Subsection 74(1) -- Application for exemption from prospectus requirement in connection with first trade of shares of issuer through exchange or market outside of Canada or to person or company outside of Canada -- issuer not a reporting issuer in any jurisdiction in Canada -- conditions of the exemption in section 2.14 of National Instrument 45-102 Resale of Securities not satisfied as residents of Canada own more than 10% of the total number of shares -- relief granted subject to conditions.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
National Instrument 45-102 Resale of Securities, s. 2.14.
IN THE MATTER OF THE SECURITIES ACT. R.S.O. 1990, c. S.5, AS AMENDED (THE "ACT") AND IN THE MATTER OF ONTARIO TEACHERS' PENSION PLAN BOARD AND XPO LOGISTICS, INC.
The Ontario Securities Commission has received an application from the Ontario Teachers' Pension Plan Board (the "Applicant" or "OTPP") for an order pursuant to subsection 74(1) of the Act for an exemption from the prospectus requirement contained in section 53 of the Act (the "Requested Relief") in connection with the first trades of certain of the shares of common stock (the "Common Shares") of XPO Logistics, Inc. (the "Company"). The Common Shares that would be subject to this exemption (collectively the "Subject Shares") include 2,460,222 Common Shares purchased by OTPP from the Company in the Offering (as defined below) together with 1,984,222 Common Shares issuable upon conversion of shares of the Series C Preferred stock (the "Series C Preferred Shares") that were acquired by OTPP in the Offering.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This order is based on the following facts represented by the Applicant:
1. The Applicant is an independent corporation established on December 31, 1989 by the Teachers' Pension Act (Ontario) to administer and manage a pension plan established for the benefit of the Province of Ontario's primary and secondary school teachers and to pay members of the pension plan their respective benefits under the plan. The head office of the Applicant is located at 5650 Yonge Street, Toronto, Ontario, Canada.
2. The Company is incorporated under the laws of Delaware, with its Common Shares listed on the New York Stock Exchange ("NYSE"). The Company is one of the fastest growing providers of transportation logistics services in North America with 203 locations and approximately 10,400 employees facilitating more than 31,000 deliveries a day across three major business segments -- freight brokerage, expedited transportation and freight forwarding -- and serving over 14,000 customers in the manufacturing, industrial, retail, commercial, life sciences and governmental sectors. The Company's registered office is located at Five Greenwich Office Park, Greenwich, Connecticut, USA.
3. Pursuant to an investment agreement dated May 29, 2015 (the "Investment Agreement") among, among others, the Company, OTPP and Public Sector Pension Investment Board ("PSP"), a Canadian-based pension investment manager, effective June 3, 2015 (the "Settlement Date"), the Company completed an offering (the "Offering") of newly issued Common Shares and Series C Preferred Shares.
4. The Applicant acquired the Common Shares and Series C Preferred Shares under the Offering in reliance on the "accredited investor" prospectus exemption contained in section 2.3 of National Instrument 45-106 Prospectus and Registration Exemptions.
5. To the best of OTPP's knowledge, based on a certificate from the Company (the "XPO Certificate"), as of the Settlement Date, and after giving effect to the Offering, the only issued and outstanding securities of the Company consisted of:
(a) 95,271,676 Common Shares and the number of beneficial holders of Common Shares was approximately 31,400;
(b) 73,085 shares of Series A convertible perpetual preferred stock, which were convertible into 10,440,714 Common Shares, and the number of beneficial holders of such securities was 21;
(c) 562,525 Series C Preferred Shares, which were convertible into 12,500,546 Common Shares, and the number of beneficial holders of such securities was 31;
(d) 10,486,667 outstanding warrants of the Company convertible for Common Shares, which were convertible into 10,486,667 Common Shares, and the number of beneficial holders of such securities was 31;
(e) $72,050,000 principal amount of 4.5% convertible senior notes, which were convertible into 4,384,005 Common Shares;
(f) $900,000,000 principal amount of 7.875% senior notes;
(g) $1,600,000,000 principal amount of 6.5% senior notes;
(h) $500,000,000 principal amount of 5.75% senior notes; and
(i) 3,796,420 restricted stock units and stock options granted pursuant to the Company's incentive compensation plans, which were exercisable into 3,796,420 Common Shares.
6. To the best of the Applicant's knowledge, based on the XPO Certificate, as of the Settlement Date and after giving effect to the Offering:
(a) the only outstanding securities of the Company held by OTPP consisted of 5,721,800 Common Shares and 89,290 Series C Preferred Shares;
(b) the Series C Preferred Shares held by OTPP were convertible for 1,984,222 Common Shares, which, on an as-converted basis, together with the Common Shares held by OTPP, represented approximately 7% of the total number of outstanding Common Shares (assuming conversion of all outstanding Series C Preferred Shares);
(c) the only outstanding securities of the Company held by PSP consisted of 12,645,635 Common Shares and 44,645 Series C Preferred Shares; and
(d) the Series C Preferred Shares held by PSP were convertible for 992,111 Common Shares, which, on an as-converted basis, together with the Common Shares held by PSP, represented approximately 13% of the total number of outstanding Common Shares (assuming conversion of all outstanding Series C Preferred Shares).
7. As of the Settlement Date, after giving effect to the issue of the Subject Shares and any other shares of the same class or series that were issued under the Offering, residents of Canada (excluding the Applicant and PSP):
(a) based on beneficial and geographic searches, held, directly or indirectly, approximately 2.3 million Common Shares, representing approximately 2% of the outstanding Common Shares on a fully diluted basis;
(b) based on beneficial and geographic searches, represented approximately 11% of the total number of holders, directly or indirectly, of the Common Shares; and
(c) did not own, directly or indirectly, any other outstanding securities of the Company (provided that no representation is made with respect to the Company's outstanding notes, the beneficial ownership of which is not determinable by the Company).
8. At the Settlement Date, the Company was not a reporting issuer or its equivalent in the Province of Ontario or any other province or territory of Canada, nor were any of its securities listed or posted for trading on any exchange, or market, located in Canada.
9. In addition, the Company has noted that:
(a) approximately 3.2% of the Company's assets and operations are located in Canada and approximately 4% of its revenues are derived from operations in Canada;
(b) none of the Company's directors or executive officers reside in Canada; and
(c) the Company has 3 Canadian subsidiaries (representing approximately 4% of XPO's total subsidiaries worldwide), which has 1 Canadian director (the other directors, and all executive officers, of such subsidiaries are U.S. residents).
10. The Company has advised the Applicant that, to the best of its knowledge, it is not in default of any requirements of the NYSE, or the applicable securities laws of the United States or any jurisdiction of Canada.
11. In securities offerings involving Canadian purchasers since September 2011, excluding the Offering and the Company's equity issuance in September 2014 (in which OTPP and PSP participated), approximately 1% to 5% of such securities offerings were purchased by Canadian investors.
12. The Company has advised the Applicant that it has no present intention of becoming listed in Canada or of becoming a reporting issuer under the Act or under any other Canadian securities laws, and no market for the Common Shares exists in Canada and none is expected to develop.
13. In the absence of the exemption requested hereby, the Applicant takes the view that the first trade of any Subject Shares held by the Applicant will be deemed to be a distribution and subject to section 53 of the Act.
14. The prospectus exemptions in sections 2.5 and 2.6 of National Instrument 45-102 Resale of Securities will not be applicable in this situation because the Company is not a reporting issuer or its equivalent in the Province of Ontario or any other province or territory of Canada.
15. The prospectus exemption in section 2.14 of National Instrument 45-102 would be applicable in this situation, but will not be available to the Applicant (or any other holder of Subject Shares in Canada) with respect to its first trade of any Subject Shares because residents of Canada, including the Applicant, owned more than 10% of the outstanding Common Shares, and represented more than 10% of the number of owners of Common Shares, at the date of the distribution of the Common Shares.
The Commission is satisfied that this order meets the test set out in subsection 74(1) of the Act.
The order of the Commission under subsection 74(1) of the Act is that the Requested Relief is granted provided that:
(a) the Company is not a reporting issuer in any jurisdiction of Canada at the date of the trade; and
(b) the trade is executed through the facilities of the NYSE or through any other exchange or market outside Canada or to a person or company outside of Canada.
DATED at Toronto on this 16th day of October, 2015.