EdgeStone Capital Equity Fund II-A, L.P. and EdgeStone Capital Equity Fund II-B, L.P. - s. 147

Headnote

Exemption from fees mandatedunder section 7.3 of Rule 45-501 Exempt Distributions for adistribution of limited partnership units effected on an exemptbasis in reliance on section 2.3 of Rule 45-501.

Statutes Cited

Securities Act, R.S.O. 1990,c. S.5, as am., section 147.

Rules Cited

O.S.C. Rule 45-501 Exempt Distributions,sections 2.3 and 7.3.

IN THE MATTER OF

THE SECURITIES ACT, R.S.O.1990,

CHAPTER S.5, AS AMENDED (the"Act")

AND

IN THE MATTER OF RULE 45-501

OF THE ONTARIO SECURITIESCOMMISSION

("Rule 45-501")

AND

IN THE MATTER OF

EDGESTONE CAPITAL EQUITY FUNDII-A, L.P. AND

EDGESTONE CAPITAL EQUITY FUNDII-B, L.P.

ORDER

(Section 147 of the Act)

WHEREAS the Ontario SecuritiesCommission (the "Commission") has received an applicationfrom EdgeStone Capital Equity Fund II-A, L.P. ("Fund A")and EdgeStone Capital Equity Fund II-B, L.P. ("Fund B")for an order pursuant to Section 147 of the Act that Fund Aand Fund B (collectively, the "Funds") be exempt fromthe requirement to pay certain fees otherwise payable underSection 7.3 of Rule 45-501 of the Ontario Securities Commission("Rule 45-501") in connection with the issue and saleof limited partnership units of the Funds;

AND WHEREAS the Fundshave represented to the Commission that:

1. Fund A and Fund B are limitedpartnerships formed under the laws of Ontario for the purposeof making primarily equity and equity-related investmentsin Canadian-based entities, with a primary focus on mid andlater stage entities. The principal office of each of theFunds is located in Ontario.

2. The general partner ofFund A is an Ontario limited partnership ("Fund A GPLP"), the general partner of which is an Ontario corporation(the "Fund A GP"). The general partner of Fund B(the "Fund B GP") is an Ontario corporation. Eachof the Fund A GP and the Fund B GP are wholly owned subsidiariesof EdgeStone Capital GP Holdco, Inc., an Ontario corporation("GP Holdco"). All of the limited partnership unitsin the Fund A GP LP are held by the indirect shareholdersof GP Holdco, or their affiliates.

3. Fund B was originally formedas an Ontario limited partnership on January 9, 2002 withthe name "NB Capital Equity Fund II, L.P." The originalgeneral partner of Fund B was an Ontario limited partnership(the "Old Fund B GP"), the general partner of whichwas the Fund B GP.

4. On January 9, 2002, 13Ontario purchasers (the "Initial Fund-B Purchasers")purchased limited partnership units of Fund B on an exemptbasis in reliance on Section 2.3 of Rule 45-501. Fund B fileda Form 45-501F1 with the Ontario Securities Commission (the"Commission") in respect of these trades on January17, 2002. The Initial Fund-B Purchasers agreed to pay to FundB, in the aggregate, Cdn. $7,016,355 (collectively, the "InitialFund B Commitments"), and upon filing of the Form 45-501F1in respect of such trades, Fund B paid fees to the Commissionof Cdn. $1,122.62 pursuant to Section 7.3 of Rule 45-501.

5. On June 20, 2002, the followingoccurred:

(a) Fund A was formed andcertain amendments were made to the partnership agreementgoverning Fund B, for the purpose of facilitating the qualificationof one of the Funds (namely, Fund A) as a "qualifiedlimited partnership" under the Income Tax Act (Canada);

(b) certain agreements amongFund B and the Initial Fund-B Purchasers were amended toprovide, among other things, and except as otherwise referredto in paragraph 5(c) below, for the issuance and sale toeach Initial Fund-B Purchaser of the same number of limitedpartnership units of Fund A as such Initial Fund B Purchaserheld in Fund B, that such Purchaser would agree to pay anamount to Fund A (the "Fund A Commitment") equalto its Initial Fund B Commitment less the amount paid bysuch Initial Fund B Purchaser to Fund B pursuant to itsAdjusted Fund B Commitment (as hereinafter defined), thatthe amount of each Initial Fund B Purchaser's Initial FundB Commitment would be reduced to an amount equal to 30%of such Initial Fund B Purchaser's Fund A Commitment (the"Adjusted Fund B Commitment"), and that the aggregateamount that each Initial Fund B Purchaser would be requiredto pay to Fund A and Fund B, in the aggregate, pursuantto such Initial Fund B Purchaser's Fund A Commitment andAdjusted Fund B Commitment would not exceed the amount ofsuch Initial Fund B Purchaser's Fund A Commitment. For example,if an Initial Fund B Purchaser's Initial Fund B Commitmentwas Cdn. $200,000, pursuant to the amendments, such InitialFund B Purchaser's Fund A Commitment became Cdn. $200,000,such Fund B Purchaser's Adjusted Fund B Commitment becameCdn. $60,000 and the maximum amount that such Initial FundB Purchaser would be required to pay to Fund A and FundB in the aggregate pursuant to such purchaser's Fund A Commitmentand Adjusted Fund B Commitment would be limited to Cdn.$200,000;

(c) the aggregate amountthat one Initial Fund-B Purchaser agreed to pay to FundA and Fund B pursuant to such Initial Fund-B Purchaser'sFund A Commitment and Adjusted Fund B Commitment was increasedfrom the amount of such purchaser's Initial Fund B Commitment.Such purchaser agreed to pay up to 100% of this amount,as so increased (less the amount paid by such purchaserto Fund B), to Fund A and up to 30% of this amount to FundB (the limited partnership units of Fund A issued to theInitial Fund-B Purchasers as described in paragraph 5(b)above and in this paragraph 5(c) being referred to hereinas the "Initial Fund A Units", and the tradesin the Initial Fund A Units to the Initial Fund-B Purchasersbeing referred to herein as the "Initial Fund-B PurchaserDistributions";

(d) ten additional Ontariopurchasers (the "New Purchasers") purchased fromeach of Fund A and Fund B, respectively, limited partnershipunits of each of Fund A and Fund B, respectively. Thesetrades (the "New Purchaser Distributions") wereeffected on an exempt basis in reliance on Section 2.3 ofRule 45-501; and

(e) the Old Fund B GP assignedits interest as general partner of Fund B to the Fund BGP and Fund B changed its name to its current name.

6. Additional Ontario purchasers("Future Purchasers") may, in the future, purchaselimited partnership units of Fund A and Fund B on an exemptbasis in reliance on Section 2.3 of Rule 45-501 (the "FuturePurchaser Distributions").

7. The restructuring of theinvestment by the Initial Fund B Purchasers in Fund B intoan investment in Fund A and Fund B, and the investment andprospective investment by the New Purchasers and Future Purchasersin Fund A and Fund B, have been structured as investmentsin two limited partnerships with similar investment objectives,rather than as an investment in a single limited partnership,in order that one of the partnerships, namely, Fund A, willqualify as a "qualified limited partnership" underthe Income Tax Act (Canada). The other partnership(Fund B), will make investments that cannot be made by a "qualifiedlimited partnership". Investments in "foreign property"(as defined under the Income Tax Act (Canada) generallywill not be made by Fund A, but may be made by Fund B.

8. Each Initial Fund B Purchaserand New Purchaser was required, and each Future Purchaserwill be required, to purchase limited partnership units ofeach of Fund A and Fund B, such that each Initial Fund B Purchaserand New Purchaser holds, and each Future Purchaser will hold,the same percentage limited partnership interest in each ofFund A and Fund B.

9. The indirect shareholdersof GP Holdco or their affiliates hold, either directly orindirectly, the same economic interests in both Fund A andFund B.

10. The entities that holdand that will hold, directly or indirectly, all of the partnershipinterests in Fund A hold, and will hold, directly or indirectly,all of the partnership interests in Fund B.

11. The aggregate amount thateach Initial Fund B Purchaser, each New Purchaser and eachFuture Purchaser (collectively, the "Purchasers"and individually, a "Purchaser") is and will berequired to pay to Fund A and Fund B, in the aggregate, fortheir respective limited partnership interests in the Fundsis limited to a maximum amount (such amount being the "AggregateCommitment Amount"). Each Purchaser has agreed or willagree to pay up to 100% of its Aggregate Commitment Amountto Fund A (less the amount invested by the Purchaser in FundB), and up to 30% of its Aggregate Commitment Amount to FundB. Proceeds paid by the Purchaser will only be allocated toFund B if required by Fund B to pay for an investment thatcannot be made by Fund A. Each Purchaser's obligation to providefunds to Fund B is and will be limited to the lesser of 30%of the Purchaser's Aggregate Commitment Amount, and the differencebetween the Purchaser's Aggregate Commitment Amount and theamount actually invested by the Purchaser in Fund A. As theallocation of proceeds paid by the Purchasers between FundA and Fund B depends on which of Fund A and Fund B requiresthe proceeds to make a particular investment, the actual amountof proceeds that will be received by each of Fund A and FundB will not be known until the investment periods of both Fundsexpire (which could be as late as January, 2007).

12. Each of Fund A and FundB will be required to pay filing fees under Section 7.3 ofRule 45-501 in connection with the distribution by it to eachPurchaser under Section 2.3 of Rule 45-501 at the time a Form45-501F1 is required to be filed in respect of such distribution,based on the maximum amount of proceeds that may be receivedby such Fund. In the case of Fund A, that amount is 100% ofthe Aggregate Commitment Amount of each Purchaser, and inthe case of Fund B, that amount is 30% of the Aggregate CommitmentAmount of each Purchaser, so both limited partnerships arerequired to pay fees at the time the Form 45-501F1's are requiredto be filed by them, calculated based on an aggregate amountof proceeds equal to 130% of the Aggregate Commitment Amountof each Purchaser, even though the aggregate amount of proceedsthat will ultimately be received by both Funds will not exceed100% of the Aggregate Commitment Amount of each Purchaser,in total.

13. In addition, Fund A willbe required to pay filing fees under Section 7.3 of Rule 45-501in connection with the distribution by it of the Initial FundA Units to each Initial Fund-B Purchaser under Section 2.3of Rule 45-501 at the time a Form 45-501F1 is required tobe filed in respect of such distribution, based on the maximumamount of proceeds from the Initial Fund B Purchasers thatmay be received by Fund A. Fund B has already paid fees calculatedon Cdn. $7,016,355.00 of such proceeds.

AND WHEREAS the Commissionis satisfied that to do so would not be prejudicial to the publicinterest,

IT IS ORDERED, pursuantto Section 147 of the Act, that:

(a) Fund B is exempt fromthe requirement to pay the fees applicable under Section7.3 of Rule 45-501 to the filing by Fund B of the Form 45-501F1in respect of the New Purchaser Distributions and the FuturePurchaser Distributions, provided that Fund A pays the feesunder Section 7.3 of Rule 45-501 applicable to the filingby Fund A of a Form 45-501F1 in respect of the New PurchaserDistributions and the Future Purchaser Distributions, calculatedon the maximum amount of proceeds therefrom that may bereceived by Fund A and Fund B, in the aggregate; and

(b) Fund A is exempt fromthe requirement to pay the fees applicable under Section7.3 of Rule 45-501 to the filing by Fund A of the Form 45-501F1in respect of the Initial Fund-B Purchaser Distributions,to the extent such fees are calculated on proceeds of Cdn.$7,016,355.00.

June 28, 2002.

"Robert W. Korthals"                    "HaroldP. Hands"