OSC Strikes Down Second Cup Poison Pill

Cara Operations Limited announced on August 31, 2001 its intention to make a partial offer to acquire three million common shares of Second Cup Limited at a price of $7 per share. The offer was made on or about November 16, 2001, and it came with an opinion that the offer was not fair to Second Cup shareholders from a financial point of view. Second Cup’s board of directors recommended that Second Cup shareholders reject Cara’s offer, and adopted a shareholders’ rights plan or “poison pill.” Cara commenced an application to the OSC to cease trade the rights plan. Prior to the hearing of the application, Cara improved its offer to acquire all the common shares of Second Cup at $7.50.

At the hearing of the application on January 8, 2002, Cara argued that the rights plan ought to be cease traded immediately because there was no reasonable possibility of a competing bid emerging, particularly considering the amount of time that had passed since the offer was announced. Second Cup, on the other hand, argued that the rights plan should remain in place until Second Cup’s shareholders had an opportunity to ratify the plan at a shareholders’ meeting on January 31, 2002. Having regard to the express desire of significant shareholders that they be given this opportunity, and that Cara had already once increased its offer and there had been recent expressions of interest since Cara improved its offer to be for all of the shares, staff of the OSC took the position that the rights plan should be allowed to remain in place for an additional two weeks to see if a competing bid emerged. The day after the hearing, the OSC agreed with Cara and issued an order immediately cease trading the rights plan with reasons to follow. On January 21, 2002, Cara increased its offer to $8 per share. The OSC reasons have not yet been released.

Mark Gelowitz and Allan Coleman of Osler, Hoskin & Harcourt LLP acted for Cara. Representing Second Cup were Benjamin Zarnett, Jessica Kimmel and Nando De Luca of Goodmans LLP. Ralph Shay, Yvonne Chisholm and Terry Moore represented the OSC staff.