National Policy 11-203 Process for Relief in Multiple Jurisdictions -- issuance of securities to an arms length party pursuant to the accredited investor exemption in settlement of litigation -- application for exemption from the prospectus requirement in connection with the first trade of such securities -- relief granted from the resale restrictions relating to the resale of such securities, subject to certain conditions.
Applicable Legislative Provisions
Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
National Instrument 45-102 Resale of Securities, s. 2.6(3).
March 13, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MOOD MEDIA CORPORATION (THE FILER)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the first trade of the Settlement Shares (as defined below) issued pursuant to the settlement of a lawsuit in Canada (as described below) be exempt from the prospectus requirement under the Legislation (the Exemption Sought), provided that the first trade satisfies the conditions in subsection 2.6(3) of National Instrument 45-102 Resale of Securities (NI 45-102).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with the Jurisdiction, the Jurisdictions).
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 facts represented by the Filer:
1. The Filer is a corporation incorporated under the federal laws of Canada. The Filer is a global provider of in-store audio, visual and scent media and marketing solutions in North America and Europe.
2. The Filer is a reporting issuer in each of the Jurisdictions and is not in default of any requirement or regulation of the securities legislation of each of the Jurisdictions.
3. The Filer's authorized share capital is comprised of an unlimited number of common shares (the Common Shares) and preferred shares, of which, as at February 13, 2015, a total of 179,767,119 Common Shares and no preferred shares were issued and outstanding. The Common Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol "MM".
4. PFH Investment Ltd. (PFH) (now John Penturn and Son Limited, as a result of an amalgamation effected December 1, 2010) is an Ontario resident and beneficially owns, directly or indirectly, 13,750 Common Shares (representing approximately 0.007% of the Filer's current outstanding Common Shares) prior to the issuance of the Settlement Shares (as defined below).
5. On May 29, 2006, Fluid Music Canada, Inc., the predecessor corporation to the Filer (FM Canada), issued a debenture (the Debenture) to PFH in the principal amount of US$1,000,000. The Debenture was convertible in whole or in part at any time or from time to time, at the sole and exclusive option of PFH.
6. The conversion price (the Conversion Price) of the Debenture was equal to the lesser of:
(a) US$3.00 per Common Share; and
(b) where after May 29, 2006 and prior to the delivery of a conversion notice, FM Canada had issued Common Shares or other debt or equity securities convertible into or exchangeable for shares of Common Shares of FM Canada, or options, warrants or other rights to acquire Common Shares or securities convertible into or exchangeable for Common Shares, the lowest price per Common Share at which such shares or securities were issued or which shares, option, warrants or other rights or securities may be converted into or exercised or exchanged for Common Shares.
7. In September 2007, and again in both April and June 2008, FM Canada and PFH entered into agreements which had the effect of amending the terms of the Debenture to, among other things, permit the repurchase of the Debenture, as amended, by FM Canada, subject to certain conditions.
8. In June 12, 2008, FM Canada filed a (final) long form prospectus in relation to the initial public offering of its Common Shares.
9. On June 19, 2008, FM Canada forwarded funds to PFH to complete the repurchase of the Debenture, as amended; however, PFH refused to complete such transaction on the basis of, among other things, the allegations set out in its Action (defined below).
10. In August 2008, PFH filed a lawsuit (the Action) with the Ontario Superior Court of Justice against FM Canada and certain officers of FM Canada under section 241 of the Canada Business Corporations Act alleging, among other things, that FM Canada and certain other defendants withheld certain information relevant to the Conversion Price and seeking, among other things, cash damages in the amount of CAD$35,000,000 and a declaration, inter alia, reinstating the Debenture, unamended.
11. The Action has been disclosed previously in the Filer's continuous disclosure documents, specifically in the Filer's unaudited interim consolidated financial statements for the three and nine months ended September 30, 2014 and the Filer's annual information form dated March 31, 2014, both of which are filed on the System for Electronic Document Analysis and Retrieval (SEDAR) under the Filer's profile.
12. On February 13, 2015, the Filer entered into minutes of settlement with PFH (the Minutes of Settlement) settling the claims of PFH against the Filer, as the successor corporation to FM Canada, and the other defendants and releasing and discharging them in respect of the Action (the Settlement).
13. The Minutes of Settlement were entered into by the Filer on the basis that, among other things, it and the other defendants deny any wrongdoing and that such Minutes of Settlement shall and does not constitute an admission or concession on the part of it in respect to any claim, liability or wrongdoing.
14. The Minutes of Settlement were negotiated at arm's length and reflect a fair and equitable settlement of the Action.
15. PFH is familiar with the business and affairs of the Filer as a result of business dealings and negotiations between them prior to the commencement of the Action and the negotiations leading to the Settlement.
16. Subject to the terms of the Minutes of Settlement, the consideration which the Filer has agreed to contribute to the Settlement include the following (in relevant parts):
(a) The sum of US$1,620,000 previously paid by FM Canada into escrow on June 19, 2008, in connection with FM Canada's effort to complete the repurchase of the Debenture, as amended, together with interest and other returns on such amount since that time;
(b) A cash payment in the amount of CAD$400,000; and
(c) The issuance by the Filer to PFH of 2,300,000 Common Shares, or, if the five day weighted average market price of the Common Shares prior to the date of the TSX approval for the listing of the Common Shares is less than US$0.40, Common Shares in the aggregate value of CAD$920,000 (or at the Filer's election, cash) using the five day weighted average market price of the Common Shares prior to said date (the Settlement Shares).
17. As of February 13, 2015, the Settlement Shares represent approximately 1.28% of the current outstanding Common Shares.
18. As of the date hereof, the TSX has conditionally approved the Filer's application to list the Settlement Shares on such exchange.
19. The Filer intends to issue the Settlement Shares to PFH pursuant to the accredited investor exemption found under section 2.3 of National Instrument 45-106 Prospectus and Registration Exemptions.
20. The subject of the Action is the Debenture. Absent the Action, PFH would be entitled to exercise the Debenture, in whole or in part, at any time or from time to time, at its sole and exclusive election, and the Common Shares issuable thereupon would not be subject to any resale restrictions by virtue of section 2.5(3) of NI 45-102.
21. Upon the issuance of the Settlement Shares, the Debenture will be cancelled.
22. In the absence of the Exemption Sought, the first trade of the Settlement Shares will be a distribution until at least four (4) months have elapsed from the distribution date pursuant to section 2.5(2)2 of NI 45-102.
23. The Settlement was disclosed in the Filer's annual management's discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2014, which is filed on SEDAR.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) prior to the issuance of the Settlement Shares, the TSX has conditionally approved the listing of the Settlement Shares;
(b) the first trade in the Jurisdictions of Settlement Shares will be a distribution or primary distribution to the public, as the case may be, unless the conditions in subsection 2.6(3) of NI 45-102 are satisfied; and
(c) the issuance of the Settlement Shares by the Filer to PFH is disclosed in the Filer's unaudited interim consolidated financial statements for the three months ended March 31, 2015, to be filed on SEDAR in accordance with National Instrument 51-102 Continuous Disclosure Obligations.