Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Issuer bid -- Modified Dutch auction -- Application for relief from the requirement to take up and pay for shares on a pro rata basis and the related disclosure requirements for the issuer bid circular (section 2.26 of National Instrument 62-104 Take-Over Bids and Issuer Bidsand item 8 of Form 62-104F2) -- Application for relief from the requirement to take up all securities deposited under the issuer bid and not withdrawn if all the terms and conditions of the Offer have been complied with or waived unless and the Offer is under subscribed (subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids) -- requested relief granted, subject to conditions.

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids and Issuer Bids, ss. 2.26, 2.32(4), 6.1.

Form 62 104F2, Item 8.

November 15, 2018

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF HOME CAPITAL GROUP INC. (the "Filer")

DECISION

Background

The principal regulator in the Jurisdiction (the "Principal Regulator") has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") that, in connection with the proposed purchase by the Filer of a portion of its issued and outstanding common shares (the "Shares") pursuant to a formal issuer bid (the "Offer"), the Filer be exempt, subject to the conditions set forth herein, from the following requirements in the Legislation (the "Exemption Sought"):

(a) the requirement in Section 2.26 of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") to take up and pay for Shares deposited pursuant to the Offer proportionately according to the number of Shares deposited by each shareholder (the "Proportionate Take Up Requirement");

(b) the requirement in Item 8 of Form 62-104F2 to NI 62-104 to provide disclosure of the proportionate take up and payment of Shares under the Offer in the Filer's issuer bid circular (the "Circular") (the "Proportionate Take Up Disclosure Requirement"); and

(c) the requirement in subsection 2.32(4) of NI 62-104 that the Offer not be extended if all of the terms and conditions of the Offer have been complied with or waived unless the Filer first takes up all Shares deposited under the Offer and not withdrawn (the "Extension Take Up Requirement").

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 subsection 4.7(1) of Multilateral Instrument 11 102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Yukon and Nunavut.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

Representations

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

1. The Filer is a corporation governed by the Business Corporations Act (Ontario).

2. The head office and registered office of the Filer is located at 145 King Street West, Suite 2300, Toronto, Ontario, M5H 1J8.

3. The Filer is a reporting issuer in each of the provinces and territories of Canada and the Shares are listed for trading on the Toronto Stock Exchange (the "TSX") under the symbol "HCG". The Filer is not in default of any requirement of the securities legislation in any of the jurisdictions in which it is a reporting issuer.

4. The Filer's authorized share capital consists of an unlimited number of Shares, an unlimited number of senior preferred shares, and an unlimited number of junior preferred shares, of which 80,246,349 Shares were issued and outstanding as of November 6, 2018. No senior preferred shares or junior preferred shares were issued and outstanding as of November 6, 2018.

5. On November 6, 2018, the closing price of the Shares on the TSX was C$14.08. On the basis of this closing price, on such date the Shares had an aggregate market value of approximately C$1.13 billion.

6. To the knowledge of the Filer, as at November 6, 2018, Columbia Insurance Company, a wholly owned subsidiary of Berkshire Hathaway Inc. ("Berkshire"), owned 16,044,580 Shares, which in the aggregate represented approximately 19.99% of the issued and outstanding Shares and Turtle Creek Asset Management Inc. ("Turtle Creek") controlled 14,249,487 Shares, which in the aggregate represented approximately 17.76% of the issued and outstanding Shares.

7. The Filer launched the Offer on November 12, 2018 pursuant to which it is offering to purchase a number of Shares having an aggregate purchase price not to exceed $300,000,000 (the "Specified Maximum Dollar Amount").

8. The purchase price per Share will be determined by the Filer through a modified "Dutch auction" procedure in the manner described below within a range of not less than $16.50 and not more than $18.50 per Share (the "Price Range"), as specified in the Circular.

9. The Filer will fund the purchase of Shares pursuant to the Offer, together with the fees and expenses of the Offer, from cash on hand. The Offer is not conditional upon the receipt of financing.

10. A holder of Shares (a "Shareholder", and collectively, the "Shareholders") wishing to tender to the Offer is able to do so in one of three ways:

(a) by making an auction tender pursuant to which it agrees to sell to the Filer, at a specified price per Share within the Price Range (an "Auction Price"), a specified number of Shares (an "Auction Tender");

(b) by making a purchase price tender pursuant to which it agrees to sell a specified number of Shares to the Filer at the Purchase Price (as defined below) (a "Purchase Price Tender"); or

(c) by making a proportionate tender pursuant to which it agrees to sell to the Filer that number of Shares owned by it that will result in it maintaining its proportionate equity ownership in the Filer following the completion of the Offer at the Purchase Price (a "Proportionate Tender").

11. Shareholders may deposit some of their Shares pursuant to an Auction Tender and deposit different Shares pursuant to a Purchase Price Tender. Shareholders who make an Auction Tender and/or a Purchase Price Tender cannot make a Proportionate Tender. Shareholders may not deposit the same Shares pursuant to more than one method of tender or pursuant to an Auction Tender at more than one price. Shareholders who make a Proportionate Tender may not make an Auction Tender or a Purchase Price Tender.

12. Any Shareholder who owns fewer than 100 Shares and tenders all of such Shareholder's Shares pursuant to an Auction Tender at an Auction Price at or below the Purchase Price, or pursuant to a Purchase Price Tender, will be considered to have made an "Odd Lot Tender".

13. The Filer will determine the purchase price payable per Share (the "Purchase Price") based on the Auction Prices and the number of Shares specified in valid Auction Tenders and Purchase Price Tenders (considered for purposes of determining the Purchase Price to have been tendered at the minimum price per Share offered). The Purchase Price will be the lowest price that enables the Filer to purchase that number of Shares tendered pursuant to valid Auction Tenders and Purchase Price Tenders having an aggregate Purchase Price not to exceed an amount (the "Auction Tender Limit Amount") equal to (i) the Specified Maximum Dollar Amount less (ii) the product of (A) the Specified Maximum Dollar Amount and (B) a fraction, the numerator of which is the aggregate number of Shares owned by Shareholders making valid Proportionate Tenders, and the denominator of which is the aggregate number of Shares outstanding at the time of expiry of the Offer.

14. If the aggregate Purchase Price for Shares validly tendered pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders is less than or equal to the Auction Tender Limit Amount, the Filer will purchase at the Purchase Price all Shares so deposited pursuant to Auction Tenders at or below the Purchase Price and Purchase Price Tenders.

15. If the aggregate Purchase Price for Shares validly tendered pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders is greater than the Auction Tender Limit Amount, the Filer will purchase a portion of such Shares determined as follows: (i) the Filer will purchase all such Shares tendered by Shareholders pursuant to Odd Lot Tenders; and (ii) the Filer will purchase on a pro-rata basis that portion of such Shares having an aggregate Purchase Price, based on the Purchase Price, equal to (A) the Auction Tender Limit Amount, less (B) the aggregate amount paid by the Filer for Shares tendered pursuant to Odd Lot Tenders, in each of the cases set forth in clauses (i) and (ii) of this paragraph, at the Purchase Price.

16. The Filer will purchase at the Purchase Price that portion of the Shares owned by Shareholders making valid Proportionate Tenders that results in the tendering Shareholders maintaining their proportionate equity ownership in the Filer following completion of the Offer.

17. The number of Shares that the Filer will purchase pursuant to the Offer and the aggregate Purchase Price will vary depending on whether the aggregate Purchase Price payable in respect of Shares required to be purchased pursuant to Auction Tenders (at or below the Purchase Price) and Purchase Price Tenders (the "Aggregate Tender Purchase Amount") is equal to or less than the Auction Tender Limit Amount. If the Aggregate Tender Purchase Amount is equal to the Auction Tender Limit Amount, the Filer will purchase Shares pursuant to the Offer for an aggregate Purchase Price equal to the Specified Maximum Dollar Amount; if the Aggregate Tender Purchase Amount is less than the Auction Tender Limit Amount, the Filer will purchase proportionately fewer Shares in the aggregate, with a proportionately lower aggregate Purchase Price.

18. The Filer has not received any indication from Berkshire or Turtle Creek that they intend to participate in the Offer.

19. All Shares purchased by the Filer pursuant to the Offer (including Shares tendered at Auction Prices at or below the Purchase Price) will be purchased at the Purchase Price. Shareholders will receive the Purchase Price in cash. All Auction Tenders, Purchase Price Tenders and Proportionate Tenders will be subject to adjustment to avoid the purchase of fractional Shares. All payments to Shareholders will be subject to deduction of applicable withholding taxes.

20. All Shares tendered to the Offer and not taken up will be returned to the appropriate Shareholders.

21. The Offer is subject to the provisions of the United States regulation entitled Regulation 14E adopted under the United States Exchange Act of 1934 ("Regulation 14E").

22. Until expiry of the Offer, all information about the number of Shares tendered and the prices at which the Shares are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.

23. Shareholders who do not accept the Offer will continue to hold the same number of Shares owned before the Offer and their proportionate Share ownership will increase following completion of the Offer.

24. The Filer may elect to extend the Offer without first taking up all of the Shares deposited and not withdrawn under the Offer if the aggregate Purchase Price for Shares validly tendered pursuant to Auction Tenders and Purchase Price Tenders is less than the Auction Tender Limit Amount. Under the Extension Take Up Requirement contained in Section 2.32 of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all the securities deposited and not withdrawn under the issuer bid. Under Regulation 14E, the Filer must promptly pay for all securities deposited pursuant to the Offer at the time of expiry of the Offer. Regulation 14E does not allow the Filer to extend the Offer after having taken up and paid for securities deposited pursuant to the Offer.

25. The Filer is relying on the exemption from the formal valuation requirements applicable to issuer bids under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") set out in subsection 3.4(b) of MI 61-101 (the "Liquid Market Exemption").

26. There was a "liquid market" for the Shares, as such term is defined in MI 61-101, as of the date of the making of the Offer because:

(a) there was a published market for the Shares (i.e. the TSX); and

(b) an opinion was provided to the Filer in accordance with section 1.2 of MI 61-101 confirming that a liquid market existed for the Shares as of the date of the making of the Offer and such opinion is included in the Circular (the "Liquidity Opinion").

27. Based on the maximum number of Shares that may be purchased under the Offer, the Liquidity Opinion also provides that as of the date of the Offer it was reasonable for the Filer's board of directors to conclude that, following the completion of the Offer in accordance with its terms, there will be a market for Shareholders who do not tender their Shares pursuant to the Offer that is not materially less "liquid", as such term is defined in MI 61-101, than the market that existed at the time of the making of the Offer. Based on the liquid market test set out above and the Liquidity Opinion, the Filer determined that it is reasonable to conclude that, following the completion of the Offer, there will be a market for Shareholders who do not tender their Shares pursuant to the Offer that is not materially less "liquid" than the market that existed at the time of the making of the Offer.

28. The board of directors of the Filer determined that the Offer is in the best interests of the Filer.

29. The Filer has disclosed the following information relating to the Offer in the Circular:

(a) the mechanics for the take up of and payment for Shares as described herein;

(b) that, by tendering Shares at the lowest price in the Price Range under an Auction Tender or by tendering Shares under a Purchase Price Tender or a Proportionate Tender, a Shareholder can reasonably expect that the Shares so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;

(c) that the Filer has applied for an exemption from the Proportionate Take Up Requirement, the Proportionate Take Up Disclosure Requirement and the Extension Take Up Requirement;

(d) the manner in which an extension of the Offer will be communicated to Shareholders;

(e) that Shares deposited pursuant to the Offer may be withdrawn at any time prior to the Shares being taken up by the Filer;

(f) the name of each Shareholder that has advised the Filer prior to the commencement of the Offer that it intends to make a Proportionate Tender;

(g) the facts supporting the Filer's reliance on the Liquid Market Exemption, including the Liquidity Opinion; and

(h) except to the extent exemptive relief is granted further to this application, the disclosure prescribed by applicable securities laws for issuer bids.

Decision

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 Filer takes up and pays for Shares deposited pursuant to the Offer and not withdrawn, in each case in the manner described above;

(b) the Filer is eligible to rely on the Liquid Market Exemption; and

(c) the Filer complies with the requirements of Regulation 14E.

"Naizam Kanji"
Director, Office of Mergers & AcquisitionsOntario Securities Commission