Mutual Reliance Review System -- OSC Rule 61-501 -- take-over bid and subsequent business combination -- Rule 61-501 requires sending of information circular and holding of meeting in connection with second step business combination -- target's declaration of trust provides that a resolution in writing executed by unitholders holding more than 66 2/3% of the outstanding Units is valid and binding as if such voting rights had been exercised in favour of such resolution at a meeting of unitholders -- second step business combination to be subject to minority approval, calculated in accordance with section 8.2 of Rule 61-501 -- relief granted from requirement that information circular be sent and meeting be held.
Applicable Legislative Provisions
OSC Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 4.2, 9.1.
August 2, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
THE POTENTIAL TAKE-OVER BID FOR
LEGACY HOTELS REAL ESTATE INVESTMENT
TRUST BY LGY ACQUISITION LP
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario and Québec (the "Jurisdictions") has received an application from LGY Acquisition LP ("LGY"), InnVest Real Estate Investment Trust ("InnVest") and Cadbridge Investors LP ("Cadbridge" and, together with LGY and InnVest, the "Applicants"), in connection with a potential take-over bid (the "Offer") for Legacy Hotels Real Estate Investment Trust ("Legacy"), for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the following requirements of the Legislation be waived (collectively, the "Requested Relief"):
(1) a Compulsory Acquisition or Subsequent Acquisition Transaction (each as defined below), as applicable, be approved at a meeting of the unitholders of Legacy (the "Unitholders"); and
(2) an information circular be sent to the Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable.
Under the Mutual Reliance Review System ("MRRS") for Exemptive Relief Applications:
(a) the Ontario Securities Commission (the "OSC") is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following representations by the Applicants:
1. LGY is a limited partnership formed under the laws of the Province of Ontario on July 10, 2007 and has not carried on any business prior to the date hereof other than in respect of matters directly relating to the making of the Offer. LGY is not a reporting issuer in any of the provinces or territories in Canada. The general partner of LGY is 6800289 Canada Inc., a corporation formed by InnVest and Cadbridge, and the limited partners of LGY are InnVest (as to approximately 26%) and Cadbridge (as to approximately 74%).
2. On July 12, 2007, the Applicants entered into a support agreement (the "Support Agreement") with Legacy pursuant to which the Applicants have agreed, subject to certain conditions, that LGY will make the Offer to unitholders of Legacy ("Unitholders"). In connection with the Offer, the Applicants will prepare and mail a take-over bid circular (the "Circular") in the English and French languages to Unitholders of Legacy.
3. On the same date as the Support Agreement was executed, LGY entered into a lock-up agreement with Fairmont Hotels & Resorts Inc. ("Fairmont") whereby Fairmont agreed to tender to the Offer its approximate 20% ownership interest in Legacy.
4. The outstanding beneficial interests in Legacy consists of one class of trust units (the "Units"). The Units are held by CDS Clearing and Depository Services Inc. in book-entry only form. The trustees of Legacy are also authorized to issue voting certificates, which provide voting rights for holders of shares of a subsidiary of Legacy that are exchangeable for Units, but provide no economic interest to the holder thereof. As of July 12, 2007, there were 116,083,060 Units and 4,900,000 voting certificates issued and outstanding. Fairmont holds all of the outstanding voting certificates.
5. If the Applicants decide to proceed with the Offer, it is currently expected that:
(a) the Offer will be for all of the outstanding Units (other than those owned directly or indirectly by the Applicants), including Units that may be issued after the date of the Offer upon the exercise, conversion or exchange of securities that are exercisable for, or convertible or exchangeable into, Units, at a price of $12.60 in cash per Unit;
(b) one of the conditions of the Offer will be that there shall have been validly deposited under the Offer and not withdrawn at the expiry of the Offer such number of Units which, together with any Units directly or indirectly owned by the Applicants, representing at least 66 2/3% of the Units on a fully-diluted basis (the "Minimum Tender Condition");
(c) if the conditions to the Offer are satisfied (or waived by the Applicants) and LGY takes up and pays for Units deposited pursuant to the Offer, LGY may proceed with a compulsory acquisition of the Units not deposited to the Offer as permitted by Section 13.02 of Legacy's declaration of trust dated September 11, 1997, as amended to August 3, 2006 (the "Declaration of Trust") for the same consideration per Unit as was paid under the Offer, if within 120 days after the date the Offer is made, the Offer is accepted by Unitholders representing at least 90% of the Units on a fully diluted basis (other than Units or exchangeable securities held at the date of the Offer by or on behalf of the Applicants or associates or affiliates of the Applicants) (a "Compulsory Acquisition");
(d) in connection with either a Compulsory Acquisition, if available and if the Applicants elect to proceed thereunder, or a Subsequent Acquisition Transaction (as defined below), the Applicants currently intend to amend the Declaration of Trust by the Written Resolution (as defined below) to provide that non-tendering offerees will be deemed to have elected to transfer and to have transferred their Units to LGY immediately on the giving of LGY's notice prescribed by the Declaration of Trust notifying non-tendering offerees that, among other things, LGY is entitled to acquire their Units by way of Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable (as opposed to 20 days after receipt of LGY's notice, as currently provided) (the "Notice Amendment");
(e) if a Compulsory Acquisition as permitted under the Declaration of Trust is not available to the Applicants or the Applicants elect not to proceed under those provisions, the Applicants currently intend to acquire the Units not deposited to the Offer by:
(i) amending the Declaration of Trust (the "Redemption Amendment") to provide that Legacy may redeem the Units of the non-tendering offerees for the same consideration per Unit as was paid under the Offer to the tendering offerees (the redemption being referred to herein as a "Subsequent Acquisition Transaction"); and
(ii) proceeding with the Subsequent Acquisition Transaction in respect of the Units not deposited to the Offer as permitted by the Declaration of Trust, as so amended;
(f) in order to effect either a Compulsory Acquisition, if available and if the Applicants elect to proceed thereunder, or a Subsequent Acquisition Transaction in accordance with the foregoing, rather than seeking the Unitholders' approval at a special meeting of the Unitholders to be called for such purpose, the Applicants intend to rely on Section 11.13 of the Declaration of Trust, which specifies that a resolution in writing signed by Unitholders holding more than 66 2/3% of the Units outstanding at any time shall be as valid and binding as if such resolution had been passed at a meeting of Unitholders duly called and convened (the "Written Resolution"), which Written Resolution will approve, among other things, the Redemption Amendment and the Notice Amendment and any Compulsory Acquisition or Subsequent Acquisition Transaction undertaken in accordance therewith, as applicable; and
(g) if the Applicants are unable to or determine not to pursue either the Compulsory Acquisition or the Subsequent Acquisition Transaction in the manner described above, the Applicants reserve the right, to the extent permitted by applicable law and subject to the terms and conditions of the Support Agreement dated July 12, 2007 among the Applicants and Legacy pursuant to which the Applicants agreed that LGY would make, and Legacy agreed to support, the Offer, to (i) purchase additional Units in the open market or in privately negotiated transactions or otherwise, or (ii) take no further action to acquire additional Units, or (iii) acquire assets of Legacy by way of an arrangement, amalgamation, merger, reorganization, consolidation, recapitalization, redemption or other transaction involving the Applicants and/or their subsidiaries and affiliates, and Legacy and/or its subsidiaries. Alternatively, the Applicants may sell or otherwise dispose of any or all Units acquired pursuant to the Offer or otherwise.
6. Notwithstanding that Section 11.13 of the Declaration of Trust permits certain actions of Legacy to be authorized by Written Resolution, Section 4.2 of the Autorité des marchés financiers du Québec Regulation Q-27 -- Respecting Protection of Minority Shareholders in the Course of Certain Transactions ("Regulation Q-27") and Section 4.2 of OSC Rule 61-501 -- Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions ("Rule 61-501") requires in certain circumstances that the Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable, be approved at a meeting of Unitholders called for that purpose.
7. To effect either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable, the Applicants will, if required, obtain minority approval, as that term is defined in the Legislation, calculated in accordance with the terms of Section 8.2 of Regulation Q-27 and Section 8.2 of Rule 61-501 (the "Minority Approval"), albeit not at a meeting of Unitholders, but by Written Resolution.
8. The offer and the Circular provided to Unitholders in connection with the Offer will contain all disclosure required by applicable securities laws, including without limitation the take-over bid provisions and form requirements of the Legislation and the provisions of Rule 61-501 relating to the disclosure required to be included in information circulars distributed in respect of business combinations.
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 the Requested Relief is granted provided that Minority Approval shall have been obtained by Written Resolution, unless an exemption from the requirement to obtain Minority Approval is available to the Applicants in accordance with the terms of Section 4.6 of Regulation Q-27 and Section 4.6 of Rule 61-501.