Lexpert Magazine

40 LEXPERT MAGAZINE | JULY/AUGUST 2016 authority" to change their Advance No- tice By-Laws without unitholder approval. e court also ruled CGT's and SBT's new 90-per-cent Compulsory Acquisition resholds were invalid. On that point, the judge ruled they were an "improper defensive tactic" and remarked: "I think the only inference that can be drawn from these circum- stances is that the Compulsory Acquisi- tion reshold Amendments were made for the principal purpose of thwarting the Sprott Bids." Stikemans' Ciardullo says that aer the bid was launched and Sprott started to get a little traction, the other side "started to get a little worried and realized they needed to be more aggressive. at's when they made these amendments to their declaration of trust and initiated this court hearing, alleg- ing that the Sprott bids were illegal." Justice Wilton-Siegel's judgment examined what the trustees did, says Ciardullo, "and he said the purpose was primarily to thwart the Sprott bid because of the timing and what they did and the effect that it would have on the Sprott offer. It was on that basis that he declared that their actions were improper defensive tactics. So he didn't employ the classic business judgment type of analysis, he used a different analysis … as an M&A lawyer, I found that very interesting." Embedded in Sprott's Letter of Trans- mittal (LoT) as part of its bid was a provi- sion that meant if SBT or CGT unithold- ers tendered their units to Sprott, they were also giving Sprott Power of Attorney. at PoT allowed Sprott to sign written resolu- tions on behalf of tendering unitholders endorsing any changes Sprott needed to make to the CGT/SBT Declaration of Trusts to complete its take-over. at in- cluded such moves as replacing incumbent and conflicted Spicer trustees with Sprott- appointed trustees. While the judge found the Sprott PoT was simply a tool for its take-over transac- tion – not part of an improper proxy con- test as the targets impugned – he agreed with SBT/CGT counsel that Sprott's lan- guage in its LoT was vague regarding when its power of attorney terminated if its bid failed. He ordered Sprott to clarify that. For Sprott, recounts Ciardullo, the On- tario court proceedings endowed them with unexpected spinoffs advancing their cause. "Even though the litigation was designed to bog us down and disrupt the transaction, it ended up being one of the most positive things that happened to us because we had a judge essentially saying at the end of the day that the target board had engaged in improper defensive tactics, the primary purpose of which was to shut down or thwart or stop the Sprott bid." Adds Einav: "When we found out about McAvity and his six-per-cent fee as lead in- dependent director, it struck a nerve with retail holders. One of the big problems we had was reaching these retail holders." Sprott had hired Kingsdale Shareholder Services to find and contact CGT and SBT unitholders. ey were "doing a great job reaching out and making hundreds of calls a day to unitholders." But it was summer, adds Einav, and Kingsdale had trouble lo- cating them since many were not picking up or returning the calls at first. "But when this information came out, some of them actually started reaching out to us to un- derstand what was going on, what were the issues. Kingsdale did a great job converting those calls into tenders to us." Finding their Purpose But the targets still had fight le in them. And surprises. "One unique feature of this narrative," says Bennett Jones's Staley, "is that it lasted almost a year, an almost un- precedented period of time for a target to be under attack." More testy press releases flowed from both sides aer the Ontario court proceed- ings. Soon Sprott was faced with an order for a hearing in front of an Ontario Securi- ties Commission (OSC) panel. e application for an OSC proceeding under the public interest section of the On- tario Securities Act commenced November 11 with the SBT/CGT trustees seeking to enjoin the Sprott bid. at was a bit sur- prising, says Ciardullo, since CGT/SBT had tried the court route in late July with- out much success. "ere is some overlap in the rules between courts and securities regulators in the context of take-over bids," explains Ciardullo. "And to their credit [Staley] took advantage of that and used different forums to come aer us." CGT/SBT complained to the OSC that, among other things, the Sprott bid struc- ture was confusing to unitholders and con- trary to the public interest (in part because Sprott's amendments to the PoT were al- legedly abusive to unitholders); that Sprott made misleading statements about the NAVs and trading value of SBT and CGT in the media and to unitholders; and that Sprott violated the identical consideration requirements of the Ontario Securities Act because, depending on how much gold or silver they owned, some unitholders might not be able to take advantage of the physi- cal redemption features Sprott offered in exchange for CGT/SBT units. is was a particularly challenging time for Sprott's counsel, notes Ciardullo. While Bennett Jones, as applicant, had a fair bit of time to prepare its case before the OSC, Sprott only learned on a ursday night there'd be a hearing the following Wednes- day, November 18. Einav and the Stikeman team, including the two litigation partners who handled the OSC hearings – Peter Howard, Eliot Kolers – and associate Mel Hogg now had from CGT and SBT, "a dozen very novel and nuanced complaints and we had to prepare hundreds of pages of response materials over the weekend," recounts Ciardullo. No one slept much over the weekend. Fragged Ciardullo sleeps with his BlackBerry set to vibrate on the night table beside his bed, something that "annoys the hell out of my wife." e eve of the OSC hearing, he says, "… between midnight and two in the morning, there was a steady stream of buzz- ing emanating from the nightstand. And I knew something was up." Einav calls it "the hand grenade." As it went off on his iPhone, he and Glen Williams, Sprott's Director of Commu- nications, relayed some legal shrapnel to Ciardullo via text messages. Ciardullo saw about 30 on his phone. e substance, Ciardullo continues, "was the target had, literally the night before the hearing, an- nounced they had signed a letter of intent with Purpose Investments." Aer more than six months with the Sprott bid chiselling away the hold the Spicer family had on their trusts, the Spic- ers at last found a white knight in the form of Som Seif, President, CEO and founder of Purpose Investments, a Toronto invest- ment firm with its own funds and ETFs. | ART OF THE DEAL |

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