Mutual Reliance Review System for Exemptive Relief Applications -- subdivided offering exempted from certain provisions of National Instrument 81-102 Mutual Funds since issuer fundamentally different from a conventional mutual fund -- relief granted for subsequent offering by existing issuer.
National Instrument 81-102 Mutual Funds, ss. 2.6(a), 3.3, 10.3, 10.4(1), 14.1, 19.1.
November 14, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, BRITISH COLUMBIA, ALBERTA,
SASKATCHEWAN, MANITOBA, NEW BRUNSWICK,
NEWFOUNDLAND AND LABRADOR, NOVA SCOTIA
AND PRINCE EDWARD ISLAND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
TD SPLIT INC.
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 TD Split Inc. (the Company) for a decision under section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) that the following sections of NI 81-102 (collectively the NI 81-102 Requirements) will not apply to the Company with respect to the Capital Shares and Preferred Shares proposed to be issued by the Company as described in an amended and restated preliminary prospectus dated October 6, 2005 (the Preliminary Prospectus):
(a) subsection 2.6(a), which prohibits a mutual fund from borrowing cash or providing a security interest over any of its portfolio assets except in compliance with subsection 2.6(a);
(b) section 3.3, which prohibits a mutual fund or its securityholders from bearing the costs of the preparation and filing of any preliminary simplified prospectus;
(c) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;
(d) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the net asset value per security used in establishing the redemption price; and
(e) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1.
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 Company:
1. The Company was incorporated under the Business Corporations Act (Ontario) on July 31, 2000.
2. The Company will make offerings to the public (the Offerings) on a best efforts basis, of class B capital shares (the Capital Shares) and class B 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. There are currently 2,014,005 class A capital shares (the Class A Capital Shares) and 2,014,005 class A preferred shares (the Class A Preferred Shares) issued and outstanding. The Class A Capital Shares and Class A Preferred Shares are scheduled to be redeemed by the Company on November 15, 2005 (the Redemption Date) in accordance with their terms. A holder of Class A Capital Shares may choose to continue his or her investment in the Company by electing to receive Capital Shares of the Company as part of the Offerings in satisfaction of the redemption price payable for their Class A Capital Shares on the Redemption Date.
4. 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 Company to the TSX.
5. The Company is a passive investment company whose principal investment objective is to invest in a portfolio of common shares (the TD Bank Shares) of The Toronto-Dominion Bank (TD Bank) in order to generate fixed cumulative preferential distributions for holders of the Company's Preferred Shares, and to allow the holders of the Company's Capital Shares to participate in capital appreciation of the TD Bank Shares after payment of administrative and operating expenses of the Company. It will be the policy of the Board of Directors of the Company to pay dividends on the Capital Shares in an amount equal to the amount by which the dividends received by the Company on the TD Bank Shares exceed the dividends paid on the Preferred Shares and all administrative and operating expenses of the Company.
6. The expenses incurred in connection with the Offerings (the Expenses of the Offerings), being the costs of the preparation and filing of the Preliminary Prospectus and the Final Prospectus, will be borne by the Company.
7. The net proceeds of the Offerings (after deducting the agents' fees, Expenses of the Offerings and the Company's interest and other expenses relating the acquisition of the TD Bank Shares) will be used by the Company to fund the purchase of TD Bank Shares and to fund the redemption of the Class A Preferred Shares and Class A Capital Shares, to the extent necessary.
8. The Company has established a credit facility with TD Securities Inc. (TD Securities) which may be used by the Company to purchase the TD Bank 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. To the extent that the credit facility is used, the Company will pledge TD Bank Shares as collateral for amounts borrowed thereunder.
9. It will be the policy of the Company to hold the TD Bank Shares and to not engage in any trading of the TD Bank Shares, except:
(i) to fund retractions or redemptions of Capital Shares and Preferred Shares;
(ii) following receipt of stock dividends on the TD Bank Shares;
(iii) in the event of a take-over bid for any of the TD Bank Shares;
(iv) if necessary, to fund any shortfall in the distribution on Preferred Shares;
(v) to meet obligations of the Company in respect of liabilities including extraordinary liabilities; or
(vi) certain other limited circumstances as described in the Preliminary Prospectus.
10. Preferred Share distributions will be funded primarily from the dividends received on the TD Bank Shares and, if necessary, any shortfall will be funded with proceeds from the sale of TD Bank Shares.
11. The record date for the payment of Preferred Share distributions, Capital Share dividends or other distributions of the Company will be set in accordance with the applicable requirements of the TSX.
12. 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 Company'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.
13. 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 Company on the applicable Valuation Date, in the manner described in the Preliminary Prospectus.
14. Any Capital Shares and Preferred Shares outstanding on November 15, 2010 will be redeemed by the Company on such date.
15. The Issuer was previously granted relief from the NI 81-102 Requirements in connection with its initial public offering of the Class A Capital Shares and Class A Preferred Shares.
Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers is that an exemption is granted from the NI 81-102 Requirements, as follows:
(a) subsection 2.6(a), to enable the Company to establish a credit facility with TD Securities that may be used by the Company to purchase TD Bank Shares and to provide a security interest over its assets, as stated in paragraph 8 above, provided that the credit facility is repaid immediately following the closing of the Offerings;
(b) section 3.3, to permit the Company to bear the Expenses of the Offerings;
(c) section 10.3, to permit the Company 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;
(d) subsection 10.4(1), to permit the Company to pay the retraction price for the Capital Shares and Preferred Shares on the Retraction Payment Date as defined in the Preliminary Prospectus; and
(e) section 14.1, to relieve the Company 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.