March 4, 2005
In The Matter of The Securities Legislation of Saskatchewan and Manitoba (the "Jurisdictions")
and
In The Matter of The Mutual Reliance Review System for Exemptive Relief Applications
and
In The Matter Of Mainline Terminal Ltd. ("Mainline"), Cargill Limited ("Cargill") and Parrish & Heimbecker, Limited ("P&H") (Collectively the "Filers")
MRRS Decision Document
Background
The local securities authority or regulator
(the "Decision Makers") in each of the Jurisdictions has received
an application from Mainline, Cargill and P&H for a decision under the
securities legislation of the Jurisdictions (the "Legislation")
that:
- Mainline and P&H is exempt from the requirements of National Instrument 13-101 – System for Electronic Document Analysis and Retrieval ("NI 13-101"), with respect to the Transaction (as hereinafter defined), to file their documents on SEDAR, including all materials relating to the Bid (as hereinafter defined (the "Requested Relief");
Under the Mutual Reliance Review
System for Exemptive Relief Applications
(a) the Saskatchewan Financial
Services
Commission is the principal regulator for this application, and
(b)
this MRRS decision
document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained
in National Instrument 14-101 Definitions have the same meaning
in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by
the Filers:
Mainline
1. Mainline is organized under the laws of the province of Saskatchewan;
2. Mainline is a reporting issuer or its equivalent in each of the Jurisdictions and has been a reporting issuer in each of the Jurisdictions for longer than twelve months;
3. Mainline owns and operates an inland grain handling terminal and related facilities near Moosomin, Saskatchewan and a grain elevator near Langbank, Saskatchewan;
4. The authorized capital of Mainline consists of an unlimited number of Class "A" common shares (the "Class A Shares"), an unlimited number of Class "B" common shares (the "Class B Shares") and an unlimited number of Class "C" Preferred Shares, issuable in series (the "Class C Shares"), including Class C Shares, Series 1 (the "Class C1 Shares"), Class C Shares, Series 2 (the "Class C2 Shares") and Class C Shares, Series 3 (the "Class C3 Shares"), and as at the date hereof the following shares (collectively, the "Shares") are issued and outstanding as fully paid and non-assessable shares in the capital stock of Mainline:
(a) 13,949 Class A Shares, which Class A Shares are held by approximately 300 shareholders - predominantly farmers and others from in or around the Moosomin district of Saskatchewan (the "Public Shareholders");
(b) 13,949 Class B Shares, 250 Class C1 Shares and 30,000 Class C2 Shares, all of which are held beneficially and of record by Cargill (collectively the "Cargill Shares"); and
(c) nil Class C3 Shares;
5. The Shares are not listed on an exchange and do not trade on any over-the-counter market.
Cargill
6. Cargill is organized under the laws of Canada and is not a reporting issuer in either of the Jurisdictions;
7. Cargill’s head office in located in the province of Manitoba; P&H
8. P&H is organized under the laws of the province of Manitoba and is not a reporting issuer in either of the Jurisdictions;
9. P&H’s head office is located in the province of Manitoba;
10. P&H is a closely held corporation;
The Transaction
11. Mainline has been incurring losses for a number of years and these losses total $5,852,771 as of November 30, 2004. As of November 30, 2004, Mainline had outstanding liabilities of $7,123,566 including $2,111,353 that is owed to Cargill and negative shareholder equity of approximately $38,000. It is anticipated that if any of the creditors of Mainline took proceedings for the winding up of Mainline, the Public Shareholders would not receive any funds upon such winding up. Mainline also has tax losses available for carry forward totaling approximately $5,000,000 as of November 30, 2004 which may be available to reduce taxable income in future years and which tax losses may add significant value to a purchaser, assuming a transaction can be structured in a manner that would allow the purchaser to utilize those tax losses;
12. In late 2004, Mainline’s board of directors sought expressions of interest from other companies in the grain industry regarding a potential sale of the assets of Mainline or other transactions which may maximize value for Mainline’s existing shareholders. Mainline is currently, for tax purposes, controlled by Cargill and any change in control of Mainline will result in the loss of the utilization of some of the tax losses. To the extent that a purchase of the Shares can be structured so that the purchaser can utilize the significant tax losses and pay for such tax losses the current value of Mainline will be enhanced accordingly;
13. In response to the request for expressions of interest, P&H approached Mainline and Cargill regarding an acquisition of all of the assets or Shares of Mainline. It was determined that in order to utilize the tax losses and maximize the value to the Public Shareholders, a purchase of the Shares rather than an asset purchase would be required;
14. As part of those discussions, numerous corporate, tax and securities issues have been examined and, subject to obtaining the relief sought herein, it is anticipated that the transaction (the "Transaction") would be structured as follows in order to provide the maximum benefit to the Public Shareholders:
(a) P&H would commence a take-over bid for the Class A Shares at a price between $26 and $30 per share (the "Bid"). The final price has not yet been determined but will be determined prior to the Bid. The Bid would be completed through a take-over bid circular in accordance with the Legislation and would be subject to certain conditions, including a condition that at least 90% of the Class A Shares be tendered to the Bid;
(b) P&H and Cargill would enter into a purchase agreement whereby, subject to the successful completion of the Bid, Cargill would agree to sell the Cargill Shares and the debt owed to Cargill based on a formula set out in the purchase agreement;
(c) If the Bid is successful, P&H would become the owner of at least 90% of the Class A Shares and would use the compulsory acquisition provisions under Division XV of The Business Corporations Act (Saskatchewan) to acquire the remaining Class A Shares (which would not exceed 10% of the Class A Shares outstanding at the time the Bid is launched);
(d) Once P&H acquired 100% of the Class A Shares, P&H and Cargill would approve the continuance of Mainline into Manitoba. This continuance is necessary in order to amalgamate Mainline into P&H, as P&H is organized under the laws of Manitoba;
(e) P&H would then acquire the Cargill Shares and immediately thereafter Mainline would be amalgamated into P&H;
(f) The amalgamation of Mainline and P&H is expected to take place on May 1, 2005 to correspond with the year-end of P&H which is April 30, 2005. If the amalgamation does not take place on that date and concurrently with the change of control, some of the tax losses incurred by Mainline would not be available to P&H and P&H has indicated that the price it is prepared to pay for the Shares would decrease by 36% of the amount of the tax losses that are lost. While the amount paid to the Public Shareholders will not change, a delay will potentially decrease the price paid to Cargill for the Cargill Shares;
Decision
Each of the Decision Makers is satisfied that the
test contained in the Legislation that provides the Decision Makers with the
jurisdiction to make the Decision
has been met;
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted with respect to the Transaction.
"Dave
Wild"
Dave Wild
Chair
Saskatchewan Financial Services Commission