Canadian Banc Corp. and Quadravest Capital Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual fund corporation and its investment fund manager exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with offering of warrants by the mutual fund corporation -- The limited trading activities involve: (i) the forwarding of a short form prospectus, and the distribution of warrants to acquire securities of the mutual fund corporation, to existing holders of securities of the mutual fund corporation, and (ii) the subsequent distribution of securities to holders of these warrants, upon the holders' exercise of the warrants, through an appropriately registered dealer.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.5.
National Instrument 45-106 Prospectus and Registration Exemptions, ss. 3.1, 3.42.
March 23, 2012
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
CANADIAN BANC CORP. (BK) AND
QUADRAVEST CAPITAL MANAGEMENT INC.
(the Manager, and together with BK, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filers from the dealer registration requirement in the Legislation in respect of certain trades (the Warrant Offering Activities) to be carried out by the Manager, on behalf of BK, in connection with a proposed distribution (the Warrant Offering) of warrants to be issued by BK (the Warrants) to acquire units, each consisting of one Class A share of BK (the Class A Shares) and one preferred share of BK (the Preferred Shares and, together with the Class A Shares, the Units), to be made in the Jurisdiction and each of the Passport Jurisdictions (as defined below) pursuant to a short form prospectus (the Prospectus) (such exemption from the dealer registration requirement, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
1. the Ontario Securities Commission is the principal regulator for this application; and
2. each Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (collectively, the Passport Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
1. BK is a mutual fund corporation incorporated under the laws of the Jurisdiction by articles of incorporation dated May 25, 2005, as amended June 28, 2005, April 23, 2009 and January 20, 2012. BK was initially incorporated under the name "Prime Rate Plus Corp.". On April 23, 2009, BK changed its name to "Canadian Banc Recovery Corp." and on January 20, 2012, BK adopted its current name. BK is a reporting issuer in the Jurisdiction and each of the Passport Jurisdictions.
2. The Manager is incorporated under the laws of the Jurisdiction by articles of incorporation dated October 20, 1971, as most recently amended effective November 27, 1997. At the time of the most recent amendment, the Manager came under new control and changed its name to its current name, Quadravest Capital Management Inc.
3. The Manager acts as the investment fund manager for BK. The Manager is registered as an investment fund manager, portfolio manager and exempt market dealer under the Legislation.
4. The head office of each of the Filers is located in Toronto, Ontario.
5. The Filers are not in default of securities legislation in any jurisdiction.
6. The authorized capital of BK consists of an unlimited number of the Preferred Shares and the Class A Shares and 1,000 Class B shares. The Preferred Shares and the Class A Shares are currently listed for trading on the Toronto Stock Exchange (the TSX) under the symbols "PR.BK.A" and "BK", respectively.
7. The portfolio of BK consists primarily of investments in securities of publicly-traded Canadian banks. BK is subject to certain investment restrictions that, among other things, limit the equity securities and other securities that may be acquired for its investment portfolio.
8. The investment objectives of BK are: (i) to provide holders of the Preferred Shares with cumulative preferential floating rate monthly cash dividends at a rate per annum equal to the prevailing prime rate in Canada (the Prime Rate) plus 0.75%, with a minimum annual rate of 5.0% and a maximum annual rate of 7.0%; (ii) to provide holders of the Class A Shares with regular floating rate monthly cash distributions targeted to be at a rate per annum equal to the Prime Rate plus 1.25%, with a minimum targeted annual rate of 4.25% and a maximum annual rate of 8.50%; and (iii) to return the original issue price of $10.00 and $15.00 to holders of the Preferred Shares and the Class A Shares, respectively, at the time of the redemption of such shares on December 1, 2018 (or such other date as BK may terminate).
9. On July 15, 2005 and July 29, 2005, BK completed its initial public offering of 11,525,000 Preferred Shares and 11,525,000 Class A Shares pursuant to a prospectus dated June 28, 2005. The Preferred Shares and the Class A Shares are issued only on the basis that an equal number of the Preferred Shares and the Class A Shares will be issued and outstanding at all times.
10. BK does not engage in a continuous distribution of its securities.
11. Under the Warrant Offering, each holder of the Class A Shares, as at a specified record date, will be entitled to receive, for no consideration, one Warrant for each Class A Share held by the holder. Three Warrants entitle the holder to subscribe for one Unit upon payment to BK of a subscription price, to be specified in the Prospectus, prior to the expiry of the Warrants. Holders of Warrants in Canada are permitted to sell or transfer their Warrants instead of exercising their Warrants to subscribe for Units. Holders of Warrants who exercise their Warrants may subscribe pro rata for additional Units pursuant to an additional subscription privilege. The term of the Warrants issued is expected to be 12 months or less.
12. BK will apply to list on the TSX the Warrants to be distributed under the Warrant Offering and the Preferred Shares and the Class A Shares issuable upon the exercise thereof.
13. The Warrant Offering Activities will consist of:
(a) the distribution of the Prospectus and the issuance of Warrants to holders of the Class A Shares (as at the record date specified in the Prospectus), after the Prospectus has been filed and receipts obtained therefor under the Legislation and the securities legislation of each of the Passport Jurisdictions; and
(b) the distribution of Units to holders of the Warrants, upon the exercise of the Warrants by the holders, through a registered dealer that is registered in a category that permits the registered dealer to make such a distribution.
14. Because each of the Filers is in the business of trading, the Warrant Offering Activities would require each of the Filers to register as a dealer in the appropriate category in the absence of this decision (or another available exemption from the dealer registration requirement).
15. Section 8.5 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides that, after March 26, 2010, the exemption from the dealer registration requirements set out in section 3.42 [Conversion, exchange, or exercise] of NI 45-106 no longer applies.
Decision
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 Exemption Sought is granted.