Goodman & Company, Investment Counsel Ltd. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from subsection 4.1(1) of National Instrument 81-102 Mutual Funds to allow dealer managed mutual funds to invest in securities of an issuer during the 60 days after the distribution period in which an affiliate of the dealer manager has acted as an underwriter in connection with the distribution of securities of the issuer.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, subsection 4.1(1) and section 19.1.
April 25, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD
ISLAND, NEWFOUNDLAND AND LABRADOR,
AND THE NORTHWEST TERRITORIES, NUNAVUT AND THE YUKON
(THE "JURISDICTIONS")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
GOODMAN & COMPANY, INVESTMENT COUNSEL LTD.
(THE "APPLICANT")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Applicant (or "Dealer Manager"), for and on behalf of the mutual funds named in Appendix "A" (the "Funds" or "Dealer Managed Funds") for whom the Applicant acts as manager or portfolio advisor or both, for a decision under section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") for:
• an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Funds to invest in common shares (the "Common Shares") of Hudbay Minerals Inc. (the "Issuer") during the 60-day period following the completion of the distribution (the "Prohibition Period") notwithstanding that the Dealer Manager or its associates or affiliates act or have acted as an underwriter in connection with the private placement (the "Offering") of Common Shares of the Issuer under a term sheet (the "Term Sheet") for the Offering pursuant to the prospectus exemptions in the provinces of British Columbia, Alberta and Ontario, excluding the remaining provinces unless necessary due to the location of purchasers of the Common Shares (the "Requested Relief").
Under the Mutual Reliance Review System 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.
It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from subsection 4.1 of NI 81-102 in relation to the specific facts of each application.
Interpretation
Defined terms contained in National Instrument 14-101 - Definitions have the same meanings in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Applicant:
1. The Dealer Manager is a "dealer manager" with respect to the Dealer Managed Funds, and the Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.
2. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.
3. The head office of the Dealer Manager is in Toronto, Ontario.
4. Based upon the information provided in the Term Sheet, the underwriting syndicate is comprised of the Dundee Securities Corporation (the "Related Underwriter"), Desjardins Securities Inc., TD Securities Inc., Wellington West Capital Markets Inc., Canaccord Capital Corporation, Orion Securities Inc. and Paradigm Capital Inc.
5. The Issuer is an integrated base metals mining and smelting company based in Winnipeg, Manitoba.
6. The Offering is expected to be for approximately 1,460,000 Common Shares at a price of $13.75 per Common Share with the gross proceeds of the Offering expected to be approximately $20,075,000. According to the Issuer's Press Release dated April 10, 2006, the gross proceeds of the Offering will be used for exploration and development of the Issuer's Canadian properties, including the continued expansion of the Issuer's ongoing exploration program in the Flin Flon greenstone belt, as well as its other exploration property holdings.
7. According to the Term Sheet, the gross proceeds of the Offering will also be used to incur eligible Canadian Exploration Expenses ("CEE") for purposes of the Taxation Act (Canada) which will be renounced in favour of the purchasers of the Common Shares for the 2006 taxation year. The Issuer will incur and renounce to purchasers of the Common Shares an amount of CEE equal to the issue price for each Common Share issued so that purchasers will receive a 100% deduction for their subscription amount for the purchased Common Shares in the taxation year ending December 31, 2006. In the event that the Issuer fails to renounce CEE corresponding to 100% of the gross proceeds from the Offering effective in 2006, or there is a reduction in the amount renounced, the Issuer will indemnify the purchasers of the Common Shares for all taxes payable by such subscribers as a consequence.
8. According to the Term Sheet, the Common Shares will not be subject to any hold or restricted period after four (4) months following the Closing Date.
9. According to the Term Sheet, the Issuer will take all steps required to ensure that the Common Shares are listed on the Toronto Stock Exchange ("TSX").
10. The Term Sheet does not provide any disclosure with respect to the "connected issuer"/ "related issuer" provisions in National Instrument 33-105 -- "Underwriting Conflicts" ("NI 33-105").
11. Despite the affiliation between the Dealer Manager and the Related Underwriter, they operate independently of each other. In particular, the investment banking and related dealer activities of the Related Underwriter and the investment portfolio management activities of the Dealer Manager are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:
(a) in respect of compliance matters (for example, the Dealer Manager and the Related Underwriter may communicate to enable the Dealer Manager to maintain an up to date restricted-issuer list to ensure that the Dealer Manager complies with applicable securities laws); and
(b) the Dealer Manager and the Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.
12. The Dealer Managed Funds are not required or obligated to purchase any Common Shares during the Prohibition Period.
13. The Dealer Manager may cause the Dealer Managed Funds to invest in Common Shares during the Prohibition Period. Any purchase of the Common Shares will be consistent with the investment objectives of the Dealer Managed Funds and represent the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Funds or in fact be in the best interests of the Dealer Managed Funds.
14. To the extent that the same portfolio manager or team of portfolio managers of a Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the Common Shares purchased for them will be allocated:
(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts; and
(b) taking into account the amount of cash available to the Dealer Managed Fund for investment.
15. There will be an independent committee (the "Independent Committee") appointed in respect of the Dealer Managed Funds to review the investments in Common Shares made by the Dealer Managed Funds during the Prohibition Period.
16. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with its Dealer Manager, the Dealer Managed Funds, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Dealer Manager.
17. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
18. The Dealer Manager, in respect of the Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the Ontario Securities Commission in writing of the filing of the SEDAR Report (as defined below) on SEDAR, as soon as practicable after the filing of such report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.
19. The Dealer Manager has not been involved in the work of the Related Underwriter and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Manager as to whether the Dealer Managed Funds will purchase Common Shares during the Prohibition Period.
Decision
Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from subsection 4.1(1) of NI 81-102 and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.
Each of the Decision Makers is satisfied that the test contained in NI 81-102 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, notwithstanding that the Related Underwriter acts or has acted as underwriter in the Offering provided that, in respect of the Dealer Manager and its Dealer Managed Funds, the following conditions are satisfied:
I. At the time of each purchase (the "Purchase") of Common Shares by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:
(a) the Purchase
(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(ii) is, in fact, in the best interests of the Dealer Managed Fund;
(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and
(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with its Related Underwriter;
II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,
(a) there is compliance with the conditions of this Decision; and
(b) in connection with any Purchase,
(i) there are stated factors or criteria for allocating the Common Shares purchased for two or more Dealer Managed Funds and other Managed Accounts, and
(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria;
III. Each Dealer Managed Fund has an Independent Committee to review the Dealer Managed Fund's investments in the Common Shares during the Prohibition Period;
IV. The Independent Committee has a written mandate describing its duties and standard of care which, as a minimum, sets out the conditions of this Decision;
V. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;
VI. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph V above;
VII. The Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph V above;
VIII. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Fund, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Funds to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph V above is not paid either directly or indirectly by the Dealer Managed Fund;
IX. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of each Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:
(a) the following particulars of each Purchase:
(i) the number of Common Shares purchased by the Dealer Managed Fund;
(ii) the date of the Purchase and purchase price;
(iii) whether it is known whether any underwriter or syndicate member has engaged in market stabilization activities in respect of the Common Shares;
(iv) if the Common Shares were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and
(v) the dealer from whom the Dealer Managed Fund purchased the Common Shares and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;
(b) a certification by the Dealer Manager that the Purchase:
(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or
(iii) was, in fact, in the best interests of the Dealer Managed Fund;
(c) confirmation of the existence of the Independent Committee to review the Purchase of the Common Shares by the Dealer Managed Funds, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review;
(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Common Shares for the Dealer Managed Funds and each Purchase by the Dealer Managed Fund:
(i) was made in compliance with the conditions of this Decision;
(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(iv) was, in fact, in the best interests of the Dealer Managed Fund.
X. The Independent Committee advises the Decision Makers in writing of:
(a) any determination by it that the condition set out in paragraph IX(d) has not been satisfied with respect to any Purchase of the Common Shares by a Dealer Managed Fund;
(b) any determination by it that any other condition of this Decision has not been satisfied;
(c) any action it has taken or proposes to take following the determinations referred to above; and
(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of a Dealer Managed Fund, in response to the determinations referred to above.
XI. Each Purchase of Common Shares during the Prohibition Period is made on the TSX; and
XII. An underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.
APPENDIX A
THE MUTUAL FUNDS
DYNAMIC FUNDS
Dynamic Canadian Value Class
Dynamic Value Fund of Canada