Securities Law & Instruments

Headnote

Rule 61-501 -- Related party transaction -- amendment to share terms. Issuer proposing to amend share terms to add a convertibility feature. 94% of the shares of the class are owned by a related party or its affiliates. Relief from the minority approval requirement in respect of such class of affected securities granted. Minority approval is being obtained from all other classes of affected securities. Relief from the valuation requirement in respect of the transaction also granted. All holders of securities of the same class are being treated equally. Conversion feature is exercisable only at the option of the holder. The public record of the issuer, including the information circular relating to the special meeting to approve the amendment, contains all the information necessary for the holders of affected securities to make an informed decision.

Rule Cited

Rule 61-501 -- Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 5.5, 5.7 and 9.1.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FIRST CHICAGO INVESTMENT CORPORATION

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario and Québec (the "Jurisdictions") has received an application from First Chicago Investment Corporation (the "Issuer") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that, in connection with an amendment to the terms of its Series A Junior Preferred Shares, the Issuer be exempt from the requirement to obtain minority approval from the holders of the Series A Junior Preferred Shares and from the formal valuation requirement (the "Valuation Requirement") in Ontario Securities Commission Rule 61-501 ("Rule 61-501") and Québec Policy Statement Q-27 ("Policy Q-27");

AND WHEREAS, pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions or in Québec Commission Notice 14-101;

AND WHEREAS the Issuer has represented to the Decision Makers as follows:

1. The Issuer is a corporation amalgamated under the laws of the province of Alberta and its primary business is to conduct financing and investing activities.

2. The Issuer is a reporting issuer (or the equivalent) in each of the provinces of Canada and is not in default of any of the requirements of the Legislation

3. The authorized capital of the Issuer consists of an unlimited number of: (i) senior preferred shares issuable in series (the "Senior Preferred Shares"); (ii) junior preferred shares issuable in series (the "Junior Preferred Shares"); (iii) dividend shares (the "Dividend Shares"); (iv) multiple voting shares (the "MVS"); and (v) subordinate voting shares (the "SVS").

4. The Senior Preferred Shares as a class are entitled to a preference over the Junior Preferred Shares, the Dividend Shares, the SVS and the MVS with respect to dividends and in the event of a distribution of assets on a liquidation, dissolution or winding up of the Issuer.

The Junior Preferred Shares as a class rank junior to the Senior Preferred Shares and senior to the Dividend Shares, the SVS and the MVS with respect to dividends and in the event of a distribution of assets on a liquidation, dissolution or winding up of the Issuer.

The Dividend Shares are non-voting shares, the holders of which are entitled to receive cumulative, preferential dividends. The Dividend Shares rank junior to the Senior Preferred Shares and Junior Preferred Shares, and senior to the SVS and the MVS with respect to dividends and in the event of a distribution of assets on a liquidation, dissolution or winding up of the Issuer. The Dividend Shares are redeemable by the Issuer after July 30, 2006 at a price of $11.75 per share.

The SVS carry one vote per share and the holders are entitled to receive a dividend (in equal amounts and at the same time as the MVS, and in certain circumstances the Series A Junior Preferred Shares) if, as and when declared by the directors of the Issuer. Subject to the preference accorded to holders of Senior Preferred Shares and Junior Preferred Shares, the holders of SVS share equally with the holders of MVS (and holders of Series A Junior Preferred Shares on a distribution in excess of $5.00 per SVS and MVS) on a distribution of the assets on a liquidation, dissolution or winding up of the Issuer.

The MVS carry 25 votes per share and the holders are entitled to receive a dividend (in equal amounts and at the same time as the SVS and, in certain circumstances, the Series A Junior Preferred Shares) if, as and when declared by the directors of the Issuer. Subject to the preference accorded to the holders of the Senior Preferred Shares and Junior Preferred Shares, the holders of the MVS share equally with the holders of the SVS (and holders of Series A Junior Preferred Shares on a distribution in excess of $5.00 per SVS and MVS) on a distribution of the assets on a liquidation, dissolution or winding up of the Issuer. The MVS are convertible at any time into SVS on a one-for-one basis.

5. The Issuer has created one series of (i) Senior Preferred Shares, designated "Series A" (the "Series A Senior Preferred Shares") which are non-voting, redeemable at the Issuer's option at any time, and carry a cumulative dividend of 75% of the average prime rate; and (ii) Junior Preferred Shares, designated as "Series A" (the "Series A Junior Preferred Shares") which have one vote per share, carry a cumulative dividend of 75% of the average prime rate, participate equally with the SVS and MVS on a per share basis in any dividends exceeding $0.375 on the SVS and MVS per annum, and on payments made on liquidation, dissolution or winding up of the Issuer in excess of $5.00 per SVS and MVS.

6. As at December 31, 2003, there were 1,200,000 Series A Senior Preferred Shares, 2,631,865 Series A Junior Preferred Shares, 8,235,222 Dividend Shares, 1,108,805 MVS and 1,776,772 SVS issued and outstanding.

7. Each of the Series A Senior Preferred Shares, Dividend Shares, MVS and SVS are listed on the Toronto Stock Exchange.

8. The Coastal Group ("Coastal") holds 2,475,000 Series A Junior Preferred Shares, 500,000 MVS and 915,000 SVS, representing 49.46% of the voting rights of all classes of shares. Consequently, Coastal is a "related party" of the Issuer within the meaning of Rule 61-501 and Policy Q-27.

9. J. Ian Flatt and Gordon Flatt directly or indirectly, individually or collectively, own or exercises control over Coastal. J. Ian Flatt, Gordon Flatt, Andrew Kim, Lori Tange, and Miranda Weicker are officers of Coastal or its subsidiaries and are directors and/or officers of the Issuer.

10. The Issuer is proposing to amend the terms of the Series A Junior Preferred Shares to make the Series A Junior Preferred Shares convertible, at the option of the holder, into SVS on a one-for-one basis (the "Amendment"). Coastal has indicated to the Issuer that if the Series A Junior Preferred Shares are so amended, it will convert its 2,475,000 Series A Junior Preferred Shares into 2,475,000 SVS. The Amendment constitutes a "related party transaction" pursuant to Rule 61-501 and Policy Q-27 because Coastal is a "related party" to the Issuer.

11. The MVS and SVS are "participating securities" within the meaning of Rule 61-501 and Policy Q-27; the Senior Preferred Shares and the Dividend Shares are not. The Junior Preferred Shares may be "participating securities" within the meaning of Rule 61-501 and Policy Q-27 as a result of their right to participate equally with the SVS and MVS on a per share basis in any dividends exceeding $0.375 on the SVS and MVS per annum, and on payments made on liquidation, dissolution or winding up of the Issuer in excess of $5.00 per SVS and MVS.

12. Absent the relief from the requirement to obtain minority approval from the holders of the Series A Junior Preferred Shares provided herein, the Issuer must obtain minority approval of the Amendment from the holders of the Series A Junior Preferred Shares, as required under Rule 61-501 and Policy Q-27. Approximately 94% of the Series A Junior Preferred Shares will be excluded from such minority approval vote, being Series A Junior Preferred Shares held by (i) Coastal, (ii) related parties of Coastal and (iii) persons or companies acting jointly or in concert with (i) or (ii) in respect of the Amendment (the "Majority Holders"). It is possible that none of the minority holders of the Series A Junior Preferred Shares will attend at the shareholders meeting and the Amendment would fail to receive the required minority approval.

13. All holders of the Series A Junior Preferred Shares will be treated the same if the Amendment is completed. All such holders will receive the ability to convert their Series A Junior Preferred Shares into SVS at their option.

14. In order to amend the articles of the Issuer to provide for the Amendment, the Issuer will require the following shareholder votes:

(i) not less than two-thirds of the votes cast by holders of Series A Junior Preferred Shares, SVS and MVS, voting as a group; and

(ii) not less than two-thirds of the votes cast by holders of Series A Junior Preferred Shares, Dividend Shares, SVS and MVS, each voting as a class.

In addition, the Issuer will seek approval of the Amendment by a majority of the votes cast by holders of SVS and MVS, each voting as a class and excluding the Majority Holders of SVS and MVS (the "SVS and MVS Minority Approval").

15. Shareholders of the Issuer will receive an information circular in connection with the special meeting at which the Amendment will be considered (the "Information Circular") containing the information required pursuant to section 5.4 of Rule 61-501 and Policy Q-27, including the details of the Amendment and the terms of the Senior Preferred Shares, Junior Preferred Shares, Dividend Shares, MVS and SVS.

16. Absent the relief from the Valuation Requirement provided herein, the Issuer must obtain a formal valuation of the Series A Junior Preferred Shares and the SVS, as required under Rule 61-501 and Policy Q-27. A formal valuation will create additional expense which will outweigh the benefit of the information it provides since the public record for the Issuer (including the Information Circular) contains or will contain all of the relevant information holders of Series A Junior Preferred Shares, Dividend Shares, SVS and MVS require in order to make an informed decision.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that, in connection with the Amendment, the Issuer shall be:

(a) exempt from the requirement to obtain minority approval from the holders of the Series A Junior Preferred Shares, provided that the Amendment receives SVS and MVS Minority Approval as described in paragraph 14 above; and

(b) exempt from the Valuation Requirement,

provided that the Issuer complies with the other applicable provisions of Rule 61-501 and Policy Q-27.

January 15, 2004.

"Ralph Shay"