Mutual Reliance Review System for Exemptive Relief Applications --subdivided offering exempted from certain requirements of National Instrument 81-102 Mutual Funds since issuer is fundamentally different from a conventional mutual fund.
National Instrument 81-102 Mutual Funds, section 19.1, subsection 2.1(1), clause 2.6(a), section 3.3, sections 10.3 & 10.4(1), subsection 12.1(1), section 14.
August 31, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, NEWFOUNDLAND AND LABRADOR, NOVA SCOTIA
NEW BRUNSWICK, PRINCE EDWARD ISLAND and NORTHWEST TERRITORIES (The Jurisdictions)
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
BNS SPLIT CORP. II (the Filer)
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application (the Application) from the Filer dated August 2, 2005 for exemptive relief pursuant to section 19.1 of National Instrument 81-102 -- Mutual Funds (NI 81-102) from certain provisions of NI 81-102.
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer was incorporated under the Business Corporations Act (Ontario) on February 28, 2005.
2. The Filer will make offerings to the public (the Offerings) on a best efforts basis, of class A capital shares (the Capital Shares) and class A preferred shares (the Preferred Shares) pursuant to a final prospectus (the Final Prospectus) in respect of which the Preliminary Prospectus has already been filed.
3. The Capital Shares and the Preferred Shares will be listed for trading on the Toronto Stock Exchange (the TSX). An application requesting conditional listing approval has been made by the Filer to the TSX.
4. The Filer is a passive investment company whose principal investment objective is to invest in a portfolio of common shares (the BNS Shares) of The Bank of Nova Scotia (BNS) in order to generate fixed cumulative preferential distributions for holders of the Filer's Preferred Shares, and to allow the holders of the Filer's Capital Shares to participate in capital appreciation of the BNS Shares after payment of administrative and operating expenses of the Filer. It will be the policy of the Board of Directors of the Filer to pay dividends on the Capital Shares in an amount equal to the dividends received by the Filer on the BNS Shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses of the Filer.
5. The expenses incurred in connection with the Offerings (the Expenses of the Offerings), being the costs of incorporation, formation and initial organization of the Filer, including the preparation and filing of the Preliminary Prospectus and the Final Prospectus, will be borne by the Filer.
6. The net proceeds of the Offerings (after deducting the agents' fees, Expenses of the Offerings and the Filer's interest and other expenses relating to the acquisition of the BNS Shares) will be used by the Filer to fund the purchase of BNS Shares.
7. The Filer has established a credit facility with Scotia Capital Inc. (Scotia Capital) which may be used by the Filer to purchase the BNS Shares and which will be repaid in full on the closing of the Offerings. The maximum rate of interest payable on such credit facility will be set out in the Final Prospectus. The Filer also intends to establish a revolving credit facility after the closing of the Offerings, which may be used to fund the payment of a portion of the fixed distributions on the Preferred Shares on a temporary basis if necessary. To the extent that either credit facility is used, the Filer will pledge BNS Shares as collateral for amounts borrowed thereunder.
8. It will be the policy of the Filer to hold the BNS Shares and to not engage in any trading of the BNS Shares, except:
(i) to fund retractions or redemptions of Capital Shares and Preferred Shares;
(ii) following receipt of stock dividends on the BNS Shares;
(iii) in the event of a take-over bid for any of the BNS Shares;
(iv) if necessary, to fund any shortfall in the distribution on Preferred Shares;
(v) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities; or
(vi) certain other limited circumstances as described in the Preliminary Prospectus.
9. Preferred Share distributions will be funded primarily from the dividends received on the BNS Shares and, if necessary, any shortfall will be funded with proceeds from the sale of BNS Shares or, if determined appropriate by the Board of Directors, premiums earned from writing covered call options on the BNS Shares.
10. The record date for the payment of Preferred Share distributions, Capital Share dividends or other distributions of the Filer will be set in accordance with the applicable requirements of the TSX.
11. The Capital Shares and Preferred Shares may be surrendered for retraction at any time. Retraction payments for Capital Shares and Preferred Shares will be made on the Retraction Payment Date (as defined in the Preliminary Prospectus) provided the Capital Shares and the Preferred Shares have been surrendered for retraction by the Valuation Date (as defined in the Preliminary Prospectus). While the Filer's Unit Value (as defined in the Preliminary Prospectus) is calculated weekly, the retraction price for the Capital Shares and the Preferred Shares will be determined based on the Unit Value in effect as at the Valuation Date.
12. The retraction payments for the Capital Shares and Preferred Shares surrendered under the Regular Retraction or Concurrent Retraction (both as defined in the Preliminary Prospectus) will be calculated at a discount to the Unit Value of the Filer on the applicable Valuation Date, in the manner described in the Preliminary Prospectus.
13. Any Capital Shares and Preferred Shares outstanding on a date approximately five years from the closing of the Offerings, which date will be specified in the Final Prospectus, will be redeemed by the Filer on such date.
Each of the Decision Makers is satisfied that based on the information and representations provided in the Application and this decision, and for the purposes described in the Application, the Decision Makers, as applicable, hereby grant exemptions from the following requirements of NI 81-102:
(a) subsection 2.1(1) -- to enable the Filer to invest all of its net assets in the BNS Shares, provided that the Filer does not become an insider of BNS as a result of such investment;
(b) clause 2.6(a) --
(i) to enable the Filer to obtain a short-term loan from Scotia Capital to finance the initial acquisition of the BNS Shares and provide a security interest over its assets as stated in paragraph 7 above, provided that the loan is paid in full on the closing of the Offerings;
(ii) to enable the Filer to provide a security interest over its assets in connection with the revolving credit facility after the closing of the Offerings to permit the Filer to fund the payment of a portion of the fixed distribution of the Preferred Shares on a temporary basis if necessary, so long as the outstanding amount of any such borrowings of the Filer does not exceed 5% of the net assets of the Filer taken at market value at the time of the borrowing;
(c) section 3.3 -- to permit the Filer to bear the Expenses of the Offerings;
(d) section 10.3 -- to permit the Filer to calculate the retraction price for the Capital Shares and Preferred Shares in the manner described in the Preliminary Prospectus and on the applicable Valuation Date as defined in the Preliminary Prospectus;
(e) subsection 10.4(1) -- to permit the Filer to pay the retraction price for the Capital Shares and the Preferred Shares on the Retraction Payment Date, as defined in the Preliminary Prospectus;
(f) subsection 12.1(1) -- to relieve the Filer from the requirement to file the prescribed compliance reports; and
(g) section 14.1 -- to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.