MRRS -- exemption granted from s. 10.4(3) of NI 81-102 -- exemption required to facilitate retraction feature that will provide investor with an unsecured debenture of either the split share company or its parent instead of cash upon retraction -- exemption granted on basis that split share company a special purpose entity the preferred shares of which will be listed on the TSX -- split share company's prospectus will also disclose terms of the preferred shares including risk factors associated with the retraction feature.
Applicable Legislative Provisions
National Instrument 81-102 -- Mutual Funds, ss.10.4(3), 19.1.
May 22, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, BRITISH COLUMBIA, ALBERTA,
SASKATCHEWAN, MANITOBA, QUEBEC,
NEWFOUNDLAND AND LABRADOR,
NEW BRUNSWICK, NOVA SCOTIA AND
PRINCE EDWARD ISLAND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
BAM SPLIT CORP. (FORMERLY BNN SPLIT CORP.)
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Company for a decision under the securities legislation of the Jurisdictions (the "Legislation") that it be exempt from the requirement contained in subsection 10.4(3) of National Instrument 81-102 Mutual Funds ("NI 81-102") that a mutual fund shall pay the redemption price of a security in the currency in which the net asset value per security of the redeemed security was denominated or by making good delivery to the securityholder of portfolio assets to enable the Company to pay the retraction price for one or more additional series of Class AA Preferred Shares (the "Additional Preferred Shares") with debentures of the Company or BAM Investments Corp. ("BAM Investments"), if agreed by BAM Investments (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications (the "MRRS"):
(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 laws of the Province of Ontario on July 13, 2001. The primary undertaking of the Company is to invest in a portfolio of Class A Limited Voting Shares (the "BAM Shares") of Brookfield. The BAM Shares and any cash held by the Company from time to time are the only material assets of the Company.
2. The purpose of the Company is to provide a vehicle through which different investment objectives with respect to participation in the BAM Shares may be satisfied. This is accomplished through the issuance of capital shares (the "Capital Shares") and preferred shares (the "Preferred Shares") of the Company. The Class A Preferred Shares, the Class AA Preferred Shares, Series 1 (the "Series 1 Preferred Shares") and the Class AA Preferred Shares, Series 3 (the "Series 3 Preferred Shares") of the Company are listed on the Toronto Stock Exchange (the "TSX").
3. The Company holds the BAM Shares in order to generate fixed cumulative preferential dividends for the holders of the Preferred Shares and to enable the holders of the Capital Shares to participate in any capital appreciation in the BAM Shares. BAM Investments owns all of the outstanding Class A Voting Shares, Class AA Preferred Shares, Series 2 (the "Series 2 Preferred Shares") and all of the Capital Shares of the Company. BAM Investments is a reporting issuer whose principal business mandate is to provide its common shareholders with a leveraged investment in the securities of Brookfield. Its principal investments consist of the Capital Shares and BAM Shares.
4. The Company is a mutual fund because it is an issuer of securities which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or part of the net assets of the Company, within a specified period after demand.
5. The Company has previously offered to the public by prospectus and has issued and outstanding 5,000,000 Class A Preferred Shares, 3,199,000 Series 1 Preferred Shares and 8,000,000 Series 3 Preferred Shares.
6. The Company intends to commence an offering (the "First Offering") of Additional Preferred Shares shortly. These Additional Preferred Shares will be issued for $25 and will pay a cumulative quarterly dividend. The Company may also complete future offerings of Additional Preferred Shares (the "Future Offerings"). The Additional Preferred Shares will be retractable at the option of the holder at any time and redeemable at the option of the Company after a period of at least five years. All Additional Preferred Shares of a series will be redeemed on a specified date (the "Redemption Date"). The Additional Preferred Shares will be listed on the TSX. Consequently, holders of such shares will not be relying solely on the retraction privilege to provide liquidity for their investment.
7. In lieu of receiving the retraction price in cash, a retracting holder of an Additional Preferred Share issued pursuant to the First Offering will receive and a retracting holder of an Additional Preferred Share issued pursuant to a Future Offering may receive an unsecured debenture of the Company or, if BAM Investments agrees, an unsecured debenture of BAM Investments (in either case, an "Additional Debenture"), with a principal amount equal to the retraction price, an interest rate that is higher (expected to be ten basis points higher) than the dividend rate on the corresponding Additional Preferred Share, and a maturity date which is the same as the Redemption Date for the corresponding Additional Preferred Share. The Additional Debentures will be redeemable at any time for cash. As a debt security, the Additional Debentures will rank ahead of the Preferred Shares.
8. The Additional Debentures will likely be issued under exemptions from the registration and prospectus requirements under the Legislation. The Additional Debentures will not be listed on the TSX. The Company and BAM Investments possess and are expected to possess, based on the Company's current business plan, a similar credit profile with respect to the Additional Debentures.
9. The First Offering and Future Offerings of Additional Preferred Shares will proceed under a short form prospectus that will contain disclosure of the terms of the Additional Preferred Shares and the Additional Debentures, including the fact that upon retraction a holder of Additional Preferred Shares will receive Additional Debentures of the Company (or, if BAM Investments agrees, BAM Investments) as the retraction consideration. The prospectus will also contain a risk factor relating to the payment of the retraction price in Additional Debentures that also explains the Additional Debentures will be illiquid investments. The Company will also disclose this risk factor in bold on the cover page to the prospectus. The tax opinion provided under "Canadian Federal Income Tax Considerations" in the prospectus will cover the tax implications of holding and selling Additional Debentures. The trust indenture relating to the Additional Debentures will be filed on SEDAR. The prospectus will also incorporate by reference information on BAM Investments and will describe the use of proceeds from the offering.
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 Requested Relief is granted for so long as any Additional Preferred Shares issued to the public are listed on the TSX.