Exemption Orders (Discretionary)
BNN SPLIT CORP.
2001 BCSECCOM 1004
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the substantial securityholder prohibition and the prohibition against a person who has information concerning the investment program of a mutual fund using that information to purchase or sell securities for the person's benefit.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 120(1), 120(2), 121(2)(a), 128 and 130(b).
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NOVA SCOTIA, NEWFOUNDLAND, AND PRINCE EDWARD ISLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF BNN SPLIT CORP.
CANADIAN EXPRESS LTD.
AND
TRILON SECURITIES CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, Newfoundland and Prince Edward Island (the "Jurisdictions") has received an application from BNN Split Corp. (the "Company"), Canadian Express Ltd. (“Controlling Shareholder”) and Trilon Securities Corporation (“Trilon”) (collectively, the “Applicants”) for a decision under the securities legislation (the "Legislation") of the Jurisdictions that
(i) the Company is exempt from the provision prohibiting it from making an investment in a person or company who is a substantial security holder of a distribution company of the Company (the “Investment Prohibition”), in connection with the proposed investment in Class A Limited Voting Shares (the “Brascan Shares”) of Brascan Corporation (“Brascan”), and
(ii) Canadian Express and Trilon are exempt from the provision prohibiting a person or company who has access to information concerning the investment program of the Company from purchasing or selling securities of an issuer for his, her or its account, where the portfolio securities of the Company include securities of that issuer and where the information is used by the person or company for his, her or its direct benefit or advantage (the “Insider Trading Prohibition”),
a. in connection with the proposed sale to the Company of Brascan Shares held by Canadian Express and Trilon as described in paragraph 14 below, and
b. in connection with future principal purchases of Brascan Shares from the Company by Trilon as described in paragraph 23 below;
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Applicants have represented to the Decision Makers as follows:
1. The Company was incorporated under the laws of the Province of Ontario on July 12, 2001. The primary business undertaking of the Company is to acquire and hold a portfolio of Brascan Shares, which are securities that are listed and traded on the Toronto Stock Exchange (the “TSE”). The Brascan Shares and any cash held by the Company from time to time will be the only material assets of the Company.
2. The Company is considered to be a mutual fund as defined in the Legislation. However, since the Company will not operate as a conventional mutual fund, it has made an application for exemptions from certain applicable requirements of National Instrument 81-102.
3. The Company currently has a board of directors (the “Board”) consisting of five directors. Three of the Company’s directors are also directors and officers of Trilon, while the remaining two directors are independent of Trilon (the “Independent Directors”).
4. The purpose of the Company is to provide a vehicle through which different investment objectives in respect of the Company’s holding of Brascan Shares may be satisfied. This will be accomplished through the distribution of an equal number of capital shares (the “Capital Shares”) and preferred shares (the “Preferred Shares”).
5. The Preferred Shares will be offered to the public pursuant to a prospectus (the “Offering”). For this purpose, the Company has filed a preliminary prospectus dated July 13, 2001 (the “Preliminary Prospectus”) with all of the provinces of Canada.
6. Concurrently with the Offering of Preferred Shares, the Company will issue to Canadian Express, on an exempt basis, one Capital Share for each Preferred Share sold under the Offering, such that Canadian Express will own 100% of the Capital Shares. The Capital Shares issuable to Canadian Express will have a value at the time of issue equal to the portfolio of Brascan Shares at the time of issuance, less the proceeds of the Preferred Share Offering and divided by the number of Capital Shares to be issued.
7. The Company will hold the Brascan 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 Brascan Shares held by the Company.
8. An application has been made to have the Preferred Shares listed and traded on the TSE.
9. Canadian Express is a reporting issuer whose principal business mandate is to provide holders of its common shares with a leveraged investment in Brascan Shares. It is the promoter of the Company and will own all of the outstanding Capital Shares and Class A Voting Shares of the Company.
10. Trilon is registered under the Legislation as a dealer in the categories of “broker” and “investment dealer”, and is a member of the Investment Dealers Association of Canada and the TSE. Trilon is a distribution company of the Company and is a wholly-owned subsidiary of Trilon Financial Corporation, which is 71% owned by Brascan.
11. Pursuant to an administration agreement (the “Administration Agreement”) to be entered into between the Company and Trilon, the latter will be retained to administer the ongoing operations of the Company. Trilon will be paid an annual fee equal to 10% of the ordinary expenses incurred in connection with the operation and administration of the Company.
12. Pursuant to an agreement to be made between the Company, Canadian Express, and the agents for the Offering of Preferred Shares including Trilon (collectively, the “Agents”), the Company will appoint the Agents to offer the Preferred Shares to the public on a best- efforts basis.
13. The net proceeds from the Offering of Preferred Shares (after deducting the Agents’ fees, expenses of the issue and the Company’s expenses relating to the acquisition of the Brascan Shares) will be used by the Company, together with the proceeds from the exempt distribution of Capital Shares, to fund the purchase of Brascan Shares that will be held in the Company’s portfolio.
14. Pursuant to an agreement among the Company, Canadian Express and Trilon, the Company has agreed to purchase from Canadian Express and Trilon, and the latter have agreed to sell to the Company, the Brascan Shares that they hold at $25.00 per share (the “Initial Purchase and Sale”). The Company will issue Capital Shares to Canadian Express as consideration for the Brascan Shares to be purchased from Canadian Express. The Company’s acquisition of Brascan Shares from Trilon will be paid for in cash, and will be funded in part by the proceeds from the Offering of Preferred Shares and in part by the proceeds from cash subscriptions by Canadian Express for additional Capital Shares of the Company.
15. The price to be paid by the Company to Trilon and Canadian Express for the Brascan Shares was negotiated and agreed to among the parties at the time the transaction was initially proposed, when the market price of Brascan Shares was $25.00 per share. This was done in order to provide certainty that the Company will be able to purchase sufficient Brascan Shares at closing to complete the transaction.
16. The exact number of Brascan Shares to be acquired by the Corporation will be determined at the time of the pricing of the Preferred Shares. For this purpose, it is a requirement of Dominion Bond Rating Service Limited, which will give a rating for the Preferred Shares, that the minimum amount of asset coverage for the Preferred Shares be a number of Brascan Shares sufficient to provide the Company a downside protection equal to 55% of the market price of Brascan Shares at the time of pricing the Preferred Shares.
17. The Company’s (final) prospectus for the Offering of Preferred Shares will disclose the market price of Brascan Shares as at the date immediately preceding the date of such prospectus. It will also disclose the acquisition cost of Brascan Shares that, or the cost-basis on which such Brascan Shares, will be transferred or sold by Canadian Express and Trilon to the Company under the Initial Purchase and Sale transaction, as well as selected information with respect to the dividend and trading history of Brascan Shares.
18. The Independent Directors of the Company have determined that the terms of the Initial Purchase and Sale of Brascan Shares, including the price of $25.00 per share, are reasonable and in the best interest of the Company.
19. Prior to and after the date of the Company’s (final) prospectus for the Offering of Preferred Shares, Trilon will also purchase additional Brascan Shares, as agent for the Company, at market price and in accordance with the requirements of the TSE. In connection with such agency purchase, Trilon will receive fees or commissions from the Company at normal commercial rates.
20. The Company is not, and will not after its acquisition of Brascan Shares be, an insider of Brascan.
21. The acquisition of Brascan Shares represents the business judgment of the Company’s Board, uninfluenced by considerations other than the best interest of the Company.
22. The Company will not engage in any trading of the Brascan Shares held in its portfolio except
(a) to fund retractions or redemptions of Preferred Shares or Capital Shares by he holders or the Company, as the case may be, prior to September 30, 2008 (the “Redemption Date”), and
(b) in certain other limited circumstances as described in the Preliminary Prospectus and will be described in the (final) prospectus.
23. In connection with the services to be provided by Trilon to the Company pursuant to the Administration Agreement, Trilon may sell Brascan Shares, as agent on behalf of the Company, to fund retractions of Preferred Shares or Capital Shares prior to the Redemption Date. In connection with such agency sales of Brascan Shares on behalf of the Company, Trilon may receive fees or commissions at normal commercial rates. In addition, Trilon may also purchase Brascan Shares as principal (the “Principal Purchase”) from the Company, for which it will not receive any fee or commission. In carrying out the Principal Purchases, Trilon will deal fairly, honestly and in good faith with the Company.
24. In connection with any Principal Purchase of Brascan Shares from the Company, Trilon will comply with the rules, procedures and policies of the TSE. In addition, the Administration Agreement will require Trilon to take such reasonable steps (for example, soliciting bids from other market participants) as Trilon considers appropriate in its discretion, after taking into account prevailing market conditions and other relevant factors, to enable the Company to obtain the best price (net of all transactions costs) reasonably available for the Brascan Shares.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the tests contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision have been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that:
a. the Investment Prohibition does not apply to the Company’s acquisition and holding of Brascan Shares, provided that the Company does not become an insider of Brascan following such investment; and
b. the Insider Trading Prohibition does not apply to
(i) Canadian Express and Trilon, in connection with the Initial Purchase and Sale transaction in Brascan Shares, provided that the Company’s (final) prospectus discloses the information described in paragraphs 15 to 18 above, and
(ii) Trilon, in connection with any Principal Purchase of Brascan Shares from the Company, provided that the price to be paid by Trilon for such purchase is not less than the bid price of Brascan Shares as reported on the principal stock exchange where Brascan Shares are listed and traded.
DATED this 27th day of August, 2001.
Paul Moore J.A. Geller