National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from the formal valuation and minority approval requirements in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions – issuer is a special purpose acquisition corporation that will have no operations and generate no operating revenues until it completes its qualifying acquisition – issuer’s authorized capital consists of restricted voting shares which are entitled to be redeemed at the election of the holder prior to the completion of the qualifying acquisition for an amount equivalent to their initial investment, and common shares that do not have any redemption rights but which have the residual right to share in the assets of the issuer on liquidation or dissolution – the entirety of the gross proceeds from the initial public offering of the restricted voting shares were put into an escrow account to be used to, among other things, satisfy any redemptions in respect of the restricted voting shares and fund the qualifying acquisition – the common shares do not have access to, and cannot benefit from, the funds in the escrow account – only the restricted voting shares are listed and posted for trading on an exchange – relief granted subject to conditions, including that the related party transaction constituting the issuer’s qualifying acquisition would qualify for the 25% market capitalization exemption if the restricted voting shares represented all of the outstanding equity securities of the issuer.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.4, 5.6, 9.1(2).
April 21, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
GIBRALTAR GROWTH CORPORATION
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 Filer be granted an exemption pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) from the minority approval and formal valuation requirements under Part 5 of MI 61-101 in respect of the Proposed Transaction (as defined below), which transaction constitutes a related party transaction for the purposes of MI 61-101 (the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this 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 Québec.
Terms defined in National Instrument 14-101 Definitions, MI 11-102, and MI 61-101 have the same meaning if used in this decision, unless otherwise defined. For the purpose of this decision, the following terms have the meaning ascribed to them:
“qualifying acquisition” shall have the meaning ascribed to such term in the TSX Company Manual;
“Redemption Price” shall mean an amount per share equal to the pro-rata portion of: (a) the Escrowed Funds, including interest and other amounts earned thereon; less (b) an amount equal to the total of (i) applicable taxes payable by the Filer on such interest and other amounts earned in the Filer’s escrow account, and (ii) actual and expected direct expenses related to the redemption;
“SPAC” shall mean a special purpose acquisition corporation;
“TSX” shall mean the Toronto Stock Exchange; and
“Winding-Up Redemption Price” shall mean an amount per share equal to the pro-rata portion of: (a) the Escrowed Funds, including any interest and other amounts earned thereon; less (b) an amount equal to the total of (i) any applicable taxes payable by the Filer on such interest and other amounts earned in the Filer’s escrow account, and (ii) any taxes of the Filer arising in connection with the redemption of the Class A Restricted Voting Shares, and (iii) up to a maximum of $50,000 of interest and other amounts earned to pay actual and expected winding-up expenses and certain other related costs.
This decision is based on the following facts represented by the Filer:
1. The Filer is a SPAC existing under, and governed by, the Business Corporations Act (Ontario). The Filer was formed for the purpose of effecting its qualifying acquisition pursuant to the acquisition of one or more businesses or assets by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving the Filer. From the time of the Filer’s initial public offering (the “IPO”) and until such time as the Filer completes its qualifying acquisition, the Filer has not had any operations and has generated no operating revenues.
2. The Filer’s head office is located at 130 Adelaide Street West, 17th Floor, Toronto, Ontario, M5H 3P5.
3. The Filer is a reporting issuer in each of the provinces and territories of Canada and is not in default of securities legislation in any jurisdiction.
4. The authorized capital of the Filer consists of an unlimited number of Class A restricted voting shares (the “Class A Restricted Voting Shares”) and an unlimited number of Class B shares (the “Class B Shares”). As of March 24, 2017, the Filer has 10,450,000 Class A Restricted Voting Shares and 3,126,563 Class B Shares issued and outstanding, all of which shares were issued in connection with the IPO.
5. All outstanding Class B Shares are held by the Filer’s senior management, founders, directors and advisory board members, including Gibraltar Opportunity, Inc. (the “Sponsor”, and such persons collectively, the “Founders”). As of March 24, 2017, the Sponsor holds 2,131,749 Class B Shares, representing approximately 68% of the outstanding Class B Shares and approximately 15.7% of the aggregate Class A Restricted Voting Shares and Class B Shares outstanding.
6. The entirety of the gross proceeds from the Class A Restricted Voting Shares offered under the IPO were put into the Filer’s escrow account (the “Escrowed Funds”) to be used to, inter alia, satisfy the payment of the Redemption Price due to holders of Class A Restricted Voting Shares upon the exercise of the redemption right attached to the Class A Restricted Voting Shares, and fund the qualifying acquisition. Any Escrowed Funds which are not used to consummate the qualifying acquisition will be disbursed to the Filer and will, along with any other amounts not expended prior to the consummation of the qualifying acquisition, be used to fund general ongoing expenses of the resulting issuer.
7. Provided that holders of Class A Restricted Voting Shares adhere to the specified timing requirements, such holders are entitled to redeem all or a portion of their Class A Restricted Voting Shares, whether they vote for or against, or do not vote on, the qualifying acquisition for the Redemption Price per Class A Restricted Voting Share. Any Class A Restricted Voting Shares that are not redeemed will be automatically converted immediately following the closing of the qualifying acquisition into Class B Shares on the basis of one Class B Share for each Class A Restricted Voting Share converted.
8. The net proceeds from the Class B Shares offered to the Founders were not put into the Filer’s escrow account and may be used to towards the Filer’s general ongoing expenses and funding the identification and completion of a qualifying acquisition.
9. The holders of Class B Shares do not have access to, and cannot benefit from, the Escrowed Funds, and accordingly, do not have any redemption rights.
10. The Redemption Price is payable in cash from the Escrowed Funds, and upon such payment, the holders of Class A Restricted Voting Shares will have no further rights in respect of the Class A Restricted Voting Shares.
11. The Filer has entered into a definitive purchase agreement with Frederick Mannella, Kei Izawa, Gibraltar & Company, Inc. (“Gibraltar & Company”), Gibraltar Ventures Fund One Limited Partnership (“Gibraltar Ventures”), an officer of Gibraltar & Company (the “Gibraltar & Company Officer”, and together with Gibraltar & Company and Gibraltar Ventures, the “Related Party Vendors”) and certain other private investors to acquire all of the issued and outstanding shares of LXR Produits de Luxe International Inc. (“LXR”) for an aggregate purchase price of $82.5 million (such acquisition, the “Proposed Transaction”). The Proposed Transaction would constitute the Filer’s qualifying acquisition.
12. Gibraltar & Company, the parent company of the Sponsor, owns approximately 8.0% of LXR. Gibraltar Ventures, a venture capital fund managed by Gibraltar & Company, owns approximately 10.9% of LXR. The Gibraltar & Company Officer owns 0.2% of LXR. The value of the purchase price attributable to the Related Party Vendors is approximately $14.6 million (the “Related Party Consideration”).
13. The Filer has received commitments for a private placement financing of 2,500,000 Class B Shares for approximately $25 million in proceeds to fund ongoing operations following closing of the qualifying acquisition and to back-stop redemptions by holders of Class A Restricted Voting Shares in connection with the Proposed Transaction. The Sponsor has subscribed for approximately $1 million worth of Class B Shares under the private placement financing (the “Related Party Investment” and, together with the Related Party Consideration, the “Related Party Interest”).
14. The TSX is requiring that (a) the Proposed Transaction be approved by the board of directors of the Filer on the recommendation of the directors who are unrelated to the Proposed Transaction, (b) the value of the Related Party Consideration be established by an independent valuation report, and (c) the Proposed Transaction be approved by a majority of shareholders of the Filer excluding insiders of the Filer that have an interest in the Proposed Transaction.
15. The acquisition of shares from the Related Party Vendors and the Related Party Investment constitute a related party transaction that would require that the Filer obtain a formal valuation and minority approval (the “Minority Protections”), unless an exemption is available.
16. A related party transaction that is subject to MI 61-101 may be exempt from the Minority Protections if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer’s market capitalization (the “Transaction Size Exemption”).
17. The Filer may not be entitled to rely on the Transaction Size Exemption because the definition of market capitalization is calculated with reference to the aggregate market price of all outstanding equity securities of the Filer.
18. For the purposes of MI 61-101, an equity security is a security that carries a residual right to participate in the earnings of the issuer and, on liquidation or winding-up of the issuer, in its assets. The Class A Restricted Voting Shares do not have a residual right to share in the assets of the Filer on a liquidation or dissolution, being entitled only to receive an amount equal to the Winding-Up Redemption Price for each Class A Restricted Voting Share then outstanding. The residual right to share in the assets of the Filer on liquidation or dissolution rests with the Class B Shares.
19. The Class A Restricted Voting Shares are listed and posted for trading on the TSX under the trading symbol “GBG.A”. The Class B Shares are not listed on any stock exchange and, prior to the completion of a qualifying acquisition, are not transferable absent TSX consent. For the purposes of the TSX and public shareholders, the aggregate market value of the Class A Restricted Voting Shares represent the market capitalization of the Filer.
20. If the market capitalization of the Filer was calculated on the basis of the outstanding Class A Restricted Voting Shares representing all of the outstanding equity securities of the Filer, the Related Party Interest would represent approximately 15% of the Filer’s market capitalization.
21. The Filer has included, in its non-offering prospectus dated April 17, 2017 in connection with the Proposed Transaction and in its press release announcing the Proposed Transaction, a statement that it has applied for the Exemption Sought and a description of the substance and effects of the Exemption Sought, if granted.
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) the Proposed Transaction would qualify for the Transaction Size Exemption contained in MI 61-101 if the Class A Restricted Voting Shares represented all of the outstanding equity securities of the Filer; and
(b) the material change report, and any disclosure document provided to holders of Class A Restricted Voting Shares and Class B Shares, in connection with the Proposed Transaction includes a statement that the Filer has applied for, and been granted, the Exemption Sought, and a description of the substance and effects of the Exemption Sought.
Director, Office of Mergers & Acquisitions
Ontario Securities Commission