On May 11, 2009, the Ontario Securities Commission (OSC) decided to deny an application requesting that the OSC cease trade two shareholder rights plans implemented by NEO Material Technologies. The first plan was a strategic plan that had previously been approved by shareholders of Neo and the second was a tactical plan that had been adopted by NEO in the face of a partial bid launched by Pala Investments. Pala’s bid was structured to comply with the “permitted bid” definition contained in the first plan in that it was open for at least 60 days, subject to an additional 10-day extension in the event that the irrevocable minimum tender condition, requiring that at least 50% of the independently held common shares of Neo be tendered, was satisfied. In response to Pala’s partial bid, the board of directors of Neo implemented the second shareholder rights plan to prohibit such a partial bid and recommended against tendering to the bid. Pala applied to the OSC under s. 127(1) of the Securities Act to have both plans cease traded but the OSC deferred making a decision on the application until after Neo held its previously scheduled shareholder meeting (which was scheduled to be held prior to the expiry of the Pala bid). Approval of the second plan was put before the shareholders at the meeting and was passed, following which the OSC denied the requested relief.
The OSC, stating its was not satisfied that it would be in the public interest to grant such relief at this time, cited the following influencing considerations:
a.the second plan was adopted in the context of, and in response to the offer;
b.there was no evidence that the process undertaken by the Neo board to evaluate the offer or implement the second plan was not carried out in what the Neo board determined to be the best interests of the corporation and of the Neo shareholders, as a whole;
c.an overwhelming majority of the Neo shareholders (excluding Pala) approved the second plan while the offer remained outstanding;
d.the evidence supported a finding that the Neo shareholders were sufficiently informed about the second plan prior to casting their votes; and
e.there was no evidence to suggest that management or the Neo board coerced or unduly pressured the Neo shareholders to approve the second plan.
The OSC intends to expand upon these consideration in its full reasons for decision, which have yet to be released.
