Torstar Corporation - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- The issuer established a reinvestment plan which allows certain holders of Class A voting shares or Class B non-voting shares to acquire Class B non-voting shares through the reinvestment of cash dividends paid on their respective shareholdings. The exemption in section 2.2 of National Instrument 45-106 Prospectus and Registration Exemptions is unavailable for the reinvestment of dividends on the Class A voting shares in Class B non-voting shares as the exemption only refers to the purchase of securities that are of the same class or series as the securities to which the dividends are attributable. Trades in Class B non-voting shares under the plan by the issuer or a plan agent to plan participants who are purchasing the Class B non-voting shares using dividends paid in respect of their Class A voting shares are exempted from the dealer registration requirement and the prospectus requirement, subject to conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., sections 25, 53 and 74

Instruments Cited

National Instrument 45-106 Prospectus and Registration Exemptions, section 2.2

December 21, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND THE YUKON TERRITORY

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TORSTAR CORPORATION (the "Filer")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Makers") in each of the Jurisdictions has received an application from the Filer, under the securities legislation of the Jurisdictions (the "Legislation"), for the following decisions in respect of certain trades that may be made by the Filer, or by a trustee, custodian or administrator acting for or on behalf of the Filer, (a "Plan Agent"), pursuant to the Filer's Standing Terms of Dividend Declaration dated October 27, 1982, as amended on April 27, 1988, August 25, 1993 and February 27, 1996 (the "Plan"), that are related to the acquisition of Class B non-voting shares of the Filer ("Class B Shares") by persons or companies ("Plan Participants") that participate in the Plan:

A decision (the "Registration Acquisition Relief") that the dealer registration requirement does not apply to:

(a) trades in Class B Shares made by the Filer, or by a Plan Agent, to a Plan Participant, in connection with the purchase of the Class B Shares by the Plan Participant under the Plan, using dividends or distributions out of earnings, surplus, capital or other sources, payable in respect of Class A voting shares of the Filer ("Class A Shares") that are held by the Plan Participant under the Plan, to purchase the Class B Shares; or

(b) should the Plan be amended to so permit at a future date, trades in Class B Shares made by the Filer, or a Plan Agent, to a Plan Participant, in connection with the purchase of the Class B Shares by the Plan Participant under the Plan, using an optional cash payment under the Plan ("Optional Cash Payment") to purchase the Class B Shares, where the Plan Participant holds Class A Shares, but not Class B Shares, under the Plan.

A decision (the "Prospectus Acquisition Relief") that the prospectus requirement does not apply to a distribution of Class B Shares in the circumstances referred to in paragraph (a) or (b), above.

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission has been chosen as the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a Canadian media company with primary interests in the newspaper and book publishing industries and their related Internet activities.

2. The Filer's registered and principal office is located at One Yonge Street, 6th Floor, Toronto, Ontario M5E 1P9.

3. The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland (the "Reporting Jurisdictions") and is not on the list of reporting issuers in default in any of the Reporting Jurisdictions where such lists are maintained.

4. The Filer's original predecessor was incorporated on February 6, 1958 under the predecessor legislation of the Business Corporations Act (Ontario) to acquire as a going concern the assets and liabilities of the Toronto Daily Star, first published in 1892. The Filer's original predecessor was then amalgamated with a related company on April 1, 1967 resulting in the existence of the Filer.

5. The Filer's material subsidiaries are Toronto Star Newspapers Limited, Harlequin Enterprises Limited, Metroland Printing, Publishing & Distributing Ltd. and CityMedia Group Inc. All of the remaining subsidiaries of the Filer, in the aggregate, represent less than 20% of the Filer's total consolidated assets and total consolidated sales and operating revenues.

6. The authorized share capital of the Filer consists of an unlimited number of Class A Shares, an unlimited number of Class B Shares and 15,000,000 First Preference shares.

7. The Filer's Class B Shares have been listed on the Toronto Stock Exchange since 1970, and currently trade under the symbol "TS.NV.B".

8. As at December 31, 2004, there were 9,918,475 Class A Shares, 68,533,752 Class B Shares, unexercised options to purchase 4,936,962 Class B Shares and no First Preference shares issued and outstanding.

9. The holders of Class A Shares are entitled to one vote for each Class A Share held, at any meeting of shareholders of the Filer. Each Class A Share is convertible at any time at the option of the holder into one Class B Share. Each Class A Share entitles the holder, subject to the rights of the First Preference shares and Class B Shares, to receive any dividend on such share and, subject to the rights of holders of First Preference shares, to participate equally, on a share for share basis, with all other holders of Class A Shares and Class B Shares, in the remaining property and assets of the Filer on liquidation, dissolution or winding-up of the Filer.

10. The holders of the Class B Shares are generally not entitled to vote at any meeting of the shareholders of the Filer; provided that, if at any time the Filer has failed to pay the full quarterly preferential dividend on the Class B Shares in each of eight consecutive quarters, then and until the Filer has paid full quarterly preferential dividends (7.5 cents per annum) on the Class B Shares for eight consecutive quarters, the holders of the Class B Shares are entitled to vote at all meetings of the shareholders at which directors are to be elected on the basis of one vote for each Class B Share held. To date, the Filer has paid in full all quarterly preferential dividends on the Class B Shares.

11. Holders of Class B Shares are entitled to vote at all class meetings of holders of Class B Shares. Each Class B non-voting share entitles the holder, subject to the rights of holders of First Preference shares, to the full preferential dividend described above and to receive any further dividend on such share and to participate equally, on a share for share basis, with all other holders of Class B Shares and Class A Shares, in the remaining property and assets of the Filer on liquidation, dissolution or winding-up of the Filer.

12. In 1988, the Toronto Stock Exchange approved a plan to protect the holders of the Class B Shares in the event of a take-over bid for Class A shares. Generally, the result of the plan is that parties to The Torstar Voting Trust Agreement, as amended, restated, consolidated, continued and dated as of October 1, 1992 (a copy of which has been filed on SEDAR), currently owners of approximately 98% of all outstanding Class A Shares, have undertaken to CIBC Mellon Trust Company as Trustee for all holders of Class B Shares that, subject to certain exemptions, they will not dispose of their Class A Shares pursuant to a take-over bid, unless the same offer is made to all holders of Class B Shares.

13. The Filer's articles restrict the holding or ownership of its voting shares (currently only the Class A Shares) by non-Canadians in order to ensure that the Filer complies with applicable Canadian ownership requirements under the Broadcasting Act (Canada) (the "Broadcasting Act") and the Income Tax Act (Canada) (the "Income Tax Act") so that the ability of the Filer or any subsidiary to obtain, maintain, amend or renew a license to operate a Broadcasting Undertaking (as defined in the Broadcasting Act) and its status as a Canadian newspaper or periodical publisher (as defined in the Income Tax Act) is preserved.

14. The Board of Directors currently has the authority to restrict the registration of the transfer of any of the Filer's shares if such transfer would, in the opinion of the directors, jeopardize either the ability of the Filer or any subsidiary to obtain, maintain, amend or renew a license to operate a Broadcasting Undertaking (as defined in the Broadcasting Act) or its status as a Canadian newspaper or periodical publisher (as defined in the Income Tax Act). Under the Filer's articles, the directors may require a declaration setting forth the transferee's citizenship, the jurisdiction of incorporation or any other evidence as the directors may reasonably require be submitted to ensure that the transfer of shares does not jeopardize the foregoing.

15. It is not currently necessary for the Filer to enforce such restrictions because approximately 98% of the Filer's voting shares are held by Canadians, which is in compliance with the current Canadian ownership levels required by the Regulations under the Broadcasting Act and the Income Tax Act.

16. While the number of authorized Class A Shares is unlimited, the issuance of further Class A Shares, may under certain circumstances, require unanimous board approval.

17. Decisions on the declaration and payment of dividends are made on a quarterly basis by the Board of Directors, based upon the Filer's overall financial performance and cash flow generation. Effective with the March 31, 2005 dividend payment, the current quarterly dividend amount has been set at $0.185 per Class A Share and Class B Share. Although the Filer has no current intention of changing its dividend policy, it may amend the amount or timing of such dividends at any time in the future. The Filer's latest dividend was paid on September 30, 2005 to shareholders of record on September 9, 2005.

18. Pursuant to the articles of the Filer (as described within paragraph 9 of such articles, dealing with matters relevant to the Plan), the Board of Directors has the discretion to offer Canadian residents who are holders of Class A Shares or Class B Shares, with respect to any dividend which may become payable with respect to such Class A Shares or Class B Shares, the right to elect to receive part or all of such dividend in the form of Class B Shares.

19. Through the creation of the Plan, the Board of Directors has therefore exercised the discretion provided to it within the articles of the Filer to offer eligible shareholders with an option to reinvest any dividends, or part thereof, that may become payable with respect to Class A Shares or Class B Shares held by such shareholders.

20. Participation in the plan by otherwise eligible shareholders is not mandatory or automatic. Eligible shareholders who wish to reinvest their dividend payments, or part thereof, pursuant to the Plan must make their election to do so known to the Filer.

21. Although the Plan does not presently provide for the use of a Plan Agent and provides that Class B Shares to be delivered to Plan Participants under the Plan are to be issued from treasury by the Filer, the Filer does have the right to unilaterally amend the Plan at any time which could provide, among other things, for the engagement of a Plan Agent or the acquisition of Class B Shares on the open market by either the Filer or a Plan Agent.

Decision

Each of the Decision Makers is satisfied that the tests contained in the Legislation that provides the Decision Maker with the jurisdiction to make these decisions has been met.

The decision of the Decision Makers under the Legislation is that the Registration Acquisition Relief and Prospectus Acquisition Relief are granted, provided that:

(1) in the case of the Registration Acquisition Relief,

1. at the time of the trade, the Plan is made available to every security holder in Canada to which the corresponding dividend or distribution is available;

2. at the time of the trade, the Filer is not an investment fund;

3. for each Jurisdiction, this decision will terminate on the earlier of:

(i) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the Legislation of the Jurisdiction that amends section 2.2 of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") or provides an alternative exemption;

(ii) December 31, 2008; and

4. for any trade that relates to the purchase of Class B Shares pursuant to an Optional Cash Payment,

(i) at the time of the trade, the Class B Shares trade on a marketplace; and

(ii) the aggregate number of securities issued under any Optional Cash Payment under the Plan (whether or not under this Decision) must not exceed, in any financial year of the Filer during which the trade takes place, 2% of the issued and outstanding securities of the class to which the Plan relates as at the beginning of the financial year; and

(2) in the case of the Prospectus Acquisition Relief,

(a) at the time of the trade, the Plan is made available to every security holder in Canada to which the corresponding dividend or distribution is available;

(b) at the time of the trade, the Filer is not an investment fund;

(c) the first trade in any Class B Shares issued by the Filer under the Plan to holders of Class A Shares pursuant to this decision will be a distribution or primary distribution to the public unless the conditions set out in subsection 2.6(3) of National Instrument 45-102 Resale of Securities are satisfied;

(d) for any trade that relates to the purchase of Class B Shares pursuant to an Optional Cash Payment,

(i) at the time of the trade, the Class B Shares trade on a marketplace; and

(ii) the aggregate number of securities issued under any Optional Cash Payment under the Plan (whether or not under this Decision) must not exceed, in any financial year of the Filer during which the trade takes place, 2% of the issued and outstanding securities of the class to which the Plan relates as at the beginning of the financial year; and

(e) for each Jurisdiction, this decision will terminate on the earlier of:

(i) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the Legislation of the Jurisdiction that amends section 2.2 of NI 45-106 or provides an alternate exemption; and

(ii) December 31, 2008.

"Paul M. Moore, Q.C."
Vice-Chair
Ontario Securities Commission
 
"Susan Wolburgh Jenah"
Vice-Chair
Ontario Securities Commission