Securities Law & Instruments

Headnote

Rule 61-501 -- Related party transaction -- exemption from independent valuation requirement. Applicants requesting relief from requirement that they each obtain valuations from independent valuators, in connection with a proposed merger. Both parties intending to use same valuator -- the independent committee of each of the Applicants believed the use of a single valuator would be in the best interest of each of the Applicants -- the ownership positions of the majority shareholders of each of the Applicants is within a narrow range, such that the valuation methodology used would not result in a material benefit to one over the other -- requiring separate valuators for each Applicant would significantly increase the costs of the proposed merger. Relief granted.

Rule Cited

Rule 61-501 -- Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 5.5, 6.1 and 9.1.

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 61-501 ("Rule 61-501")

AND

IN THE MATTER OF

PINETREE CAPITAL CORP. AND

GENEVEST INC.

 

EXEMPTION

(Section 9.1 of Rule 61-501)

UPON the application (the "Application") of Pinetree Capital Corp. ("Pinetree") and Genevest Inc. ("Genevest" and, together with Pinetree, the "Applicants") to the Director for a decision pursuant to section 9.1 of Rule 61-501 that, in connection with a business combination of the Applicants (the "Proposed Transaction") that is a related party transaction under Part 5 of Rule 61-501, the Applicants be exempt from the requirement under subsection 6.1(1) of Rule 61-501 (the "Independence Requirement") to the extent that the Applicants do not comply with clause 6.1(3)(b) of Rule 61-501;

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

AND UPON each of the Applicants having represented to the Director as follows:

1. Pinetree is a corporation incorporated under the Business Corporations Act (Ontario). Pinetree's head office is in Toronto, Ontario.

2. Genevest is a corporation incorporated under the Business Corporations Act (Alberta). Genevest's head office is in Calgary, Alberta. Genevest's principal place of business is a location in Toronto that it shares with Pinetree.

3. Each of the Applicants is a reporting issuer in British Columbia, Alberta, Ontario and Quebec and neither is in default of any requirement under the securities legislation of these jurisdictions.

4. Pinetree's authorized capital consists of an unlimited number of common shares ("Pinetree Common Shares"). As of the date hereof, 8,583,669 Pinetree Common Shares are issued and outstanding.

5. The Pinetree Common Shares are listed on the Toronto Stock Exchange (the "TSX").

6. Genevest's authorized capital consists of an unlimited number of common shares ("Genevest Common Shares"). As of the date hereof, 9,547,976 Genevest Common Shares are outstanding.

7. The Genevest Common Shares are listed on the TSX Venture Exchange.

8. As of the date hereof, Pinetree owns 1,874,803 Genevest Common Shares, representing approximately 19.6% of the total number of Genevest Common Shares outstanding, and Genevest owns 1,500,000 Pinetree Common Shares, representing approximately 17.5% of the total number of Pinetree Common Shares outstanding.

9. The Applicants are involved in the business of identifying and funding emerging growth businesses operating in the technology, biotechnology, mineral resource and oil and gas investment sectors.

10. On August 30, 2002, the Applicants proposed to enter into a merger transaction, whereby Pinetree would have issued 3.5 Pinetree Common Shares for each Genevest Common Share (the "2002 Transaction"). Although the shareholders of both Applicants approved the 2002 Transaction, the Applicants decided not to complete the merger as the number of Genevest shareholders who exercised their dissent rights resulted in the boards of directors of both Applicants determining that proceeding with the merger could have unfair and negative effects on the shareholders who supported the 2002 Transaction.

11. In connection with the 2002 Transaction, Pinetree and Genevest retained Dundee Securities Corporation ("Dundee") to prepare a formal valuation of the Applicants' common shares, which valuation was delivered to the respective independent committees of the boards of directors of the Applicants.

12. The Proposed Transaction is expected to be on substantially similar terms and conditions as the 2002 Transaction.

13. The Proposed Transaction is to be implemented by way of a three-cornered amalgamation under which: (a) a wholly-owned subsidiary of Pinetree ("Subco") will amalgamate with Genevest (the "Amalgamation"); (b) upon the completion of the Amalgamation, Pinetree, as sole shareholder of Subco, will receive common shares of the amalgamated corporation; and (c) Genevest shareholders (other than Pinetree) will receive a certain number of Pinetree common shares (based on a yet to be determined exchange ratio) for their Genevest Common Shares.

14. Following the completion of the Proposed Transaction, which will result in the amalgamated corporation being a wholly-owned subsidiary of Pinetree, Pinetree (whose shares will continue to trade on the TSX) will carry on the combined businesses of Pinetree and Genevest.

15. The purpose of the Proposed Transaction is to take two very similar and overlapping entities (each of which has significant costs related to its public company status and otherwise) and combine them to create greater efficiencies and economies of scale as well as to reduce redundant costs.

16. As of the date hereof, Mr. Sheldon Inwentash, Chairman and Chief Executive Officer of each of the Applicants, and associates of Mr. Inwentash (excluding Pinetree and Genevest), own an aggregate of 2,724,399 Pinetree Common Shares and 3,078,434 Genevest Common Shares, representing approximately 31.7% and 32.2% of the issued and outstanding common shares of Pinetree and Genevest, respectively. As of the date hereof, directors and senior officers of Pinetree and Genevest (other than Mr. Inwentash and associates of Mr. Inwentash) beneficially own, directly or indirectly or exercise control or direction over, 5,000 Pinetree Common Shares and 172,650 Genevest Common Shares, representing 0.06% and 1.8% of the issued and outstanding common shares of Pinetree and Genevest, respectively.

17. While the ultimate ownership percentages will depend on the exchange ratio used to calculate the number of Pinetree Common Shares to be exchanged for Genevest Common Shares, which is yet to be determined, it is expected that Mr. Inwentash's percentage ownership interest in Pinetree after the completion of the Proposed Transaction will be substantially the same as it is now (being somewhere between his current respective percentage holdings in Pinetree and Genevest).

18. Due to the cross share ownership between Pinetree and Genevest and significant common share ownership positions in both Applicants by Mr. Inwentash and associates and affiliates of Mr. Inwentash (the "Related Parties"), the Proposed Transaction is a related party transaction within the meaning of Rule 61-501.

19. Section 5.5 of Rule 61-501 requires, inter alia, that each of the Applicants obtain a formal valuation of each of the Pinetree Common Shares and the Genevest Common Shares in respect of the Proposed Transaction.

20. Pursuant to the Independence Requirement, formal valuations required by Rule 61-501 must be prepared by "an independent valuator for the transaction having appropriate qualifications". Under clause 6.1(3)(b) of Rule 61-501, a valuator is not considered independent for purposes of the Independence Requirement if the valuator or an affiliate of the valuator acts as an adviser to the interested party in respect of the transaction.

21. Both Applicants intend to retain Dundee to prepare and deliver the required formal valuations for each Applicant. As a result, Dundee may not be an independent valuator within the meaning of the Independence Requirement as it could be considered to be an adviser to each of the Applicants.

22. Dundee is an independent Canadian brokerage firm having operations in corporate finance, mergers and acquisitions, equity sales and trading and investment research. There is no relationship between Dundee and either of the Applicants or any related party of either of the Applicants, other than the provision of services by Dundee in connection with the 2002 Transaction and the maintenance of certain brokerage accounts of the Related Parties and the Applicants in connection with their ordinary course investment activities.

23. The independent committee of each of the Applicants, which have been constituted to consider the Proposed Transaction, believe Dundee to have appropriate qualifications for purposes of the Proposed Transaction and that the use of a single valuator to provide both valuations would be in the best interest of each of the Applicants.

24. While the ownership position of the Related Parties in the Applicants are not identical, they are within a narrow range of each other, such that there is no reason why a particular valuation methodology would result in a material benefit to them as security holders of one Applicant relative to the other Applicant.

25. The independent committee of each Applicant is of the view that requiring different valuators for each Applicant would significantly and unnecessarily increase the costs of the Proposed Transaction, particularly having regard to the relatively small market capitalization of the Applicants.

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS DECIDED pursuant to section 9.1 of Rule 61-501 that, in connection with the Proposed Transaction, the Applicants shall be exempt from the Independence Requirement to the extent that they do not comply with clause 6.1(3)(b) of Rule 61-501, provided that the Applicants comply with the other applicable provisions of Rule 61-501.

April 5, 2004.

"Ralph Shay"