NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted for change of control of mutual fund manager under s. 5.5(2) of NI 81-102 -- The Filer has no current plans to change the manager of the Funds, or to amalgamate or merge the current manager with any other entity, for the foreseeable future.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(2), 19.1.
April 30, 2014
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 U.S. GLOBAL INVESTORS (CANADA) LTD. (U.S. Global) AND IN THE MATTER OF GALILEO GLOBAL EQUITY ADVISORS INC. (the Manager) (collectively, the Filers) AND IN THE MATTER OF GALILEO HIGH INCOME PLUS FUND and GALILEO GROWTH AND INCOME FUND (the Funds)
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (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 Approval 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 Manager 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, New Brunswick, Nova Scotia, Prince Edward Island, Québec, Saskatchewan, Northwest Territories, Yukon and Nunavut (together with Ontario, the Jurisdictions).
Terms defined 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 Filers:
The Filers and the Funds
1. The Manager is a corporation incorporated under the laws of the Province of Ontario. The Manager's head office is located in Ontario.
2. The Manager is registered: (a) in Ontario, as an exempt market dealer, portfolio manager and investment fund manager, (b) in Alberta, as a portfolio manager and exempt market dealer, (c) in Manitoba, as a portfolio manager and exempt market dealer, (d) in British Columbia, as a portfolio manager and exempt market dealer, (e) in Nova Scotia, as a portfolio manager and exempt market dealer, (f) in Québec, as a portfolio manager, exempt market dealer and investment fund manager, and (g) in Newfoundland and Labrador, as an investment fund manager. The Manager is not in default of securities legislation in any of the Jurisdictions.
3. The Manager is the investment fund manager and trustee of the Funds and provides investment advice and portfolio management services to the Funds.
4. The Funds are reporting issuers in the Jurisdictions and are not in default of any of the securities law requirements of those Jurisdictions. The securities of the Funds are qualified for distribution in the Jurisdictions by a simplified prospectus and annual information form.
5. The Funds are marketed and distributed through registered dealers.
6. Prior to July 31, 2012, the manager and trustee of the Funds was Galileo Funds Inc. (GFI), a wholly-owned subsidiary of the Manager, and the Manager was the portfolio adviser of the Funds. On July 31, 2012, the Manager amalgamated with its wholly-owned subsidiary, GFI, by way of a short-from vertical amalgamation pursuant to section 177 of the Ontario Business Corporations Act. The amalgamated corporation continued under the name Galileo Global Equity Advisors Inc. (GGEA) and since July 31, 2012, has been the investment fund manager, trustee and portfolio advisor of the Funds. Disclosure pertaining to the amalgamation was provided in the Funds' Simplified Prospectus and Annual Information Form dated August 24, 2012.
7. U.S. Global is a wholly owned subsidiary of U.S. Global Investors, Inc., a Texas corporation. U.S. Global was incorporated under the Canada Business Corporations Act on February 14, 2013 for the sole purpose of holding the shares of the Manager, and does not carry on any other business. U.S. Global's parent company, U.S. Global Investors, Inc., is a registered investment adviser under the Investment Advisers Act of 1940, as amended, as adopted in the United States. Headquartered in San Antonio, Texas, U.S. Global Investors, Inc. and its U.S. subsidiaries are principally engaged in the business of providing investment advisory, transfer agency and other services to U.S. Global Investors Funds (a family of thirteen SEC registered mutual funds) as well as other clients.
8. The Manager, U.S. Global and Michael Waring, the President, Chief Executive officer, Chief Investment Officer and Chief Compliance Officer of the Manager, entered into a share purchase agreement on January 18, 2013 that was completed on or around March 31, 2013 through which U.S. Global acquired 500,000 Class A common shares of the Manager. The Filers applied for and received an approval dated March 12, 2013 under subsection 5.5(2) of NI 81-102 in connection with that transaction.
The Proposed Acquisition
9. The Manager, U.S. Global and Michael Waring have entered into an agreement whereby U.S. Global will acquire 150,000 Class B common shares in the capital of the Manager from Michael Waring.
10. Currently, U.S. Global owns 500,000 Class A common shares and Michael Waring owns 500,000 Class B common shares of the Manager. The Class A common shares and Class B common shares have equal voting rights and participate equally in the event of the liquidation, dissolution or winding-up of the Manager. The only difference between the Class A common shares and the Class B common shares is that the directors of the Manager may declare and pay different dividends on the Class A common shares and the Class B common shares.
11. Upon the completion of the Transaction, U.S. Global will own 500,000 Class A common shares and 150,000 Class B common shares, together representing 65% of the outstanding voting shares of the Manager, and Michael Waring will own 350,000 Class B common shares representing 35% of the outstanding voting shares of the Manager. The transaction will result in a change of control of the Manager, since the percentage of the Manager's voting shares held by U.S. Global will increase from 50% to 65% and the percentage of the Manager's voting shares held by Michael Waring will decrease from 50% to 35%. Following the completion of the Transaction, the issued and outstanding shares of the Manager will be owned as follows:
Name of Shareholder
Number of voting Class A common shares
Number of voting Class B common shares
Total Number of voting Class A common and Class B common shares
% of total voting Class A common and Class B common shares
U.S. Global Investors (Canada) Ltd.
12. The completion of the Transaction is subject to the satisfaction of closing conditions, including regulatory approvals, and is expected to close on or about April 30, 2014 (the Closing Date) 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.
Proposed Change of Control
13. The Transaction will result in a change of control of the Manager.
14. The current directors of the Manager are Michael Waring, Evelyn Foo, Frank Holmes (the Chief Executive Officer and Chief Investment Officer of U.S. Global Investors, Inc.) and Susan McGee (the President and General Counsel of U.S. Global Investors, Inc.). It is anticipated that the directors of the Manager will remain the same following the closing of the Transaction.
15. The current officers of the Manager are Michael Waring (President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer) and Evelyn Foo (Chief Financial Officer and Secretary). It is anticipated that the officers of the Manager will remain the same following the closing of the Transaction.
16. U.S. Global and Michael Waring entered into a shareholders' agreement dated March 31, 2013 which provided that certain material transactions required the unanimous approval of both U.S. Global and Mr. Waring, including (i) amending the Manager's articles or by-laws, (ii) the issuance of additional shares, (iii) changing the principal business of the Manager, entering new lines of business, or exiting the current line of business, (iv) significant corporate acquisitions, divestitures or mergers, and (v) the liquidation, dissolution or winding up of the Manager. As a result of the change in the parties' shareholdings, U.S. Global and Michael Waring intend to amend such shareholders' agreement to provide that certain of the above-noted material transactions will no longer require the approval of Michael Waring. Such amendments will not have any material impact on the day-to-day operations of the Manager or on the management and administration of the Funds within a foreseeable period of time following the closing of the Transaction.
17. A press release describing the Transaction was issued by the Manager on March 3, 2014 and filed under SEDAR Project No. 02170673.
18. Securityholder notice describing the Transaction and the resulting change of control was posted on SEDAR under SEDAR Project No. 02170694 and was sent to securityholders of the Funds on February 28, 2014, pursuant to section 5.8(1)(a) of NI 81-102.
19. A notice regarding the change of control of the Manager was submitted to the Compliance and Registrant Regulation branch of the Ontario Securities Commission on March 3, 2014 pursuant to section 11.10 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. The Filers received a non-objection letter dated April 2, 2014.
20. In respect of the impact of the proposed change of control of the Manager on the management and administration of the Funds:
(a) The Filers have confirmed that there are no current plans:
(i) to make any substantive changes to how the Manager operates or manages the Funds;
(ii) to amalgamate or merge the Manager with another investment fund manager,
(iii) immediately following the Closing Date, to change the manager of the Funds to U.S. Global or an affiliate of U.S. Global; and
(iv) within a foreseeable period of time, to change the Manager to U.S. Global or an affiliate of U.S. Global.
(b) The change of control of the Manager will have no negative consequences on the ability of the Manager to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Funds.
(c) There is no current intention to change the name of the Manager or the names of the Funds as a result of the Transaction, immediately after the Closing Date.
(d) The Filers currently intend to maintain the Funds as a separately managed fund family with the Manager as the Funds' investment fund manager and portfolio manager, after the Closing Date.
(e) Following the Closing Date, while the percentage of the Manager's voting shares held by U.S. Global will increase from 50% to 65% and the percentage of the Manager's voting shares held by Michael Waring will decrease from 50% to 35%, the Transaction will not result in any material change in how the Manager operates or acts in relation to the Funds. The Transaction will not have a negative impact on the Funds or their securityholders.
(f) There are no current plans to change the Funds' portfolio manager or the individual portfolio managers of the Manager who are responsible for managing the investment portfolios of the Funds within a foreseeable period of time following the closing of the Transaction.
(g) Following the Closing Date, Michael Waring will continue in the role of Chief Investment Officer of the Manager and will continue to have overall responsibility for the investment management activities of the Manager. In addition, the individuals chiefly responsible for the management and administration of the Funds -- namely Michael Waring (President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer) and Evelyn Foo (Chief Financial Officer and Secretary) -- will continue in their current capacities. All directors and officers of the Manager following closing of the Transaction will continue to have the requisite integrity and experience to fulfil their roles.
(h) Although the current members of the Funds' independent review committee (IRC) will automatically 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 upon the closing of the Transaction, the Manager intends to reappoint them immediately after the Closing Date.
(i) It is not expected that there will be any change to the investment objectives and strategies of the Funds or the expenses that are charged to the Funds as a result of the Transaction.
(j) The proposed Transaction is not expected to adversely impact the financial stability of the Manager or its ability to fulfill its regulatory obligations.
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 Approval Sought is granted.