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Dundee Wealth Management Inc. and Canadian First Financial Group Inc.
Headnote
Exemptive Relief Application- Employment agreements entered into between offeror and representativesand franchisees of the offeree of which 20 of 44 are also sellingshareholders of the offeree - shareholder representatives holdapproximately 31% percent of offeree shares on a fully-dilutedbasis - 50% of shareholder representatives have entered intolock-up agreement with offeror - employment agreements containnon-competition and non-solicitation covenants - retention bonusespayable in accordance with standard industry practice and compensatefor difference between payout structures of offeror and offeree- agreements reflect commercially reasonable terms and negotiatedat arm's length - Decision made that agreements being enteredinto for reasons other than to increase the value of the considerationpaid to the shareholder representatives for their shares andthat such agreements may be entered into notwithstanding theprohibition on collateral benefits.
Applicable Statutory Provisions
Securities Act, R.S.O. 1990,c. S.5, as amended, ss. 97 and 104(2)(a).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO
AND
IN THE MATTER OF
DUNDEE WEALTH MANAGEMENT INC.AND
CANADIAN FIRST FINANCIAL GROUPINC.
DECISION DOCUMENT
WHEREAS the Ontario SecuritiesCommission (the "Commission") has received an applicationfrom Dundee Wealth Management Inc. ("Dundee Wealth")for a decision under the Securities Act (Ontario) (the"Act") that, in connection with Dundee Wealth's offer(the "Offer") to purchase all of the issued and outstandingcommon shares (the "CFFG Shares") of Canadian FirstFinancial Group Inc. ("CFFG") by way of a take-overbid, certain agreements defined in paragraph 8 below (the "RetentionAgreements") that have been or may be entered into betweenDundee Wealth and Dundee Private Investors Inc. (collectively,"Dundee"), and certain representatives and franchiseesof Ross Dixon Financial Services Ltd. ("Ross Dixon")and certain representatives of Hewmac Investment Services Inc.("Hewmac") (collectively, the "Representatives")have been or will be made for reasons other than to increasethe value of the consideration paid to certain Representativeswho are also holders of CFFG Shares (the "Shareholder Representatives")and may be entered into despite the provision in the Act thatprohibits an offeror who makes or intends to make a take-overbid and any person acting jointly or in concert with the offerorfrom entering into any collateral agreement, commitment or understandingwith any holder or beneficial owner of securities of the offereeissuer that has the effect of providing to the holder or ownera consideration of greater value than that offered to otherholders of the same class of securities (the "Prohibitionon Collateral Benefits");
AND WHEREAS Dundee Wealthhas represented to the Commission that:
1. Dundee Wealth is a corporationincorporated under the Business Corporations Act (Ontario)(the "OBCA"). Dundee Wealth is a financial servicescompany that provides a broad range of financial productsand services to individuals, institutions, corporations andfoundations, with its businesses conducted through wholly-ownedoperating subsidiaries.
2. Dundee Wealth's commonshares are listed and posted for trading on the Toronto StockExchange. Dundee Wealth is a reporting issuer in each provinceof Canada.
3. CFFG is a corporation amalgamatedunder the OBCA. Ross Dixon and Hewmac are direct wholly-ownedsubsidiaries of CFFG. Ross Dixon and Hewmac are corporationsincorporated under the OBCA. Ross Dixon and Hewmac are registeredas mutual fund dealers in Ontario.
4. The authorized capitalof CFFG consists of an unlimited number of common shares.As at May 21, 2002, 8,527,329 CFFG Shares were issued andoutstanding (on a fully-diluted basis assuming the exerciseof certain stock options). The CFFG Shares are listed on theTSX Venture Exchange under the symbol "YCG".
5. CFFG is a reporting issuerin British Columbia, Alberta, Saskatchewan, Ontario, NovaScotia and Newfoundland and Labrador.
6. Neither Dundee Wealth norany person acting jointly or in concert with Dundee Wealthowns, directly or indirectly, any securities of CFFG.
7. In connection with theOffer, Dundee Wealth and CFFG entered into a letter of intentdated November 7, 2001, as amended April 19, 2002 (the "Letterof Intent").
8. Prior to May 15, 2002,Dundee and certain of the Representatives of Ross Dixon enteredinto franchise termination and retention agreements (the "RossDixon Franchise Termination and Retention Agreements"),and Dundee and certain of the Representatives of Hewmac enteredinto retention agreements (the "Hewmac Retention Agreements"and, together with the Ross Dixon Franchise Termination andRetention Agreements, the "Retention Agreements").
9. Pursuant to the terms ofthe Letter of Intent, the entering into of the Retention Agreementswith certain of the Representatives was a condition precedentto the execution of the Support Agreement (as defined in paragraph11 below). As a condition of Dundee Wealth making the Offer,Retention Agreements must be executed by certain additionalRepresentatives so that (a) Ross Dixon Franchisees servicinga specified percentage of assets under administration and(b) Hewmac Representatives servicing a specified percentageof assets under administration, have executed Retention Agreements.
10. Dundee has entered orwill enter into Retention Agreements with 44 Representatives,20 of whom are Shareholder Representatives. The ShareholderRepresentatives collectively have beneficial ownership ofapproximately 31% of the CFFG Shares, with the largest individualshareholding being 15%.
11. Dundee Wealth and CFFGentered into a support agreement (the "Support Agreement")dated as of April 29, 2002 and executed on May 14, 2002 pursuantto which Dundee Wealth agreed to make the Offer, subject tocertain conditions.
12. Concurrently with thesigning of the Support Agreement, Dundee Wealth entered intoa lock-up agreement (the "Lock-Up Agreement") withshareholders of CFFG that hold over 80% of the issued andoutstanding CFFG Shares pursuant to which such shareholdersagreed to deposit their CFFG Shares under the Offer. 8 ofthe 20 Shareholder Representatives, holding 24% of the CFFGShares, have entered into the Lock-Up Agreement.
13. On May 15, 2002, DundeeWealth issued a press release announcing its intention tomake the Offer.
14. The Offer is for an aggregateprice of $11,345,000 for all of the CFFG Shares which, basedon the current number of CFFG Shares outstanding, would resultin each CFFG shareholder receiving $1.33 cash considerationfor each CFFG Share.
15. The Offer is at a 33%premium over the closing price on March 25, 2002, the lastdate that the CFFG Shares were traded prior to Dundee Wealth'sannouncement of its intention to make the Offer.
16. Pursuant to the Ross DixonFranchise Termination and Retention Agreements, the Ross DixonFranchisees have agreed or will agree to the termination oftheir existing franchise agreements with Ross Dixon and tocontinue as representatives of the Dundee business followingthe completion of the Offer, and to certain non-competitionand non-solicitation covenants in favour of Dundee.
17. Pursuant to the HewmacRetention Agreements, the Hewmac Representatives have agreedor will agree to the termination of their existing agreementswith Hewmac and to continue as representatives of the Dundeebusiness following the completion of the Offer, and certainof the Hewmac Representatives have agreed to certain non-competitionand non-solicitation covenants in favour of Dundee.
18. As consideration for theRepresentatives agreeing to continue as representatives ofthe Dundee business following the completion of the Offerand to provide such non-competition and non-solicitation covenants,Dundee Wealth has agreed to pay to the Representatives, inthe aggregate, the following retention bonuses, conditionalupon successful completion of the Offer:
(a) the issuance of optionsto purchase up to an aggregate maximum of 175,000 commonshares of Dundee Wealth (the "Options") pursuantto the terms of the Dundee Wealth stock option plan;
(b) the issuance of up toan aggregate of 70,000 deferred common shares of DundeeWealth (the "Deferred Shares"), subject in eachcase to vesting over five years and conditional upon certainperformance criteria and the continued engagement of theRepresentatives; and
(c) the payment upon completionof the Offer of cash amounts not exceeding $460,000 in theaggregate (the "Cash Retention Bonuses") (collectively,the "Retention Bonuses").
19. The Options will be grantedat the first meeting of the board of directors of Dundee Wealthfollowing completion of the Offer. The Options (a) will begranted at the market price at the time the Options are granted;(b) will have a 10 year term; (c) will vest over five years;and (d) will be subject to all applicable regulatory approvalsand the approval of the board of directors of Dundee Wealth.
20. The Deferred Shares willbe issued over a five year period conditional upon the Representativesremaining with Dundee Wealth and certain performance criteriabeing achieved.
21. Pursuant to the termsof the Retention Agreements, the Retention Bonuses are expectedto be paid to a total of 44 Representatives. Such paymentsare conditional upon completion of the Offer.
22. The Retention Agreementswere and will be entered into for the purpose of ensuringthat the Representatives remain as representatives of theDundee business after the completion of the Offer.
23. In accordance with standardpractice in the mutual fund dealer industry, the Representativesare paid a percentage of the commissions and trailer feesgenerated by the client accounts serviced by the particularRepresentative (the "Payout Structure"). The RetentionBonuses are being paid to the Representatives in order tocompensate the Representatives for the differences betweenthe Payout Structures of Dundee and CFFG.
24. The Retention Bonuseswere determined based on an assets/revenue formula and arenot in any way related to whether or not a Representativeowns any CFFG Shares or the percentage ownership of such shares.
25. The Retention Agreementswere negotiated at arm's length, the terms are commerciallyreasonable in light of the services to be rendered by theRepresentatives following the completion of the Offer, areconsistent with industry practice and Dundee's compensationarrangements for new representatives, and are intended toprovide an incentive for the Representatives to continue tobe registered representatives of Dundee on an ongoing basisfollowing completion of the Offer.
26. Dundee Wealth would nothave agreed to make the Offer if the Representatives had notentered into the Retention Agreements.
27. With respect to the ShareholderRepresentatives, the Retention Agreements were and will beentered into for valid business reasons unrelated to the Representatives'holdings of CFFG Shares and not for the purpose of conferringan economic or collateral benefit on such Representativesthat other CFFG shareholders do not enjoy, and were enteredinto for reasons other than to increase the value of the considerationto be paid to such Representatives pursuant to the Offer.
AND WHEREAS under theAct, this Decision Document evidences the decision of the Commission;
AND WHEREAS the Commissionis satisfied that the test contained in the Act that providesthe Commission with the jurisdiction to make the Decision hasbeen met;
THE DECISION of the Commissionunder the Act is that in connection with the Offer, the RetentionAgreements are being entered into for reasons other than toincrease the value of the consideration to be paid to the Representativesfor their CFFG Shares and such Retention Agreements may be enteredinto and the Retention Bonuses may be paid despite the Prohibitionon Collateral Benefits.
June 7, 2002.
"Howard I. Wetston" "H.Lorne Morphy"