Medical Facilities Corporation - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted to an issuer of income participating securities ("IPSs") from the short form prospectus qualification criteria that the aggregate market value of its equity securities that are listed and posted for trading on an exchange in Canada be equal to or greater than a prescribed monetary threshold on a date within 60 days before the date of filing by the issuer of a preliminary short form prospectus. Instead, the issuer will be permitted to calculate its market capitalization for the purposes of the prescribed monetary threshold based on its issued and outstanding IPSs. Each IPS of the issuer is composed of two components: a common share component and a subordinated note component. Holders of IPSs have the right to separate each IPS into its respective common share and subordinated note component. The IPSs also separate automatically on the repurchase, redemption or maturity of the subordinated notes. The IPSs are listed and posted for trading on the Toronto Stock Exchange ("TSX") and the underlying common shares are listed on the TSX but not posted for trading. If a sufficient number of IPSs are separated to create a public distribution of common shares, the TSX will post a market in the common shares as well.
Applicable Ontario Rules
National Instrument 44-101 -- Short Form Prospectus Distributions, sections 2.2, 2.9 and 15.1
May 18, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION
OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR, THE YUKON TERRITORY,
THE NORTHWEST TERRITORIES AND NUNAVUT
(THE "JURISDICTIONS")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
MEDICAL FACILITIES CORPORATION (THE "FILER")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the short form prospectus qualification criteria in section 2.2 of National Instrument 44-101 -- Short Form Distributions ("NI 44-101") that the aggregate market value of its equity securities that are listed and posted for trading on an exchange in Canada be $75,000,000 or more on a date within 60 days before the date of filing by the Filer of a preliminary short form prospectus (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for the Application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer was incorporated on January 12, 2004 and is validly existing under the laws of the Province of Ontario.
2. The Filer's registered and head office is located at 250 Yonge Street, Suite 2400, Toronto, Ontario, M5B 2M6.
3. The Filer is a reporting issuer in each of the Jurisdictions that has a reporting issuer concept.
4. To the best of its knowledge, the Filer is not in default of any material requirement of the Legislation and is not on the list of defaulting reporting issuers maintained pursuant to the Legislation, where applicable.
5. On March 17, 2004, the Filer filed a final prospectus (the "Prospectus") for its initial public offering (the "IPO") and became a reporting issuer in each of the Jurisdictions where such status exists.
6. On March 29, 2004, the Filer completed the IPO and used the proceeds to indirectly acquire interests in the three specialty hospitals described in the Prospectus.
7. On the closing of the IPO, the Filer issued 22,173,212 income participating securities (the "IPSs") at a purchase price of $10.00 per IPS for total gross proceeds of $221,732,120. Each IPS of the Filer is comprised of two components: a common share component and a subordinated note component. $5.90 of the value of each of the Filer's IPSs was allocated to the subordinated note component and $4.10 was allocated to the common share component.
8. Holders of IPSs have the right, at any time after 90 days of the date of the completion of the IPO, to separate each IPS into its respective common share and subordinated note component. The IPSs also separate automatically on the repurchase, redemption or maturity of the subordinated notes.
9. A separate certificate representing the IPSs was issued on closing to CDS & Co., which holds such IPSs for the benefit of beneficial holders through the book-entry system it administers. The common shares and subordinated notes represented by the IPSs were also issued on closing and are held in trust for CDS & Co. by the Filer's transfer agent and the trustee under the indenture governing the subordinated notes, respectively, pursuant to the terms of a voting and separation agreement.
10. The IPSs are listed and posted for trading on the Toronto Stock Exchange (the "TSX") and the underlying common shares are listed on the TSX but not posted for trading. If a sufficient number of IPSs are separated to create a public distribution of common shares, the TSX will post a market in the common shares as well as the IPSs. The subordinated notes are not listed for trading on any stock exchange.
11. The IPSs are generally considered by the market (including the analyst community and the TSX) to be equivalent to units of an income fund and are the best representation of the market presence and public following of the Filer.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation 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 provided that:
(a) the Filer shall only be exempt from the short form prospectus qualification criteria in section 2.2 of NI 44-101 that the aggregate market value of its equity securities be $75,000,000 or more on certain dates if the sum of (i) the aggregate market value of the Filer's unseparated IPSs that are listed and posted for trading on an exchange in Canada and (ii) the aggregate market value of the Filer's equity securities that are listed and posted for trading on an exchange in Canada, is $75,000,000 or more on a date within 60 days before the date of filing by the Filer of the preliminary short form prospectus;
(b) in all cases, the aggregate market value of the Filer's issued and outstanding IPSs on the relevant date shall be calculated in accordance with section 2.9 of NI 44-101 and all references to "equity securities" in this section shall be deemed to include IPSs for this purpose; and
(c) in all cases, the Filer otherwise complies with NI 44-101.
"Iva Vranic"