Securities Law & Instruments

Headnote

MI 11-102 and NP 11-203 -- business combination -- conversion of publicly traded income fund into corporate entity -- MI 61-101 requires minority approval if conversion is a business combination -- conversion is not a business combination for publicly traded fund, but is technically a business combination for a holding company in the fund's structure -- relief granted to holding company from complying with the minority approval requirement, provided certain conditions met.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 4.5, 9.1.

December 17, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

CANWEL BUILDING MATERIALS INCOME FUND

AND

CANWEL HOLDING PARTNERSHIP

(the Fund and the Partnership, respectively,

and, together, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) that the requirement set out in section 4.5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) that an issuer obtain minority approval for a business combination shall not apply to the Partnership with respect to the CanWel Conversion Transaction (as defined below) (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Quebec.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. The Fund is an unincorporated, open-ended limited purpose trust governed by the laws of the Province of Ontario. The Fund's head office is located at 302 -- 369 Terminal Avenue, Vancouver, British Columbia V6A 4C4. The Fund was established pursuant to a declaration of trust dated April 5, 2005, as amended and restated on May 18, 2005 and May 8, 2008 in connection with the conversion of the former CanWel Building Materials Ltd. from a corporation to an income trust under a plan of arrangement effective May 18, 2005 (the 2005 Conversion).

2. The beneficial interests in the Fund are divided into interests of two classes, designated as "Trust Units" and "Special Voting Units". The Trust Units carry a right to receive any distributions from the Fund and an interest in any net assets of the Fund in the event of termination or winding-up of the Fund, while the Special Voting Units only entitle the holder thereof to one vote at all meetings of unitholders for each Special Voting Unit held. The holders of Trust Units and the holders of Special Voting Units are referred to collectively as "Voting Unitholders". The Trust Units are listed on the Toronto Stock Exchange under the trading symbol "CWX.UN".

3. The Partnership is a limited partnership established under the laws of the Province of Manitoba. The Partnership's head office is located at 302 -- 369 Terminal Avenue, Vancouver, British Columbia V6A 4C4. The general partner of the Partnership is a corporation existing under the laws of the Province of Ontario named CanWel General Partner Inc. (CanWel GP), which is wholly-owned by the Fund. Most of the operating subsidiaries of the Fund are owned directly by the Partnership.

4. The Partnership has two classes of limited partnership interests: "Class A Partnership Units", all of which are held by CanWel Operating Trust (which is wholly owned by the Fund), and "Exchangeable Partnership Units". The Exchangeable Partnership Units are indirectly exchangeable into Trust Units and each Exchangeable Partnership Unit is accompanied by a Special Voting Unit that entitles the holder to receive notice of, attend and to vote together with the holders of Trust Units at all meetings of Voting Unitholders. The Exchangeable Partnership Units were offered to the former CanWel Building Materials Ltd. shareholders as an alternative to receiving Trust Units in the 2005 Conversion, in order to permit such holders to achieve a "rollover"' for Canadian federal income tax purposes.

5. Pursuant to section 3.6(7) of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, the Filers have identified the Ontario Securities Commission as their principal regulator for this application. While the head office of each of the Filers is located in the Province of British Columbia, the Filers are not seeking exemptive relief in British Columbia, as MI 61-101 has been adopted only in Ontario and Quebec. The Filers have determined that their most significant connection is to Ontario because there is a greater number of unitholders of the Fund located in Ontario as compared to Quebec.

6. Both the Fund and the Partnership are reporting issuers under applicable securities laws in Ontario and Quebec (and each of the other provinces of Canada). As an exchangeable security issuer, the Partnership is entitled, under Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and related provisions of securities laws, to an exemption from the financial statement and other continuous disclosure requirements of NI 51-102 and certain related requirements of securities laws.

7. The Filers are not in default of applicable securities legislation in any of the jurisdictions of Canada.

8. As at November 30, 2009, there were 24,031,538 Trust Units and 11,144,279 Exchangeable Partnership Units outstanding. All of the outstanding Exchangeable Partnership Units are owned, directly or indirectly, by Amar Doman who serves as Chairman and as a Trustee of the Fund, and as Chairman and as a Director of CanWel GP.

9. The Exchangeable Partnership Units are not listed on any exchange and, by their terms, are not transferable except upon their exchange for Trust Units and in certain other very limited circumstances.

10. The Exchangeable Partnership Units are intended to be, to the greatest extent practicable, the economic equivalent of Trust Units. Holders of Exchangeable Partnership Units are entitled to receive distributions paid by the Partnership, which distributions will be equal, to the greatest extent practicable, to distributions paid by the Fund to holders of Trust Units. Each accompanying Special Voting Unit entitles the holder to one vote at all meetings of unitholders of the Fund. Pursuant to the limited partnership agreement of the Partnership, the holders of Exchangeable Partnership Units do not have voting rights in respect of matters to be decided by the limited partners of the Partnership.

11. The Fund is now proposing to undertake a transaction that would result in the conversion of the Fund and the Partnership to a corporate structure (the CanWel Conversion Transaction). Under the CanWel Conversion Transaction, the holders of Trust Units and Exchangeable Partnership Units will, if the transaction is approved by Voting Unitholders and certain other conditions are satisfied or waived, exchange their respective units for common shares of a new corporation (New CanWel) established by the Fund. Upon completion of the CanWel Conversion Transaction, New CanWel will become the successor reporting issuer to the Fund, and it is intended that the New CanWel common shares will be listed on the Toronto Stock Exchange.

12. The CanWel Conversion Transaction will be effected by a plan of arrangement under the Business Corporations Act (British Columbia), subject to approval at a meeting of Voting Unitholders by a special resolution approved by no less than two-thirds of the votes cast by holders of Trust Units and Special Voting Units, voting together as a single class as provided in the Fund's declaration of trust. The CanWel Conversion Transaction is also subject to approval by the British Columbia Supreme Court.

13. Under the CanWel Conversion Transaction, all holders of Trust Units and holders of Exchangeable Partnership Units will receive the same consideration in return for their respective units, namely one common share of New CanWel for each Trust Unit or Exchangeable Partnership Unit held.

14. In addition to the CanWel Conversion Transaction, the Fund also announced in its press release dated December 7, 2009 (i) a proposed acquisition (the Proposed Acquisition) by New CanWel of all of the issued and outstanding shares in the capital of Broadleaf Logistics Company; and (ii) a "bought deal" private placement of subscription receipts by the Fund (the Proposed Private Placement and, collectively with the CanWel Conversion Transaction and the Proposed Acquisition, the Proposed Transactions). The Proposed Transactions constitute "connected transactions" under MI 61-101.

15. The CanWel Conversion Transaction will not be a business combination, as defined in MI 61-101, for the Fund because it is a downstream transaction (as defined in MI 61-101) for the Fund and, as such, there is no requirement for the Fund to obtain a formal valuation or minority approval under MI 61-101 for the CanWel Conversion Transaction.

16. The Proposed Acquisition is not a "related party transaction" under MI 61-101. One of the subscriptions for subscription receipts of the Fund under the Proposed Private Placement will constitute a "related party transaction" under MI 61-101 for the Fund because the subscriber is an independent trustee of the Fund. There is no requirement for the Fund to obtain a formal valuation or minority approval under Part 5 of MI 61-101 for this subscription under the Proposed Private Placement because neither the fair market value of the subscription receipts to be issued in connection with, nor the fair market value of the consideration for, such subscription, insofar as it involves the independent trustee, exceeds 25% of the Fund's market capitalization.

17. The CanWel Conversion Transaction would be considered a business combination, as defined in MI 61-101, for the Partnership because (i) the CanWel Conversion Transaction would not be a downstream transaction (as defined in MI 61-101) for the Partnership and would result in a related party of the Partnership (New CanWel), directly or indirectly, acquiring the issuer (the Partnership); and (ii) certain related parties of the Partnership (including the Fund and New CanWel) are party to the Proposed Acquisition and the Proposed Private Placement which are connected transactions to the CanWel Conversion Transaction.

18. For the Partnership, the CanWel Conversion Transaction would be exempt from the formal valuation requirements of Part 4 of MI 61-101, pursuant to section 4.4(a), since no securities of the Partnership are listed on the specified markets. However, the CanWel Conversion Transaction would subject the Partnership to the requirement to obtain minority approval for the CanWel Conversion Transaction from the holders of "affected securities" of the Partnership; that is, the holders of Exchangeable Partnership Units, although no minority approval requirement would apply at the Fund level.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that the condition in subsection (e)(iii) of the definition of business combination in section 1.1 of MI 61-101 is met.

Furthermore, the decision of the principal regulator is that the application of the Filers and this decision be kept confidential and not be made public until the earlier of: (a) the date on which the Fund mails the management information circular to unitholders of the Fund in connection with unitholder approval of the CanWel Conversion Transaction; (b) the date the Fund advises the principal regulator that there is no longer any need for the application and this decision to remain confidential; and (c) the date that is 90 days after the date of this decision.

"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission