Mutual Reliance Review System for Exemptive Relief Applications -- relief granted to manager and portfolio advisor from the prohibitions contained in the Legislation prohibiting a portfolio manager from causing investment portfolio to invest in an issuer in which a "responsible person" is an officer or director, in a situation where terminating funds are being merged into another investment.
Securities Act, R.S.O., c. S.5, as amended, ss. 118(2)(a), subclause 121(2)(a)(ii).
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA, SASKATCHEWAN, ONTARIO
NOVA SCOTIA AND NEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
SENTRY SELECT CAPITAL CORP.
SENTRY SELECT FOCUSED ALTERNATIVE ENERGY FUND,
SENTRY SELECT FOCUSED TECHNOLOGIES FUND
AND SENTRY SELECT FOCUSED BIOTECHNOLOGY FUND
(THE "TERMINATING FUNDS")
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland and Labrador, (the "Jurisdictions") has received an application from Sentry Select Capital Corp. (the "Applicant") for a decision (the "Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") that for the purpose of the merger transactions described below, the Applicant and the Terminating Funds be exempt from the requirements provided for by the Legislation with respect to the restrictions contained in the Legislation prohibiting a portfolio manager from knowingly causing any investment portfolio managed by it:
(a) to invest in an issuer in which a responsible person is an officer or director; and
(b) to sell securities of any issuer to the account of an associate of a responsible person.
AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions;
AND WHEREAS the above restrictions of the Legislation shall be referred to in this Decision Document as the "Applicable Legislation";
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Applicant has represented to the Decision Maker that:
1. The Applicant is a corporation governed by the laws of the Province of Ontario. The Applicant is registered as an adviser in the categories of investment counsel and portfolio manager and as a dealer in the category of mutual fund dealer in Ontario.
2. The Applicant is the trustee, manager and portfolio adviser of each of the Terminating Funds and will be the portfolio manager of each of Rita Capital Corp. ("Rita") and Inter Energy Corp. ("Inter Energy").
3. Each of the Terminating Funds is currently an open-end mutual fund trust established under the laws of Ontario by declaration of trust.
4. Units of the Terminating Funds are currently distributed in each of the provinces and territories of Canada pursuant to a simplified prospectus and an annual information form each dated July 22nd, 2003.
5. Each of Rita and Inter Energy (together referred to herein as "the Corporations") is incorporated pursuant to the laws of the Province of Alberta. Each of the Corporations is a capital pool company ("CPC"), as that term is defined in TSX Venture Exchange ("TSX") Policy 2.4 Capital Pool Companies ("TSX Policy 2.4"). Each of the Corporations has completed an initial public offering of its shares pursuant to a CPC prospectus. The amended and restated CPC prospectus for the offering of shares of each of the Corporations is dated November 13, 2002.
6. Shares of the Corporations are listed on TSX. Each of the Corporations is a Tier 2 CPC issuer. In order to become a regular (non-CPC) Tier 1 or Tier 2 issuer, each of the Corporations intends to complete a Qualifying Transaction in accordance with TSX Policy 2.4.
7. A "Qualifying Transaction" is defined in TSX Policy 2.4 as a transaction pursuant to which a CPC acquires significant assets (assets or a business) which, when purchased by the CPC, would result in the CPC meeting the Minimum Listing Requirements of TSX.
8. The Applicant wishes to complete the following mergers (hereinafter, these transactions are referred to collectively as the "Mergers"):
(a) merge Sentry Select Focused Alternative Energy Fund and Sentry Select Focused Technologies Fund into Inter Energy; and
(b) merge Sentry Select Focused Biotechnology Fund into Rita.
9. The Mergers will occur through the implementation of the following steps:
(a) the declarations of trust of each of the Terminating Funds will be amended to remove the right of redemption to take effect on a specific date as set out in the Circular (as defined below);
(b) the day after the declarations of trust are amended, each Terminating Fund will transfer its portfolio assets to the corresponding Corporation in exchange for shares and an equal number of share purchase warrants of the Corporation;
(c) each Terminating Fund will then distribute its assets (now only shares and share purchase warrants) to its unitholders on a dollar-for-dollar basis so that they will become direct security holders of the applicable Corporation; and
(d) thereafter, the Terminating Funds will be wound-up.
10. It is believed by the Applicant that the Mergers are in the best interests of unitholders of the Terminating Funds.
11. It is the intention of the promoter of the Corporations to treat the Mergers as Qualifying Transactions for each of the Corporations.
12. John Driscoll, the President and Chief Executive Officer of the Applicant, is an officer and director, the promoter and majority shareholder of each of the Corporations. Mr. Driscoll also holds approximately 3% of Sentry Select Focused Alternative Energy Fund, 15% of Sentry Select Focused Technologies Fund and 8% of Sentry Select Focused Biotechnology Fund. Mr. Driscoll will not vote the units which he holds in the Terminating Funds (even though this abstention from voting is not required under applicable law) or the shares which he holds in the Corporations at the meetings of Terminating Fund unitholders and Corporation shareholders called to consider the proposed transactions in order to address any appearance of conflict of interest. Neither the Applicant or any associate of Mr. Driscoll owns units of the Terminating Funds or shares of the Corporation.
13. Special meetings will be called for the Terminating Fund unitholders to approve the Mergers. The notice of meeting and management information circular (the "Circular") sent to Terminating Fund unitholders in advance of the special meetings will contain detailed disclosure in respect of the Mergers, including the two steps of the transaction: (1) de-mutualizing the mutual fund and eliminating the redemption rights of unitholders and (2) the sale of the Terminating Funds portfolio assets to the applicable Corporation in exchange for shares and share purchase warrants. Unitholders will be advised that as of a certain date immediately prior to the Mergers, redemptions of units of the Terminating Funds will cease and then ultimately, unitholders will become direct holders of shares and share purchase warrants in the applicable Corporation. The Circular will outline the positive and negative aspects of an investment in the Corporations so that unitholders can make an informed decision about how to proceed. As well, a copy of the prospectus for the applicable Corporation will be provided with the Circular. The prospectus outlines the requirements for a capital pool company, a Qualifying Transaction and the risks involved (for example, the possible reduced liquidity) in this type of investment.
14. Approval for the Mergers will be sought from the shareholders of the Corporations, as applicable. The Mergers must be approved on a "majority of the minority" basis.
15. The Applicant and the individuals principally responsible for the investment management of the Terminating Funds are the same people who will be principally responsible for the investment management of the Corporations and each of the Corporations will adopt an investment mandate substantially similar to their corresponding Terminating Fund(s).
16. No sales charges will be payable in connection with the acquisition by the Terminating Fund or its unitholders of shares and share purchase warrants of the applicable Corporation.
17. Neither the Funds nor their unitholders will be responsible for any of the costs associated with the Mergers.
18. Following the Mergers, shares of the Corporation, including the shares issued to unitholders on the Mergers and shares underlying the share purchase warrants issued to unitholders on the Mergers, when issued, will be freely tradable on TSX.
19. Share purchase warrants received by unitholders on the Mergers will have a term of one year and will entitle the holder thereof to purchase one share for each share purchase warrant at a price per share equal to the price per share of the Corporation, as applicable, after the Merger on the date the Merger takes place.
20. In the absence of this Decision, the Applicant is prohibited from knowingly causing the Terminating Funds to sell their portfolio assets in exchange for shares and share purchase warrants of the applicable Corporation because the transactions will each result in the Terminating Fund investing in an issuer in which a responsible person (John Driscoll, the President and Chief Executive Officer of the Applicant) is an officer or director.
21. In the absence of this Decision, the Applicant is prohibited from knowingly causing the sale of the portfolio assets of each of the Terminating Funds to the applicable Corporation because the Applicant is a "responsible person" and the Corporation is an "associate" of the Applicant because John Driscoll is a significant shareholder of each of the Corporations.
AND WHEREAS under the System, this Decision evidences the decision of each Decision Maker;
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 DECISIONS of the Decision Makers pursuant to the Legislation is that the Applicable Legislation does not apply to the Mergers.
March 2, 2004.
"Paul M. Moore"
"Paul K. Bates"