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Pembina Pipeline Income Fund - MRRS Decision
Headnote
MRRS for Exemptive Relief Applications. Relieffrom registration and prospectus requirements granted for issuanceof trust units of the Applicant issued under a new distributionreinvestment plan, subject to certain conditions. First traderelief granted, subject to certain conditions.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am.sections 25, 53 and 74(1).
Instruments Cited
Multilateral Instrument 45-102 Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, SASKATCHEWAN,MANITOBA, ONTARIO,
QUEBEC, NEW BRUNSWICK, NOVASCOTIA, NEWFOUNDLAND AND LABRADOR,
PRINCE EDWARD ISLAND, YUKON,NUNAVUT AND NORTHWEST TERRITORIES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
PEMBINA PIPELINE INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Saskatchewan, Manitoba, Ontario, Québec,Nova Scotia, New Brunswick, Prince Edward Island, Newfoundlandand Labrador, Yukon, Nunavut and the Northwest Territories (the"Jurisdictions" and each, a "Jurisdiction")has received an application from Pembina Pipeline Income Fund("Pembina") for a decision, pursuant to the securitieslegislation of the Jurisdictions (the "Legislation"),that the requirements contained in the Legislation to be registeredto trade in a security and to file and obtain a receipt fora preliminary prospectus and a final prospectus (the "Registrationand Prospectus Requirements") shall not apply to certaintrades in trust units of Pembina issued pursuant to the Plan(as defined below), subject to certain conditions;
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;
AND WHEREAS Pembina has represented tothe Decision Makers that:
1. Pembina is an unincorporated open-endedinvestment trust formed under the laws of the Province ofAlberta pursuant to a Declaration of Trust dated September4, 1997, as amended and restated as of April 30, 1999, andas further amended April 28, 2000 (the "Declaration ofTrust").
2. The business of Pembina consists of theindirect ownership of interests in 15 oil and natural gasliquids pipeline systems in western Canada.
3. Pembina has been a reporting issuer, orthe equivalent, in each of the provinces of Canada since 1997,and to its knowledge, is not in default of any requirementsunder the Legislation of any such Jurisdiction.
4. Pembina is a "qualifying issuer"within the meaning of Multilateral Instrument 45-102 Resaleof Securities.
5. The trustee of Pembina is ComputershareTrust Company of Canada. The entire beneficial interest inPembina is held by the holders of trust units ("Units")issued by Pembina.
6. An unlimited number of Units have beencreated and may be issued pursuant to the Declaration of Trust.As of the close of business on December 16, 2002, 93,535,954Units were issued and outstanding.
7. The Units are listed and posted for tradingon the Toronto Stock Exchange (the "TSX").
8. Pursuant to the terms of the Declarationof Trust, Pembina currently makes and expects to continueto make monthly distributions of distributable income, ifany, to the holders of Units (the "Unitholders").The distributable income of Pembina for any month is a functionof the amounts received by Pembina from the net cash flowof its operating subsidiaries.
9. Pembina is not a "mutual fund"under the Legislation as Unitholders are not entitled to receiveon demand an amount computed by reference to the value oftheir respective proportionate interests in the whole or inpart of the net assets of Pembina, as contemplated by thedefinition of "mutual fund" in the Legislation.
10. Pembina currently has a distribution reinvestmentplan (the "Old Plan") which enables eligible Unitholdersto direct that cash distributions paid on their existing Units("Cash Distributions") be automatically appliedto the purchase of Units from treasury.
11. Pembina intends to establish a new PremiumDistribution, Distribution Reinvestment and Optional UnitPurchase Plan (the "Plan") pursuant to which eligibleUnitholders may, at their option, purchase additional Units("Additional Units") of Pembina by directing thatCash Distributions be applied to the purchase of AdditionalUnits (the "Distribution Reinvestment Option").
12. Alternatively, the Plan enables eligibleUnitholders who decide to reinvest Cash Distributions to authorizeand direct Computershare Trust Company of Canada, in its capacityas agent under the Plan (or such other trust company thatis appointed agent under the Plan) (in such capacity, the"Plan Agent"), to pre-sell through a designatedbroker (the "Plan Broker"), for the account of theUnitholders who so elect, that number of Units equal to thenumber of Additional Units issuable on such reinvestment,and to settle such pre-sales with the Additional Units issuedon the applicable distribution payment date in exchange fora cash payment equal to 102% of the reinvested Cash Distributions(the "Premium Distribution Option"). The Plan Brokerwill be entitled to retain for its own account the differencebetween the proceeds realized in connection with the pre-salesof such Units and the cash payment to the Plan Agent equalto 102% of the reinvested Cash Distributions.
13. Eligible Unitholders who have directedthat their Cash Distributions be reinvested in AdditionalUnits under either the Distribution Reinvestment Option orthe Premium Distribution Option ("Participants")may also be able to directly purchase Additional Units underthe Plan by making optional cash payments within the limitsestablished thereunder (the "Cash Payment Option").Pembina Management Inc. (the "Manager") shall havethe right to determine from time to time whether the CashPayment Option will be available. The Cash Payment Optionwill only be available to Unitholders that are Participants.
14. The Plan will supercede the Old Plan.All Unitholders who are enrolled in the Old Plan at the timethat the Plan becomes effective will, subject to any contraryelections made by such Unitholders, be automatically enrolledin the Distribution Reinvestment Option of the Plan.
15. All Additional Units purchased under thePlan will be purchased by the Plan Agent directly from Pembinaon the relevant distribution payment date at a price determinedby reference to the Average Market Price (defined in the Planas the arithmetic average of the daily volume weighted averagetrading prices of the Units on the TSX for the trading daysstarting on the second business day following the distributionrecord date and ending on the second business day immediatelyprior to the distribution payment date on which at least aboard lot of Units was traded, such period not to exceed 20trading days).
16. Additional Units purchased under the DistributionReinvestment Option or the Premium Distribution Option willbe purchased at a 5% discount to the Average Market Price.Additional Units purchased under the Cash Payment Option willbe purchased at the Average Market Price.
17. The Plan Broker's prima facie returnunder the Premium Distribution Option will be approximately3% of the reinvested Cash Distributions (based on pre-salesof Units having a market value of approximately 105% of thereinvested Cash Distributions and a fixed cash payment tothe Plan Agent, for the account of applicable Participants,of an amount equal to 102% of the reinvested Cash Distributions).The Plan Broker may, however, realize more or less than thisprima facie amount, as the actual return will varyaccording to the prices the Plan Broker is able to realizeon the pre-sales of Units. The Plan Broker bears the entirerisk of adverse changes in the market, as Participants whohave elected the Premium Distribution Option are assured acash payment equal to 102% of the reinvested Cash Distributions.
18. All activities of the Plan Broker on behalfof the Plan Agent that relate to pre-sales of Units for theaccount of Unitholders who elect the Premium DistributionOption will be in compliance with applicable Legislation andthe rules and policies of the TSX (subject to any exemptiverelief granted). The Plan Broker will also be a member ofthe Investment Dealers Association of Canada, and will beregistered under the legislation of any Jurisdiction wherethe first trade in Additional Units pursuant to the PremiumDistribution Option makes such registration necessary.
19. The Plan will not be available to Unitholderswho are residents of the United States.
20. Participants who choose to participatein the Plan may elect either the Distribution ReinvestmentOption or the Premium Distribution Option in respect of theirCash Distributions. The Cash Payment Option is available toeligible Unitholders who elect to reinvest their Cash Distributionsunder either the Distribution Reinvestment Option or the PremiumDistribution Option. Eligible Unitholders may elect to participatein either the Distribution Reinvestment Option or the PremiumDistribution Option at their sole option, and are free toterminate their participation under either option, or to changetheir election, in accordance with the terms of the Plan.
21. Under the Distribution Reinvestment Option,Cash Distributions will be paid to the Plan Agent and appliedby the Plan Agent to the purchase of Additional Units, whichwill be held under the Plan for the account of the appropriateParticipants who have elected to participate in that componentof the Plan.
22. Under the Premium Distribution Option,Cash Distributions will be paid to the Plan Agent and appliedby the Plan Agent to the purchase of Additional Units forthe account of the appropriate Participants who have electedto participate in that component of the Plan, but the AdditionalUnits purchased thereby will be automatically transferredto the Plan Broker to settle pre-sales of Units made by thePlan Broker on behalf of the Plan Agent for the account ofsuch Participants in exchange for a cash payment equal to102% of the reinvested Cash Distributions.
23. Under the Cash Payment Option, a Participantmay, through the Plan Agent, purchase Additional Units upto a stipulated maximum dollar amount per year and subjectto a minimum amount per remittance. The aggregate number ofAdditional Units that may be purchased under the Cash PaymentOption by all Participants in any financial year of Pembinawill be limited to a maximum of 2% of the number Units issuedand outstanding at the start of the financial year.
24. No brokerage fees or service charges willbe payable by Participants in connection with the purchaseof Additional Units under the Plan.
25. Additional Units purchased under the Planwill be credited to a Participant's account, and all CashDistributions on Units enrolled in the Plan will be automaticallyreinvested in Additional Units or exchanged for a cash paymentunder the Premium Distribution Option, as applicable, in accordancewith the terms of the Plan and the current election of thatParticipant.
26. Depending on the policies of a Participant'sbroker, investment dealer, financial institution or othernominee through which the Participant holds its Units, thePlan permits full investment of reinvested Cash Distributionsand optional cash payments because fractions of Units, aswell as whole Units, may be credited to Participants' accounts.
27. The Manager, in its capacity as the managerof Pembina and subject to certain parameters established bythe board of directors of Pembina Pipeline Corporation, reservesthe right to determine for any distribution payment date howmany Additional Units will be available for purchase underthe Plan.
28. If, in respect of any distribution paymentdate, fulfilling all of the elections under the Plan wouldresult in Pembina exceeding either the limit on AdditionalUnits set by the Manager or the aggregate annual limit onAdditional Units issuable pursuant to the Cash Payment Option,then elections for the purchase of Additional Units on thenext distribution payment date will be accepted: (i) first,from Participants electing the Distribution Reinvestment Option;(ii) second, from Participants electing the Premium DistributionOption; and (iii) third, from Participants electing the CashPayment Option. If Pembina is not able to accept all electionsin a particular category, then purchases of Additional Unitson the next distribution payment date will be pro rated amongall Participants in that category according to the numberof Additional Units sought to be purchased.
29. If the Manager determines that no AdditionalUnits will be available for purchase under the Plan for aparticular distribution payment date, then all Participantswill receive the Cash Distribution announced by Pembina forthat distribution payment date.
30. A Participant may terminate its participationin the Plan at any time by providing written notice to theirinvestment advisor or broker. A termination form receivedbetween a distribution record date and a distribution paymentdate will become effective after that distribution paymentdate.
31. Pembina reserves the right to amend, suspendor terminate the Plan at any time, provided that such actionshall not have a retroactive effect which would prejudicethe interests of the Participants. Pembina will make a publicannouncement of any such amendment, suspension or terminationand will notify Unitholders in accordance with applicablesecurities law requirements. All Participants will be sentwritten notice of any such amendment, suspension or termination.
32. The distribution of Additional Units byPembina pursuant to the Plan cannot be made in reliance oncertain existing exemptions from the Registration and ProspectusRequirements as the Plan involves the reinvestment of distributionsof distributable income of Pembina and not the reinvestmentof dividends, interest or distributions of capital gains orout of earnings or surplus.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that the trades of Additional Units byPembina to the Plan Agent for the account of Participants pursuantto the Plan shall not be subject to the Registration and ProspectusRequirements provided that:
1. at the time of the trade Pembina is a reportingissuer or the equivalent under the Legislation and is notin default of any requirements of the Legislation;
2. no sales charge is payable in respect ofthe trade;
3. Pembina has caused to be sent to the personor company to whom the Additional Units are traded, not morethan 12 months before the trade, a statement describing:
(a) their right to withdraw from the Planand to make an election to receive cash instead of Unitson the making of a distribution of income by Pembina, and
(b) instructions on how to exercise theright referred to in paragraph (a) above;
4. the aggregate number of Additional Unitsissued under the Cash Payment Option of the Plan in any financialyear of Pembina shall not exceed 2% of the aggregate numberof Units outstanding at the start of that financial year;
5. except in Québec, the first tradein Additional Units acquired pursuant to this Decision willbe a distribution or primary distribution to the public unlessthe conditions in subsections 2.6(3) or (4) of MultilateralInstrument 45-102 Resale of Securities are satisfied;and
6. in Québec, the first trade in AdditionalUnits acquired pursuant to this Decision will be a distributionunless:
(i) Pembina is and has been a reportingissuer in Québec for the 12 months preceding thealienation;
(ii) no unusual effort is made to preparethe market or to create a demand for the securities thatare the subject of the alienation;
(iii) no extraordinary commission or otherconsideration is paid in respect of the alienation;
(iv) if the seller of the securities isan insider of the issuer, the seller has no reasonable groundsto believe that the issuer is in default of any requirementof securities legislation;
7. disclosure of the initial distributionof Additional Units pursuant to this Decision is made to therelevant Jurisdictions by providing particulars of the dateof the distribution of such Additional Units, the number ofsuch Additional Units and the purchase price paid or to bepaid for such Additional Units in:
(a) an information circular or take-overbid circular filed in accordance with the Legislation; or
(b) a letter filed with the Decision Makerin the relevant Jurisdiction by a person or company certifyingthat the person or company has knowledge of the facts containedin the letter,
8. when Pembina distributes such AdditionalUnits for the first time, Pembina will provide disclosureto the relevant Jurisdictions which sets forth the date ofsuch distribution, the number of such Additional Units andthe purchase price paid for such Additional Units, and thereafternot less frequently than annually, unless the aggregate numberof Additional Units so distributed in any month exceeds 1%of the aggregate number of Units outstanding at the beginningof the month in which the Additional Units were distributed,in which case the disclosure required under this paragraphshall be made in each relevant Jurisdiction (other than Québec)in respect of that month within ten days of the end of suchmonth.
January 23, 2003.
"Howard I. Wetston" ""RobertL. Shirriff"