NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of a change of control of a mutual fund manager -- Direct change of control of Manager as a result of an agreement to purchase all of the issued and outstanding common shares in the capital of the Manager.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, s. 5.5(2).
December 18, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO,
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
GATEHOUSE CAPITAL INC.
(the "Filer" or the "Manager") AND
GLOBAL CREDIT PREF CORP.
AND TIS PRESERVATION & GROWTH FUND
The principal regulator in the Jurisdiction (the "Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for approval pursuant to subsection 5.5(2) of National Instrument 81-102 Mutual Funds ("NI 81-102") of a change of control of the Manager (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 Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, New Brunswick, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan (together with Ontario, the "Jurisdictions").
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
This decision is based on the following facts represented by the Filer:
The Manager and the Funds
1. The Manager was incorporated on August 11, 2004 pursuant to the Business Corporations Act (Ontario). The Manager is not, to the best of its knowledge, in default of securities legislation in any Jurisdiction.
2. The Manager manages Global Credit Pref Corp. and the TIS Preservation & Growth Fund (collectively, the "Funds"), together with Global Credit Trust. The Manager handles and oversees the day-to-day operation of the Funds.
3. Global Credit Pref Corp. is a closed-end mutual fund corporation incorporated under the laws of the Province of Ontario on May 11, 2005. The preferred shares of Global Credit Pref Corp. are listed on the Toronto Stock Exchange. Global Credit Pref Corp. is not a conventional mutual fund and as a result has obtained exemptions from NI 81-102.
4. The TIS Preservation & Growth Fund is an open-end mutual fund trust that was established under the laws of the Province of Ontario pursuant to a trust agreement dated as of March 30, 2007 between the Manager and HSBC Trust Company (Canada) as trustee. Units of the TIS Preservation & Growth Fund are distributed in each province of Canada (except Quebec) under a simplified prospectus and annual information form dated April 9, 2009, as amended by amendment no. 1 thereto dated October 8, 2009, prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure ("NI 81-101") and NI 81-102.
5. Global Credit Pref Corp. is a reporting issuer under the applicable securities legislation in each province of Canada. The TIS Preservation & Growth Fund is a reporting issuer under the applicable securities legislation in each province of Canada except Quebec. Neither of the Funds is on the list of defaulting reporting issuers maintained under applicable securities legislation in those jurisdictions.
6. First Asset Investment Management Inc. is the investment advisor to Global Credit Pref Corp. Accilent Capital Management Inc. is the investment advisor to the TIS Preservation & Growth Fund, and TIS Group, Inc. has been appointed as the investment sub-advisor to the TIS Preservation & Growth Fund.
The Proposed Acquisition
7. Bycke Asset Management Ltd., the sole shareholder of the Manager, and the Manager have entered into a share purchase agreement dated October 2, 2009 with Redwood Asset Management Inc. (the "Purchaser"), pursuant to which all of the issued and outstanding common shares in the capital of the Manager will be acquired by the Purchaser. The transaction remains subject to the receipt of all applicable regulatory approvals and the satisfaction of customary closing conditions, and is expected to close in December 2009 following receipt of the regulatory approvals and the expiration of the notice period provided for in Section 5.8(1)(a) of NI 81-102.
8. The Purchaser is a corporation established under the laws of Ontario and is registered as a dealer in the category of limited market dealer (now exempt market dealer) in Ontario. The Purchaser is not registered with any other securities commission in Canada. To the best of the Manager's knowledge, the Purchaser is not in default of securities legislation in any Jurisdiction. The directors and officers of the Purchaser are Jonathan Clapham, Gian Delzotto, Peter Shippen and Brian Petersen.
9. On closing of the transaction, the principal shareholders, direct and indirect, of the Purchaser will be IPI Corp. as to 21.3%, Mr. Jonathan Clapham as to 21.3% and Mr. Peter Shippen as to 17.1%. IPI Corp. is wholly-owned by Gian Delzotto, who is a director of the Purchaser.
Proposed Change of Control
10. The acquisition of the Manager will involve a direct change of control of the Manager. Pursuant to section 5.5(2) of NI 81-102, the approval of the Decision Maker must be obtained prior to the proposed change of control.
11. In connection with certain regulatory requirements applicable to the Funds:
(a) a press release describing the proposed transaction was issued by the Manager on October 2, 2009 and filed under SEDAR Project Nos. 1483204, 1483205 and 1483206;
(b) a material change report was filed on October 9, 2009 under SEDAR Project Nos. 1484624, 1484625 and 1484627;
(c) an amendment to the TIS Preservation & Growth Fund's then current simplified prospectus and annual information form was filed under SEDAR Project No. 1384453 in accordance with the fund's continuous disclosure obligations; and
(d) notices regarding the change of control have been posted on SEDAR under SEDAR Project Nos. 1485159 and 1485162 and were sent to security holders of Global Credit Pref Corp. on October 29, 2009 and to security holders of the TIS Preservation & Growth Fund on October 15, 2009, pursuant to section 5.8(1)(a) of NI 81-102.
12. The Purchaser has indicated to the Manager that the change of control of the Manager will have no adverse effect on the management and administration of the Funds. While no material changes will be made to the management, operations or portfolio management of the Funds for a period of 60 days following the date that notices of the change of control are sent to security holders of the Funds, it is intended by the Purchaser that SciVest Capital Management Inc. will be appointed as the investment advisor of the TIS Preservation & Growth Fund effective on or about the closing of the transaction. TIS Group, Inc. would, however, remain as the investment sub-advisor to the TIS Preservation & Growth Fund. Although none are expected by the Purchaser, to the extent that any changes are made on, or following, the change of control of the Manager which constitute a "material change" within the meaning of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106"), the Funds will comply with the continuous disclosure obligations set out in section 11.2 of NI 81-106.
13. As the directors and officers of the Manager will be a combination of the existing directors and officers of the Purchaser and the Manager, all directors and officers of the Manager following closing of the acquisition will continue to have the requisite integrity and experience as required under Section 5.7(1)(a)(v) of NI 81-102.
14. The Funds' independent review committee has reviewed the proposed transaction and recommended to the Manager that in its opinion the proposed transaction achieves a fair and reasonable result for the Funds. On closing of the transaction, all current members of the IRC will cease to be members of the IRC by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds ("NI 81-107") and, subject to their consent, are expected to be subsequently reappointed as members of the IRC as contemplated in the commentary to Sections 3.3(5) and 3.10 of NI 81-107.
15. In due course, it is expected that the new ownership of the Manager may contribute to greater economies of scale resulting in lower cost administration of the Funds.
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.