I have trouble following the Poison Pill. On SEDAR you can find the 1998 information circular that talks about the rights plan. At the top it says it is as of May 25, 1998, but inside it talks of actions taken in June in the past tense.
What this seems to say is that once triggered you can buy $50 worth of stock for $25.00. In their examples they use a stock price of $12.50 so you can buy 4 shares and the stock is diluted by a factor of 5 to 1. But for a share price of $.56, this is 89 shares so the dilution is 90 to 1. But you would never buy 89 shares for $25, or 28 cents a share (50% discount) as when all was said and done instead of 15 million shares of St. Jude outstanding there would be 1,350 million shares. So if St. Judes market cap today is $8.4 million, why would people flood it with $1,350*.28 = $378 million in new cash.
I cannot follow this in my mind as there is no way to value the rights in this case. Their value would be a function of the number likely to be used, which is a different function of their value. If all of the rights were used they would be worthless as the old stock would be worthless and the new stock would be worth the new cash. So not all of the rights would be used. If almost none were used, then the few that were used would have real value and if all rights are equal, they all would have value and all be used. I cannot wrap my mind around this.
If the market became aware that such a pill was going to be activated, the stock price would plummet and the dilution factor would get even more absurd.
This would seem to imply something a lot more catastrophic then one would imagine from the "acquire shares of the company at a 50 per cent discount to the market price."
It must come down to the $25 dollar exercise price would have to change, which would seem to give Mr. Terrell the right to set an arbitrary dilution factor. This seems to be what the final paragraph below says.
Sean
From the information circular on SEDAR:
CONFIRMATION OF SHAREHOLDERS' RIGHTS PLAN
At the Meeting, shareholders will be asked to consider and vote to approve, ratify and confirm the Corporation's Shareholder Rights Plan (the "Rights Plan"), which was adopted by the Board of Directors on June 19, 1998. Under the Rights Plan, on June 25, 1998, share purchase rights (the "Rights") were issued to holders of Class A Common shares (the "Shares") at the rate of one Right for each Share outstanding at 5:00 p.m. (Vancouver time) on June 25, 1998, (the "Record Time"), at which time the Rights Plan also became effective.
The Rights Plan remains subject to approval by the Vancouver Stock Exchange (the "Exchange"), and the Corporation has submitted the Rights Plan to the Exchange for approval. The approval of the Exchange is subject to shareholder confirmation of the Rights Plan, however, and accordingly the Rights Plan will continue in effect only if it is confirmed by the shareholders of the Corporation at the Meeting. The text of the ordinary resolution approving, ratifying and confirming the Rights Plan which will be proposed to shareholders at the Meeting is as follows:
"BE IT RESOLVED THAT:
1. The shareholder rights plan containing the terms and conditions substantially as set forth in the Shareholder Rights Plan Agreement dated as of June 19, 1998, between the Corporation and CIBC Mellon Trust Company, a copy of which has been tabled at this meeting by the Secretary of the Corporation, be and is hereby approved, ratified and confirmed.
2. The actions of the directors and officers of the Corporation in adopting the shareholder rights plan and in executing and delivering the Shareholder Rights Plan Agreement be and are hereby approved, ratified and confirmed.
3. Any director or officer of the Corporation is hereby authorized, for and on behalf of the Corporation, to execute and deliver all documents and to do all other things as in the opinion of such director or officer may be necessary or desirable to implement this resolution and the matters authorized hereby, such determination to be conclusively evidenced by the execution and delivery of any such document or instrument and the taking of any such action."
The Corporation has not determined what further action, if any, it would take if the Rights Plan is not confirmed at the meeting.
The Board of Directors reserves the right to alter any terms of or not to proceed with the Rights Plan or to postpone the consideration of the resolution approving the Rights Plan at the meeting if the Board of Directors determines that it would be in the best interests of the Corporation and its shareholders to do so.
Recommendation of the Board of Directors
The Board of Directors has determined that the Rights Plan is in the best interests of the Corporation and its shareholders and recommends that shareholders vote in favour of the resolution approving, ratifying and confirming the Rights Plan.
As of the date of this circular, management of the Corporation is not aware of any pending take-over bids for the Shares, or of any person who intends to make a take-over bid for the Shares.
Purpose and Summary of the Rights Plan
Unsolicited attempts to acquire public corporations have often required directors and shareholders to make difficult decisions affecting the value, and on occasion the existence, of a corporation within extremely short time periods. Many of these attempts have taken the form of creeping acquisitions of shares without the payment of a control premium to all shareholders. In some cases, unsolicited take-overs have involved the break-up of the corporate structure and the sale of the corporation's assets.
The Rights Plan has been designed to protect shareholders of the Corporation from unfair, abusive or coercive take-over strategies, including the acquisition of control of the Corporation by a bidder in a transaction or series of transactions that does not treat all shareholders equally or fairly nor afford all shareholders an equal opportunity to share in the premium paid upon an acquisition of control. The Rights Plan is not intended to prevent a take-over or deter fair offers for securities of the Corporation. Rather, it is designed to give the Board of Directors the opportunity and leverage to act in the best interests of the Corporation and its shareholders by two principal means: by encouraging a potential bidder for the Corporation's shares to proceed on a negotiated rather than a hostile basis, and by giving the Board of Directors more time than is afforded by the regulatory framework to consider and, if appropriate, to seek alternatives to a take-over proposal.
The Rights Plan will cause substantial dilution to a person or group that attempts to acquire control of the Corporation other than through a "Permitted Bid" (defined below) or on terms approved by the Board of Directors. A Permitted Bid will be allowed to proceed without triggering the dilutive effects of the Rights Plan. The Permitted Bid concept, which is found in most of the shareholder rights plans that have been adopted in Canada, is intended to permit shareholders to review and decide upon a take-over bid for themselves, while establishing a minimum standard of fairness and giving shareholders and the Board of Directors sufficient time to evaluate the bid. It also ensures that senior management of the Corporation and the Board of Directors do not abrogate to themselves the rights of shareholders to obtain, review and accept or decline take-over bids, and remedies to a great extent the fundamental source of inequality between a bidder and a target corporation's shareholders, namely, the ability of the bidder to by-pass the target corporation's board of directors, deal directly with the target corporation's shareholders and pressure the target corporation's shareholders into accepting an inadequate bid.
Instead, shareholders who favour the bid indicate their approval simply by tendering their Shares to it. If 60% of the Shares other than those beneficially owned by the bidder are tendered by the end of 120 days, the bid must be extended for a further period of 10 days to allow initially disapproving shareholders to tender their Shares to the bid if they so choose. The initial tender acts as a surrogate for the costly and rather cumbersome process of requiring a shareholder vote at a special shareholders' meeting. As with a shareholder vote, there is no coercion to tender during the initial 120-day period as the bid, by definition, must be open for acceptance for at least 10 days after the expiry of the initial tender period. Of course, the Board of Directors may call a shareholders' meeting at any time should it believe that such a meeting would be beneficial to the shareholders.
If a bidder does not desire to make a Permitted Bid, it can negotiate with and obtain prior approval of the Board of Directors to make an offer on terms that the Board of Directors considers fair to all shareholders. In such circumstances, the Board of Directors may redeem the Rights or waive the application of the Rights Plan, thereby allowing such offer to proceed without dilution to the bidder. The adoption of the Rights Plan does not relieve the Board of Directors of its fiduciary duty to act in the best interests of all shareholders and does not prevent a take-over bid or merger or other business combination that the Board of Directors, in the exercise of its fiduciary duty, determines to be in the best interests of the Corporation and its shareholders. It is not the intention of the Board of Directors to secure the continuance of existing directors or officers in office to avoid an acquisition of control of the Corporation which is in the best interests of the Corporation, or to avoid the fiduciary duty of the Board of Directors or of any director. It should be noted that the Rights Plan does not inhibit the use of the proxy solicitation rules under the Canada Business Corporations Act to promote a change in the management or direction of the Corporation.
The Rights Plan is designed not to interfere with the day-to-day operations of the Corporation. Prior to its being activated, the Rights Plan does not affect the Corporation's balance sheet or income statement and its implementation should not result in a taxable event for the Corporation or its shareholders. The implementation of the Rights Plan does not increase the level of debt of the Corporation or involve a sale, exchange or purchase of significant assets or the loss of earning power of the Corporation. The issue of the Rights does not dilute the equity or voting interests of existing shareholders and should not interfere with equity or debt financing by the Corporation.
At the time the Rights Plan was adopted, the Board of Directors was made aware that the Rights Plan may discourage certain types of take-over bids that might be made for the Corporation and may render more difficult a merger, tender offer, assumption of control by the holders of a large block of the Corporation's securities or the removal of incumbent management. The Rights Plan will cause substantial dilution to a person or group that attempts to acquire the Corporation other than through a Permitted Bid or on terms approved by the Board of Directors. The Board of Directors carefully considered these matters but concluded that they do not justify denying shareholders the protection that the Rights Plan affords. The Rights Plan is not intended to prevent all unsolicited take-over bids for the Corporation and will not do so. The Rights Plan is designed to encourage potential bidders to make Permitted Bids or negotiate take-over proposals with the Board of Directors that the Board of Directors considers are in the best interests of the Corporation and to protect the Corporation's shareholders against being coerced into selling their Shares at less than fair value.
Background of the Rights Plan
The Rights Plan has not been proposed by the Board of Directors or management of the Corporation in response to or in anticipation of any specific take-over bid or proposed bid or other transaction. Rather, the Rights Plan was adopted in response to the Board of Directors' concern that, in the current business and legal climate in which the Corporation operates, there is the potential for unfair treatment of shareholders that should be guarded against to the extent practicable.
The Board of Directors is concerned that under current law an acquiror could use coercive or other abusive take-over practices to obtain control of the Corporation without paying a fair price, without obtaining shareholder approval and without negotiating with the Board of Directors acting on behalf of all shareholders. For example, a bidder may acquire blocks of Shares in the market or in private agreements involving a small number of private investors and thereby gain effective control of the Corporation without paying an appropriate "control premium" to all shareholders of the Corporation. A bidder may also make a take-over bid to acquire effective or legal control of the Corporation that the Board of Directors, acting honestly and in good faith, may believe is wholly inadequate and unfair to shareholders of the Corporation and does not reflect the full or premium control value for all of the Shares. Without anything else, shareholders would likely feel compelled to tender to such a bid, even if they feel that the offer is inadequate and of less than fair value for an acquisition of control, fearing that if they do not tender, they will pass up their only opportunity to receive any "take-over premium" for a portion of their Shares. The Board of Directors also believes that the timetable for take-over bids prescribed by Canadian securities laws could impair the Board's ability to ensure that all other alternatives to maximize shareholder value are thoroughly explored.
The Board of Directors is also concerned about preserving the integrity of the Corporation's corporate structure. Given the Corporation's existing asset base, the current market price for the Shares and the relative size and resources of the Corporation's competitors, the Board of Directors is particularly concerned that a successful take-over could result in the Corporation's assets being broken up and sold, without shareholders realizing full value for their Shares.
In response to these concerns, the Board of Directors considered the desirability and the practicability of various strategies to deter unfair or abusive take-over practices and, in particular, whether a shareholder rights plan would be in the best interests of the Corporation and its shareholders and, if so, what the appropriate characteristics of such a shareholder rights plan would be. This resulted in the Rights Plan being adopted by the Board of Directors on June 19, 1998.
Terms of the Rights Plan
As of June 19, 1998, the Corporation has entered into a shareholder rights plan agreement (the "Rights Plan Agreement") with CIBC Mellon Trust Company, as rights agent (the "Rights Agent"). In order to implement the Rights Plan, the Board of Directors authorized the Corporation to issue one Right in respect of each outstanding Share to holders of record as at the Record Time and authorized the Corporation to issue one Right for each Share issued after the Record Time and prior to the Separation Time (defined below). After the occurrence of a Flip-in Event (defined below) or a Flip-over Event (defined below), each Right entitles the registered holder thereof to purchase from the Corporation, upon fulfilling the terms of the Rights Plan Agreement including the payment of the relevant exercise price, Shares with a market value equal to twice the exercise price of a Right. The initial exercise price of a Right is $25.00 (the "Exercise Price"). The Exercise Price is subject to certain adjustments as described below. The Rights are not exercisable until the Separation Time.
The following is a summary of the terms of the Rights Plan Agreement, which is qualified in its entirety by reference to the text of the Rights Plan Agreement. A copy of the Rights Plan Agreement is available for review at the offices of the Corporation, located at #200, 5405 - 48th Avenue, Delta, British Columbia, V4K 1W6, prior to the Meeting, and will be available for review at the Meeting.
Trading of Rights
The Rights will separate and trade apart from the Shares and become exercisable after the Separation Time. The Rights Plan Agreement provides that, until the Separation Time, the Rights will be transferred only with the associated Shares and will be represented by the outstanding Share certificates. Until the Separation Time (or earlier redemption or expiration of the Rights), new Share certificates issued after the Record Time upon the transfer of existing Shares or the issuance of additional Shares will contain a notation incorporating the Rights Plan Agreement by reference. Until the Separation Time (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates representing Shares outstanding as of the Record Time will also constitute the transfer of the Rights associated with such Shares. Promptly following the Separation Time, separate certificates evidencing the Rights (the "Rights Certificates") will be mailed to holders of record of Shares as of the Separation Time and the separate Rights Certificates will evidence the Rights.
Separation Time
The Rights will separate and trade separately from the Shares after the Separation Time. The "Separation Time" is the close of business on the earlier of:
(a) the tenth business date (the "Stock Acquisition Date") after the first public announcement made by the Corporation or an Acquiring Person (defined below) that a person has become an Acquiring Person; and
(b) the tenth business date after the commencement of, or first public announcement of the intent of any person (other than the Corporation or any subsidiary of the Corporation) to commence a take-over bid (other than a Permitted Bid or Competing Permitted Bid) that, if successfully completed, would result in such person becoming an Acquiring Person,
or such later date as may be determined by the Board of Directors, provided that if any such take-over bid expires or is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such offer will be deemed, for the purposes of determining the Separation Time, never to have been made.
Acquiring Person
Subject to certain exceptions set forth in the Rights Agreement, the dilutive effects of the Rights are triggered by a person becoming an Acquiring Person upon the acquisition of Beneficial Ownership of 20% or more of the outstanding Shares. A person will not trigger the separation and exercisability of the Rights if it becomes the Beneficial Owner of 20% or more of the Shares as a result of (a) an acquisition or redemption of Shares by the Corporation which, by reducing the number of Shares outstanding, increases the percentage of Shares Beneficially Owned by such person to 20% or more, or (b) share acquisitions are made pursuant to a Permitted Bid or Competing Permitted Bid or otherwise on terms approved by the Board of Directors, provided that if it becomes the Beneficial Owner of 20% or more of the Shares by such means and subsequently becomes the Beneficial Owner of additional Shares, other than by such means then, as of the date of such additional acquisition, it will become an Acquiring Person.
Any person who was the Beneficial Owner of 20% or more of the outstanding Shares on the date of implementation of the Rights Plan will be "grandfathered", so that the dilutive effects of the Rights will not be triggered unless such shareholder increases its shareholdings by more than 1%. So far as the Corporation is aware, as of the date implementation of the Rights Plan, no person or related group was the Beneficial Owner of 20%or more of the outstanding Shares.
Beneficial Ownership
Beneficial Ownership is broadly defined in the Rights Plan, but certain exceptions from its scope are provided, among them an exception designed to avoid inadvertent triggering of the dilutive effects of the Rights by investment fund managers who do not intend to make a take-over bid for the Shares.
Permitted Bid
As discussed above, a Permitted Bid will not trigger the dilutive effects of the Rights. A Permitted Bid is a take-over bid made in compliance with, and not on a basis which is exempt from or otherwise not subject to, the take-over bid provisions of applicable corporate and securities laws and in compliance with all other applicable laws, and which also complies with certain additional conditions including the following:
(a) the bid is made to all holders of Shares wherever resident or registered on the books of the Corporation for all Shares held, on identical terms;
(b) the bidder together with its affiliates and associates and any person acting jointly or in concert with such person or with such person's affiliates or associates does not, and while such bid is outstanding does not, Beneficially Own more than 5% of the Shares;
(c) the bidder provides the Rights Agent with a list of all securities of the Corporation Beneficially Owned by the bidder and any of its associates or affiliates and any person acting jointly or in concert with such person or with such person's associates or affiliates, and undertakes to update such list on a daily basis;
(d) the bid contains irrevocable and unqualified provisions that:
(i) no Shares will be taken up or paid for pursuant to the bid prior to the close of business on a date which is not less than 120 days following the date of the bid;
(ii) all Shares may be deposited pursuant to the bid at any time prior to the close of business on the date referred to in (i) above and all Shares deposited pursuant to the bid may be withdrawn at any time prior to the close of business on that date;
(iii) not less than 60% of the then outstanding Shares, other than the Shares Beneficially Owned by the bidder, must be deposited pursuant to the bid and not withdrawn at the close of business on the date referred to in (i) above;
(iv) should the condition referred to in (iii) above be met, the bid will be extended on the same terms for a period of not less than 10 days from the date referred to in (i) above; and
(e) if the bid contains non-cash consideration, the take-over bid circular is accompanied by an opinion of a nationally or internationally recognized investment dealer addressed to all shareholders as to the market trading cash value of such non-cash consideration in the hands of the shareholders.
A Competing Permitted Bid is a take-over bid that is made while a Permitted Bid is outstanding and complies with all of the requirements for a Permitted Bid except that no Shares will be taken up or paid for pursuant to the bid prior to the close of business on a date which is not earlier than the later of 21 days after the date of the take-over bid or the 90th day following the date of the earliest Permitted Bid.
The requirement that the bid be made for all Shares was included because the Board of Directors has satisfied itself that the premium paid to shareholders for shares of a target corporation was higher in cases where the bid was made for all shares than in cases where a partial bid was made.
It has been a common practice in shareholder rights plans to require a bidder to provide an investment dealer's fairness opinion as to the offer price as a matter of course, whether or not the price included non-cash consideration. The Board of Directors has determined that such an opinion is costly and not especially helpful where the bid includes only cash consideration. However, they are of the view that where the bid includes non-cash consideration, a bidder should be required to provide shareholders with reliable information regarding the value of the non-cash consideration in order to assist them to decide whether to tender their Shares to the bid. Unless the bidder is a public company, and even then to some extent, only the bidder is possessed of the information necessary to prepare an accurate valuation of its securities or other assets. For this reason, the Rights Plan requires that a bidder provide an opinion as to the market value of non-cash consideration. The requirement that the firm preparing the opinion be both nationally or internationally recognized is intended to ensure the reliability of the opinion.
The requirement that a bidder not own more than 5% of the Shares at the commencement of the bid or while it remains outstanding is intended to discourage a person from building a substantial share position that creates rumours of an unannounced take-over bid, and then selling out on the resulting rise in the market price at the expense of investors who bought on the basis of the rumours.
A person who was the Beneficial Owner of 5% or more of the outstanding Shares on June 25, 1998, will be "grandfathered", so that it will not be disqualified from making a Permitted Bid unless it increases its shareholdings by more than 1%.
Protection Against Dilution
The Exercise Price, the number and nature of securities that may be purchased upon the exercise of the Rights and the number of Rights outstanding are subject to adjustment from time to time to prevent dilution upon the occurrence of certain events.
Flip-in Event
In the event that a person becomes an Acquiring Person pursuant to a transaction other than one that constitutes a Flip-over Event, as defined below (any such transaction or event being a "Flip-in Event"), then each Right (except for Rights Beneficially Owned by an Acquiring Person, any of its affiliates or associates or any person acting jointly or in concert with such persons or certain transferees of an Acquiring Person, which Rights will be void pursuant to the terms of the Rights Plan) will, as of the Separation Time, entitle the holder thereof to purchase, upon the exercise thereof at the then current Exercise Price, a number of Shares having an aggregate market value equal to twice the Exercise Price. For example, if at the time of such announcement the Exercise Price is $25.00 and the Shares have a market value of $12.50 each, the holder of each Right would be entitled to purchase the number of Shares that have in the aggregate a market value of $50.00 (four Shares) for a price of $25.00, that is, at a 50% discount.
Flip-over Event
In the event of:
(a) a transaction or series of transactions in which, directly or indirectly, the Corporation consolidates, merges with or amalgamates with or enters into a statutory arrangement with, any other person (other than a wholly owned subsidiary of the Corporation) and, in connection therewith, all or part of the outstanding Shares are changed in any way, reclassified or converted into or exchanged for shares or other securities of the Corporation or of any other person, or cash or any other property; or
(b) a transaction or series of transactions in which, directly or indirectly, the Corporation sells or otherwise transfers (including by way of a leasehold interest) (or one or more of its subsidiaries sells or otherwise transfers) property or assets that, in the reasonable opinion of the Board of Directors:
(i) aggregate more than 50% of the property or assets (measured by either book value or fair market value); or
(ii) generated during the Corporation's last completed fiscal year or are expected to generate in the Corporation's then current fiscal year, more than 50% of the operating income or cash flow;
of the Corporation and its subsidiaries (taken as a whole) to any other person or persons (other than the Corporation or one or more of its wholly-owned subsidiaries);
(any such transaction or event being a "Flip-over Event"), then the Corporation will take such action as is necessary to ensure that each Right will thereafter entitle the holder thereof to purchase, upon the exercise thereof at the then current Exercise Price of the Right, a number of common shares of the person resulting from or engaging in the Flip-over Event that have an aggregate market value on the date of consummation of such event equal to twice the Exercise Price and that the person resulting from or engaging in the Flip-over Event is subject to all of the obligations, liabilities and duties of the Corporation pursuant to the Rights Plan. For example, if at the time of a Flip-over Event the Exercise Price is $25.00 and such person's common shares have a market value of $12.50 each, the holder of each Right would be entitled to purchase the number of such person's common shares that have in the aggregate a market value of $50.00 (four common shares) for a price of $25.00, that is, at a 50% discount. |
