Securities Law & Instruments


Mutual Reliance Review System - Rule 61-501 -- Going private transaction -- exemption from the valuation requirement granted in connection with a reorganization of a business into an open-ended real estate investment trust where a related party is receiving different consideration than the public shareholders. The transaction is subject to the minority approval requirements of the Rule 61-501. The public shareholders are receiving an information circular containing all the relevant information they require in order to make an informed decision, including regarding the different consideration and the tax consequences of the transaction.

Applicable Ontario Rule

Rule 61-501 - Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 4.5 and 9.1.













WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario and Québec (the "Jurisdictions") has received an application from Boardwalk Equities Inc. ("Boardwalk") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that the requirement to obtain a formal valuation (the "Valuation Requirement") in Ontario Securities Commission Rule 61-501 ("Rule 61-501") and Québec Policy Statement Q-27 ("Policy Q-27") shall not apply in connection with a proposed going private transaction occurring as part of the reorganization of Boardwalk's business pursuant to a multi-step transaction (the "Transaction");

AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions or in Québec Commission Notice 14-101;

AND WHEREAS Boardwalk has represented to the Decision Makers that:

1. Boardwalk was incorporated under the Business Corporations Act (Alberta) (the "ABCA") on July 14, 1993 and its head and registered office are located in Calgary, Alberta. Boardwalk has 46 direct or indirect wholly-owned subsidiaries.

2. Boardwalk is a reporting issuer or the equivalent in all of the provinces of Canada and is not currently in default of the securities legislation in such jurisdictions.

3. Boardwalk is authorized to issue an unlimited number of common shares (the "Common Shares") and an unlimited number of preferred shares (the "Preferred Shares"). As at September 30, 2003, Boardwalk had 50,481,000 Common Shares, 5,604,956 Preferred Shares, Series I, and 3,340,199 Preferred Shares, Series II issued and outstanding and 2,851,300 Common Shares reserved for issuance on the exercise of stock options ("Options") issued pursuant to Boardwalk's stock option plan.

4. The Common Shares are listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol "BEI".

5. Boardwalk is an owner/operator of multi-family rental communities with a total market capitalization of approximately Cdn. $2.1 billion.

6. As at September 30, 2003, Boardwalk Properties Company Limited ("BPCL") was the registered owner of 15,600,000 Common Shares, representing approximately 30.92% of the outstanding Common Shares. BPCL is owned as to 50% by Boardwalk Investment Limited ("BIL"), which is owned entirely by Sam Kolias, the President and Chief Executive Officer of Boardwalk, and as to 50% by Park Place Holdings Ltd. ("PPHL"), which is owned entirely by Van Kolias, the Senior Vice-President, Quality Control and Assistant Corporate Secretary of Boardwalk.

7. Pursuant to the Transaction, Boardwalk proposes to reorganize its business such that its revenue producing multi-family residential properties will be transferred into an open-ended real estate investment trust to be named "Boardwalk Real Estate Investment Trust" ("Boardwalk REIT").

8. Holders of Common Shares and holders of Options will be asked at a special meeting expected to be held on or about February 27, 2004, to approve the Transaction (the "Special Meeting"). In order to effect the Transaction, Boardwalk will require approval of the Transaction from, among others:

(i) 66 2/3% of the votes cast by holders of Common Shares and Options, voting as a group; and

(ii) a majority of the votes cast by holders of Common Shares excluding the votes attaching to the Common Shares beneficially owned or over which control or direction is exercised by BPCL, its affiliates and the directors and officers of Boardwalk.

9. Prior to, but in anticipation of, the Transaction the following will be completed (collectively, the "Pre-Transaction Steps"):

(i) BPCL will incorporate a wholly-owned subsidiary ("Newco") under the ABCA;

(ii) Boardwalk will incorporate two wholly-owned subsidiaries, one hereinafter referred to as "Boardwalk Subco" and the other as "Boardwalk GP";

(iii) Boardwalk GP and Boardwalk will form a limited partnership ("Boardwalk LP"), with Boardwalk serving as the initial limited partner and Boardwalk GP as general partner. Boardwalk LP's authorized capital will consist of:

(A) the initial limited partnership unit issued to Boardwalk;

(B) an unlimited number of Class A Units ("LP A Units") which are entitled, among other things, to distributions of distributable income from Boardwalk LP equivalent to those received on LP B Units;

(C) an unlimited number of Class B Units ("LP B Units") which are designed to be the economic and voting equivalent of the units of Boardwalk REIT ("REIT Units"), including in respect of the receipt of distributions, and providing a right of exchange, on a one-for-one basis, for REIT Units at the option of the holder; and

(D) an unlimited number of Class C Units ("LP C Units") which are entitled, among other things, to receive distributions in an amount sufficient to pay interest payments and repay principal on the Retained Debt (as hereinafter defined);

(iv) Boardwalk will create Boardwalk REIT as an open-end mutual fund trust, the initial unit of which will be held by Boardwalk;

(v) Boardwalk REIT will create an open-end operating trust ("Operating Trust"), the initial unit of which will be held by Boardwalk REIT; and

(vi) the Preferred Shares of all series will be retracted pursuant to their terms.

10. The Transaction will be effected by way of the following steps, taken in the following sequence:

(i) Boardwalk will amalgamate with substantially all of its subsidiaries, other than (a) certain subsidiaries that serve as nominees to hold legal title to certain real property and (b) Boardwalk Subco and Boardwalk GP, to continue under the name "Boardwalk Equities Inc." ("Boardwalk Amalco");

(ii) Boardwalk Amalco will subscribe for LP C Units and an aggregate number of LP B Units equal to the number of Common Shares transferred by BPCL pursuant to the transaction described in subparagraph 10(v)(A), for nominal consideration;

(iii) Boardwalk Amalco will transfer, or cause to be transferred, all of its assets and business, whether directly or indirectly held (the "Properties"), to Boardwalk LP at fair market value for an aggregate purchase price of approximately $2.32 Billion, paid by the assumption of approximately $0.97 Billion in mortgage financing and other liabilities, the issuance by Boardwalk LP of an interest bearing note in the principal amount of approximately $0.84 Billion (the "LP Note") and an addition to the capital account of Boardwalk Amalco in respect of the LP B Units and LP C Units;

(iv) Boardwalk Amalco will transfer all of its LP B Units to Boardwalk Subco in exchange for common shares of Boardwalk Subco; and

(v) a plan of arrangement pursuant to Section 193 of the ABCA will become effective, with the following principal steps occurring in the following sequence:

(A) BPCL will sell approximately 1/3 of its Common Shares to Newco in consideration for common shares of Newco;

(B) Boardwalk Amalco will transfer the LP Note to Boardwalk REIT in exchange for REIT Units with an aggregate value equal to the principal amount of the LP Note;

(C) Boardwalk Amalco will transfer the shares of Boardwalk GP to Boardwalk REIT for cash;

(D) Boardwalk Amalco will redeem the initial REIT Unit for nominal consideration;

(E) Boardwalk Amalco will purchase 15,000 REIT Units for cash and distribute 100 REIT Units to each of 150 employees of Boardwalk Amalco for the purpose of qualifying Boardwalk REIT as a "mutual fund trust" under the Income Tax Act (Canada);

(F) Boardwalk REIT will transfer the LP Note, and the cash received pursuant to the transaction described in subparagraph 10(v)(E), to Operating Trust in exchange for a combination of units and notes of Operating Trust;

(G) Operating Trust will transfer the LP Note and cash to Boardwalk LP in exchange for LP A Units;

(H) Boardwalk Amalco will sell the REIT Units received by it pursuant to the transaction described in subparagraph 10(v)(B) to Newco for an interest-bearing note of Newco; and

(I) each outstanding Common Share, including all remaining Common Shares held by BPCL (if not previously sold to the public pursuant to a secondary offering), will be acquired by Newco in consideration of the issuance of one REIT Unit for each Common Share acquired.

11. Following the completion of the Transaction:

(i) the holders of Common Shares other than BPCL and its affiliates (the "Public Shareholders") will hold REIT Units instead of Common Shares;

(ii) BPCL and its affiliates (including BIL and PPHL) will indirectly hold LP B Units and may directly or indirectly hold REIT Units, depending upon whether BPCL has previously sold those Common Shares not exchanged for LP B Units pursuant to a secondary offering;

(iii) BPCL will own Newco and Newco will own all of the issued and outstanding Common Shares;

(iv) Boardwalk LP will directly or indirectly hold the Properties;

(v) Boardwalk REIT will directly or indirectly own all of the issued and outstanding securities of Boardwalk GP and Operating Trust; and

(vi) Boardwalk Amalco will directly own all of the LP C Units and will indirectly own all of the LP B Units, and Operating Trust will own all of the issued and outstanding LP A Units.

12. Following the completion of the Transaction, BPCL will have the right to appoint one trustee to the board of trustees of Boardwalk REIT, provided that BPCL and its affiliates continue to beneficially own, in the aggregate, a number of REIT Units and LP B Units that, upon surrender or exchange of the LP B Units, would equal at least five per cent of all then outstanding REIT Units (the "Appointee Right");

13. In connection with the transfer of the Properties from Boardwalk Amalco to Boardwalk LP described in paragraph 10(iii) above, Boardwalk LP will agree to provide Boardwalk Amalco's creditors a guarantee (the "Guarantee") in respect of certain Property-related debt owed by Boardwalk Amalco subsequent to the transfer (the "Retained Debt").

14. Boardwalk LP will also agree to indemnify and hold harmless Boardwalk Amalco and its affiliates (including BIL and PPHL) from and against any and all claims, demands, losses, penalties, costs, expenses, fees and liabilities, including, without limitation, legal fees and expenses, directly or indirectly arising out of, in connection with, or in respect of, the Properties subsequent to the effective date of the Transaction (the "Indemnity").

15. By virtue of the provision of the Appointee Right, Guarantee and Indemnity, and the issuance to Boardwalk Amalco of LP B Units in lieu of the REIT Units provided to the Public Shareholders (collectively, the "Unique Consideration"), the consideration per security ultimately received by BPCL and its affiliates (including BIL and PPHL) is not identical in amount and type to that paid to the Public Shareholders under the Transaction. As a result, the Transaction will constitute a "going private transaction" under Rule 61-501 and Policy Q-27 (the "Going Private Transaction").

16. The Unique Consideration has been provided to BPCL for reasons other than to increase the value of the consideration payable pursuant to the Transaction for the Common Shares held by BPCL. The Unique Consideration has been provided to BPCL to, among other things, offset certain negative tax implications and protect BPCL from liabilities relating to the Retained Debt and the Properties attendant upon the Transaction and uniquely accruing to BPCL.

17. Shareholders of Boardwalk will receive an information circular in connection with the Special Meeting (the "Information Circular") containing the information required pursuant to section 4.2 of Rule 61-501 and Policy Q-27, including the details of the Unique Consideration, the Transaction, and the tax consequences of the Transaction.

18. A formal valuation will create additional expense which will be outweighed by the benefit of the information it provides, since the Information Circular will contain all of the relevant information holders of Common Shares require in order to make an informed decision.

AND WHEREAS under the System this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that the Valuation Requirement shall not apply to the Going Private Transaction provided Boardwalk complies with all other applicable provisions of Rule 61-501 and Policy Q-27.

December 22, 2003.

"Ralph Shay"