO Share, together with the Dividend Amount.

21. Contemporaneously with the closing of the Transaction, HA-LO entered intoexchangeable share support agreements with Exchangeco #1 and NSULC #1 andwith Exchangeco #2 and NSULC #2 (collectively, the "Exchangeable Share SupportAgreements") each of which provide that so long as any Exchangeable Shares notowned by HA-LO or its affiliates are outstanding HA-LO, among other things: (a)will not declare or pay any dividends on the HA-LO Shares unless Exchangeco #1and Exchangeco #2, as the case may be, simultaneously declares or pays, as thecase may be, an equivalent dividend on the Exchangeable Shares; and (b) will takeall such actions and do all such things as are reasonably necessary to enable andpermit, in accordance with applicable law, Exchangeco #1 and Exchangeco #2 andNSULC #1 and NSULC #2, as the case may be, to honour the redemption andretraction rights and liquidation entitlements attached to the Exchangeable Sharesand the related Redemption Call Right, Retraction Call Right and Liquidation CallRight (collectively, the "Call Rights") described above in paragraphs 14, 15, and 16.

22. The Exchangeable Share Support Agreements and the Exchangeable ShareProvisions provide that, without the prior approval of Westminster, HA-LO will notissue or distribute to all or substantially all holders of HA-LO Shares (i) additionalHA-LO Shares or securities exchangeable for or convertible into or carrying rightsto acquire HA-LO Shares by way of stock dividend or other distribution (other thanan issue to holders of HA-LO Shares who exercise an option to receive dividendsin HA-LO Shares or securities exchangeable for or convertible into or carryingrights to acquire HA-LO Shares in lieu of receiving cash dividends), (ii) rights,options or warrants to subscribe therefor, (iii) shares or securities of HA-LO of anyclass other than HA-LO Shares (other than shares convertible into or exchangeablefor or carrying rights to acquire HA-LO Shares), or other rights, options or warrants,evidences of indebtedness of HA-LO or other assets of HA-LO, nor will HA-LOchange the HA-LO Shares into a greater or lesser number of HA-LO Shares orotherwise change the HA-LO Shares, unless in each such case, an economicallyequivalent distribution on or change to the Exchangeable Shares (or in the rightsof the holders thereof) is made simultaneously.

23. In the event a tender offer, take-over bid or similar transaction with respect to theHA-LO Shares is proposed, and such transaction has the approval of the board ofdirectors of HA-LO, provided that the Exchangeable Shares are not redeemed byExchangeco #1 and Exchangeco #2 or purchased by NSULC #1 and NSULC #2,as the case may be, the Exchangeable Share Support Agreements provide thatHA-LO must use commercially reasonable efforts to permit holders of ExchangeableShares to participate in the transaction on an economically equivalent basis as theholders of HA-LO Shares.

24. The Transaction, the attributes of the Exchangeable Shares contained in theExchangeable Share Provisions and the creation and exercise of the rightsprovided for in the Exchangeable Share Provisions, the Exchange Agreements andthe Exchangeable Share Support Agreements involve a number of trades orpossible trades of securities (collectively, the "Trades").

25. As at the time of the Transaction, after giving effect to the issue of HA-LO Sharesand/or Exchangeable Shares at the same time as or as part of Transaction, Holdersof HA-LO Shares (with holders of Exchangeable Shares considered to be holdingHA-LO Shares) whose latest address as shown in the books of HA-LO (orExchangeco #1 or Exchangeco #2, as the case may be) is in Ontario, do not holdmore than 10% of the HA-LO Shares and represent, in number, not more than 10%of the holders of HA-LO Shares, and persons or companies who are in Ontario andwho beneficially own HA-LO Shares (with beneficial owners of ExchangeableShares considered to beneficially own HA-LO Shares) do not beneficially own morethan 10% of the HA-LO Shares and represent, in number, not more than 10% of theholders of HA-LO Shares.

AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;

IT IS RULED pursuant to subsection 74(1) of the Act that:

a. sections 25 and 53 of the Act shall not apply to the Trades; and

b. the first trade in HA-LO Shares arising from a Trade shall be a distribution underthe Act unless such first trade is executed through the facilities of a stock exchangeor market outside of Ontario in accordance with the rules of the stock exchange ormarket upon which the first trade is made and in accordance with all laws applicableto such stock exchange or market.

September 15th, 2000.

"J. A. Geller"      "Howard I. Wetston"