HeadnoteMutualReliance Review System for Exemptive Relief Applications - subdividedoffering - the prohibitions contained in the Legislation prohibitingtrading in portfolio shares by persons or companies having informationconcerning the trading programs of mutual funds shall not applyto the promoter/agent with respect to certain principal tradeswith the issuer in securities comprising the issuer's portfolio- issuer's portfolio consisting of common shares of five Canadianchartered banks.
Marketmaking trades by promoter/agent shall not be subject to requirementsto file and obtain a receipt for a preliminary and final prospectusprovided that the promoter/agent and its affiliates do not beneficiallyown or have the power to exercise control of a sufficient numberof voting securities of an issuer of the securities comprisingthe issuer's portfolio to permit the promoter/agent to affectmaterially the control of such issuer.
Issuer, a mutual fund,exempted from restriction against making an investment in anyperson or company who is a substantial security holder of themutual fund, its management company or distribution company.
SecuritiesAct, R.S.O. 1990, c.S.5, as amended, ss. 1(1), 53(1), 74(1),111(2)(a), 113, 119, 121(2)(a)(ii).
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM
FOREXEMPTIVE RELIEF APPLICATIONS
INTHE MATTER OF
INTHE MATTER OF
WHEREAS the local securities regulatory authorityor regulator (the "Decision Maker") in each of Ontario, BritishColumbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia,Newfoundland and Labrador, New Brunswick, and Prince EdwardIsland (the "Jurisdictions") has received an application from5Banc Split Inc. (the "Company") and TD Securities Inc. ("TDSecurities") for decisions under the securities legislation(the "Legislation") of the Jurisdictions that the followingrequirements contained in the applicable Legislation shall notapply to the Company and/or TD Securities, as applicable:
(a) in the case of the Legislation of each of the Jurisdictionsother than Manitoba and Québec, the prohibitions containedtherein prohibiting trading in portfolio shares by persons orcompanies having information concerning the trading programsof mutual funds (the "Principal Trading Prohibitions") shallnot apply to TD Securities in connection with the PrincipalSales and Principal Purchases (both as hereinafter defined);
(b) in the case of the Legislation of each of the Jurisdictionsother than Manitoba, the restrictions contained therein prohibitingthe Company from making investments in the common shares ofthe Banks (as defined below), each of which is, or is likelyto be, a substantial security holder of a distribution companyof the Company (the "Investment Restrictions"), shall not applyto the Company in connection with the initial public offering(the "Offering") of the class A capital shares (the "CapitalShares") and class A preferred shares (the "Preferred Shares")of the Company; and
(c) the requirements contained in the Legislation of each ofthe Jurisdictions other than Québec to file and obtaina receipt for a preliminary prospectus and final prospectus(the "Prospectus Requirements") shall not apply to Market MakingTrades (as hereinafter defined) by TD Securities in PreferredShares and Capital Shares of the Company;
subject to certain restrictions;
AND WHEREAS under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System"), theOntario Securities Commission is the principal regulator forthis application;
AND WHEREAS the Company has represented tothe Decision Makers that:
1.TD Securities is a direct, wholly-owned subsidiary of The Toronto-DominionBank (the "TD Bank") and is registered under the Legislationas a dealer in the categories of "broker" and "investment dealer"and is a member of the Investment Dealers Association of Canadaand The Toronto Stock Exchange (the "TSE").
2.TD Securities is the promoter of the Company and will be establishinga credit facility in favour of the Company in order to facilitatethe acquisition of the Portfolio Shares (as defined below) bythe Company.
3.The Company was incorporated on November 9, 2001 under the lawsof the Province of Ontario and is authorized to issue an unlimitednumber of Class E Shares.
4.The Company has filed with the securities regulatory authoritiesof the Jurisdictions a preliminary prospectus dated November9, 2001 (the "Preliminary Prospectus") in respect of the proposedOffering of Capital Shares and Preferred Shares to the public.
5.The Company intends to become a reporting issuer under the Legislationby filing a final prospectus (the "Final Prospectus") relatingto the Offering. Prior to the filing of the Final Prospectus,the Articles of the Company will be amended so that the authorizedcapital of the Company will consist of an unlimited number ofCapital Shares, an unlimited number of Preferred Shares, anunlimited number of Class B, Class C and Class D Capital Shares,issuable in series, an unlimited number of Class B, Class Cand Class D Preferred Shares, issuable in series, and an unlimitednumber of Class E voting shares, having the attributes set forthunder the headings "Description of Share Capital" and "Detailsof the Offerings" in the Preliminary Prospectus.
6.The Capital Shares and Preferred Shares may be surrendered forretraction at any time in the manner described in the PreliminaryProspectus.
7.Application will be made to list the Capital Shares and PreferredShares on the TSE.
8.The Class E Shares will be the only voting shares in the capitalof the Company. There are currently, and will be at the timeof filing the Final Prospectus, 100 Class E Shares issued andoutstanding. TD Securities owns 50 of the issued and outstandingClass E Shares of the Company and 5Banc Split Holdings Corporationowns the remaining 50 issued and outstanding Class E Sharesof the Company. Two employees of TD Securities each own 50%of the issued and outstanding common shares of 5Banc Split HoldingsCorporation.
9.The Company has a board of directors which currently consistsof five directors, three of whom are employees of TD Securitiesand two of whom are independent of TD Securities. The President/ChiefExecutive Officer and Chief Financial Officer/Secretary of theCompany are employees of TD Securities.
10.Pursuant to an agreement (the "Agency Agreement") to be madebetween the Company and TD Securities, Scotia Capital Inc. andsuch other agents as may be appointed after the date of thisapplication (collectively, the "Agents" and individually, an"Agent"), the Company will appoint the Agents, as its agents,to offer the Capital Shares and Preferred Shares of the Companyon a best efforts basis and the Final Prospectus qualifyingthe Offering will contain a certificate signed by each of theAgents in accordance with the Legislation.
11.The Company is considered to be a mutual fund as defined inthe Legislation, except in Québec. Since the Companydoes not operate as a conventional mutual fund, it has madeapplication for a waiver from certain requirements of NationalInstrument 81-102 Mutual Funds.
12.The Company is a passive investment company whose principalundertaking will be to invest the net proceeds of the Offeringin a portfolio (the "Portfolio") of common shares (the "PortfolioShares") of Bank of Montreal, The Bank of Nova Scotia, CanadianImperial Bank of Commerce, Royal Bank of Canada and the TD Bank(collectively, the "Banks" and individually, a "Bank"). Thepurpose of the Company is to generate dividend income for theholders of the Preferred Shares and to enable holders of CapitalShares to participate in any capital appreciation in the PortfolioShares and to benefit from any increase in the dividends paidon the Portfolio Shares.
13.The Final Prospectus will disclose the acquisition cost of thePortfolio Shares to the Company and selected financial informationand dividend and trading history with respect to the PortfolioShares.
14.The Portfolio Shares are listed and traded on the TSE.
15.The Company is not, and will not upon the completion of theOffering, be an insider of any of the issuers of the PortfolioShares within the meaning of the Legislation.
16.TD Securities does not have knowledge of a material fact ormaterial change with respect to any of the issuers of the PortfolioShares that has not been generally disclosed.
17.TD Securities' economic interest in the Company and in the materialtransactions involving the Company are disclosed in the PreliminaryProspectus and will be disclosed in the Final Prospectus underthe heading "Interest of Management and Others in Material Transactions".
18.The net proceeds from the sale of the Capital Shares and PreferredShares under the Final Prospectus, after payment of commissionsto the Agents, expenses of issue and carrying costs relatingto the acquisition of the Portfolio Shares, will be used bythe Company to:
(a) pay the acquisition cost (including any related costs orexpenses) of the Portfolio Shares; and
(b) pay the initial fee payable to TD Securities for its servicesunder the Administration Agreement (as defined below).
19.All Capital Shares and Preferred Shares outstanding on a dateapproximately five years from the closing of the Offering willbe redeemed by the Company on such date (the "Redemption Date")as will be specified in the Final Prospectus, and PreferredShares will be redeemable at the option of the Company on anyAnnual Retraction Payment Date, as described in the PreliminaryProspectus.
20.Pursuant to an agreement (the "Securities Purchase Agreement")to be entered into between the Company and TD Securities, TDSecurities will purchase, as agent for the benefit of the Company,Portfolio Shares in the market on commercial terms or from non-relatedparties with whom TD Securities and the Company deal at arm'slength. Subject to receipt of all necessary regulatory approvals,TD Securities may, as principal, sell Portfolio Shares to theCompany (the "Principal Sales"). The aggregate purchase priceto be paid by the Company for the Portfolio Shares (togetherwith carrying costs and other expenses incurred in connectionwith the purchase of Portfolio Shares) will not exceed the netproceeds from the Offering.
21.The Preliminary Prospectus discloses and the Final Prospectuswill disclose that any Principal Sale will be made in accordancewith the rules of the applicable stock exchange and the pricepaid to TD Securities (inclusive of all transaction costs, ifany) will not be greater than the price which would have beenpaid (inclusive of all transaction costs, if any) if the acquisitionhad been made through the facilities of the principal stockexchange on which the Portfolio Shares are listed and postedfor trading at the time of the purchase from TD Securities.TD Securities may realize a gain or loss in respect of the PrincipalSales, which is described in the Preliminary Prospectus andwill be described in the Final Prospectus.
22.TD Securities will not receive any commissions from the Companyin connection with the Principal Sales and all Principal Saleswill be approved by the two independent directors of the Company.
23.For the reasons set forth in paragraphs 20 and 21 above, andthe fact that no commissions are payable to TD Securities inconnection with the Principal Sales, in the case of the PrincipalSales, the interests of the Company and the shareholders ofthe Company may be enhanced by insulating the Company from priceincreases in respect of the Portfolio Shares.
24.None of the Portfolio Shares to be sold by TD Securities asprincipal to the Company have been acquired, nor has TD Securitiesagreed to acquire, any Portfolio Shares while TD Securitieshad access to information concerning the investment programof the Company, although certain of the Portfolio Shares tobe held by the Company may be acquired or TD Securities mayagree to acquire such Portfolio Shares on or after the dateof this Decision Document.
25.It will be the policy of the Company to hold the Portfolio Sharesand to not engage in any trading of the Portfolio Shares, except:
(a) to fund retractions or redemptions of Capital Shares andPreferred Shares;
(b) to fund a portion of the fixed distribution on the PreferredShares;
(c) following receipt of stock dividends on the Portfolio Shares;or
(d) in certain other limited circumstances as described in thePreliminary Prospectus.
26.Pursuant to an administration agreement (the "AdministrationAgreement") to be entered into, the Company will retain TD Securitiesto administer the ongoing operations of the Company and willpay TD Securities (i) a monthly fee of 1/12 of 0.15% of themarket value of the Portfolio Shares held in the Portfolio,and (ii) interest income earned by the Company from time totime.
27.In connection with the services to be provided by TD Securitiesto the Company pursuant to the Administration Agreement, TDSecurities may sell Portfolio Shares, as agent on behalf ofthe Company, to pay a portion of the dividends payable on thePreferred Shares, to fund retractions of Capital Shares andPreferred Shares prior to the Redemption Date and upon liquidationof Portfolio Shares prior to the Redemption Date. However, incertain circumstances, such as where a small number of CapitalShares and Preferred Shares have been surrendered for retraction,TD Securities may purchase Portfolio Shares as principal (the"Principal Purchases") subject to receipt of all regulatoryapprovals.
28.In connection with any Principal Purchases, TD Securities willcomply with the rules, procedures and policies of the applicablestock exchange of which it is a member and in accordance withorders obtained from all applicable securities regulatory authorities.The Final Prospectus will disclose that TD Securities may realizea gain or loss on the resale of such securities.
29.The Administration Agreement will provide that TD Securitiesmust take reasonable steps, such as soliciting bids from othermarket participants or such other steps as TD Securities, inits discretion, considers appropriate after taking into accountprevailing market conditions and other relevant factors, toenable the Company to obtain the best price reasonably availablefor the Portfolio Shares so long as the price obtained (netof all transaction costs, if any) by the Company from TD Securitiesis at least as advantageous to the Company as the price whichis available (net of all transaction costs, if any) throughthe facilities of the applicable stock exchange at the timeof the trade.
30.TD Securities will not receive any commissions from the Companyin connection with Principal Purchases and, in carrying outthe Principal Purchases, TD Securities shall deal fairly, honestlyand in good faith with the Company.
31.TD Securities will be a significant maker of markets for theCapital Shares and Preferred Shares, although it is not anticipatedthat TD Securities will be appointed the registered pro-traderby the TSE with respect to the Company. As a result, TD Securitieswill, from time to time, purchase and sell Capital Shares andPreferred Shares as principal and trade in such securities asagent on behalf of its clients, the primary purpose of suchtrades (the "Market Making Trades") being to provide liquidityto the holders of Capital Shares and Preferred Shares. All tradesmade by TD Securities as principal will be recorded daily bythe TSE.
32.Each Bank is a substantial security holder of an investmentdealer subsidiary, which is, or is likely to be, a distributioncompany of the Company. Each of the Agents will be a distributioncompany of the Company for the purposes of the Legislation.
33.As TD Securities owns 50% of the Class E Shares of the Company,TD Securities will be deemed to be in a position to effect materiallythe control of the Company and consequently, each Market MakingTrade will be a "distribution" or "distribution to the public"within the meaning of the Legislation.
AND WHEREAS under the System, this MRRS DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");
AND WHEREAS each of the Decision Makers issatisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
A.The Principal Trading Prohibitions shall not apply to TD Securitiesin connection with the Principal Sales and Principal Purchases.
B.The Investment Restrictions shall not apply to the Company inconnection with investments in Portfolio Shares for the purposesof the Offering as described in the Preliminary Prospectus.
C.The Prospectus Requirements shall not apply to the Market MakingTrades by TD Securities in the Capital Shares and PreferredShares provided that at the time of each Market Making Trade,TD Securities and its affiliates do not beneficially own orhave the power to exercise control or direction over a sufficientnumber of voting securities of a Bank, securities convertibleinto voting securities of a Bank, options to acquire votingsecurities of a Bank, or any other securities which providethe holder with the right to exercise control or direction overvoting securities of a Bank which in the aggregate, permit TDSecurities to affect materially the control of such Bank andwithout limiting the generality of the foregoing, the beneficialownership of or the power to exercise control or direction oversecurities representing in the aggregate 20% or more of thevotes attaching to all the then issued and outstanding votingsecurities of a Bank shall, in the absence of evidence to thecontrary, be deemed to affect materially the control of suchBank.
December 12, 2001.
"Paul Moore" "H. Lorne Morphy"