Lexpert Magazine

LEXPERT MAGAZINE | JULY/AUGUST 2016 39 | ART OF THE DEAL | counsel [clients] to deal with." As summer 2015 approached, a bit- ter war of circulars and accusatory press releases erupted between Sprott and the Spicer funds. On June 9 of that year, SBT and CGT filed circulars urging unitholders to reject Sprott's offer. ey alleged, among other things, that Sprott was not offering a "meaningful" premium; that unitholders had just rejected a similar physical redemp- tion feature from Polar; that Sprott was just trying to nab the targets' additional management fees; and that, if they ten- dered to Sprott, CGT and SBT unitholders would be paying higher management fees in the future. Sprott argued back in press releases that the CGT/SBT trustees were obfuscating the truth about the benefits of its offer. But unitholders, says Einav, were beginning to understand that SBT's and CGT's rules and redemption features essentially had them trapped. "ere are two main differences be- tween our products and theirs," says Einav. "Number one is our products are profes- sionally managed and we put a lot of effort and time into marketing these products. And number two, structurally our prod- ucts have a real redemption feature — 100 per cent NAV, that allowed the unithold- ers to get out at NAV. And those two fea- tures together allow us to trade at, or close to NAV. And when we started this of- fer, [Central Gold] traded at approximately an 8 per cent discount to NAV." at 8 per cent discount, he says, was hurting Central Gold's unitholders, and, he suggests, made Sprott's offer attractive to them. e first legal skirmish in Sprott's take- over bid happened on June 18, 2015, when it sent CFOC a special shareholder meeting requisition. Sprott followed up on June 23 with an oppression action against CFOC in the Court of Queen's Bench of Alberta. In turn, CFOC made a cross-application challenging the validity of Sprott's requi- sition. On August 13, the Alberta court ruled Sprott's requisition invalid. A later appeal upheld that ruling. First round to the Spicer side. Developing a Strategy Even in the weeks before Sprott officially announced it was proceeding with a hos- tile take-over, the core team usually met in the war room several times a week, oen in long, drawn-out meetings. Perrier was per- mitted, pizzas were not. "We tried to keep it healthy, because I was working on my fig- ure," jokes Einav. On a white board, the Sprott team wrote down options for what to do next, trying to predict the possible legal permutations Bennett Jones would use to impair their bid. "at white board," says Einav, "was written and rewritten a thousand times to get this thing done." It was, adds Ciardullo, an intense phase of "game theory." And they spent months doing it. Einav tips his hat to opposition counsel: "Rob Staley? Very intelligent, very creative and very aggressive. [Bennett Jones] con- stantly came up with new ideas to kind of keep us at bay. But because there were constant communications within our core team and with the extended team, we were ready for this." Another thing hampered Sprott. e retail investors at the targeted trusts were a disparate lot, difficult to track down, con- tact and persuade to come over to Sprott. Central Gold and Silver Bullion certainly weren't making that – or anything else – easy. At the end of March, as Polar was nip- ping at their heels, the CGT/SBT boards (composed essentially of the same people) slipped in an Advance Notice Rule amend- ment to their DoTs without unitholder approval. e new rule required advance notice with fixed deadlines when unithold- ers wished to nominate persons for election to their boards. at, they hoped, would make it difficult for a hostile bidder to pluck out and replace their trustees. On June 24, aer Sprott came on the scene, CGT and SBT – again without consulting unitholders – also altered amendment provisions in their DoTs that, among other things, affected both trusts' compulsory acquisition thresholds in the event of a take-over bid. Previously, the DoTs required a bidder to acquire at least two-thirds of either CGT or SBT before it could automatically acquire remain- ing units. But aer June 24, a bidder such as Sprott now needed to convince either trusts' investors to tender at least 90 per cent of all outstanding units in the trust before the compulsory acquisition thresh- old was reached and it could automatically acquire the remaining 10 per cent of units. Counter-punching e same day CGT/SBT announced the new 90-per-cent rule for amending their DoTs, they launched joint proceedings against Sprott in the Ontario Superior Court. e case was heard before Justice Herman J. Wilton-Siegel on July 29, 2015. Staley, along with his team of Derek Bell, Alan Gardner and Kris Hanc, asked the court to declare elements of Sprott's offer illegal (in part because, they alleged, Sprott was secretly working with Polar). For their part, CGT and SBT wanted the court to affirm that their new amendment rule was valid and binding on Sprott. Sprott, in turn, filed a counter-appli- cation challenging the validity of those amendments. Sprott also challenged the independence of the SBT/CGT Special Committee members. At Sprott's table in court were Stikeman's Peter Howard and Aaron Kreaden handling litigation. Einav, Ciardullo and Laffin were also on hand. In litigation, Staley was a "worthy oppo- nent" remarks Ciardullo. "But what people don't always realize is that there are risks and dangers with coming aer somebody. And in this case the discovery process that went along with litigation revealed some skeletons [the trusts] had in the closet." One bone of contention Sprott un- earthed in earlier discovery was about Ian McAvity, "lead independent director" and Chair of CGT's and SBT's governance and nominating committees. McAvity, Sprott's counsel learned, had been secretly given a six-per-cent gross revenue royalty for life from the Spicer-controlled administrator of CGT and SBT. Unitholders, who were funding those payments through manage- ment fees, were never told this. McAvity reportedly received more than $4 million in such payments from 2005 to 2014. Eventually he stepped down from the Special Committees in August 2015. en, last March, at age 73, he passed away suddenly. Sprott exposed other trustee conflicts as well. No thwarting! ough it wasn't a clean sweep for Sprott's team, Justice Wilton-Siegel largely sided with their arguments in court. He de- nied CGT's and SBT's application for an injunction enjoining the Sprott bids and ruled that CGT/SBT trustees "lacked the

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