Securities Law & Instruments

Headnote

MutualReliance Review System for Exemptive Relief Applications -- exemptionfrom eligibility requirements under National Instrument 44-101and National Instrument 44-102 in order to conduct rights offeringand qualify exercise of long term warrants -- issuer has substantialmarket following

ApplicableOntario Statutes

SecuritiesAct, R.S.O. 1990, c.S.5, as am.

ApplicableOntario Rules

NationalInstrument 44-101 Short Form Prospectus Distributions, ss. 2.2(3),2.9 15.1

NationalInstrument 44-102 Shelf Distributions, ss. 2.1, 2.2(1), 2.2(3)(b)(ii),11.1

INTHE MATTER OF

THESECURITIES LEGISLATION OF ONTARIO,

BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA, QUEBEC,

NEWBRUNSWICK, NOVA SCOTIA, PRINCE EDWARD ISLAND

ANDNEWFOUNDLAND AND LABRADOR

 

AND

 

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

 

AND

 

INTHE MATTER OF

FIRSTCAPITAL REALTY INC.


MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the"Decision Maker") in each of Ontario, British Columbia, Alberta,Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia,Prince Edward Island and Newfoundland and Labrador (the"Jurisdictions")has received an application from First Capital Realty Inc. ("FirstCapital") for a decision under the securities legislation ofthe Jurisdictions (the "Legislation") that First Capital beexempt from the requirements of:

(a) subsection 2.2(3)of National Instrument 44-101 Short Form Prospectus Distributions("44-101") that the aggregate market value of its equity securitiesbe $75,000,000 or more on certain dates;

(b)section 2.1 of National Instrument 44-102 Shelf Distributions("44-102") that it only file a short form prospectus that isa base shelf prospectus in certain circumstances; and

(c)subsection 2.2(1) of 44-102 that it meet the qualification criteriaunder section 2.2 of 44-101 in order to qualify to file a preliminaryshort form prospectus that is a preliminary base shelf prospectus,

(collectively,the "Eligibility Requirements") so that it may (i) distributerights ("Rights") to all holders of its common shares ("CommonShares") to subscribe for common share purchase warrants ("Warrants")of First Capital pursuant to a short form prospectus, and (ii)qualify the Common Shares issuable upon the exercise of theWarrants under a base shelf prospectus, all as further describedbelow;

AND WHEREASunder the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission(the "Commission") is the principal regulator for this application;

AND WHEREASFirst Capital has represented to the Decision Makers that:

1. First Capitalis a corporation incorporated under the laws of Ontario andis a reporting issuer under the Legislation and is not in defaultof any requirements of the Legislation.

2.First Capital is a growth-oriented real estate investment companythat concentrates on the ownership of neighbourhood and communityshopping centres.

3.The authorized capital of First Capital consists of an unlimitednumber of Preference Shares, issuable in series, and an unlimitednumber of Common Shares. As of February 6, 2002, there wereno Preference Shares and 15,377,024 Common Shares issued andoutstanding. In addition, as of February 6, 2002, First Capitalhad outstanding: (i) $57,441,000 principal amount of 8.5% convertibleunsecured subordinated debentures (the "8.5% Debentures"), convertibleinto Common Shares at any time prior to redemption or maturityat a price of $15.50 per Common Share; (ii) $97,522,000 principalamount of 7.875% convertible unsecured subordinated debentures(the "7.875% Debentures"), convertible into Common Shares atany time prior to redemption or maturity at $17.00 per CommonShare; (iii) $99,999,100 principal amount of 7.0% convertibleunsecured subordinated debentures (the "7.0% Debentures"), convertibleinto Common Shares at any time prior to redemption or maturityat $23.50 per Common Share; (iv) $100,000,000 principal amountof 7.25% convertible unsecured subordinated debentures (the"7.25% Debentures"), convertible into Common Shares at any timeprior to redemption or maturity at $25.25 per Common Share;and (v) $38,166,000 principal amount of 7.5% secured subordinateddebentures (the "7.5% Debentures") (the 8.5% Debentures, 7.875%Debentures, 7.0% Debentures, 7.25% Debentures and the 7.5% Debenturesare collectively referred to as the "Debentures").

4.The Common Shares and the Debentures are listed on The TorontoStock Exchange (the "TSE").

5.First Capital has been a reporting issuer in each of the Provincesof Ontario, Newfoundland and Labrador, Nova Scotia, New Brunswick,Prince Edward Island, Manitoba, Saskatchewan, Alberta and BritishColumbia since its initial public offering in March 1994, anda reporting issuer in Quebec since November 1996.

6.First Capital completed an initial public offering in 1994 of1,908,300 Common Shares and an aggregate principal amount of $38,166,000of 7.5% Debentures for total gross proceeds of approximately $57million pursuant to a special debenture transaction.

7.Subsequent to its initial public offering, First Capital has completed:

(i)an offering of 2,941,180 Common Shares for gross proceeds of approximately$25 million pursuant to a special warrant transaction which wascompleted in July 1995;

(ii)a public offering of 5,250,000 Common Shares for total gross proceedsof approximately $55 million in February 1996;

(iii)a public offering of the 8.5% Debentures for total gross proceedsof approximately $60 million in November 1996;

(iv)a public offering of the 7.875% Debentures for total gross proceedsof approximately $100 million in February 1997;

(v)a public offering of the 7.0% Debentures for total gross proceedsof approximately $100 million in February 1998; and

(vi)a public offering of the 7.25% Debentures for total gross proceedsof approximately $100 million in June 1998.

8.First Capital intends to carry out a rights offering (the "RightsOffering") in which it will offer Rights to all holders of itsCommon Shares to subscribe for the Warrants.

9.Under the terms of the Warrants, First Capital will be requiredto maintain a prospectus during certain periods (each an "ExercisePeriod") during the term of the Warrants to qualify the CommonShares issuable upon the exercise of the Warrants. Under the termsof the Warrants, a holder of Warrants will only be entitled toexercise Warrants to acquire Common Shares during such ExercisePeriods.

10.First Capital intends to file a short form base shelf prospectus(the "Base Shelf Prospectus") and, prior to the commencement ofeach Exercise Period, a prospectus supplement, in order to qualifythe Common Shares issuable upon the exercise of the Warrants duringsuch Exercise Period.

11.As of February 6, 2002, First Capital's principal shareholder,Gazit-Globe (1982) Ltd., through its indirect wholly-owned Canadiansubsidiaries, Gazit (1997) Inc. and 2000386 Ontario Limited (collectively,"Gazit"), owned 10,466,500 Common Shares representing approximately68.07% of the outstanding Common Shares. In addition, as of February6, 2002, Gazit owned an aggregate principal amount of $13,412,000of 7.5% Debentures, an aggregate principal amount of $9,393,000of 8.5% Debentures, an aggregate principal amount of $31,930,000of 7.875% Debentures, an aggregate principal amount of $28,980,600of 7.0% Debentures and an aggregate principal amount of $32,049,000of 7.25% Debentures. If all such Debentures (excluding the 7.5%Debentures which are not convertible) were converted into CommonShares, Gazit would hold an additional 4,986,720 Common Sharesand would hold approximately 75.88% of the outstanding CommonShares.

12.As of February 6, 2002, Alony-Hetz Properties & InvestmentsLtd. ("Alony-Hetz"), through its wholly-owned subsidiary A. H.Canada Holdings Ltd. ("AH Canada"), owned 2,931,824 Common Sharesrepresenting approximately 19.07% of the outstanding Common Shares.In addition, as of February 6, 2002, AH Canada owned an aggregateprincipal amount of $3,800,000 of 7.5% Debentures, an aggregateprincipal amount of $2,335,000 of 8.5% Debentures, an aggregateprincipal amount of $8,556,000 of 7.875% Debentures, an aggregateprincipal amount of $8,031,000 of 7.0% Debentures and an aggregateprincipal amount of $8,921,000 of 7.25% Debentures. If all suchDebentures (excluding the 7.5% Debentures which are not convertible)were converted into Common Shares, AH Canada would hold an additional1,348,991 Common Shares and would hold approximately 25.6% ofthe outstanding Common Shares. Alony-Hetz is a significant institutionalinvestor in First Capital but does not act jointly or in concertwith Gazit.

13.First Capital would, but for the requirement contained in paragraph3 of section 2.2 of 44-101(the "Public Float Test"), be qualifiedto file a prospectus in the form of a short form prospectus under44-101. In this regard, the aggregate market value (the "PublicFloat ") of First Capital's equity securities that are listedand posted for trading on the TSE, calculated in the manner contemplatedby section 2.9 of 44-101 which requires the exclusion of the CommonShares held by Gazit and Alony-Hetz, is $24,733,750, being lessthan the $75,000,000 requirement of the Public Float Test.

14.First Capital had been eligible to participate in the POP Systemunder former National Policy 47 since 1996 and undertook the offeringsreferred to in clauses (iii) through (vi) in paragraph 7 aboveby way of a short-form prospectus. First Capital became ineligibleto use the POP System upon the acquisition of control of FirstCapital by Gazit in August 2000 and the increase by Alony-Hetzof its investment in First Capital following the acquisition ofcontrol of First Capital by Gazit, which resulted in a reductionin the aggregate market value of its Public Float. Since thattime, First Capital has continued to comply with the other requirementsof the former National Policy 47 and now 44-101.

15.First Capital has a substantial market following and is closelyfollowed by analysts and investment advisors from several Canadiansecurities dealers. In addition, First Capital has been the subjectof numerous articles in the press and receives significant mediaattention.

ANDWHEREAS under the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;

THEDECISION of the Decision Makers under the Legislationis that First Capital be exempt from the Eligibility Requirementsin connection with the filing of a short form prospectus thatqualifies the distribution of the Rights and Warrants pursuantto the Rights Offering in the manner set out in paragraphs 8 through10 above, provided that First Capital otherwise complies withall of the requirements and procedures set out in 44-101;

ANDTHE FURTHER DECISION of the Decision Makers under theLegislation is that First Capital be exempt from the EligibilityRequirements in connection with the filing of the Base Shelf Prospectusand related prospectus supplements that qualify the Common Sharesissuable upon the exercise of the Warrants in the manner set outin paragraphs 8 through 10 above, provided that:

1.the Base Shelf Prospectus qualifies only the issuance of CommonShares upon the exercise of the Warrants;

2.First Capital otherwise complies with all the requirements andprocedures set out in 44-101 and 44-102;

3.the receipt issued for the Base Shelf Prospectus in reliance uponthis Decision is effective until the earliest of:

(a)the date 25 months from the date of its issue;

(b)the time immediately before entering into of an agreement of purchaseand sale for a security to be sold under the Base Shelf Prospectus,if at that time

(i)First Capital does not have a current AIF, or

(ii)the aggregate of (i) the aggregate principal amount of the Debentureslisted on the TSE, excluding the Debentures held by Gazit andAlony-Hetz and (ii) First Capital's Public Float, has not been$200,000,000 or more on a date within 60 days before the dateof the agreement; and

(c)the lapse date, if any, prescribed by the Legislation if reliefhas not been granted to First Capital extending the lapse datefor the distribution; and

4.the relief provided by this Decision shall expire on the earlierof:

(a)the date that is 25 months from the date on which the final receiptis issued for the Base Shelf Prospectus; and

(b)the time immediately before the filing of a subsequent base shelfprospectus filed to qualify the distribution of Common Sharesupon the exercise of the Warrants.

February26, 2002.

"MargoPaul"