Section 6.1 of NI 62-104 – Issuer bid – relief from the requirements applicable to issuer bids in Part 2 of NI 62-104 – Issuer proposes to sell all of the issued and outstanding shares of its wholly owned subsidiary in exchange for the return of the 5,299,982 of its common shares and $636,000 in cash – selling shareholder is a related party of the Issuer – Issuer obtained a formal valuation and held an annual and special meeting of shareholders at which the transaction was submitted to, and approved by, 97.58% of minority shareholders – selling shareholder not receiving cash in exchange for subject shares – shares repurchased at a deemed value below the volume weighted average price for the 20 day period prior to announcement of the transaction – repurchase not designed to give preferential treatment to the selling shareholder – transaction necessary to generate working capital needed to maintain operations – transaction is in the best interests of the Issuer and its shareholders and will not adversely affect the financial position of the Issuer or shareholders to whom the bid was not extended – share repurchase will not materially affect control of the Issuer.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
FIRST GROWTH HOLDINGS LTD.
(Section 6.1 of National Instrument 62-104)
UPON the application (the “Application”) of First Growth Holdings Ltd. (the “Issuer”) to the Ontario Securities Commission (the “Commission”) for an order pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (“NI 62-104”) exempting the Issuer from the requirements applicable to issuer bids in Part 2 of NI 62-104 (the “Issuer Bid Requirements”) in respect of the proposed purchase by the Issuer of 5,299,982 common shares of the Issuer (the “Subject Shares”) owned by The Bick Group Inc. (the “Selling Shareholder”);
AND UPON considering the Application and the recommendation of Staff of the Commission;
AND UPON the Issuer (and the Selling Shareholder in respect of paragraphs 5, 6, 7, 9, 11, and 15, as they relate to the Selling Shareholder) having represented to the Commission that:
1. The Issuer is a corporation governed by the Business Corporations Act (British Columbia).
2. The head and registered office of the Issuer is located at 4388 Still Creek Drive, Unit 235, Burnaby, British Columbia, V5C 6C6.
3. The Issuer is a reporting issuer in the Provinces of British Columbia and Alberta and the common shares of the Issuer (the “Common Shares”) are listed for trading on the TSX Venture Exchange (the “TSXV”) under the symbol “FGH”. The Issuer is not in default of any requirement of the securities legislation in the jurisdictions in which it is a reporting issuer.
4. The authorized share capital of the Issuer consists of an unlimited number of Common Shares and an unlimited number of preferred shares. As of July 27, 2016, there were 75,570,999 Common Shares and no preferred shares issued and outstanding.
5. The corporate headquarters of the Selling Shareholder are located in the Province of Ontario. The Share Repurchase (as defined below) under this Order will be executed and settled in the Province of Ontario.
6. The Selling Shareholder is the beneficial owner of the Subject Shares, which, as of July 27, 2016, represented approximately 7.01% of the issued and outstanding Common Shares.
7. On April 12, 2016, the Issuer executed a definitive agreement (the “Definitive Agreement”) with 2057611 Ontario Inc. (“2057611”), a wholly owned subsidiary of the Selling Shareholder, pursuant to which the Issuer would sell, and 2057611 would acquire, all of the issued and outstanding shares of WineOnline Marketing Company Ltd. (“WineOnline”), a wholly owned subsidiary of the Issuer, in exchange for the return of the Subject Shares to the Issuer for cancellation (the “Share Repurchase”) and cash consideration in the amount of $636,000 (the “Sale Transaction”).
8. Assuming completion of the Sale Transaction, 70,271,017 Common Shares would be issued and outstanding.
9. The Selling Shareholder is a “related party” of the Issuer as such term is defined in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) by virtue of the fact that the Selling Shareholder is owned and controlled by Aaron Bick, the General Manager of WineOnline. Therefore, the Sale Transaction is a “related party transaction” as such term is defined in MI 61-101.
10. On June 15, 2016, the TSXV provided conditional acceptance to the Issuer for the Sale Transaction, subject to, among other conditions, requiring that the Issuer: (a) provide the TSXV with evidence of the value of WineOnline, and (b) provide the TSXV with evidence of shareholders’ approval of the Sale Transaction (together, the “TSXV Conditions”).
11. In accordance with the requirements of MI 61-101, and in satisfaction of the TSXV Conditions, the Issuer held an annual and special meeting of shareholders on July 28, 2016 (the “Shareholder Meeting”) at which the Sale Transaction was submitted to a vote of shareholders, excluding the votes attached to Common Shares owned, or over which control or direction is exercised by, the Selling Shareholder and Mill Street & Co. Inc. (the “Minority Shareholders”). The management information circular dated June 27, 2016 and filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on July 5, 2016 (the “Circular”) provided Minority Shareholders with sufficient information regarding the Issuer and the Sale Transaction to enable them to make an informed decision with respect to the Sale Transaction, such information including a formal valuation, which concluded that the fair market value of WineOnline was in a range between $590,000 and $744,000.
12. At the Shareholder Meeting, the Sale Transaction was approved by 97.58% of the Minority Shareholders that voted on the Sale Transaction.
13. The Circular discloses the existence of a petition (the “Petition”) and a notice of application for an interim injunction served by certain parties (the “Petitioners”) seeking, among other things, to restrict the Issuer from completing the Sale Transaction (the “Pending Litigation”). On July 15, 2016, counsel to the Petitioners advised the Issuer in writing that the Petitioners would not object to the Sale Transaction, provided that a specified amount of money from the proceeds of the Sale Transaction be held in escrow and disbursed in accordance with a court order to be rendered in respect of the Petition. Upon completion of the Sale Transaction, the Issuer will deposit such funds into the Petitioners’ counsel’s trust account, which will be disbursed in accordance with a court order, provided that if the Petition is not heard on or before December 31, 2016, such funds will be returned to the Issuer.
14. The Share Repurchase by the Issuer pursuant to the Sale Transaction will constitute an “issuer bid” for the purposes of NI 62-104, to which the applicable Issuer Bid Requirements would apply. The Share Repurchase cannot be made in reliance upon exemptions from the Issuer Bid Requirements contained in Part 4 of NI 62-104.
15. The Share Repurchase is an integral part of the Sale Transaction. The Selling Shareholder is not receiving any cash in exchange for the Subject Shares; the Subject Shares are being returned to the Issuer for cancellation at a deemed value of $0.02 per share, which is at a discount to the 20-day volume weighted average price on the TSXV as at April 12, 2016, being the date before the execution of the Definitive Agreement.
16. As a result of the fact no shareholder other than the Selling Shareholder is a party to the Sale Transaction, it is not practical for the Issuer to offer to acquire Common Shares from all shareholders on the same terms and conditions as those contemplated by the Sale Transaction.
17. The terms of the Sale Transaction were not agreed to in order to give preferential treatment to the Selling Shareholder or to provide a method for the Issuer to purchase the Subject Shares, but rather to facilitate the sale of WineOnline to the Selling Shareholder and thereby increase the working capital of the Issuer.
18. The directors and officers of the Issuer have concluded that completion of the Sale Transaction is necessary to generate working capital needed to maintain operations for the Issuer’s other subsidiaries.
19. The board of directors of the Issuer has determined that the Sale Transaction is in the best interests of the Issuer and its shareholders and will not adversely affect the financial position of the Issuer or the shareholders to whom the issuer bid is not extended.
20. The board of directors of the Issuer has concluded that the Share Repurchase will not materially affect control of the Issuer.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 6.1 of NI 62-104 that the Issuer be exempt from the Issuer Bid Requirements in connection with the Share Repurchase, provided that the Issuer issue and file a press release on SEDAR disclosing: (a) the results of the Shareholder Meeting, and (b) that the Issuer has been granted exemptive relief from the Issuer Bid Requirements in connection with the Share Repurchase.
Dated at Toronto this 13th day of September, 2016.
Director, Office of Mergers & Acquisitions
Ontario Securities Commission