Stephenson's Rental Services Income Fund et al. - MRRS Decision

Headnote

Mutual Reliance Review System -- OSC Rule 61-501 -- take-over bid and subsequent business combination -- Rule 61-501 requires sending of information circular and holding of meeting in connection with second step business combination -- target's declaration of trust provides that a resolution in writing executed by unitholders holding more than 66 2/3% of the outstanding units is valid and binding as if such voting rights had been exercised in favour of such resolution at a meeting of unitholders -- second step business combination to be subject to minority approval, calculated in accordance with section 8.2 of Rule 61-501 -- relief granted from requirement that information circular be sent and meeting be held

Applicable Ontario Rule

OSC Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 4.2, 8.2, 9.1.

June 7, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

THE POTENTIAL TAKE-OVER BID FOR

STEPHENSON'S RENTAL SERVICES INCOME FUND

BY 1731807 ONTARIO INC., AN INDIRECT AFFILIATE OF

EDGESTONE CAPITAL EQUITY FUND III (CANADA) L.P.

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of Québec and Ontario (the "Jurisdictions") has received an application from 1731807 Ontario Inc. (the "Applicant''), an indirect affiliate of EdgeStone Capital Equity Fund III (Canada) L.P. ("EdgeStone"), in connection with a potential take-over bid (the "Offer") for Stephenson's Rental Services Income Fund ("Stephenson's"), for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the requirements of the Legislation that:

(1) a Compulsory Acquisition or Subsequent Acquisition Transaction (each as defined below), as applicable, be approved at a meeting of the unitholders of Stephenson's (the "Unitholders"); and

(2) an information circular be sent to the Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable;

be waived (collectively, the "Requested Relief").

Under the Mutual Reliance Review System ("MRRS") for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following representations by the Applicant and EdgeStone:

1. The Applicant is an Ontario corporation existing under the Business Corporations Act (Ontario) and has not carried on any business prior to the date hereof other than in respect of matters directly relating to the making of the Offer. The Applicant is not a reporting issuer in any of the provinces or territories in Canada.

2. EdgeStone is an Ontario limited partnership organized on December 16, 2005. EdgeStone is managed by EdgeStone Capital Partners, one of Canada's leading private equity firms.

3. The outstanding beneficial interests in Stephenson's are divided into three classes of trust units, designated as class A trust units, class B trust units and special voting units (the class A trust units and class B trust units are hereinafter referred to as the "Units"). The special voting units provide voting rights for holders of shares of a subsidiary of Stephenson's that are exchangeable for Units, though provides no economic interest to the holder thereof. The Units are held by CDS Clearing and Depository Services Inc. in book-entry only form.

4. If the Applicant decides to proceed with the Offer, it is currently expected that:

(a) the Offer will be for all of the outstanding Units (other than those owned directly or indirectly by the Applicant), including Units that may be issued after the date of the Offer upon the exercise or conversion of securities that are convertible or exercisable to acquire Units, at a price of $6.875 in cash per Unit;

(b) one of the conditions of the Offer will be that there shall have been validly deposited under the Offer and not withdrawn at the expiry of the Offer such number of Units which, together with any Units directly or indirectly owned by the Applicant, represent at least 66?% of the Units on a fully-diluted basis;

(c) if the conditions to the Offer are satisfied (or waived by the Applicant) and the Applicant takes up and pays for Units deposited pursuant to the Offer, the Applicant may proceed with a compulsory acquisition of the Units not deposited to the Offer as permitted by Section 13.13 of the Stephenson's amended and restated declaration of trust dated July 28, 2005 (the "Declaration of Trust") for the same consideration per Unit as was paid under the Offer, if within the time provided in the Offer for its acceptance or within 45 days after the date the Offer is made, whichever is longer, the Offer is accepted by Unitholders representing at least 90% of the Units on a fully-diluted basis (other than Units or exchangeable securities held at the date of the Offer by or on behalf of the Applicant or associates or affiliates of the Applicant) (a "Compulsory Acquisition");

(d) in connection with either a Compulsory Acquisition, if available and if the Applicant elects to proceed thereunder, or a Subsequent Acquisition Transaction (as defined below), the Applicant currently intends to amend the Declaration of Trust by the Written Resolution (as defined below) to provide that non-tendering offerees will be deemed to have elected to transfer and to have transferred their Units to an offeror immediately on the giving of the offeror's notice prescribed by the Declaration of Trust notifying non-tendering offerees that, among other things, the offeror is entitled to acquire their Units by way of Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable (as opposed to 21 days after receipt of an offeror's notice, as currently provided) (the "Notice Amendment");

(e) if a Compulsory Acquisition as permitted under the Declaration of Trust is not available to the Applicant or the Applicant elects not to proceed under those provisions, the Applicant currently intends to acquire the Units not deposited to the Offer for the same consideration per Unit as was paid under the Offer by:

(i) amending the Declaration of Trust (the "Threshold Amendment") to provide that a Compulsory Acquisition may be effected if the Applicant and its affiliates, after take-up and payment of Units deposited under the Offer, hold not less than 66 2/3% of the Units calculated on a fully-diluted basis (a Compulsory Acquisition, amended by the Threshold Amendment, being referred to herein as a "Subsequent Acquisition Transaction"); and

(ii) proceeding with the Subsequent Acquisition Transaction in respect of the Units not deposited to the Offer as permitted by the Declaration of Trust, as so amended;

(f) in order to effect either a Compulsory Acquisition, if available and if the Applicant elects to proceed thereunder, or a Subsequent Acquisition Transaction in accordance with the foregoing, rather than seeking the Unitholders' approval at a special meeting of the Unitholders to be called for such purpose, the Applicant intends to rely on Section 12.10 of the Declaration of Trust, which specifies that a special resolution in writing executed by Unitholders holding more than 66 2/3% of the outstanding Units at any time (the "Written Resolution") is as valid as if such resolution had been passed at a meeting of Unitholders duly called and convened; which Written Resolution will approve, among other things, the Threshold Amendment and the Notice Amendment and any Compulsory Acquisition or Subsequent Acquisition Transaction undertaken in accordance therewith, as applicable; and

(g) if the Applicant is unable to or determines not to pursue either the Compulsory Acquisition or the Subsequent Acquisition Transaction in the manner described above, the Applicant reserves the right, to the extent permitted by applicable law and subject to the terms and conditions of the Support Agreement dated May 24, 2007 between the Applicant and Stephenson's pursuant to which the Applicant agreed to make, and Stephenson's agreed to support, the Offer, to (i) purchase additional Units in the open market or in privately negotiated transactions or otherwise, or (ii) take no further action to acquire additional Units, or (iii) acquire assets of Stephenson's by way of an arrangement, amalgamation, merger, reorganization, consolidation, recapitalization, redemption or other transaction involving the Applicant, EdgeStone and/or its subsidiaries and Stephenson's and/or its subsidiaries. Alternatively, the Applicant may sell or otherwise dispose of any or all Units acquired pursuant to the Offer or otherwise.

5. Notwithstanding that Section 12.10 of the Declaration of Trust permits certain actions of Stephenson's to be authorized by Written Resolution, section 4.2 of the Autorité des marchés financiers du Québec Regulation Q-27 -- Respecting Protection of Minority Shareholders in the Course of Certain Transactions ("Regulation Q-27") and section 4.2 of OSC Rule 61-501 -- Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions ("Rule 61-501") requires in certain circumstances that the Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable, be approved at a meeting of Unitholders called for that purpose.

6. To effect either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable, the Applicant will, if required, obtain minority approval, as that term is defined in the Legislation, calculated in accordance with the terms of Section 8.2 of Regulation Q-27 and Section 8.2 of Rule 61-501 (the "Minority Approval"), albeit not at a meeting of Unitholders, but by Written Resolution.

7. The offer and take-over bid circular provided to Unitholders in connection with the Offer will contain all disclosure required by applicable securities laws, including without limitation the take-over bid provisions and form requirements of the Legislation and the provisions of the OSC Rule 61-501 relating to the disclosure required to be included in information circulars distributed in respect of business combinations.

Decision

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 provided that Minority Approval, if required, shall have been obtained by Written Resolution.