MI 11-102 and NP 11-203 -- business combination -- conversion of publicly traded income fund into corporate entity -- MI 61-101 requires minority approval if conversion is a business combination -- conversion is not a business combination for publicly traded fund, but is technically a business combination for a holding company in the fund's structure -- relief granted to the holding company from complying with the minority approval requirement provided certain conditions met.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, ss. 3.6(5).
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 4.5, 9.1.
March 24, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
GMP CAPITAL TRUST AND
GRIFFITHS MCBURNEY L.P.
(the Fund and GMP Holding Partnership,
respectively and, together, the Filers)
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) that the requirement set out in Section 4.5 of MI 61-101 that an issuer obtain minority approval for a business combination shall not apply to GMP Holding Partnership with respect to the GMP Conversion Transaction (as defined below) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport review application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Québec.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. The Fund is an unincorporated, open-ended trust governed by the laws of the Province of Ontario. The Fund was established pursuant to a declaration of trust dated September 20, 2005, as amended and restated on November 30, 2005 in connection with the conversion of the former GMP Capital Corp. to an income trust structure under a plan of arrangement effective December 1, 2005 (the 2005 Arrangement).
2. The beneficial interests in the Fund are divided into interests of two classes, designated as Fund Units and Special Voting Units. The Fund Units carry a right to receive distributions and an interest in the net assets of the Fund in the event of a termination or winding-up of the Fund, while the Special Voting Units only entitle the holder thereof to one vote at all meetings of unitholders for each Special Voting Unit held. The holders of Fund Units and the holders of Special Voting Units are referred to collectively as Voting Unitholders. The Fund Units are listed on the Toronto Stock Exchange under the trading symbol GMP.UN.
3. GMP Holding Partnership is a limited partnership formed under the laws of Manitoba with its head office in Ontario. The general partner of GMP Holding Partnership is an Ontario corporation named GMP Corp. (Holding General Partner), which is wholly owned by the Fund. The operating subsidiaries of the GMP group are owned by GMP Holding Partnership, other than GMP Private Client, L.P. (Private Client), which is partially owned by employees of Private Client, GMP Securities Europe LLP (GMP Europe), which is partially owned by partners of GMP Europe and GMP Investment Management L.P. (GMP Investment), which is partially owned by employees of GMP Investment (through ownership interests in Proprietary Partner L.P.).
4. Both the Fund and GMP Holding Partnership are reporting issuers under applicable securities laws in Ontario and Quebec (and each of the other provinces and territories of Canada). As an exchangeable security issuer, GMP Holding Partnership is entitled, under Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and related provisions of securities laws, to an exemption from the financial statement and other continuous disclosure requirements of NI 51-102 and certain related requirements of securities laws.
5. GMP Holding Partnership has two classes of limited partnership units: Class A LP Units all of which are held by the Fund, and Exchangeable LP Units. The Exchangeable LP Units are exchangeable for Fund Units and each Exchangeable LP Unit is accompanied by a Special Voting Unit, allowing the holder to vote together with the holders of Fund Units at meetings of the Fund's Voting Unitholders. The Exchangeable LP Units were offered to the former GMP Capital Corp. shareholders as an alternative to receiving Fund Units in the 2005 Arrangement, in order to permit such holders to achieve a rollover for Canadian federal income tax purposes. As at the date of the application from the Filers, there were 47,381,610 Fund Units and 16,678,024 Exchangeable LP Units outstanding.
6. The Exchangeable LP Units are not listed on any exchange and, by their terms, are not transferable except upon their exchange for Fund Units and in certain other very limited circumstances.
7. The Exchangeable LP Units are intended to be, to the greatest extent practicable, the economic equivalent of Fund Units. Holders are entitled to receive distributions, to the greatest extent practicable, equal to those paid by the Fund to holders of Fund Units. The accompanying Special Voting Units provide the holder with the right to vote at the Fund level together with Fund Unitholders. Pursuant to the limited partnership agreement of GMP Holding Partnership, holders of Exchangeable LP Units do not have voting entitlements at the GMP Holding Partnership level.
8. The Fund is now proposing to undertake a transaction that would result in the conversion of the Fund and GMP Holding Partnership to a corporate structure (the GMP Conversion Transaction). Under the GMP Conversion Transaction, the holders of Fund Units and Exchangeable LP Units will, if the transaction is approved by unitholders and certain other conditions are satisfied or waived, exchange their respective units for common shares of a new corporation (New GMP Corp.). Upon completion of the GMP Conversion Transaction, New GMP Corp. will become the successor reporting issuer, and it is intended that the New GMP Corp. common shares will be listed on the Toronto Stock Exchange.
9. The GMP Conversion Transaction will be effected by a plan of arrangement under the Business Corporations Act (Ontario), subject to approval at a meeting of Voting Unitholders by a special resolution approved by more than 66 2/3% of votes cast by holders of Fund Units and Special Voting Units, voting together as a single class as provided in the Fund's Declaration of Trust. The GMP Conversion Transaction is also subject to approval by the Ontario Superior Court of Justice.
10. Under the GMP Conversion Transaction, all holders of Fund Units and holders of Exchangeable LP Units will receive the same consideration in return for their units, namely one common share of New GMP Corp. for each Fund Unit or Exchangeable LP Unit held.
11. The GMP Conversion Transaction will not be a business combination, as defined in MI 61-101, for the Fund and, as such, there is no requirement for the Fund to obtain a formal valuation or minority approval under MI 61-101 for the GMP Conversion Transaction.
12. In the case of GMP Holding Partnership, however, the GMP Conversion Transaction would not be a downstream transaction as defined in MI 61-101 and would result in a related party of GMP Holding Partnership (New GMP Corp.), directly or indirectly, acquiring the issuer (GMP Holding Partnership), and as such it would qualify as a business combination for GMP Holding Partnership.
13. For GMP Holding Partnership, the GMP Conversion Transaction would be exempt from the formal valuation requirements of Part 4 of MI 61-101, under Section 4.4(a), since no securities of GMP Holding Partnership are listed on the specified markets. However, the GMP Conversion Transaction would subject GMP Holding Partnership to the requirement to obtain minority approval for the GMP Conversion Transaction from the holders of affected securities of GMP Holding Partnership; that is, the holders of Exchangeable LP Units, although no minority approval requirement would apply at the Fund level.
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that the conditions of subsections (e)(ii) and (e)(iii) of the definition of business combination in Section 1.1 of MI 61-101 are met.