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Green Rise Capital Corporation
Headnote
Section 6.1 of NI 62-104 and section 9.1 of MI 61-101 -- Issuer bid-relief from requirements applicable to issuer bids in Part 2 of NI 62-104 and Part 3 of MI 61-101 -- issuer proposes to repurchase a specified number of its shares from certain of its shareholders as part of a settlement agreement at a discount to market price -- each of the selling shareholders is a related party of the issuer, but the repurchase is an exempt related party transaction under MI 61-101 -- selling shareholders are former officers, directors and/or shareholders of the issuer or the issuer's predecessor entity and are well informed about the issuer and the value of the subject shares -- issuer has received statements of support from disinterested shareholders in respect of the share repurchase holding a majority of the outstanding voting shares -- the independent members of the issuer's board have unanimously determined that the repurchase is in the best interests of the issuer and its shareholders (other than the selling shareholders), will not adversely affect the issuer's financial position, and will not cause the market for the issuer's common shares to be materially less liquid than the market that currently exists -- share repurchase is exempt from the requirements applicable to issuer bids in Part 2 of NI 62-104 and Part 3 of MI 61-101, subject to conditions, including that, at the time of the share repurchase, the purchase price thereunder, on a per share basis, is not greater than the market price of the issuer's shares, as determined in accordance with NI 62-104.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Part 3 and s. 9.1.
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c.S.5, AS AMENDED AND IN THE MATTER OF GREEN RISE CAPITAL CORPORATION
ORDER (Section 9.1 of Multilateral Instrument 61-101 and Section 6.1 of National Instrument 62-104)
UPON the application (the "Application") of Green Rise Capital Corporation (the "Issuer") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") and section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") exempting the Issuer from the requirements applicable to issuer bids in Part 2 of NI 62-104 and Part 3 of MI 61-101 (the "Issuer Bid Requirements") in respect of the proposed purchase by the Issuer of an aggregate of 14,974,133 common shares of the Issuer (the "Subject Shares") owned by Galifi Inc. ("Galifi Holdco"), 851393 Ontario Ltd. ("Tatomir Holdco"), and 2626547 Ontario Limited ("Linnell Holdco", and together with Galifi Holdco and Tatomir Holdco, the "Selling Shareholders");
AND UPON considering the Application and the recommendation of Staff of the Commission;
AND UPON the Issuer having represented to the Commission that:
1. The Issuer is a corporation existing under the Business Corporations Act (Ontario) (the "OBCA") and is in good standing.
2. The head and registered office of the Issuer is located at 47 Colborne Street, Suite 301, Toronto, Ontario, M5E 1P8.
3. The Issuer is a reporting issuer in the Provinces of Ontario, British Columbia and Alberta, and is not in default of any requirement of the securities legislation in the jurisdictions in which it is a reporting issuer.
4. The authorized share capital of the Issuer consists of an unlimited number of common shares (the "Common Shares"). As of August 6, 2020, there were 59,896,535 Common Shares issued and outstanding. The Common Shares are listed for trading on the TSX Venture Exchange (the "TSXV") under the symbol "GRF".
5. The Issuer was a capital pool company incorporated for the purpose of effecting a qualifying transaction under the policies of the TSXV.
6. On September 30, 2019, the Issuer announced the closing of a reverse takeover with Bull Market Farms Inc. ("Bull Market") pursuant to a definitive agreement (the "Acquisition Agreement") dated March 1, 2019 and amended June 7, 2019, August 2, 2019 and September 30, 2019, that constituted its qualifying transaction (the "Qualifying Transaction").
7. In connection with the Qualifying Transaction, the Issuer:
(a) issued 30,000,000 Common Shares at a price of $0.20 per share to Bull Market shareholders in consideration for the acquisition of Bull Market; and
(b) completed a non-brokered private placement of 18,343,000 subscription receipts (each, a "Subscription Receipt") at a price of $0.20 per Subscription Receipt on August 20, 2019, which Subscription Receipts automatically converted into 18,343,000 Common Shares upon the closing of the Qualifying Transaction (the "Private Placement").
8. The Selling Shareholders are holding companies controlled by individuals who were directors and shareholders of Bull Market prior to the Qualifying Transaction. As a result of the Qualifying Transaction and pursuant to the Acquisition Agreement, the Selling Shareholders exchanged their common shares in Bull Market for an aggregate of 26,210,527 Common Shares, representing approximately 43.7% of the issued and outstanding Common Shares as of August 6, 2020, which are held as follows:
(a) Galifi Holdco, which is controlled by Vito Galifi, holds 12,631,579 Common Shares, representing approximately 21.1% of the issued and outstanding Common Shares;
(b) Tatomir Holdco, which is controlled by Matthew Tatomir, holds 7,263,159 Common Shares, representing approximately 12.1% of the issued and outstanding Common Shares; and
(c) Linnell Holdco, which is controlled by Scott Linnell, holds 6,315,789 Common Shares, representing approximately 10.5% of the issued and outstanding Common Shares.
9. Galifi Holdco is a company existing under the OBCA and is in good standing. Galifi Holdco has its registered office at 2835 California Avenue, Windsor, Ontario, N9E 3K3. Galifi Holdco is not a reporting issuer in any jurisdiction.
10. Tatomir Holdco is a company existing under the OBCA and is in good standing. Tatomir Holdco has its registered office at 21 Beniuk Court, Leamington, Ontario, N8H 5K9. Tatomir Holdco is not a reporting issuer in any jurisdiction.
11. Linnell Holdco is a company existing under the OBCA and is in good standing. Linnell Holdco has its registered office at 1145 Deerview Crescent, LaSalle, Ontario, N9J 0A7. Linnell Holdco is not a reporting issuer in any jurisdiction.
12. Under the terms of the Acquisition Agreement, the Issuer agreed to use commercially reasonable efforts to nominate Messrs. Galifi, Tatomir, and Linnell for election to the Issuer's board of directors (the "Board") at the Issuer's 2020 annual and general meeting of shareholders held on July 8, 2020 (the "Meeting").
13. At the Meeting, notwithstanding the nomination by the Board of Messrs. Galifi, Tatomir, and Linnell for election to the Board, Messrs. Galifi, Tatomir, and Linnell, as well as a fourth nominee of the Issuer, failed to win election to the Board as a result of nominations for election to the Board submitted at the Meeting of four individuals not named in the Issuer's management information circular (the "Floor Nominees").
14. Each of the Floor Nominees received votes in favour of their election from proxyholders holding proxies representing greater than a majority of the outstanding Common Shares, including Common Shares held by former shareholders of Bull Market who had received Common Shares in connection with the Qualifying Transaction. As a result, none of Messrs. Galifi, Tatomir, or Linnell were elected to the Board at the Meeting.
15. On July 10, 2020, the Issuer terminated the employment of Messrs. Tatomir and Linnell as employees of the Issuer and Bull Market.
16. Following the Meeting, the Selling Shareholders and Messrs. Galifi, Tatomir, and Linnell asserted certain claims of breach of the Acquisition Agreement and oppression against the Issuer. The Issuer has also asserted certain claims against the Selling Shareholders in connection with the Acquisition Agreement.
17. On July 23, 2020, the Issuer executed a settlement and mutual release agreement (the "Settlement Agreement") with the Selling Shareholders, pursuant to which, subject to certain conditions:
(a) the Selling Shareholders agreed to sell all of the Common Shares held by them at a price of $0.11 per Common Share (the "Purchase Price"); and
(b) the Issuer, Bull Market, each of the Selling Shareholders, Vito Galifi, Matthew Tatomir and Scott Linnell agreed to certain mutual releases.
18. Under the terms of the Settlement Agreement, the Issuer has agreed to repurchase the Subject Shares for cancellation (the "Share Repurchase"), with the other 11,236,394 Common Shares held by the Selling Shareholders but not purchased by the Issuer (the "Remaining Shares") being purchased by other parties at the Purchase Price.
19. As of August 6, 2020, the Subject Shares represented approximately 25.00% of the issued and outstanding Common Shares. Assuming completion of the Share Repurchase and the cancellation of the Subject Shares, the Issuer would have 44,896,535 Common Shares issued and outstanding.
20. The Share Repurchase forming part of the Settlement Agreement constitutes an "issuer bid" for the purposes of NI 62-104 and MI 61-101, to which the Issuer Bid Requirements would apply.
21. Section 4.7 of NI 62-104 provides an exemption from the Issuer Bid Requirements where the securities are acquired from a current or former employee, executive officer, director or consultant of the issuer or of an affiliate of the issuer and, if there is a published market in respect of the securities provided that (a) the value of the consideration paid for any of the securities acquired is not greater than the market price of the securities at the date of the acquisition, and (b) the aggregate number of securities acquired by the issuer within any period of 12 months in reliance on this exemption does not exceed 5% of the securities of the class outstanding at the beginning of the 12 month period (the "Section 4.7 Exemption").
22. As of August 6, 2020, the Issuer has not purchased any Common Shares in reliance on the Section 4.7 Exemption. The Share Repurchase cannot be made in reliance upon the Section 4.7 Exemption as the Subject Shares represent greater than 5% of the Common Shares outstanding.
23. The Subject Shares will be purchased by the Issuer for cancellation at the Purchase Price per Common Share, which represents:
(a) an approximate 31.3% discount to the $0.16 per Common Share closing price on July 23, 2020, being the date on which the Settlement Agreement was entered into;
(b) a 45% discount to the price at which Common Shares were issued pursuant to the Private Placement and the Qualifying Transaction, being $0.20 per Common Share;
(c) an approximate 43.6% discount to the market price of $0.195 per Common Share (as determined in accordance with NI 62-104) as of July 23, 2020; and
(d) a 50% discount to the market price of $0.22 per Common Share as of the relevant time for the purposes of the market capitalization calculation in MI 61-101.
24. The Board has determined that the market for the Common Shares will not be materially less liquid than the market that currently exists for the Common Shares following the Share Repurchase. The Share Repurchase will have no impact on the liquidity of the Common Shares and the ability of holders of Common Shares (the "Shareholders") to trade in Common Shares because
(i) all of the Subject Shares are held by insiders of the Issuer and are accordingly excluded from the Issuer's public float;
(ii) the Common Shares owned by the Selling Shareholders are subject to the escrow agreement dated September 30, 2019, between the Issuer, TSX Trust Company and certain shareholders of the Issuer (the "Escrow Agreement"), with 25% of such Common Shares having been released from escrow (such released shares, the "Released Shares") in accordance with the terms of the Escrow Agreement; and
(iii) the Released Shares will continue to be freely tradeable and will not be subject to escrow conditions.
25. Each of the Selling Shareholders is a "related party" of the Issuer and the Share Repurchase is a "related party transaction" for the purposes of MI 61-101.
26. Paragraph 5.5(b) of MI 61-101 (the "Specified Markets Exemption") exempts related party transactions from the formal valuation requirement if no securities of the issuer are listed or quoted on the Toronto Stock Exchange, Aequitas NEO Exchange Inc., the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada and the United States other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc. The Issuer is able to satisfy the Specified Markets Exemption and is relying on same in respect of the Share Repurchase.
27. Paragraph 5.7(1)(a) of MI 61-101 (the "25% Market Cap Exemption") exempts related party transactions from the minority approval requirement 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, insofar as it involves interested parties, exceeds 25% of the issuer's market capitalization. The Share Repurchase is able to satisfy the conditions of the 25% Market Cap Exemption and accordingly, the Issuer is relying on same in respect of the Share Repurchase.
28. The members of the Board are independent directors within the meaning of MI 61-101 and they have unanimously determined, acting in good faith, that:
(a) the Settlement Agreement and the Share Repurchase are in the best interests of the Issuer and its shareholders (other than the Selling Shareholders);
(b) the agreement of the Selling Shareholders to sell, and the repurchase by the Issuer of, the Subject Shares for the Purchase Price, on a per share basis, constitutes a valuable opportunity for the Issuer in consideration for the Issuer's settlement of its claims against the Selling Shareholders;
(c) the terms of the Settlement Agreement and the Share Repurchase are reasonable;
(d) the Share Repurchase will not materially affect control of the Issuer; and
(e) the Share Repurchase will not adversely affect the financial position of the Issuer and, upon cancellation, is expected to increase the value of the equity ownership positions of its other shareholders, including by increasing the per Common Share book value to $0.145 from the March 31, 2020 value of $0.136.
29. The Share Repurchase is an integral part of the Settlement Agreement. The terms of the Settlement Agreement were negotiated at arm's length with the Selling Shareholders and were not agreed to in order to give preferential treatment to the Selling Shareholders, either collectively or individually, or to provide a method for the Issuer to purchase the Subject Shares, but rather to facilitate the settlement of disputes and claims between the Selling Shareholders, the Issuer and the other parties to the Settlement Agreement, for the benefit of the Issuer and its shareholders.
30. As a result of the fact that no Shareholders other than the Selling Shareholders are parties to the Settlement Agreement, it is impossible for the Issuer to offer to acquire Common Shares from all Shareholders on the same terms and conditions as those contemplated by the Settlement Agreement.
31. Shareholders not offered the opportunity to sell their Common Shares to the Issuer as part of the Share Repurchase are otherwise entitled to sell their Common Shares into the market.
32. As former directors and shareholders of Bull Market prior to the Qualifying Transaction, and in the case of Messrs. Tatomir and Linnell, officers and directors of the Issuer prior to July 8, 2020, the Selling Shareholders are well informed about the Issuer and the value of the Subject Shares and do not require the protections of the Issuer Bid Requirements.
33. On July 27, 2020, the Issuer issued a press release (the "July 27 Press Release") announcing the Settlement Agreement and the intention of the Issuer to complete the Share Repurchase and cancel the Subject Shares, subject to the receipt of exemptive relief from the Issuer Bid Requirements from the Commission and the TSXV Approval (as defined below).
34. The Issuer has applied to the TSXV for approval to complete the Share Repurchase and to transfer the Remaining Shares, as required pursuant to the policies of the TSXV and the terms of the Escrow Agreement (the "TSXV Approval"). The Issuer expects to receive the TSXV Approval shortly following the issuance of this Order.
35. Other than the exemption from the Issuer Bid Requirements and the TSXV Approval, all third-party consents and approvals required by any of the Issuer or the Selling Shareholders in connection with the Settlement Agreement (including the Share Repurchase) have been obtained and have not been revoked.
36. Subsequent to the issuance of the July 27 Press Release:
(a) the Board received statements of support from holders of 55.7% of the outstanding Common Shares not owned by the Selling Shareholders indicating that they were supportive of the Share Repurchase;
(b) the Issuer has not received any complaints or expressions of concern about the Share Repurchase; and
(c) the closing price of the Common Shares on the TSXV has remained above the Purchase Price on a per share basis.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 6.1 of NI 62-104 and section 9.1 of MI 61-101 that the Issuer be exempt from the Issuer Bid Requirements in connection with the Share Repurchase, provided that:
(a) at the time of the closing of the Share Repurchase, the Board remains of the view that the Settlement Agreement is in the best interests of the Issuer and its Shareholders (other than the Selling Shareholders) and that the terms of the Settlement Agreement are reasonable;
(b) the Purchase Price, on a per share basis, is not greater than the market price (determined in accordance with NI 62-104) of the Common Shares;
(c) prior to closing of the Share Repurchase, the Issuer issues and files a press release on SEDAR disclosing that the Issuer has been granted exemptive relief from the Issuer Bid Requirements in connection with the Share Repurchase;
(d) at the time of the closing of the Share Repurchase, all third-party consents and approvals required by any of the Issuer or Selling Shareholders in connection with the Settlement Agreement (including the Share Repurchase) have been obtained and have not been revoked;
(e) there are no approvals required in respect of the Settlement Agreement (including the Share Repurchase) that must be obtained at a meeting of Shareholders; and
(f) the Subject Shares be included as Common Shares acquired by the Issuer in reliance on the Section 4.7 Exemption.
DATED at Toronto this 19th day of August, 2020.
"Jason Koskela"
Manager, Office of Mergers & Acquisitions
Ontario Securities Commission