Bank of Montreal & BMO Capital Trust - MRRS Decision
Headnote
Exemptions from certain continuous disclosure requirements granted to a trust on specified conditions where becauseof the terms of the trust a security holder's return depends upon the financial condition of the sponsoring bank and notthat of the trust. Trust offered trust units to the public in order to provide the bank with a cost effective means of raisingcapital for Canadian bank regulatory purposes; trust holds a portfolio of assets consisting primarily of mortgages andinterests in mortgages; unitholders are entitled to fixed semi-annual non- cumulative distributions but no distributionsare payable if the bank fails to pay dividends on its preferred shares and if distributions are not paid the bank isprevented from paying dividends on its preferred shares; trust units are not redeemable but are exchangeable at theoption of the holder after a fixed term for a series of preferred shares of the bank and trust units are non-voting;
Specifically, exemptions granted from the requirements to:
(a) file interim financial statements and audited annual financial statements and send such statements tounitholders;
(b) make an annual filing in lieu of filing an information circular;
(c) file an annual report and an information circular with the Decision Maker in Quebec and deliver such report orinformation circular to unitholders; and
(d) prepare and file an annual information form ("AIF"), including management's discussion and analysis ("MD&A")of the financial condition and results of operation of the trust and send such MD&A to unitholders
for so long as
(i) the bank remains a reporting issuer;
(ii) the bank sends its annual financial statements, interim financial statements, annual management discussionand analysis and interim management discussion and analysis to unitholders and its annual report tounitholders resident in the Province of Quebec at the same time and in the same manner as if the unitholderswere holders of common shares of the bank;
(iii) all outstanding securities of the trust are of the type presently issued;
(iv) the rights and obligations of holders of additional securities are the same in all material respects as the rightsand obligations of the holders of securities outstanding at the date of the relief is granted; and
(v) the bank and its affiliates are the beneficial owner of all voting securities of the trust
provided that the relief expires 30 days after the occurrence of a material change in the affairs of the trust.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss 77, 78,79, 80(b)(iii),81,
Applicable Ontario Rules Cited
OSC Rule 51-501- AIF and MD&A
OSC Rule 52-501- Financial Statements
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NOVA SCOTIA
AND NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BANK OF MONTREAL AND
BMO CAPITAL TRUST
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker", and collectively the"Decision Makers") in each of the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec,Nova Scotia and Newfoundland (the "Jurisdictions") has received an application (the "Application") from Bank of Montreal(the "Bank") and BMO Capital Trust (the "Trust") for a decision, pursuant to the securities legislation of the Jurisdictions(the "Legislation"), that the requirements contained in the Legislation to:
(a) file interim financial statements and audited annual financial statements (collectively, "FinancialStatements") with the Decision Makers and deliver such statements to the security holders of theTrust;
(b) make an annual filing ("Annual Filing") with the Decision Makers in lieu of filing an information circular,where applicable;
(c) file an annual report ("Annual Report") and an information circular with the Decision Maker in Quebecand deliver such report or information circular to the security holders of the Trust resident in Quebec;and
(d) prepare and file an annual information form ("AIF"), including management's discussion and analysis("MD&A") of the financial condition and results of operation of the Trust and send such MD&A tosecurity holders of the Trust;
shall not apply to the Trust, subject to certain terms and conditions;
AND WHEREAS pursuant to 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 Bank and the Trust represented to the Decision Makers that:
Bank of Montreal
1. The Bank is a Schedule 1 Canadian chartered bank incorporated under the Bank Act (Canada) (the "Bank Act"),is a reporting issuer or equivalent under the Legislation and is not in default of any requirement of theLegislation.
2. The authorized capital of the Bank consists of an unlimited number of common shares ("Bank CommonShares") and an unlimited number of Class A and Class B preferred shares, each issuable in series ("BankPreferred Shares"). As at March 31, 2001, 516,907,002 Bank Common Shares and 52,000,000 Bank ClassB Preferred Shares were outstanding.
3. The Bank Common Shares are listed and posted for trading on The Toronto Stock Exchange (the "TSE"), TheNew York Stock Exchange, and The London Stock Exchange.
BMO Capital Trust
4. The Trust is a closed-ended trust established under the laws of the Province of Ontario by The Trust Companyof Bank of Montreal ("Trustee"), as trustee, pursuant to a declaration of trust made as of July 28, 2000 (the"Declaration of Trust").
5. The beneficial interests of the Trust are divided into two classes of units, issuable in series, designated as TrustCapital Securities ("BMO BOaTS") and Special Trust Securities ("Special Trust Securities" and, collectively withBMO BOaTS, "Trust Securities").
6. The Trust was established solely for the purpose of effecting the Offerings (as defined below) and possiblefuture offerings of securities in order to provide the Bank with a cost effective means of raising capital forCanadian bank regulatory purposes. The Trust does not and will not carry on any operating activity other thanin connection with the Offerings and any future offerings.
7. The Trust is a reporting issuer, or the equivalent, in each of the Jurisdictions and is not in default of anyrequirement of the Legislation;
BMO BOaTS
8. The Trust distributed 350,000 of the initial series of Trust Capital Securities ("BMO BOaTS - Series A") in theJurisdictions under a long form prospectus (the "Series A Prospectus") dated September 28, 2000 (the "SeriesA Offering"). The Series A Prospectus also qualified certain other related securities for distribution in theJurisdictions, including the Series A Holder Exchange Right and the Automatic Exchange Right (both asdefined below).
9. The Trust distributed 400,000 of the second series of BMO BOaTS ("BMO BOaTS - B") in the Jurisdictionsunder a long form prospectus (the "Series B Prospectus") (the "Second Offering") dated March 5, 2001. TheSeries B Prospectus also qualified certain other related securities for distribution in the Jurisdictions, includingthe Series B Holder Exchange Right and the Automatic Exchange Right (both as defined below). The FirstOffering and the Second Offering are collectively referred to as the "Offerings".
10. Neither the BMO BOaTS - Series A nor the BMO BoaTS - Series B are listed and posted for trading on the TSE.
11. The Trust also issued and sold an aggregate of 180,000 Special Trust Securities to the Bank in connection withthe Offerings.
12. The business objective of the Trust is to acquire and hold assets ("Trust Assets") primarily from the Bank or itsaffiliates which may consist of: (a) undivided co-ownership interests in one or more pools of Canada Mortgageand Housing Corporation ("CMHC") insured first mortgages on residential property situated in Canada; (b)certain mortgage-backed securities; (c) CMHC - insured first mortgages on residential property; and (d) to theextent that the proceeds of the assets of the Trust are not invested in the assets referred to above in (a), (b)or (c), money and certain debt obligations that are qualified investments under the Income Tax Act (Canada)for trusts governed by certain deferred income plans.
13. Subject to paragraph 14, each BMO BOaTS - Series A and BMO BOaTS - Series B entitles the holder ("BMOBOaTS Holders") to receive a fixed cash distribution (a "Distribution") payable by the Trust on the last day ofJune and December of each year (each such day, a "Distribution Date" and each period from and including theDistribution Date to but excluding the next Distribution Date (a "Distribution Period").
14. BMO BOaTS Holders are not entitled to receive Distributions in respect of a particular Distribution Date if theBank has not declared regular cash dividends on its preferred shares or, if no such shares are then outstanding,on the Bank Common Shares (in accordance with the Bank's ordinary dividend practice in effect from time totime) in the most recent month in which the Bank ordinarily declares dividends from time to time in respect ofsuch shares occurring prior to the commencement of the Distribution Period ended prior to such DistributionDate.
15. The Bank has covenanted, pursuant to the Series A and Series B Bank Share Exchange Agreements (asdefined below) that, if on the Distribution Date the Trust fails to pay in full Distributions on the BMO BOaTS -Series A or BMO BOaTS - Series B to which the BMO BOaTS Holders are entitled, the Bank will not declaredividends of any kind on its own shares until a specific period of time has elapsed from the Distribution Date.
16. Upon the occurrence of certain adverse tax events or events relating to the treatment of BMO BOaTS for capitalpurposes prior to December 31, 2005, in the case of BMO BOaTS - Series A, and June 30, 2006, in the caseof BMO BOaTS - Series B, such BMO BOaTS will be redeemable, at the option of the Trust and with theapproval of the Superintendent of Financial Institutions (Canada) (the "Superintendent"), in whole (but not inpart) for a cash amount.
17. On December 31, 2005 and on any subsequent Distribution Date, in the case of the BMO BOaTS - Series A,and on June 30, 2006 and on any subsequent Distribution Date, in the case of the BMO BOaTS - Series B, theBMO BOaTS will be redeemable in whole (but not in part) for a cash amount, at the option of the Trust andsubject to the approval of the Superintendent.
18. On December 31, 2010, and on any subsequent Distribution Date, each BMO BOaTS - Series A will beexchangeable (the "Series A Holder Exchange Right"), at the option of the holder (a "BMO BOaTS - Series AHolder"), for forty non-cumulative redeemable first preferred shares, Series 7 of the Bank ("Class B PreferredShares Series 7"), in accordance with the terms set forth in a Bank Share Exchange Trust Agreement madeas of October 11, 2000, (the "Series A Bank Share Exchange Agreement") between the Bank, the Trust andTrustee, as trustee for the BMO BOaTS - Series A Holders.
19. On June 30, 2011, and on any subsequent Distribution Date, each BMO BOaTS - Series B will be exchangeable(the "Series B Holder Exchange Right"), at the option of the holder (the "BMO BOaTS - Series B Holders"), forforty non-cumulative redeemable first preferred shares, Series 8 of the Bank ("Class B Preferred Shares Series8"), in accordance with the terms set forth in a Bank Share Exchange Trust Agreement made as of March 13,2001, (the "Class B Bank Share Exchange Agreement") between the Bank, the Trust and the Trustee, astrustee for the BMO BOaTS - Series B Holders.
20. Each BMO BOaTS will be automatically exchanged (the "Automatic Exchange Right") without the consent ofthe holder, for forty Class B Preferred Shares Series 7 in the case of each BMO BOaTS - Series A and fortyClass B Preferred Shares Series 8 in the case of each BMO BOaTS - Series B if: (i) an application for awinding-up order in respect of the Bank pursuant to the Winding-up and Restructuring Act (Canada) is filed bythe Attorney General of Canada or a winding-up order in respect of the Bank pursuant to that Act is granted bya court; (ii) the Superintendent has taken control of the Bank or its assets pursuant to the Bank Act; (iii) theSuperintendent advises the Bank in writing that the Superintendent is of the opinion that the Bank has a risk-based Tier 1 Capital ratio of less than 5.0% or a risk-based Total Capital ratio of less than 8.0%; or (iv) theSuperintendent directs the Bank pursuant to the Bank Act to increase its capital or to provide additional liquidityand the Bank elects to cause the exchange as a consequence of the issuance of such direction or the Bankdoes not comply with such direction to the satisfaction of the Superintendent within the time specified in suchdirection.
21. The Class B Preferred Shares Series 7 and the Class B Preferred Shares Series 8 will be convertible afterspecified dates, at the option of the Bank and subject to regulatory approvals, into Bank Common Shares.
22. Beginning on December 31, 2010, and on each subsequent Distribution Date, the Class B Preferred SharesSeries 7 will be convertible, at the option of the holder, into Bank Common Shares, except under certaincircumstances.
23. Beginning on June 30, 2011, and on each subsequent Distribution Date, the Class B Preferred Shares Series8 will be convertible, at the option of the holder, into Bank Common Shares, except under certaincircumstances.
24. As set forth in the Declaration of Trust, BMO BOaTS are non-voting except in certain limited circumstances andSpecial Trust Securities entitle the holders to vote.
25. Except to the extent that Distributions are payable to BMO BOaTS Holders and, other than in the event oftermination of the Trust (as set forth in the Declaration of Trust), BMO BOaTS Holders have no claim orentitlement to the income of the Trust or the Trust Assets.
26. In certain circumstances (as described in paragraph 20 above), including at a time when the Bank's financialcondition is deteriorating or proceedings for the winding-up of the Bank have been commenced, the BMOBOaTS Series A or BMO BOaTS Series B will be automatically exchanged for preferred shares of the Bankwithout the consent of BMO BOaTS Holders. As a result, BMO BOaTS Holders will have no claim or entitlementto the Trust Assets, other than indirectly in their capacity as preferred shareholders of the Bank.
27. BMO BOaTS Holders may not take any action to terminate the Trust.
28. The Trust has not requested relief for the purposes of filing a short form prospectus pursuant to NationalInstrument 44-101 -- Short Form Prospectus Distributions ("NI 44-101") (including, without limitation, any reliefwhich would allow the Trust to use the Bank's AIF as a current AIF of the Trust) and no such relief is providedby this Decision Document from any of the requirements of NI 44-101.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that the requirement contained in theLegislation:
(a) to file Financial Statements with the Decision Makers and deliver such statements to holders of TrustSecurities;
(b) to make an Annual Filing, where applicable, with the Decision Makers in lieu of filing an informationcircular;
(c) to file an Annual Report and an information circular with the Decision Maker in Quebec and deliversuch report or information circular to holders of Trust Securities resident in Quebec;
(d) to prepare and file an AIF, including MD&A, with the Decision Makers and send such MD&A to holdersof Trust Securities;
shall not apply to the Trust for so long as:
(i) the Bank remains a reporting issuer under the Legislation;
(ii) the Bank sends its annual financial statements, interim financial statements, annual managementdiscussion and analysis and interim management discussion and analysis to holders of TrustSecurities and its Annual Report to holders of Trust Securities resident in the Province of Quebec atthe same time and in the same manner as if the holders of Trust Securities were holders of BankCommon Shares;
(iii) all outstanding securities of the Trust are either BMO BOaTS or Special Trust Securities;
(iv) the rights and obligations of holders of additional series of BMO BOaTS are the same in all materialrespects as the rights and obligations of the holders of BMO BOaTS - Series A and BMO BOaTSSeries - B at the date hereof; and
(v) the Bank is the beneficial owner of all Special Trust Securities;
and provided that if a material change occurs in the affairs of the Trust, this Decision shall expire 30 days afterthe date of such change.
May 16, 2001.
"John Hughes"