National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to an exchange traded split share company from certain mutual fund requirements and restrictions on; calculation and payment of redemptions, preparation of compliance reports, and date of record for payment of distributions -- Since investors will generally buy and sell shares through the TSX, there are adequate protections and it would not be prejudicial to investors -- National Instrument 81-102 -- Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 10.3, 10.4(1), 12.1(1), 14.1, 19.1.
June 25, 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
The principal regulator in the Jurisdiction has received an application from NewGrowth Corp. (the "Filer") for a decision under the securities legislation of the Jurisdiction (the "Jurisdiction") under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions for relief from the following sections of National Instrument 81-102 Mutual Funds ("NI 81-102") (collectively, "the NI 81-102 Requirements") with respect to the Class B Preferred Shares, Series 2 (the "Series 2 Preferred Shares") proposed to be issued by the Filer as described in a prospectus dated June 16, 2009 (the "Prospectus"):
(a) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;
(b) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the net asset value per security used in establishing the redemption price;
(c) subsection 12.1(1), which requires a mutual fund that does not have a principal distributor to complete and file a compliance report, and accompanying letter of the auditor, in the form and within the time period mandated by subsection 12.1(1); and
(d) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multinational Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the jurisdictions of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
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 Filer:
1. The Filer was incorporated under the Business Corporations Act (Ontario) on June 27, 1991 and completed its initial public offering of capital shares and equity dividend shares in 1992.
2. The Filer underwent a capital reorganization in June 1998, pursuant to which the outstanding capital shares were exchanged for class A capital shares ("Class A Capital Shares"), the outstanding equity dividend shares were redeemed and, in order to maintain the leveraged "split share" structure of the Filer, a new class of preferred shares (the "Preferred Shares") was issued pursuant to a final long form prospectus dated June 16, 1998.
3. In 2004, the Filer completed another capital reorganization (the "2004 Reorganization"). Pursuant to the 2004 Reorganization, 823,105 Class A Capital Shares were redeemed under the Special Retraction Right and all of the outstanding Preferred Shares were redeemed on June 25, 2004 in accordance with their terms. In order to maintain the leveraged "split share" structure of the Filer, Class B Preferred Shares, Series 1 ("Series 1 Preferred Shares") were issued pursuant to a prospectus dated June 17, 2004.
4. The Filer has applied and received exemptive relief dated June 21, 2004 (the "Prior Decision") from certain restriction in NI 81-102 with respect to the 2004 Reorganization. The Filer cannot rely on the Prior Decision for the 2009 Reorganization.
5. On May 11, 2009, the holders of the Class A Capital Shares approved a share capital reorganization (the "2009 Reorganization"). The 2009 Reorganization will permit holders of Class A Capital Shares to extend their investment in the Filer beyond the redemption date of June 26, 2009 for up to an additional 5 years. The 2009 Reorganization also provides holders of Class A Capital Shares with a special right of retraction (the "Special Retraction Right") to replace the originally scheduled final redemption. Under the 2009 Reorganization, holders of Class A Capital Shares who do not wish to extend their investment may choose to have their shares redeemed on June 26, 2009. If the 2009 Reorganization is not implemented, the Special Retraction Right will not become effective and the Class A Capital Shares will be redeemed by the Filer on June 26, 2009 in accordance with their terms.
6. The Series 2 Preferred Shares are being offered in order to maintain the leveraged "split share" structure of the Filer and will be issued on June 26, 2009 (the "Offering") such that there will be an equal number of Class A Capital Shares and Series 2 Preferred Shares outstanding on and after June 26, 2009.
7. The Filer will make the Offering to the public pursuant to a final prospectus (the "Final Prospectus") dated June 26, 2009.
8. The Class A Capital Shares will continue to be listed and posted for trading on The Toronto Stock Exchange (the "TSX") and the Series 2 Preferred Shares are expected to be listed and posted for trading on the TSX. An application requesting conditional listing approval has been made by the Filer to the TSX.
9. The primary undertaking of the Filer is to invest in a portfolio of common shares (the "Portfolio Shares") of selected Canadian chartered banks, telecommunication, utility and pipeline companies in order to generate fixed cumulative preferential distributions for the holders of the Filer's Series 2 Preferred Shares and to enable the holders of the Filer's Class A Capital Shares to participate in any capital appreciation in the Portfolio Shares. The Portfolio Shares will be the only material assets of the Filer.
10. The net proceeds of the Offering (after deducting the agent's fees and expenses of the issue), depending upon the number and value of Class A Capital Shares redeemed pursuant to the Special Retraction Right, will be used by the Filer to fund the redemption of all of the issued and outstanding Series 1 Preferred Shares of the Filer on June 26, 2009 as well as those Class A Capital Shares being redeemed pursuant to the Special Retraction Right together, with the net proceeds from the sale of a portion of the portfolio, if necessary.
11. It will be the policy of the Filer to hold the Portfolio Shares and to not engage in any trading of the Portfolio Shares, except:
(i) to complete the adjustment to and rebalancing of the Portfolio as described in the Prospectus;
(ii) to fund retractions or redemptions of Class A Capital Shares and Series 2 Preferred Shares;
(iii) following receipt of stock dividends on the Portfolio Shares;
(iv) if necessary, to fund any shortfall in the distribution on Series 2 Preferred Shares; and
(v) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities.
12. Series 2 Preferred Share distributions will be funded from the dividends received on the Portfolio Shares. If necessary, any shortfall in the distributions on the Class B Preferred Shares will be funded by proceeds from the sale of Portfolio Shares.
13. The record date for the payment of Series 2 Preferred Share distributions, Class A Capital Share dividends or other distributions of the Filer will be set in accordance with the applicable requirements of the TSX.
14. The Class A Capital Shares and Series 2 Preferred Shares may be surrendered for retraction at any time. Retraction payments for Class A Capital Shares and Series 2 Preferred Shares will be made on the Retraction Payment Date (as defined in the Prospectus) provided the Class A Capital Shares and the Series 2 Preferred Shares have been surrendered for retraction no later than the 15th day of that month. While the Filer's Unit Value (as defined in the Prospectus) is calculated weekly, the retraction price for the Class A Capital Shares and the Series 2 Preferred Shares will be determined based on the Unit Value in effect as at the Valuation Date (as defined in the Prospectus).
15. Any Class A Capital Shares and Series 2 Preferred Shares outstanding on a date approximately five years from the closing of the Offering, which date will be specified in the Final Prospectus, will be redeemed by the Filer on such date.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator is that the Exemption Sought is granted as follows:
(a) section 10.3 -- to permit the Filer to calculate the retraction price for the Class A Capital Shares and Series 2 Preferred Shares in the manner described in the Prospectus and on the applicable Valuation Date as defined in the Prospectus;
(b) subsection 10.4(1) -- to permit the Filer to pay the retraction price for the Class A Capital Shares and Series 2 Preferred Shares on the Retraction Payment Date, as defined in the Prospectus;
(c) subsection 12.1(1) -- to relieve the Filer from the requirement to file the prescribed compliance reports; and
(d) section 14.1 -- to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.