Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the formal take-over bid requirements in connection with purchases made by an arm's length third party pursuant to a liquidity option offered to security holders at the time of subscription -- there is no published market for the securities and the issuer is not a reporting issuer but there is no restriction on the number of security holders so the third party liquidity provider may not be able to rely on the non-reporting issuer exemption set out in the Act -- the terms of the liquidity option are fully disclosed to all potential investors in the private placement memorandum of the issuer -- liquidity option offered to all potential investors on equal terms -- requested relief granted, subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 93 to 99.1, 104(2)(c).

June 5, 2015

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GOLDPOINT PARTNERS CANADA III GENPAR INC. (the GP) AND NEWBURY EQUITY PARTNERS III HOLDINGS L.P. (NEP and together with the GP, the Filers) AND IN THE MATTER OF GOLDPOINT PARTNERS SELECT MANAGER CANADA FUND III, L.P. (the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting NEP from the requirements of sections 93 through 99.1, inclusive (the Take-Over Bid Provisions), of the Securities Act (Ontario) (the Act) in connection with purchases of limited partnership units (the Units) of the Fund by NEP pursuant to the proposed Liquidity Option (as defined below) (the Exemption Sought).

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 passport 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, the Yukon Territory and Nunavut (the Non-Principal Jurisdictions) for relief from Parts 2 and 3 of Multilateral Instrument 62-104 Takeover Bids and Issuer Bids, being the equivalent of the Take-Over Bid Provisions in the securities legislation of the Non-Principal Jurisdictions.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. The Fund is a limited partnership formed under the laws of the Province of Ontario, and is an "investment fund" for the purposes of the Act. The Fund's head office is located in the State of New York, United States of America (U.S.).

2. The Fund is not, and does not anticipate becoming, a reporting issuer (or the equivalent thereof) in any jurisdiction.

3. The GP, the general partner of the Fund, is a corporation incorporated under the Business Corporations Act (New Brunswick). The GP's head office is located in the State of New York, U.S.

4. The investment fund manager functions of the Fund have been delegated by the GP to its affiliate, GoldPoint Partners Canada GenPar Inc. (the Fund Manager), pursuant to a management agreement between the GP and the Fund Manager. The Fund Manager directs all of the business, operations and affairs of the Fund. The Fund Manager is a corporation formed under the laws of the Province of New Brunswick, and is a registered "investment fund manager" in Ontario, Quebec, and Newfoundland and Labrador. The head office of the Fund Manager is located in the State of New York, U.S.

5. The investment objective of the Fund is to invest, directly or indirectly, as a limited partner in GoldPoint Partners Select Manager Fund III, L.P. (the Bottom Fund), a foreign-based private equity fund of funds.

6. The Fund is authorized to issue, inter alia, an unlimited number of Units. The Fund will be offering Units pursuant to one or more private placements to "accredited investors" (as such term is defined in National Instrument 45-106 Prospectus Exemptions (NI 45-106)) across Canada. There will be no published market for the Units.

7. Each Unit issued will represent a capital commitment of U.S.$1,000 in the Fund. Each holder of Units (each, a Limited Partner) is required to make a minimum aggregate investment in the Fund of U.S.$250,000 (or 250 Units), which full amount is to be paid as and when called for by the GP, as the general partner of the Fund.

8. As an added benefit for Limited Partners, whose Units will otherwise be highly illiquid, restricted securities, Limited Partners will be provided with a liquidity option (the Liquidity Option) pursuant to a liquidity agreement (the Liquidity Agreement) among NEP, the GP and GoldPoint Partners LLC, the investment fund manager of the Bottom Fund (the Bottom Fund Manager). Under the Liquidity Agreement, NEP will agree to purchase all, but not less than all, of a Limited Partner's Units starting on the date of the final closing of the Fund (the Final Closing), which is anticipated to occur in the spring of 2017, and continuing for approximately twelve years, subject to extension by agreement of NEP, the GP and the Bottom Fund Manager.

9. NEP is a limited partnership formed under the laws of Delaware. NEP acquires, primarily through secondary transactions, limited partnership interests in established leveraged buyout, venture capital and mezzanine funds. NEP is not in the business of creating a market for restricted securities and is not in the business of dealing in securities. NEP's head office is located in the State of Connecticut, U.S.

10. The existence and terms of the Liquidity Option will be set out in the private placement memorandum of the Fund (the PPM) provided to potential investors in the Fund.

11. The entitlement to participate in the Liquidity Option will be offered on equal terms to all Limited Partners whose subscriptions are accepted at the initial closing of the Fund. Limited Partners wishing to have the benefit of the Liquidity Option will be required to "opt in" to the Liquidity Option by checking the appropriate box on their subscription agreement (such Limited Partners so electing and whose participation is accepted, the Participating Limited Partners) and paying the Liquidity Fee (as defined below). Any Limited Partner that does not elect to participate in the Liquidity Option at the time of the closing at which such Limited Partner is subscribing for Units will not have the opportunity thereafter to so participate without obtaining the consent of NEP, the GP, and the Bottom Fund Manager.

12. The principal terms of the Liquidity Option are as follows:

Fee:

(a) In consideration for providing the Liquidity Option, each Participating Limited Partner will be required to pay to the Fund, which in turn, will pay to NEP, an annual fee (the Liquidity Fee) equal to the product of (x) such Participating Limited Partner's commitment, subject to reduction of the portion of the commitment to be applied in the calculation as set out below, and (y) 0.10%. The aggregate annual Liquidity Fee payable by the Fund to NEP is the aggregate of such annual Liquidity Fees payable by all Participating Limited Partners. Once a Participating Limited Partner sells its Units to NEP, or defaults in its obligation to pay the Liquidity Fee, its investment will no longer be included in calculating the aggregate annual Liquidity Fee payable by the Fund. The obligation of a Participating Limited Partner to pay the Liquidity Fee is an additional obligation of the Participating Limited Partner, who will also be obligated to pay the full amount of the Participating Limited Partner's capital commitment.

(b) The Liquidity Fee will be payable commencing on the date that a subscriber becomes a Limited Partner in the Fund, and shall be calculated and payable on such date and each one-year anniversary thereafter.

(c) The Liquidity Fee will be reduced as follows: (i) by an amount equal to 10% of the commitment of such Participating Limited Partner on the fifth anniversary of the Final Closing; and (ii) by an amount equal to 10% of the commitment of such Participating Limited Partner on each anniversary thereafter, up to and including the eleventh anniversary of the Final Closing.

(d) Any Participating Limited Partner that defaults in paying the Liquidity Fee when due in a timely manner will automatically lose its right to sell its Units to NEP pursuant to the Liquidity Option and surrender any amounts already paid by it with respect to the Liquidity Fee.

Term:

(e) A Participating Limited Partner may require NEP to purchase such Participating Limited Partner's Units at any time commencing on the earlier of (i) the date of the Final Closing and (ii) any such time when the purchase price is greater than zero. The obligation of NEP to make such purchase(s) will terminate on the earlier of the twelfth anniversary of the Final Closing and January 1, 2028.

Purchase Price:

(f) At the request of any Participating Limited Partner, NEP will provide a written offer to purchase such Participating Limited Partner's Units at a U.S. dollar price equal to the net asset value (NAV) of the Participating Limited Partner's Units multiplied by a total of the Discount Factor multiplied by the Participating Limited Partner's Exposure, less the Participating Limited Partners' Remaining Commitment, all divided by the NAV of the Participating Limited Partner's Units. "Discount Factor" means, for the first through fifth years following the date of the Final Closing, 90%, and, for the sixth, seventh, eighth, ninth, tenth, eleventh and twelfth years following the date of the Final Closing: 87.5%, 85%, 82.5%, 80%, 77.5%, 75% and 70%, respectively. "Exposure" means, in respect of a Unit, the NAV of the Unit plus such Participating Limited Partner's Remaining Commitment. "Remaining Commitment" means the Participating Limited Partner's original capital commitment to the Fund less capital contributions drawn down by the Fund. The purchase price paid for the Units will be adjusted upward on a dollar-for-dollar basis to account for any capital contributions made by the selling Participating Limited Partner between the signing of the Liquidity Sale Agreement and the closing of the sale, and reduced downward on a dollar-for-dollar basis for any distributions made by the Fund to the selling Participating Limited Partner between the signing of the Liquidity Sale Agreement and the closing of the sale.

Obligation to Purchase:

(g) NEP's obligation to purchase Units of the Fund will be capped at an aggregate purchase price of U.S.$50 million. To reduce the likelihood that the Units subject to the Liquidity Option will exceed NEP's obligation to purchase Units, the Fund will not accept elections to participate in the Liquidity Option for more Units than the number of Units having an aggregate NAV of U.S.$50 million.

(h) In the event that the aggregate NAV of the Units that Limited Partners, who elect to participate in the Liquidity Option, wish to subscribe for is greater than U.S.$50 million, a prorated fraction of the Units of each such Limited Partner will be accepted into the Liquidity Option at the initial closing of the Fund, such that the aggregate NAV of the Units subject to the Liquidity Option will initially equal U.S.$50 million. If at the initial closing of the Fund the aggregate NAV of the Units that Limited Partners, who elect to participate in the Liquidity Option, wish to subscribe for is less than U.S.$50 million and one or more subsequent closings of the Fund occurs, Limited Partners who subscribe for Units at a subsequent closing of the Fund may elect in their subscription documents to participate in the Liquidity Option to the extent that the aggregate NAV of Units subject to the Liquidity Option is less than U.S.$50 million, and participation in the Liquidity Option at any subsequent closing of the Fund will be prorated as to that remaining availability only among those Limited Partners whose subscriptions are accepted at that particular subsequent closing. Notwithstanding any pro rata entitlement to exercise under the Liquidity Option, NEP's obligation will only be to purchase Units having an aggregate purchase price of U.S.$50 million, which may affect the number of Units that NEP is obligated to purchase depending on any increase or decrease in NAV of the Units.

(i) The Fund will notify NEP if the aggregate NAV of the Units that Limited Partners, who elect to participate in the Liquidity Option, wish to subscribe for is greater than U.S.$50 million, with a view to the possibility of the Liquidity Option being extended by NEP above an aggregate purchase price of U.S.$50 million, but there is no assurance that there will be any such extension.

(j) The Liquidity Option is the obligation of NEP. Neither the Fund, the GP, nor any person, other than NEP, is under any obligation in connection with the Liquidity Option and none of them is responsible for, or has any obligations to the Participating Limited Partners in the event of the failure of NEP to provide such liquidity. Neither the Fund, the GP, nor any other person makes any representation or warranty with respect to the creditworthiness of NEP and/or NEP's ability to fulfill its obligations to provide such liquidity to the Participating Limited Partners.

Expenses:

(k) A Participating Limited Partner will be responsible for its own expenses incurred in connection with a sale to NEP pursuant to the Liquidity Option.

Timing:

(l) A Participating Limited Partner wishing to require NEP to purchase its Units will sign and deliver a copy of the definitive purchase and sale agreement to which NEP is the counterparty (the Liquidity Sale Agreement) to NEP. The form of the Liquidity Sale Agreement has been approved by the GP and NEP and is attached as an exhibit to the subscription agreement.

(m) The closing of the sale of Units on the exercise of the Liquidity Option will not occur until NAV is finally determined, which could be as long as 190 days following the execution of the Liquidity Sale Agreement, and requires, among other things, the consent of the GP to the transfer of the Units to NEP and the admission of NEP as a Limited Partner, which consent the Participating Limited Partner and the NEP have agreed to use commercially reasonable efforts to take all necessary actions to obtain.

13. Participation in the Liquidity Option is voluntary. As the Liquidity Option is of limited size, the availability of the entitlement to participate in the Liquidity Option for Limited Partners whose subscriptions are accepted at closings subsequent to the initial closing of the Fund will depend on the extent of the participation of Participating Limited Partners at prior closings of the Fund; however, the then-remaining availability of the Liquidity Option will be offered to all Limited Partners whose subscriptions are accepted at a subsequent closing of the Fund on equal terms.

14. When the amount of capacity remaining for purchase under the Liquidity Option first becomes equal to or less than 25% of the aggregate purchase price of U.S.$50 million (or such greater extended aggregate purchase price amount), the GP will deliver a notice to each Participating Limited Partner setting out the NAV of the Units and the amount of capacity remaining for purchase under the Liquidity Option.

15. In the event of more than one closing in respect of the sale of Units of the Fund, potential investors in the Fund will be provided with notice of the NAV of the Units and the amount of capacity remaining for purchase under the Liquidity Option as at the time of each subsequent closing. In addition, in the event of more than one closing in respect of the sale of the Units of the Fund, the PPM will be supplemented with disclosure outlining the availability of the Liquidity Option as at the latest practicable date prior to the distribution of the PPM to potential investors in the Fund.

16. NEP has indicated that it intends to hold any Units purchased pursuant to the Liquidity Option until the dissolution of the Fund. Consequently, as a result of such purchase, NEP will be obligated as a Limited Partner to make capital contributions to, and be entitled to receive distributions from, the Fund with respect to such purchased Units.

17. While there is no direct relationship between NEP and the Fund, an affiliate of the Bottom Fund Manager is an investor in NEP. Notwithstanding this relationship, the terms of the Liquidity Option reflect arm's length negotiations and bona fide terms and conditions.

18. The exercise of the Liquidity Option by a number of Participating Limited Partners could result in NEP acquiring 20% or more of the outstanding Units of the Fund and, as a result, the operation of the Liquidity Option would be a take-over bid for the purposes of the Take-Over Bid Provisions.

19. Legislation in the Jurisdiction provides an exemption from the Take-Over Bid Provisions with respect to non-reporting issuers if (the Non-Reporting Issuer Exemption):

(a) the offeree issuer is not a reporting issuer;

(b) there is not a published market in respect of the securities that are the subject of the bid; and

(c) the number of holders of securities of that class is not more than fifty, exclusive of holders who are in the employment of the offeree issuer or any affiliate of the offeree issuer, and exclusive of holders who were formerly in the employment of the offeree issuer or an affiliate of the offeree issuer and who while in employment were, and have continued after that employment to be, security holders of the offeree issuer.

20. While the Fund will not be a reporting issuer and there will be no published market in respect of the Units, as there is no restriction on the number of Limited Partners that the Fund may have, there is no assurance that the Fund will have fewer than fifty Limited Partners, and for this reason, the Non-Reporting Issuer Exemption will likely not be available in respect of the Liquidity Option.

21. The Filers and the Fund are not in default of securities legislation in any jurisdiction.

Decision

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 under the Legislation is that the Exemption Sought is granted provided that:

(a) the principal terms of the Liquidity Option are as described above and such terms are not amended or extended other than as contemplated in paragraph 8 and clause 12(i) above;

(b) the features of the Liquidity Option will be fully disclosed in the PPM of the Fund;

(c) there continues to be no published market for the Units;

(d) the Fund is not, and does not become, a reporting issuer; and

(e) each Limited Partner is an "accredited investor" (as defined in NI 45-106) at the time such Limited Partner purchases Units.

"Mary Condon"
Vice Chair
Ontario Securities Commission
 
"Janet Leiper"
Commissioner
Ontario Securities Commission