Special purpose trust set up by financial institution to issue securities that comply with regulatory requirements of Office of the Superintendent of Financial Institutions relating to the issuance of innovative Tier 1 capital instruments - exempt from requirement to pay participation fees, subject to conditions.
Ontario Securities Commission Rule 13-502 Fees.
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 13-502 FEES
IN THE MATTER OF
THE NATIONAL BANK OF CANADA AND
NBC CAPITAL TRUST
WHEREAS the Director has received an application from The National Bank of Canada (the "Bank") and NBC Capital Trust (the "Trust") for an order, pursuant to Section 6.1 of OSC Rule 13-502 Fees (the "Fees Rule"), that the requirement to pay a participation fee under Section 2.2 of the Fees rule shall not apply to the Trust, subject to certain terms and conditions.
AND WHEREAS the Bank and the Trust have represented to the Ontario Securities Commission (the "OSC") that:
1. The Trust is an open-ended trust established under the laws of the Province of Ontario by Natcan Trust Company as trustee (the "Trustee"), pursuant to a declaration of trust dated May 17, 2006.
2. The Trust has a financial year-end of December 31.
3. The Trust is a reporting issuer in Ontario and, to its knowledge, is not in default of any requirement under the securities legislation of the Province of Ontario.
4. The Bank is the administrative agent of the Trust pursuant to an administration agreement dated May 17, 2006 pursuant to which the Trustee will delegate to the Bank certain of its obligations in relation to the administration of the Trust, including the day-to-day operations of the Trust and such other matters as may be requested from time to time by the Trustee.
5. The outstanding securities of the Trust consist of (i) transferable trust units called Trust Capital Securities - Series 1, or "NBC CapS - Series 1" which are non-voting except in limited circumstances and (ii) Special Trust Securities. All outstanding Special Trust Securities are held by the Bank. The Trust distributed 225,000 NBC CapS - Series 1 in a public offering pursuant to a prospectus dated June 8, 2006 (the "Offering" and the "Prospectus"). Subject to certain conditions, on June 30, 2011 and on any Distribution Date (as defined in the Prospectus) thereafter, the Trust may redeem the outstanding NBC CapS - Series 1. At any time, NBC CapS - Series 1 may be exchanged for newly issued non-cumulative, perpetual First Preferred Shares, Series 17 of the Bank ("Bank Preferred Shares Series 17") or, upon the occurrence of a Loss Absorption Event (as defined in the Prospectus), for newly issued non-cumulative, perpetual First Preferred Shares, Series 18 of the Bank ("Bank Preferred Shares Series 18"). Pursuant to the Share Exchange Agreement (as defined in the Prospectus), the Bank will undertake to list on the TSX any Bank Preferred Shares Series 17 or Bank Preferred Shares Series 18 issued upon the exercise of the Exchange Provisions (as defined in the Prospectus).
6. No securities of the Trust are currently listed on a marketplace as defined in National Instrument 21-101 Marketplace Operation.
7. The Trust's only business is to invest its assets and its objective is to acquire and hold Trust Assets (as defined in the Prospectus) that will generate income for distribution to holders of NBC CapS - Series 1 and Special Trust Securities. The Trust does not carry on any independent business activities other than to acquire and hold assets to generate income for distribution to holders of the NBC CapS - Series 1 and Special Trust Securities (collectively "Trust Securities").
8. Pursuant to the MRRS Decision Document dated August 1, 2006 (the "Continuous Disclosure Exemption") granted to the Trust by the Autorité des marchés financiers, as principal regulator, on behalf of itself and other decision makers (collectively, the "Decision Makers"), the Decision Makers determined that the requirement contained in the securities legislation of the Province of Québec and in other applicable jurisdictions (collectively, the "Legislation") to :
(i) file interim financial statements and audited annual financial statements and deliver same to the security holders of the Trust, pursuant to Sections 4.1, 4.3 and 4.6 of National Instrument 51-102 - Continuous Disclosure Obligations ("NI 51-102");
(ii) file interim and annual management's discussion and analysis ("MD&A") of the financial conditions and results of operations and deliver same to the security holders of the Trust pursuant to Section 5.1 and 5.6 of NI 51-102;
(iii) file an annual information form pursuant to Section 6.1 of NI 51-102; (the obligations set out in paragraph (a) are collectively defined as the "Continuous Disclosure Obligations").
(b) file interim and annual certificates contained in Sections 2.1 and 3.1 of Multilateral Instrument 52-109 - Certification of Disclosure in Issuer's Annual and Interim Filings ("MI 52-109") (the "Certification Obligations");
shall not apply to the Trust for so long as:
with respect to the Continuous Disclosure Obligations:
(i) the Bank remains a reporting issuer under the Legislation and has filed all documents it is required to file;
(ii) the Bank files with the Decision Makers, in electronic format under the Trust's SEDAR profile, the documents listed in paragraph (a) above of this Decision, at the same time as they are required under the Legislation to be filed by the Bank;
(iii) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in paragraph (a) above of this Decision;
(iv) the Trust sends or causes the Bank to send its interim and annual financial statements and interim and annual MD&A, as applicable, to holders of Trust Securities at the same time and in the same manner as if the holders of Trust Securities were holders of Bank Common Shares (as defined in the Prospectus);
(v) all outstanding securities of the Trust are either NBC CapS - Series 1, additional series of the Trust Capital Securities (as defined in the Prospectus) or Special Trust Securities;
(vi) the rights and obligations of holders of additional series of the Trust Capital Securities are the same in all material respects as the rights and obligations of the holders of the NBC CapS - Series 1, with the exceptions of economic terms such as the rate of Indicated Yield (as defined in the Prospectus), redemption dates, exchange dates and rates of exchange;
(vii) the Bank is the beneficial owner of all issued and outstanding voting securities of the Trust, including the Special Trust Securities.
with respect to the Certification Obligations:
(i) the Trust is exempt from the Continuous Disclosure Obligations;
(ii) the Bank files with the Decision Makers, in electronic format under the Trust's SEDAR profile, the Bank Interim and Annual Certificates at the same time as such documents are required under the Legislation to be filed by the Bank;
(iii) the Trust continues to be exempted from the Continuous Disclosure Obligations.
The Continuous Disclosure Exemption shall expire 30 days after the date a material adverse change occurs in the affairs of the Trust.
9. The Trust was established by the Bank in order to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions ("OSFI") relating to the issuance of innovative Tier 1 capital instruments (as contained in OSFI's Principles Governing Inclusion of Innovative Instruments in Tier 1 Capital (the "OSFI Guidelines").
10. OSFI maintains strict guidelines and standards with respect to the capital adequacy requirements of federally regulated financial institutions, including the Bank, and, in particular, specifies minimum required amounts of Tier 1 capital to be maintained by such institutions. Tier 1 capital consists of common shareholders' equity, qualifying non-cumulative perpetual preferred shares, qualifying innovative instruments and qualifying non-controlling interests arising on consolidation from Tier 1 capital instruments. Innovative instruments, such as the NBC CapS - Series 1, must satisfy the detailed requirements of the OSFI Guidelines to be included in Tier 1 capital. Accordingly, the innovative instruments (NBC CapS - Series 1) must be issued by a special purpose vehicle (NBC Capital Trust), whose primary purpose is to raise innovative Tier 1 capital. OSFI approved the inclusion of the NBC CapS - Series 1 as Tier 1 capital of the Bank on June 14, 2006.
11. No continuous disclosure documents concerning only the Trust will be filed with the OSC.
12. The Trust is a "Class 2 reporting issuer" under the Fees Rule and would be required (but for this Order) to pay participation fees under such rule.
13. The Bank, as a legal and factual matter, controls the Trust though its ownership of the Special Trust Securities issued by the Trust and its role as administrative agent of the Trust. The Bank has paid, and will continue to pay, participation fees applicable to it under section 2.2 of the Fees Rule.
14. The Fees Rule includes an exemption for "subsidiary entities" in subsection 2.9(2) of the Fees Rule. The Bank and the Trust meet all of the substantive requirements to rely on the exemption in subsection 2.9(2) of the Fees Rule, but for the definition of "subsidiary entity". The Fees Rule defines "subsidiary entity" by reference to the accounting definition under Canadian GAAP, rather than by reference to a legal definition based on control.
15. On November 1, 2004, the Canadian Institute of Chartered Accountants adopted Guideline 15, Consolidation of Variable Interest Entities. Accordingly, the Trust may not, from a technical accounting perspective, be considered to be a "subsidiary entity" of the Bank for Canadian GAAP purposes and may not be entitled to rely on the exemption in subsection 2.9(2) of the Fees Rule.
16. The Bank does not currently intend to issue additional securities through the Trust.
THE ORDER of the OSC under the Fees Rule is that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:
(i) the Bank and the Trust continue to satisfy all of the conditions contained in the Continuous Disclosure Exemption; and
(ii) the capitalization of the Trust represented by the NBC CapS - Series 1 and any additional Trust securities that may be issued, from time to time, by the Trust is included in the participation fee calculation applicable to the Bank and the Bank has paid the participation fee calculated on this basis.
DATED March 20th, 2007.