Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions – exemption from the requirement to call a shareholders’ meeting to consider proposed related party transactions and to send an information circular to such shareholders – proposed conversion feature in a credit facility with a related party and subscription by a related party under a prospectus offering offering constitute related party transactions subject to the minority approval requirement under MI 61-101 – issuer disclosed the details of the proposed related party transactions in material change reports and disclosure document filed on SEDAR which contain the information required by MI 61-101 – issuer has received signed written consents from disinterested shareholders holding a majority of the common shares of the issuer eligible to be counted in determining minority approval under Part 8 of MI 61-101 to the proposed related party transactions – disclosure document provided to each shareholder from whom consent is sought – exemption sought granted, subject to conditions, including that the conversion feature will not be effective and the issuer will not close the offering (including the proposed related party transaction) unless and until (i) the consenting parties have had 14 days to review the disclosure document, and (ii) 14 days have elapsed from the date the disclosure document, form of written consent and material change report were filed on SEDAR.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.3, 5.6, 8.1, 9.1(2).
Companion Policy 61-101CP to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, s. 3.1.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
AVEDA TRANSPORTATION AND ENERGY SERVICES INC.
(Section 9.1 of Multilateral Instrument 61-101)
UPON the application (the “Application”) of the Aveda Transportation and Energy Services Inc. (the “Filer”) to the Ontario Securities Commission (the “Commission”) for an order pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) exempting the Issuer from the requirement in subsection 5.3(2) of MI 61-101 to call a meeting of holders of common shares of the Filer to consider the Proposed Transactions (as defined below) and to send an information circular to those holders (the “Requested Relief”);
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Filer having represented to the Commission as follows:
1. The Filer is a corporation existing under the laws of the Province of Alberta. The principal and head office of the Filer is located at 300, 435 – 4th Avenue S.W., Calgary, Alberta, T2P 3A8. The registered office of the Filer is located at 1600, 333 - 7th Avenue S.W., Calgary, Alberta, T2P 2Zl.
2. The Filer is a reporting issuer in the provinces of British Columbia, Alberta, Manitoba and Ontario and is not in default of securities legislation in any such jurisdiction.
3. The Filer's authorized capital consists of an unlimited number of common shares in the capital of the Filer (“Common Shares”) and an unlimited number of preferred shares in the capital of the Filer (“Preferred Shares”). Each Common Share carries the right to one vote at all meetings of the shareholders of the Filer. As of the date hereof, a total of 19,080,040 Common Shares are issued and outstanding and there are no Preferred Shares issued and outstanding.
4. The Filer’s Common Shares are listed on the TSX Venture Exchange under the symbol “AVE”.
5. The Filer, through arm's length negotiation with the syndicate of lenders to the Filer (“Senior Lenders”) led by PNC Bank Canada Branch (“PNC”), agreed with PNC, on behalf of the Senior Lenders, to a renewal, upon amended terms, of the Filer’s current senior secured credit facility subject to the Filer receiving a $5,000,000 guarantee from the major shareholders of the Filer and the Filer completing an equity offering for proceeds of at least $8,500,000, net of fees and expenses.
6. Following negotiations between the Filer’s major shareholders, Werklund Capital Corporation and Werklund Ventures Ltd. (collectively, the “Werklund Entities”), PNC, on behalf of the Senior Lenders, and the Filer, the parties agreed to a guarantee in the form of a loan agreement for a stand-by debt facility (the “Credit Facility”). The Credit Facility constitutes a “related party transaction” for the purposes of MI 61-101 but is exempt from (a) the formal valuation requirement set out in section 5.4 of MI 61-101 pursuant to paragraph 5.5(b) of MI 61-101, and (b) subject to paragraph 7 below, the minority approval requirement set out in section 5.6 of MI 61-101 pursuant to paragraph 5.7(1)(f) of MI 61-101.
7. The terms of the Credit Facility provide for a conversion feature (the “Conversion Option”) pursuant to which the drawn portion of the Credit Facility and certain fees payable the Werklund Entities shall be convertible into Common Shares. The Conversion Option will not be effective unless minority approval is obtained in accordance with MI 61-101.
8. The terms of the Credit Facility have been fully disclosed in a press release dated January 13, 2017 and a material change report dated January 16, 2017 (the “Credit Facility MCR”). The Credit Facility MCR contains the information required by section 5.2 of MI 61-101.
9. The Filer entered into an engagement letter with Beacon Securities Limited, pursuant to which Beacon Securities Limited together with a syndicate of investment dealers including Canaccord Genuity Corp. as co-lead agent, PI Financial Corp. and Mackie Research Capital Corp. agreed to act as agents in respect of a commercially reasonable best efforts, short form prospectus offering of Common Shares for gross proceeds of a minimum of $20,000,400 (not including any over-allotment option) and a maximum of $25,000,200 (not including any over-allotment option) at a price of $0.60 per Common Share (the “Offering”).
10. The terms of the Offering were disclosed in press releases dated January 17, 2017 and January 31, 2017, and a material change report dated January 31, 2017 (the “Offering MCR”). The Offering MCR was subsequently amended February 8, 2017. The Offering MCR, as amended, contains the information required by section 5.2 of MI 61-101. Further details of the Offering are included in the final short form prospectus for the Offering dated February 9, 2017.
11. The Werklund Entities have agreed to subscribe for up to an aggregate of 8,333,333 Common Shares under the Offering, representing an aggregate value of approximately $5,000,000 (the “Werklund Subscription”).
12. The Conversion Option and the Werklund Subscription are referred to herein as the “Proposed Transactions”.
13. The board of directors of the Filer (the “Board”) approved the issuance of up to 41,667,000 Common Shares under the Offering (not including any Common Shares issuable pursuant to any over-allotment option). As at February 17, 2017, the Filer received non-binding commitments to subscribe for 37,583,625 Common Shares.
14. The Board consists of a total of four directors, two of whom are “independent directors” (as defined in MI 61-101) with respect to the Proposed Transactions, being Doug McCartney and Paul Shelley (the “Independent Directors”). The other two members of the Board, Stefan Erasmus and David Werklund, declared their conflict and recused themselves from all negotiations on behalf of either the Filer or the Werklund Entities involving the Credit Facility or the Offering.
15. In order to come to their determination to approve the Credit Facility (including the Conversion Option) and the Werklund Subscription, the Independent Directors met independently from the non-independent members of the Board and met with management of the Filer to discuss available alternative transactions. Following such discussions, the Independent Directors determined that management of the Filer had used their best efforts to procure alternative transactions and the Credit Facility (including the Conversion Option) and the Offering (including the Werklund Subscription) were the only commercially reasonable transactions available to the Corporation. The terms of the Credit Facility and the Offering were negotiated by management of the Corporation and approved by the Independent Directors.
16. The Independent Directors unanimously approved the Credit Facility by written resolution of the Board dated January 3, 2017. The Independent Directors unanimously approved Werklund Subscription by written resolution of the Board dated January 16, 2017.
17. As at February 17, 2017, the Werklund Entities, who are affiliated entities of each other, collectively own 7,642,925 Common Shares representing 40.06% of the issued and outstanding Common Shares.
18. As the Werklund Entities are each a “related party” (as such term is defined in MI 61-101) of the Filer, the Proposed Transactions will each constitute a “related party transaction” within the meaning of MI 61-101 and, consequently, MI 61-101 requires that the Filer obtain a formal valuation for, and minority approval of, the Proposed Transactions, in the absence of exemptions therefrom.
19. Each of the Proposed Transactions are exempt from the formal valuation requirement set out in section 5.4 of MI 61-101 pursuant to paragraph 5.5(b) of MI 61-101. However, there are no exemptions available from the minority approval requirement set out in section 5.6 of MI 61-101. Accordingly, the Filer is required to by section 5.6 of MI 61-101 to obtain “minority approval” (as defined in MI 61-101) in accordance with Part 8 of MI 61-101 (the “Minority Approval”).
20. Subsection 5.3(2) of MI 61-101 requires that issuers proposing to carry out a related party transaction in respect of which minority approval is required under section 5.6 of MI 61-101 call a meeting of holders of the affected securities and send an information circular to those holders.
21. The Filer will obtain Minority Approval in respect of the Proposed Transaction by way of written consent as opposed to at a meeting of holders of the Common Shares.
22. As at February 17, 2017, 11,360,421 Common Shares, or approximately 50.54% of the issued and outstanding Common Shares, were held by holders who are not interested parties, related parties of interested parties, or joint actors of interested parties or related parties of interested parties to the Proposed Transactions.
23. The Filer has received written consents from certain holders of Common Shares (each, a “Consenting Party” and collectively, the “Consenting Parties”), which consent is evidenced through the execution of a form of written consent (the “Consent”) that accompanies the Disclosure Document (as defined below).
24. While certain of the Consenting Parties are participating in the Offering and/or are related parties of the Filer, no Consenting Party is: (a) an interested party, as such term is defined in MI 61-101; (b) a related party of an interested party, unless the related party meets that description solely in its capacity as a director or senior officer of one or more entities that are neither interested parties nor issuer insiders of the Filer; or (c) a joint actor with a person or company referred to in (a) or (b) above in respect of the Proposed Transactions.
25. No Consenting Party (including those Consenting Parties that are not related parties of the Filer) has received, or will receive, any collateral benefit in respect of the Proposed Transactions or in connection with agreeing to execute the Consent.
26. The Filer understands that the Consenting Parties hold Common Shares representing, in the aggregate, approximately 29.9% of the issued and outstanding Common Shares and approximately 50.3% of the issued and outstanding Common Shares held by holders of Common Shares eligible to provide the Minority Approval required for the Proposed Transactions, which exceeds the simple majority requirement set out in MI 61-101 for such approval.
27. The ability of any person, and in particular, the Consenting Parties, to participate in the Offering is not conditional upon the agreement of such person to consent to any and all aspects in respect of the Proposed Transactions that require the receipt of minority approval.
28. The ability to subscribe to the Offering is available to the general body of holders of Common Shares in Canada.
29. Each of the Consenting Parties whose consent for the Proposed Transaction was sought, was provided with a copy of the Consent and a disclosure document pertaining to the Proposed Transaction (the Disclosure Document), the contents of which comply with the disclosure requirements set out in subsection 5.3(3) of MI 61-101. The Disclosure Document and Consent set out the relevant details of the Proposed Transaction and included an acknowledgement from the Consenting Party that such Consenting Party has had a minimum of 14 days to review the Disclosure Document.
30. On February 1, 2017, the Filer filed copies of the Disclosure Document and form of written consent on System for Electronic Document Analysis and Retrieval (SEDAR).
31. The Filer will not close the Offering (including the Werklund Subscription) and the Conversion Option will not be effective unless and until (a) the Consenting Parties have had 14 days to review the Disclosure Document, and (b) 14 days have elapsed from the date the Disclosure Document, Consent, Credit Facility MCR and Offering MCR were filed on SEDAR.
32. The Filer will send a copy of the Disclosure Document to any holder of Common Shares who requests a copy.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 9.1 of MI 61-101 that the Requested Relief is granted, provided that:
(a) the Filer has received executed copies of Consents from holders of Common Shares representing a majority of the holders of Common Shares eligible to provide the Minority Approval required for each of the Proposed Transactions;
(b) each Consenting Party received a copy of the Consent and Disclosure Document;
(c) the Disclosure Document contains the information required pursuant to section 5.3 of MI 61-101 and also discloses that:
(i) the Filer will be obtaining Minority Approval by way of written consent;
(ii) written consent will be obtained from the Consenting Parties; and
(iii) the Filer has applied for the Requested Relief;
(d) no Consenting Party (including those Consenting Parties that are not related parties of the Filer) has received, or will receive, any collateral benefit in respect of the Proposed Transactions or in connection with agreeing to execute the Consent;
(e) the ability of any Consenting Party to participate in the Offering (if applicable) has not been conditioned upon the agreement of such Consenting Party to consent to any and all aspects in respect of the Proposed Transactions that require the receipt of minority approval;
(f) the Filer will not close the Offering (including the Werklund Subscription) and the Conversion Option will not be effective unless and until (i) the Consenting Parties have had 14 days to review the Disclosure Document, and (ii) 14 days have elapsed from the date the Disclosure Document, Consent, Credit Facility MCR and Offering MCR were filed on SEDAR;
(g) a copy of the Disclosure Document will be sent to any holder of Common Shares who requests a copy; and
(h) each Consenting Party receives a copy of this decision.
DATED at Toronto, Ontario, this 21st day of February, 2017.
Director, Office of Mergers & Acquisitions
Ontario Securities Commission