National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- Issuer with dual class share structure -- Both voting and subordinate shares are listed -- Application for relief from requirement to obtain separate minority approval for each class of shares -- Both classes of securities are freely tradable -- No difference of interest between holders of Class A Shares and holders of Class B Shares in connection with the Proposed Transaction -- Safeguards include independent committee, formal valuation, fairness opinions -- Requiring a vote by class would give a "de facto" veto right to a very small group of shareholders.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.
September 25, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the "Jurisdictions") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GLV INC. (the "Filer")
The securities regulatory authority or regulator in each of the Jurisdictions (the "Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the requirement to obtain separate minority approval from each class of shares of the Filer, set out at paragraph 8.1(1) of Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions ("Regulation 61-101"), in respect of the Proposed Transaction (as defined below), which transaction constitutes a related-party transaction for purposes of Regulation 61-101 (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application; and
(b) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions and Regulation 11-102 respecting Passport System have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer was incorporated under the Canada Business Corporations Act ("CBCA") on May 15, 2007 in connection with the transfer of the net assets and continuation of operations of the water treatment and pulp and paper groups of Groupe Laperrière & Verreault Inc.
2. The Filer's head office is located at 2001 McGill College Avenue, Suite 2100 in Montréal, Québec.
3. The Filer is a reporting issuer in all jurisdictions of Canada. The Filer is not in default of its obligations under the securities legislation in any of the jurisdictions of Canada. The Filer operates primarily in the water treatment and pulp and paper industries.
4. The authorized share capital of the Filer consists of an unlimited number of Class A subordinate voting shares, carrying one vote per share (the "Class A Shares"), an unlimited number of Class B multiple voting shares, carrying 10 votes per share (the "Class B Shares") and an unlimited number of preferred shares issuable in series.
5. The sole difference between the two classes of shares is that one confers 10 votes per share. The Class A Shares and the Class B Shares have always participated equally in the Filer's performance.
6. As at August 7, 2014, the Filer's outstanding share capital consisted of 41,912,594 Class A Shares (being 65.8% of all voting shares) and 2,179,305 Class B Shares (being 34.2% of all voting shares). The Class A Shares and the Class B Shares are listed for trading on the TSX.
7. Laurent Verreault holds directly and indirectly (through 3033548 Nova Scotia Company, a wholly-owned corporation held by the Laurent Verreault Trust), 815,600 Class A Shares and 1,680,240 Class B Shares, representing 1.9% of the Class A Shares outstanding and 77.1% of the Class B Shares outstanding.
8. Richard Verreault holds 917,900 Class A Shares and 17,000 Class B Shares representing 2.2% of the Class A Shares outstanding and 0.08% of the Class B Shares outstanding.
9. Together, Laurent and Richard Verreault (the "Verreault Family") have control of over 29.4% of the Filer's voting rights and are insiders and control persons of the Filer.
10. 9027173 Canada Inc. ("AcquisitionCo") was incorporated under the CBCA on September 22, 2014 and is owned by the Verreault Family. AcquisitionCo's head office is located at 1155 René-Lévesque West Boulevard, 40th Floor in Montréal, Québec.
11. The Filer and AcquisitionCo have entered into an agreement in connection with the sale of the assets that make up the Filer's pulp and paper division to AcquisitionCo for a consideration of approximately $65 million, a substantial portion of which shall be paid in cash (the "Proposed Transaction"). The material terms of the Proposed Transaction were publicly announced on September 24, 2014.
12. After the completion of the Proposed Transaction, the Filer will operate its water treatment division and will continue its activities as a reporting issuer.
13. The Proposed Transaction constitutes a "related-party" transaction within the meaning of Regulation 61-101 requiring, inter alia, the Issuer to obtain a formal valuation of the pulp and paper activities being sold and obtain minority approval for the transaction. Unless the Exemption Sought is granted, the minority approval shall be obtained from the holders of the Class A Shares and of the Class B Shares, in each case voting separately as a class, as provided for under paragraph 8.1(1) of Regulation 61-101.
14. The Proposed Transaction requires the approval of 66 2/3% of the votes of shareholders voting together as a single class pursuant to paragraph 189(3) and 189(7) of the CBCA, since the Filer has determined that the Class A Shares and Class B Shares are not affected by the Proposed Transaction in any different manner.
15. Holders of Filer's shares, other than those held by the Verreault Family (the "Disinterested Shareholders"), hold 40,179,094 Class A Shares representing 95.9% of the outstanding Class A Shares. The Disinterested Shareholders hold 482,065 Class B Shares representing 22.1% of the outstanding Class B Shares. The Disinterested Shareholders' voting rights represent in the aggregate 70.1% of the voting rights of the Filer.
16. Absent the granting of the Exemption Sought, the holders of 50% of the Class B Shares outstanding, or 241,033 Class B Shares, would have the possibility to veto the Proposed Transaction while representing a minimal minority position (only 0.5% of all the Filer's outstanding shares having a global economic value of $739,971 based on the closing price of $3.07 for Class B Shares on September 5, 2014, on a total of $6,690,466 for the Class B Shares and $143,3 million for all of the Filer's shares, based on the closing price of $3.25 for Class A Shares on September 5, 2014).
17. The Proposed Transaction does not terminate the interest of holders of Class A Shares and Class B Shares, nor does it affect the holders of Class A Shares and Class B Shares in any different manner.
18. The Proposed Transaction is subject to a number of safeguard measures ensuring that the interests of all shareholders are adequately protected, namely:
(i) the creation of a special committee composed of three independent directors (the "Independent Committee") whose mandate is to review the terms and conditions of the Proposed Transaction. In order to properly fulfill its mandate, the Independent Committee has retained the services of independent legal and financial advisors. The Independent Committee unanimously recommended to the Filer's board of directors that the Proposed Transaction be approved;
(ii) the holding of a special meeting of shareholders in order to consider and, if deemed advisable, approve the Proposed Transaction in accordance with section 5.3 of Regulation 61-101 (each Class A Share carrying one vote and each Class B Share carrying 10 votes);
(iii) the approval of the Proposed Transaction by the majority of votes cast by the Disinterested Shareholders Shares voting together as a single class (each Class A Share carrying one vote and each Class B Share carrying 10 votes), in addition to the approval required pursuant to the CBCA referred to in paragraph 14 above;
(iv) the preparation and delivery of an information circular (the "Information Circular") prepared in accordance with the applicable securities regulations in order to provide the necessary information allowing all shareholders to make an informed decision on the Proposed Transaction;
(v) the preparation and delivery of a formal valuation prepared by the independent valuator selected by the Independent Committee to be included in the Information Circular;
(vi) the preparation and delivery of fairness opinions concluding that the consideration to be received by the Filer is fair from a financial point of view to the Disinterested Shareholders, as prepared by the independent financial advisor retained by the Independent Committee and by the Filer's financial advisor, both of which will be included in the Information Circular;
(vii) a right of dissent to the benefit of Disinterested Shareholders; and
(viii) several protection measures have been negotiated by the Independent Committee and are included in the agreement referred to in paragraph 11, including a 45-day go shop period, a fiduciary out where a superior proposal would be received, and low break-up fees (between approximately 1.5% and 3% of the total consideration payable in the context of the Proposed Transaction);
(together, the "Safeguard Measures").
19. Absent the granting of the Exemption Sought, a very small group of shareholders would in essence be in a position to veto the Proposed Transaction. This situation in effect corresponds to that envisaged by section 3.3 of Policy Statement to Regulation 61-101.
20. The Class A Shares and the Class B Shares have historically traded within a narrow price range, evidencing that the market essentially assigns a similar economic value to Class A Shares and Class B Shares.
21. The Filer will comply with all the requirements of Regulation 61-101, other than the requirement to hold a separate vote by class.
22. The Filer is of the view that the various Safeguard Measures ensure that the public interest is well protected.
23. The Filer is of the view that granting the requested relief will not be detrimental or otherwise affect the protection afforded to investors.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that all the Safeguard Measures (as defined in Paragraph 18 of the Decision) are implemented and remain in place as described herein.