New Red Canada Limited Partnership and Tim Hortons Inc.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Filer wants to put in place a exchangeable security issuer structure, but is unable to rely on the exemption for exchangeable security issuer in applicable securities legislation -- Equivalent relief granted, subject to conditions. Entity in structure also granted relief from insider reporting requirements and Canadian accounting and auditing requirements, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, ss. 107, 121(2)(a)(ii).
National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1(2), 13.3.
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, Part 2, Part 3 and s. 5.1(2).
National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, ss. 8.4, 8.6(2).
National Instrument 52-110 Audit Committees, ss. 1.2(f), 8.1(2).
National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), s. 6.1(2).
National Instrument 55-104 Insider Reporting Requirements and Exemptions, s. 10.1(2).
National Instrument 58-101 Disclosure of Corporate Governance Practices, ss. 1.3(c), 3.1(2).
October 31, 2014
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 NEW RED CANADA LIMITED PARTNERSHIP (the "FILER") AND TIM HORTONS INC. ("THI")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") exempting:
(a) the Filer from the requirements of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102") (the "Continuous Disclosure Requirements");
(b) the Filer from the requirements of National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109") (the "Certification Requirements");
(c) the Filer from the requirements of National Instrument 52-110 Audit Committees ("NI 52-110") (the "Audit Committee Requirements");
(d) the Filer from the requirements of National Instrument 58-101 Disclosure of Corporate Governance Practices ("NI 58-101") (the "Corporate Governance Requirements");
(e) insiders of the Filer from the insider reporting requirement (as defined in National Instrument 14-101 Definitions) (the "Insider Reporting Requirements") in respect of the Filer;
(f) (i) insiders of THI from the Insider Reporting Requirements with respect to any class of security of THI, or any class of security that is convertible into, or exchangeable or exercisable for, any class of security of THI, where all of the outstanding securities of such class are beneficially owned, either directly or indirectly, by a parent of THI (each such class of security, a "Wholly-Owned Class") and (ii) THI from the requirement to include in any "issuer profile supplement" (as defined in National Instrument 55-102 System for Electronic Disclosure by Insiders ("NI 55-102")) information with respect to, or file an updated "issuer profile supplement" or an "issuer event report" (as defined in NI 55-102) with respect to, any Wholly-Owned Class (collectively, the "THI Insider Reporting and Profile Requirements"); and
(g) THI from the requirement in subsection 3.2(1) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards ("NI 52-107") to prepare financial statements referred to in paragraph 2.1(2)(b), (c) and (e) of NI 52-107, or financial information referred to in paragraphs 2.1(2)(f) and (g) of NI 52-107 that are filed with or delivered to a securities regulatory authority or regulator (such financial information, together with the aforementioned financial statements, collectively, "THI's Financial Filings"), in accordance with Canadian GAAP, and the requirement in section 3.3(1) of NI 52-107 that THI's Financial Filings, to the extent they are required by securities legislation to be audited, be audited in accordance with Canadian GAAS (collectively, the "Canadian Accounting and Auditing Requirements"),
(collectively, the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision document, unless otherwise defined. The term "equity securities" has the meaning provided in subsection 89(2) of the Securities Act (Ontario).
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a partnership organized under the laws of Ontario. The Filer's registered office is located at 155 Wellington Street West, Toronto, ON M5V 3J7. The Filer's head office following the Business Combination (as defined below) will be located in Ontario.
2. The Filer was formed solely to effect the proposed business combination transaction between Burger King Worldwide, Inc. ("BKW") and THI pursuant to an arrangement agreement and plan of merger, dated August 26, 2014 (the "Arrangement Agreement"), among BKW, THI, the Filer, 1011773 B.C. Unlimited Liability Company, Blue Merger Sub, Inc. ("Merger Sub") and 8997900 Canada Inc. ("Amalgamation Sub"). 1011773 B.C. Unlimited Liability Company was converted to a limited company under the laws of British Columbia on October 21, 2014 and then continued as a corporation under the laws of Canada and renamed 9060669 Canada Inc. ("Holdings").
The Proposed Business Combination
The Arrangement and the Merger
3. The Arrangement Agreement provides for a combination of BKW and THI by way of a plan of arrangement with regard to THI (the "Arrangement") under section 192 of the Canada Business Corporations Act (the "CBCA") and a merger of Merger Sub with and into BKW under Delaware law (the "Merger").
4. As part of the Business Combination (as defined below), Amalgamation Sub will acquire all of the outstanding shares of THI pursuant to the Arrangement, which will result in THI becoming an indirect subsidiary of both Holdings and the Filer. Merger Sub will then merge with and into BKW, with BKW surviving the merger as an indirect subsidiary of both Holdings and the Filer.
5. Pursuant to the Arrangement, each holder of a THI common share will be entitled to receive, at the election of the holder: (a) $65.50 in cash and 0.8025 common shares of Holdings (the "Holdings Common Shares"); (b) $88.50 in cash; or (c) 3.0879 Holdings Common Shares, per share (in the case of (b) and (c), subject to pro ration as set forth in the Arrangement Agreement and related plan of arrangement).
6. Pursuant to the Merger, all BKW common shares will be exchanged for 0.99 Holdings Common Shares and 0.01 exchangeable units of the Filer (the "Exchangeable Units"), subject to the right of holders of BKW shares to elect to receive additional Exchangeable Units in lieu of Holdings Common Shares. The Exchangeable Units are modelled on the conventional exchangeable share structure used in Canada and are intended to provide US stockholders with a tax deferral on the disposition of their BKW shares in connection with the Business Combination. Exchangeable Units have equivalent voting rights and substantially equivalent economic rights to Holdings Common Shares and are exchangeable from and after the one year period following the Business Combination into Holdings Common Shares for no additional consideration. The Exchangeable Units are described in more detail below.
7. The election to receive the Exchangeable Units will be subject to allocation procedures designed to ensure that the fair market value of Holdings' interest in the Filer is no less than 50.1% of the fair market value of all equity interests in the Filer as of the date on which the Business Combination is completed. If exchangeable elections are made by a number of BKW stockholders that would result in such former BKW stockholders owning Exchangeable Units that represent more than 49.9% of the fair market value of the Filer, then each BKW stockholder will be entitled to receive Exchangeable Units subject to proration.
8. The merger of the businesses of BKW and THI contemplated by the Arrangement Agreement is comprised of the Arrangement and the Merger and certain additional reorganizational steps to occur contemporaneously therewith (the "Business Combination").
9. Both THI and BKW must obtain the approval of their shareholders before the Arrangement can be completed. BKW's majority stockholder has committed to provide its written consent to approve the Merger, and such written consent will constitute the only stockholder approval required from holders of BKW common stock.
10. In connection with the Business Combination and related shareholder approval requirements, a joint information statement/management proxy circular of THI and BKW (the "Circular"), which forms part of a registration statement on Form S-4 (the "Registration Statement"), will be delivered to THI shareholders and BKW stockholders once the Registration Statement is declared effective by the SEC.
11. The Circular constitutes a prospectus of Holdings and the Filer under section 5 of the Securities Act of 1933, as amended (the "US Securities Act") with respect to the Holdings Common Shares and Exchangeable Units to be issued or that are issuable pursuant to the Business Combination. The Circular also constitutes an information statement of BKW under section 14(c) of the Securities Exchange Act of 1934, as amended (the "US Exchange Act"), and a management proxy circular of THI under NI 51-102 and under section 150 of the CBCA.
12. The Circular contains disclosure in respect of both Holdings and the Filer that is required to be included in a prospectus pursuant to the U.S. Securities Act. The Registration Statement is subject to SEC review and comment prior to being declared effective.
13. To address Canadian requirements for prospectus level disclosure in respect of Holdings (in accordance with item 14.2 of Form 51-102F5 Information Circular), the Circular includes applicable disclosure required pursuant to Form 41-101F1 -- Information Required in a Prospectus ("Form 41-101F1"). As Holdings is a newly formed entity, without any operations prior to closing of the Business Combination, the historical annual and interim financial statements of the "issuer" required by Form 41-101F1 are satisfied through the historical financial statements of BKW and THI. In addition, the Circular includes pro forma financial statements of Holdings for the most recent year and interim period giving effect to the acquisition of BKW and THI.
14. Prospectus level disclosure in respect of the Filer is not required for the Circular under item 14.2 of Form 51-102F5 as THI shareholders will not receive an interest in the Filer as part of the Business Combination (only BKW stockholders will receive an interest in the Filer through receipt of Exchangeable Units in the Merger). However, as previously noted, such disclosure is nevertheless included in the Circular as it is required under the prospectus disclosure requirements of the US Securities Act.
Stock Exchange Listings and Delistings
15. THI common shares are traded on each of the New York Stock Exchange (the "NYSE") and the Toronto Stock Exchange (the "TSX") under the symbol "THI", and BKW common stock is traded on the NYSE under the symbol "BKW". On the closing of the Business Combination, THI common shares will be delisted from the NYSE and the TSX and the BKW common stock will be delisted from the NYSE.
16. Holdings has applied or will apply to list the Holdings Common Shares on the NYSE and the TSX, and the Filer has applied to list the Exchangeable Units on the TSX.
Holdings
Organization
17. Holdings was initially formed as an unlimited liability company under the laws of British Columbia on August 25, 2014 and continued as a corporation under the laws of Canada on October 23, 2014. Holdings has been formed for the purpose of indirectly holding THI and BKW following completion of the Business Combination. Currently, the sole shareholder of Holdings is BKW. Prior to closing of the Business Combination, Holdings will be renamed.
18. As of closing of the Business Combination, Holdings will not have any business operations other than indirectly through its interest in the Filer.
Capitalization and Voting Rights
19. Following consummation of the Business Combination, the capitalization of Holdings will initially consist of three classes of shares: (i) Holdings Common Shares, which will be issued to BKW stockholders in the Merger and THI shareholders in the Arrangement; (ii) class A 9% cumulative compounding perpetual voting preferred shares (the "Holdings Preferred Shares"), which will be issued to Berkshire Hathaway Inc. ("Berkshire") in connection with the Business Combination; and (iii) a single special voting share ("Special Voting Share"), to be issued to the Trustee (as defined below) for the benefit of the holders of Exchangeable Units (other than Holdings and its subsidiaries).
20. A Holdings Common Share will carry one vote per share. A Holdings Preferred Share will carry one vote per share. Berkshire has contractually agreed, in effect, to limit its voting power in respect of the Holdings Preferred Shares to only 10% of the total votes. It has done so by agreeing that its voting rights in respect of the Holdings Preferred Shares in excess of 10% of the total number of votes attached to all voting shares of Holdings will be exercised in a manner proportionate to the manner in which the other holders of voting shares voted in respect of the particular shareholder resolution in question. The Special Voting Share will have the voting rights described below under "Exchangeable Units of the Filer -- Voting Rights in Respect of Holdings".
Certain Holdings Preferred Share Terms
21. The Holdings Preferred Shares are subject to restrictions on transfer. Berkshire has agreed in a securities purchase agreement that, until the fifth anniversary of the closing of the Business Combination, it may not transfer them without the consent of the holders of at least 25% of the Holdings Common Shares (except to a subsidiary in which it owns at least 80% of the equity interests). On or after such fifth anniversary, Berkshire (or any such subsidiary) may transfer the Holdings Preferred Shares provided that any such transfer must be in minimum increments of at least $600,000,000 of aggregate liquidation value.
22. The Holdings Preferred Shares are redeemable at the option of Holdings, in whole or in part, at any time on and after the third anniversary of the closing of the Business Combination. Once a Holdings Preferred Share has been redeemed in full, it must be cancelled and may not be reissued.
23. The articles of Holdings will provide that the number of Holdings Preferred Shares authorized to be issued will be the same as and limited to the number of Holdings Preferred Shares issued to Berkshire in connection with the Business Combination.
24. For each fiscal year of Holdings during which any Holdings Preferred Shares are outstanding, beginning with the year that includes the third anniversary of the closing of the Business Combination, Holdings is required to pay to the holder of the Holdings Preferred Shares, in addition to the preferred 9% regular quarterly dividend on the Holdings Preferred Shares, a make-whole dividend in an amount determined to ensure that on an after tax basis the net amount of the dividends received by the holder on the Holdings Preferred Shares from the original issue date of such shares is the same as it would have been had Holdings been a U.S. corporation. This make-whole dividend is payable only if Berkshire or one of its subsidiaries owns 100% of the Holdings Preferred Shares.
25. Disclosure substantially to the effect of the disclosure provided in paragraphs 21 through 24 above will be included in the Circular and in any management information circular and annual information form of Holdings filed pursuant to NI 51-102; provided, that such disclosure need not be included if, at the applicable time, there are no outstanding Holdings Preferred Shares.
Reporting
26. Holdings is not currently a reporting issuer in any province or territory of Canada. Holdings is not in default of any requirement of the securities legislation in any province or territory of Canada. Upon completion of the Business Combination, Holdings will be a reporting issuer in each of the provinces and territories of Canada and will be subject to Canadian continuous disclosure and other reporting obligations under applicable Canadian securities laws. Holdings will also become an "SEC issuer" (as defined under NI 52-107) with independent periodic and current reporting obligations under the US Exchange Act.
27. As an "SEC issuer" (as defined under NI 52-107), Holdings will be permitted to (and intends to) prepare its financial disclosure in accordance with generally accepted accounting principles in the United States of America that the SEC has identified as having substantial authoritative support, as supplemented by Regulation S-X under the US Exchange Act ("US GAAP") and audited in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States of America), as amended from time to time ("US PCAOB GAAS").
28. As Holdings will be organized under Canadian law, it will not be (i) a "foreign issuer" as defined under NI 52-107 or National Instrument 71-101 The Multijurisdictional Disclosure System ("NI 71-101") or (ii) a "foreign reporting issuer" as defined under National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers ("NI 71-102"). Accordingly, it will generally not be entitled under NI 71-101 or NI 71-102 to satisfy its Canadian reporting obligations through the periodic and current reports that it files with the SEC to satisfy its U.S. reporting obligations.
The Filer
Organization and Governance
29. The Filer is a limited partnership formed under the laws of Ontario, the partnership interests of which are held either directly or indirectly by Holdings, its general partner (in such capacity, the "General Partner"). The Filer was formed solely to effect the Business Combination. Pursuant to the Arrangement Agreement, THI and BKW will become indirect wholly-owned subsidiaries of the Filer. Prior to closing of the Business Combination, the Filer will be renamed.
30. The purpose of the Filer is (i) to acquire and hold interests in the shares of the corporations to be acquired by the Filer pursuant to the transactions contemplated in the Arrangement Agreement, and, subject to the approval of the General Partner, interests in any other persons; (ii) to engage in any activity related to the capitalization and financing of the Filer's interests in such corporations and other persons; and (iii) to engage in any activity that is in furtherance of the foregoing, is approved by the General Partner and that lawfully may be conducted by a limited partnership organized under the Limited Partnerships Act (Ontario) and the limited partnership agreement of the Filer as shall be in effect upon closing of the Business Combination (the "Partnership Agreement").
31. Subject to the terms of the Partnership Agreement and the Limited Partnerships Act (Ontario), the General Partner has the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Filer. Among other things, the General Partner is empowered to negotiate, execute and perform all agreements, conveyances or other instruments on behalf of the Filer, and to mortgage, charge or otherwise create a security interest over any or all of the property of the Filer or its subsidiaries, and to sell property subject to such a security interest.
32. The Partnership Agreement provides that, where the General Partner is granted discretion under the Partnership Agreement in managing the Filer's operations and activities, the General Partner shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of, or factors affecting, the Filer, and will not be subject to any other standards imposed by the Partnership Agreement, any other agreement, the Limited Partnerships Act (Ontario) or any other law.
33. Despite the foregoing, Holdings' Board of Directors will be required to establish a conflicts committee ("Conflicts Committee") composed entirely of "independent directors" (as such term is defined in the Partnership Agreement), and the General Partner will only be able to take certain actions (as set forth in the Partnership Agreement) if the same are approved, consented to or directed by the Conflicts Committee.
Capitalization
34. Following consummation of the Business Combination, the capitalization of the Filer will initially consist of three classes of units. The interest of the General Partner, namely Holdings, is to be represented by Class A partnership units ("Common Units") and preferred partnership units ("Preferred Units"), with the number of issued Common Units and Preferred Units immediately following closing of the Business Combination to be equal to the respective number of Holdings Common Shares and Holdings Preferred Shares then outstanding. The interests of the limited partners of the Filer will be represented by the Exchangeable Units issued to former BKW stockholders pursuant to the Merger and described more fully below.
Reporting
35. The Filer is not currently a reporting issuer in any province or territory of Canada. The Filer is not in default of any requirement of the securities legislation in any province or territory of Canada. Upon completion of the Business Combination, the Filer will be a reporting issuer in each of the provinces and territories of Canada and will be subject to Canadian continuous disclosure and other reporting obligations under applicable Canadian securities laws, absent an available exemption.
36. As described more fully below, the Filer is not able to rely on the Exchangeable CD Exemption (as defined below).
37. The Filer will become an "SEC issuer" (as defined under NI 52-107) and, unless and until deregistered under applicable U.S. securities laws, will have independent U.S. periodic and current reporting obligations under the US Exchange Act by virtue of the Registration Statement. As it is expected that the Filer will not be a "foreign private issuer" (within the meaning of the US Exchange Act), these U.S. reporting obligations will involve, among other things, the Filer filing with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
THI
Organization and Capitalization
38. THI is a Canadian corporation. THI's head office is located at 874 Sinclair Road, Oakville, Ontario L6K 2Y1.
39. The authorized capital of THI consists of an unlimited number of common shares, one Class A preferred share and an unlimited number of other preferred shares, issuable in series. No preferred shares are outstanding.
40. Upon consummation of the Arrangement, THI will become an indirect, wholly-owned subsidiary of the Filer and THI's common shares will be delisted from the NYSE and the TSX.
41. THI has issued and outstanding C$300 million aggregate principal amount of 4.20% Senior Unsecured Notes, Series 1 due June 1, 2017 (the "2017 Notes"), C$450 million aggregate principal amount of 4.52% Senior Unsecured Notes, Series 2 due December 1, 2023 (the "2023 Notes") and C$450 million aggregate principal amount of 2.85% Senior Unsecured Notes, Series 3 due April 1, 2019 (the "2019 Notes" and, together with the 2017 Notes and the 2023 Notes, the "THI Notes").
42. The sale of the 2017 Notes was originally completed on a private placement basis on June 1, 2010, and a subsequent reopening sale of such 2017 Notes was completed on a private placement basis on December 1, 2010. The sale of the 2023 Notes was completed on a private placement basis on November 29, 2013. The sale of the 2019 Notes was completed on a private placement basis on March 28, 2014.
43. The THI Notes are non-convertible debt securities without any conversion or exchange rights.
44. Currently, there is no plan to redeem or repurchase the THI Notes in connection with the Business Combination except as may be required under the terms of the trust indenture governing the THI Notes, dated June 1, 2010, between THI and BNY Trust Company of Canada (the "THI Trust Indenture"). The THI Trust Indenture requires a mandatory "change of control" offer to repurchase the THI notes in the event of a change of control coupled with a ratings decline.
Reporting
45. THI is currently a reporting issuer in all provinces and territories of Canada, an "SEC issuer" (as defined under NI 52-107) and a "foreign private issuer" within the meaning of the US Exchange Act. To the best of the Filer's knowledge, THI is not in default of any requirement of the securities legislation in any province or territory of Canada.
46. As an "SEC issuer" (as defined under NI 52-107), THI elects to prepare its financial disclosure in accordance with US GAAP, which is audited in accordance with US PCAOB GAAS. THI has consistently prepared its financial disclosure in accordance with US GAAP since its initial public offering in March 2006.
47. At the time that purchasers of the THI Notes originally bought such securities, THI's financial disclosure was prepared in accordance with US GAAP (and, where applicable, audited in accordance with US PCAOB GAAS).
48. In addition, pursuant to section 1.12 of the THI Trust Indenture, all terms of an accounting or financial nature in respect of the THI Notes are to be construed in accordance with US GAAP, as in effect from time to time.
49. The reporting covenant contained in the THI Trust Indenture requires only that THI furnish copies (to the trustee for the THI Notes) of its consolidated financial statements, whether annual or interim, and any auditors' reports thereon, at the same time as such financial statements are filed with the securities regulatory authorities. It does not prescribe the content or form of such financial statements. Accordingly, it does not prescribe the GAAP in which such financial statement are to be presented, nor does it refer to financial reporting requirements under either Canadian or U.S. securities laws.
50. The THI Trust Indenture does not require that any other continuous disclosure documents be furnished or made available for the benefit of the holders of the THI Notes.
51. Following the consummation of the Business Combination and the delisting of its common shares from the NYSE and the TSX, the Filer anticipates that THI will deregister under applicable U.S. securities laws and, as a result, will no longer qualify as an "SEC issuer" (as defined under NI 52-107).
BKW
52. BKW is a Delaware corporation formed on April 2, 2012 and the indirect parent of Burger King Corporation, a Florida corporation that franchises and operates fast food hamburger restaurants, principally under the Burger King® brand.
53. The authorized capital stock of BKW consists of (i) 2,000,000,000 shares of common stock, $0.01 par value, and (ii) 200,000,000 shares of preferred stock, $0.01 par value.
54. As a result of the listing of its common stock on the NYSE, BKW currently files periodic and current reports and other information with the SEC to satisfy its U.S. reporting obligations under the US Exchange Act. BKW is not a reporting issuer in Canada. BKW is not in default of any requirement of the securities legislation in any province or territory of Canada. BKW's financial disclosure is prepared in accordance with US GAAP.
55. Upon consummation of the Business Combination, BKW will become an indirect, wholly-owned subsidiary of Holdings and the Filer and BKW's common shares will be delisted from the NYSE. BKW will deregister and no longer be an "SEC issuer" (as defined under NI 52-107).
Exchangeable Units of the Filer
General
56. As noted earlier, the Exchangeable Units are modelled on the conventional exchangeable share structure used in Canada and are intended to provide US stockholders with a tax deferral on the disposition of their BKW shares in connection with the Business Combination. As described in more detail below, Exchangeable Units have equivalent voting rights and substantially equivalent economic rights to Holdings Common Shares, and are exchangeable from and after the one year period following the Business Combination into Holdings Common Shares for no additional consideration.
Voting Rights in Respect of Holdings
57. Equivalent voting rights are conveyed to the holders of Exchangeable Units through the mechanism of the Special Voting Share and a voting trust agreement, as is often done in conventional exchangeable share structures. As part of the Arrangement, Holdings, the Filer and a trustee to be agreed between the parties ("Trustee") will enter into the voting trust agreement (the "Voting Trust Agreement") under which the Trustee will be granted specified rights and will agree to specified obligations for the benefit of the holders of Exchangeable Units, as described more fully below.
58. Under the Voting Trust Agreement, Holdings will issue the Special Voting Share to the Trustee for the benefit of the holders of Exchangeable Units (other than Holdings and its subsidiaries). The Special Voting Share will have the number of votes, which may be cast by the Trustee at any meeting at which the holders of Holdings Common Shares are entitled to vote or in respect of any written consent sought by Holdings from its holders of Holdings Common Shares, equal to the then outstanding number of Exchangeable Units (other than Exchangeable Units held by Holdings and its subsidiaries).
59. Each holder of an Exchangeable Unit (other than Holdings and its subsidiaries) on the record date for any meeting or shareholder consent at which holders of Holdings Common Shares are entitled to vote will be entitled to instruct the Trustee to exercise the votes attached to the Special Voting Share for each Exchangeable Unit held by the exchangeable unitholder. The Trustee will exercise each vote attached to the Special Voting Share only as directed by the relevant holder of Exchangeable Units and, in the absence of instructions from a holder of an Exchangeable Unit as to voting, will not exercise those votes.
60. A holder of Exchangeable Units may, upon instructing the Trustee, obtain a proxy from the Trustee entitling such holder to vote directly at the meeting the votes attached to the Special Voting Share to which the holder of Exchangeable Units is entitled. The Trustee will send to holders of Exchangeable Units copies of proxy materials, all information statements, reports (including annual and interim financial statements) and other written communications sent by Holdings to the holders of Holdings Common Shares at the same time as the materials are sent to Holdings shareholders. The Trustee will also send to the holders of Exchangeable Units all materials sent by third parties to the holders of Holdings Common Shares (if known to have been received by Holdings) including dissident proxy and information circulars and tender and exchange offer circulars, as soon as reasonably practicable after the materials are delivered to the Trustee.
61. Holders of Exchangeable Units are also entitled to certain statutory rights pursuant to the Voting Trust Agreement, such that wherever the CBCA confers a right on a holder of voting shares (excluding voting rights and economic rights), the holders of Exchangeable Units are entitled to the benefit of such statutory rights through the Trustee, as the holder of the Special Voting Share.
Voting Rights in Respect of the Filer
62. Except as otherwise required by the Partnership Agreement, Voting Trust Agreement or applicable law, the holders of Exchangeable Units will not directly be entitled to receive notice of or to attend any meeting of the unitholders of the Filer or to vote at any such meeting.
Dividends and Distributions
63. Pursuant to the terms of the Partnership Agreement, if a dividend or distribution has been declared and is payable in respect of a Holdings Common Share, the Filer will make a distribution in respect of each Exchangeable Unit in an amount equal to the dividend or distribution in respect of a Holdings Common Share.
64. The record date and payment date for distributions on the Exchangeable Units will be the same as the relevant record date and payment date for the dividends or distributions on the Holdings Common Shares.
65. If Holdings issues any Holdings Common Shares in the form of a dividend or distribution on the Holdings Common Shares, the Filer will issue to each holder of Exchangeable Units, in respect of each Exchangeable Unit held by such holder, a number of Exchangeable Units equal to the number of Holdings Common Shares issued in respect of each Holdings Common Share. If Holdings issues or distributes rights, options or warrants or other securities or assets of Holdings to all or substantially all of the holders of Holdings Common Shares, the Filer is required to make a corresponding distribution to holders of Exchangeable Units.
66. The General Partner may also authorize cash distributions to Holdings in amounts required for Holdings to pay expenses or other obligations of Holdings (which are specifically set out in the Partnership Agreement) to the extent that the General Partner determines those expenses or other obligations of Holdings are related to its role as the General Partner or the business and affairs of Holdings that are conducted through the Filer or any of the Filer's direct or indirect subsidiaries ("Holdings Expenses"). The Partnership Agreement expressly provides that these distributions may not be used to pay or facilitate dividends or distributions on the Holdings Common Shares and must be used solely for one of the express purposes set out in the Partnership Agreement.
Dissolution
67. The Filer will dissolve upon the occurrence of any of the following: (i) the removal of the General Partner unless the General Partner is replaced; (ii) the sale, exchange or disposition of all or substantially all of the property of the Filer, if approved in accordance with the Partnership Agreement; or (iii) a decision of the General Partner to dissolve the partnership. No limited partner has the right to ask for the dissolution of the Filer, for the winding-up of its affairs or for the distribution of its assets.
68. Upon dissolution of the Filer, the receiver will sell or otherwise dispose of the part of the Filer's assets as the receiver considers appropriate. Following such sale or disposition, the receiver will pay the debts and liabilities of the Filer and any liquidation expenses. If any assets of the Filer remain, the receiver will distribute all property and cash in the following order: (i) first, to the holder of Preferred Units, namely Holdings, until it has received an amount sufficient to fund its payment obligations with respect to Holdings Preferred Shares corresponding to Preferred Units; (ii) second, to Holdings to pay Holdings Expenses until sufficient amounts have been provided to Holdings to ensure that any property and cash distributed to Holdings as holder of the Common Units pursuant to clause (iii) below will be available for distribution to holders of Holdings Common Shares in an amount per share equal to distributions in respect of each Exchangeable Unit pursuant to clause (iii) below, and (iii) third, to the holder of Common Units, namely Holdings, and the holders of the Exchangeable Units pro rata in accordance with their respective interests, with Holdings' interest being determined based on the number of outstanding Holdings Common Shares relative to the number of outstanding Exchangeable Units. In this manner, holders of Exchangeable Units will share any residual assets of the Filer pro rata in accordance with their respective interests.
69. As a result of the distribution provisions of the Partnership Agreement, assets of the Filer that will be distributed to Holdings and that will be available for distribution to the holders of Holdings Common Shares will be proportionate to the assets that are distributed to the holders of the Exchangeable Units, based on the respective number of outstanding Holdings Common Shares and outstanding Exchangeable Units at the time of dissolution.
Equity Issuances by Holdings
70. When the General Partner issues Holdings Common Shares or Holdings Preferred Shares, it will contribute the net proceeds from the issuance of such Holdings Common Shares or Holdings Preferred Shares to the Filer as a capital contribution on account of its Common Units or Preferred Units, respectively.
71. In the event that a new class of shares in the capital of Holdings is created, the General Partner will create a corresponding new class of the Filer partnership units that has corresponding economic rights to such new class of shares and will cause the Filer to issue new units of such class to Holdings. The Partnership Agreement also requires Holdings to contribute the net proceeds from the issuance of such shares to the Filer in exchange for such units.
72. As a consequence of these restrictions, the inability of Holdings to receive distributions up from the Filer except to make equivalent distributions on its shares and to fund Holdings Expenses and the other terms governing the relationship between Holdings and the Filer, the consolidated financial position of the Filer and the consolidated financial position of Holdings will remain identical in all material respects and Holdings will not have any business other than through its interest in the Filer.
Capital Reorganizations and Formal Bids
73. If Holdings effects any subdivision or combination of Holdings Common Shares, the General Partner will cause the Filer to simultaneously effect a subdivision or combination, as the case may be, of the Exchangeable Units with an identical ratio as the subdivision or combination of Holdings Common Shares.
74. As long as any Exchangeable Units are outstanding, no tender offer, share exchange offer, formal issuer bid, formal take-over bid or similar transaction with respect to (i) Holdings Common Shares will be proposed or recommended by Holdings or the Holdings Board of Directors or otherwise effected with the consent or approval of the Holdings Board of Directors unless the holders of Exchangeable Units are entitled to participate in that bid to the same extent and on an equitably equivalent basis as the holders of Holdings Common Shares, without discrimination; or (ii) Exchangeable Units will be proposed or recommended by Holdings or the Holdings Board of Directors or otherwise effected with the consent or approval of the Holdings Board of Directors unless the holders of Holdings Common Shares are entitled to participate in that bid to the same extent and on an equitably equivalent basis as the holders of Exchangeable Units, without discrimination.
75. A holder of Exchangeable Units will not be entitled to exchange its Exchangeable Units into Holdings Common Shares pursuant to the Exchange Right (as defined below) prior to the one year anniversary of the date of the effective time of the Merger. As a result, if a bid with respect to Holdings Common Shares was made in that one year period, a holder of Exchangeable Units could not participate in such bid unless it was proposed or recommended by Holdings or the Holdings Board of Directors or was otherwise effected with the consent or approval of the Holdings Board of Directors.
76. A statement substantially to the effect of the statement in paragraph 75 above will be included in the Circular and in any management information circular and annual information form of Holdings filed pursuant to NI 51-102 prior to the one year anniversary of the date of the effective time of the Merger.
77. Canadian securities regulatory authorities may intervene in the public interest (either on application by an interested party or by staff of a Canadian securities regulatory authority) to prevent an offer to holders of Holdings Common Shares, Holdings Preferred Shares or Exchangeable Units being made or completed where such offer is abusive of the holders of one of those security classes that are not subject to that offer.
78. A statement substantially to the effect of the statement in paragraph 77 above will be included in the Circular and in any management information circular and annual information form of Holdings filed pursuant to NI 51-102; provided that such statement may be modified to reflect any change in the applicable law and need not be made with respect to the Holdings Preferred Shares and/or the Exchangeable Units if, at the applicable time, there are no outstanding securities of such class (other than securities beneficially owned, either directly or indirectly, by Holdings).
79. As long as any Exchangeable Units are outstanding, Holdings cannot consummate a transaction in which all or substantially all of its assets would become the property of any other person or entity. This does not apply to a transaction if such other person or entity becomes bound by the Partnership Agreement and assumes Holdings' obligations, as long as the transaction does not materially impair the rights of the holders of the Exchangeable Units.
Exchange Rights
80. From and after the one year anniversary of the date of the effective time of the Merger, holders of Exchangeable Units will, from time to time, have the right exercisable at any time and from time to time (the "Exchange Right") to require the Filer to exchange any or all of the Exchangeable Units held by such holder for one Holdings Common Share in respect of each Exchangeable Unit, subject to the right of Holdings, as General Partner for and on behalf of the Filer, to elect in its sole and absolute discretion to cause the Filer to repurchase the Exchangeable Units for a prescribed cash amount (instead of Holdings Common Shares) determined by reference to the weighted average trading price of the Holdings Common Shares on the NYSE for the 20 consecutive trading days ending on the last business day prior to the exchange date (the "Exchangeable Units Cash Amount"). In certain circumstances, the decision by the General Partner to deliver cash (in lieu of Holdings Common Shares) requires the approval of the Conflicts Committee.
81. In order to exercise the Exchange Right, a holder of Exchangeable Units must provide notice of exercise of its Exchange Right a minimum of 15 business days and a maximum of 30 business days in advance of the exchange. This notice requirement is comparable to (though perhaps slightly longer than) the requirement under a conventional exchangeable share structure.
82. There is no sunset provision applicable to the Exchangeable Units. The Filer may cause a mandatory exchange of the outstanding Exchangeable Units into Holdings Common Shares in certain circumstances, including in the event that (i) at any time there remain outstanding fewer than 5% of the number of Exchangeable Units outstanding as of the effective time of the Merger (other than Exchangeable Units held by Holdings and its subsidiaries); (ii) any one of the following occurs, (A) an acquiror acquires any voting security of Holdings and immediately after such acquisition, the acquirer has voting securities representing more than 50% of the total voting power of all the then outstanding voting securities of Holdings on a fully diluted basis, (B) the shareholders of Holdings approve a merger, consolidation, recapitalization or reorganization of Holdings, other than any transaction which would result in the holders of outstanding voting securities of Holdings immediately prior to such transaction having at least a majority of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction, with the voting power of each such continuing holder relative to other continuing holders not being altered substantially in the transaction, or (C) the shareholders of Holdings approve a plan of complete liquidation of Holdings or an agreement for the sale or disposition of Holdings of all or substantially all of Holdings' assets, provided that, in each case of (A), (B) or (C), Holdings, in its capacity as General Partner, determines, in good faith and in its sole discretion, that such transaction involves a bona fide third party and is not for the primary purpose of causing the exchange of the Exchangeable Units in connection with such transaction; or (iii) a matter arises in respect of which applicable law provides holders of Exchangeable Units with a vote as holders of units of the Filer in order to approve or disapprove, as applicable, any change to, or in the rights of the holders of, the Exchangeable Units, where the approval or disapproval, as applicable, of such change would be required to maintain the economic equivalence of the Exchangeable Units and the Holdings Common Shares, and the holders of the Exchangeable Units fail to take the necessary action at a meeting or other vote of holders of Exchangeable Units to approve or disapprove, as applicable, such matter in order to maintain economic equivalence of the Exchangeable Units and the Holdings Common Shares.
83. The terms of the Exchangeable Units do not provide for an automatic exchange of Exchangeable Units into Holdings Common Shares upon a dissolution or liquidation of the Filer or Holdings.
Reporting Obligations of the Filer Following Consummation of the Business Combination
84. The Filer will become a reporting issuer in Canada by virtue of the Business Combination and, in the Province of Ontario, the listing of the Exchangeable Units on the TSX.
85. The Filer will not be a "foreign issuer" (as defined under NI 52-107 or NI 71-10) or a "foreign reporting issuer" (as defined under NI 71-102). Accordingly, it will generally not be entitled under NI 71-101 or NI 71-102 to satisfy its Canadian reporting obligations through any periodic and current reports that it files with the SEC to satisfy its U.S. reporting obligations.
86. The Filer will be an "exchangeable security issuer" and Holdings (as the Filer's "parent issuer" for purposes of NI 51-102) will be the beneficial owner of all of the issued and outstanding "voting securities" (for purposes of NI 51-102) of the Filer. The Exchangeable Units do not constitute "voting securities" for this purpose. Accordingly, the Filer could satisfy all of its continuous disclosure obligations under NI 51-102 provided that it met the other requirements and conditions of section 13.3(2) of NI 51-102 (the "Exchangeable CD Exemption").
87. By satisfying the requirements and conditions of the Exchangeable CD Exemption, the Filer would also be exempt from (i) the certification requirements of NI 52-109 pursuant to section 8.4 of that instrument (the "Exchangeable Certification Exemption"), (ii) the audit committee requirements of NI 52-110 pursuant to section 1.2(f) of that instrument (the "Exchangeable Audit Committee Exemption"), and (iii) the corporate governance disclosure requirements of NI 58-101 pursuant to section 1.3(c) of that instrument (the "Exchangeable Corporate Governance Exemption").
88. In addition, the insider reporting requirement and the requirement to file an insider profile under NI 55-102 do not apply to any insider of an exchangeable security issuer in respect of securities of that exchangeable security issuer so long as the conditions of section 13.3(3) of NI 51-102 are met (the "Exchangeable Insider Reporting and Profile Exemption").
89. A common condition to each of the Exchangeable CD Exemption and the Exchangeable Insider Reporting and Profile Exemption is that any exchangeable security issued by the exchangeable security issuer be a "designated exchangeable security" (as defined in Section 13.3(1) of NI 51-102).
90. Further, the Exchangeable CD Exemption requires that the parent issuer include in all mailings of proxy solicitation materials to holders of designated exchangeable securities a clear and concise statement that, among other things, indicates the designated exchangeable securities are the economic equivalent to the underlying securities (the "Economic Equivalence Disclosure Requirement").
91. As the Exchangeable Units have only substantially equivalent economic rights to Holdings Common Shares, the Exchangeable Units are not "designated exchangeable securities". As such, the conditions of the Exchangeable CD Exemption and Exchangeable Insider Reporting and Profile Exemption and the Economic Equivalence Disclosure Requirement cannot be satisfied, and the Filer cannot rely on the Exchangeable Certification Exemption, Exchangeable Audit Committee Exemption and the Exchangeable Corporate Governance Exemption.
Reporting Obligations of THI Following Consummation of the Business Combination
92. If there are more than 50 beneficial owners of the THI Notes worldwide, the simplified procedure (for a decision that THI is not a reporting issuer in all of the provinces and territories of Canada (excluding British Columbia) as provided in CSA Staff Notice 12-307) will not be available to THI and THI will not be entitled to voluntarily surrender its reporting issuer status in British Columbia under British Columbia Instrument 11-502 Voluntary Surrender of Reporting Issuer Status. Additionally, if there are 15 or more beneficial owners of the THI Notes in any province or territory of Canada, the simplified procedure will not be available to THI.
93. Following consummation of the Business Combination, for so long as THI cannot meet the aforementioned requirements to cease being a reporting issuer, THI would not be able to apply for the aforementioned decision and would remain a reporting issuer in each of the provinces and territories of Canada as a "venture issuer" (as defined under NI 51-102) subject to the continuous disclosure requirements applicable to such a venture issuer in accordance with NI 51-102.
94. However, because THI will no longer be an "SEC issuer", it will no longer be entitled to (i) avail itself of the exception to subsection 3.2(1) of NI 52-107 provided in subsection 3.7(1) of NI 52-107 that would permit THI's Financial Filings to be prepared in accordance with US GAAP or (ii) avail itself of the exception to subsection 3.3(1) of NI 52-107 provided in subsection 3.8(1) of NI 52-107 that would permit THI's Financial Filings, to the extent they are required by securities legislation to be audited, to be audited in accordance with US PCAOB GAAS.
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 provided that:
1. the Arrangement and the Merger have each become effective on or before April 30, 2015;
2. in respect of the Continuous Disclosure Requirements,
a) the Filer and Holdings continue to satisfy the conditions set out in subsection 13.3(2) of NI 51-102, except as modified as follows:
i. any reference to designated exchangeable security in section 13.3 of NI 51-102 shall be deemed to include the Exchangeable Units notwithstanding that the Exchangeable Units do not provide their holders with economic rights which are, as nearly as possible except for tax implications, equivalent to Holdings Common Shares,
ii. any management information circular and annual information form of Holdings discloses:
1. the differences between the rights of holders of Exchangeable Units and the rights of holders of Holdings Common Shares,
2. how the Exchangeable Units provide voting rights that are equivalent to the Holdings Common Shares through the Special Voting Share held by the Trustee pursuant to the Voting Trust Agreement,
3. how the Exchangeable Units provide economic rights that are substantially equivalent to the Common Shares, and
4. a summary of the Exemption Sought in respect of the Continuous Disclosure Requirements granted by this decision,
(the disclosure required by items 1-3 above of this clause (ii) may be satisfied through disclosure that is substantially similar to the disclosure attached as Appendix A to this decision),
iii. Holdings does not have to comply with the condition in subsection 13.3(2)(h)(ii) of NI 51-102,
b) the consolidated financial position of the Filer and the consolidated financial position of Holdings remain identical in all material respects and Holdings does not have any business other than through its interest in the Filer,
c) Holdings consolidates the financial information of the Filer in each of its annual financial statements and interim financial reports filed on SEDAR, and
d) Holdings is not in breach of its representation to include the disclosure referred to in paragraph 25, 76 or 78 of the section of this decision entitled "Representations";
3. in respect of the Certification Requirements, the Audit Committee Requirements and the Corporate Governance Requirements, the Filer and Holdings continue to satisfy the conditions for relief from the Continuous Disclosure Requirements set forth above;
4. in respect of the Insider Reporting Requirements,
a) an insider of the Filer (a "Filer Insider") can only rely on the Exemption Sought in respect of the Insider Reporting Requirements so long as:
i. the Filer Insider complies with the conditions in sections 13.3(3)(a) and (c) of NI 51-102, and
ii. the Filer and Holdings continue to satisfy the conditions for relief from the Continuous Disclosure Requirements set forth above,
b) for greater certainty, a Filer Insider may only rely on the Exemption Sought in respect of the Insider Reporting Requirements so long as such Filer Insider aggregates (i) any votes that such Filer Insider is entitled to instruct the Trustee holding the Special Voting Share to exercise by virtue of such Filer Insider's beneficial ownership of, or control or direction over, Exchangeable Units (whether direct or indirect) and (ii) any votes carried by any other securities of Holdings that are beneficially owned by such Filer Insider, or over which such Filer Insider has control or direction, whether direct or indirect, in determining whether it is an "insider" and "significant shareholder" of Holdings for purposes of National Instrument 55-104 Insider Reporting Requirements and Exemptions,
5. in respect of the Canadian Accounting and Auditing Requirements,
a) following the Arrangement, Holdings (or its successor) beneficially owns, either directly or indirectly, all of the outstanding equity securities of THI (provided that such determination is to be without regard to any outstanding Exchangeable Units),
b) following the Arrangement, Holdings continues to be an "SEC issuer" for purposes of NI 52-107,
c) following the Arrangement, Holdings consolidates the financial information of THI in each of its annual financial statements and interim financial reports filed on SEDAR and prepares those financial statements in accordance with US GAAP and has those annual financial statements audited in accordance with US PCAOB GAAS,
d) following the Arrangement, THI (i) prepares THI's Financial Filings, to the extent they would otherwise be required by subsection 3.2(1) of NI 52-107 to be prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises, in accordance with US GAAP and (ii) has THI's Financial Filings audited, to the extent they are required by securities legislation to be audited and would otherwise be required by subsection 3.3(1) of NI 52-107 to be audited in accordance with Canadian GAAS, in accordance with US PCAOB GAAS,
e) following the Arrangement, THI does not issue any new securities (including debt securities), other than securities of a Wholly-Owned Class,
f) the maturity date of the THI Notes is not extended to a date beyond December 1, 2023,
g) the THI Notes are not converted into other securities,
h) THI complies with the condition in subsection 3.7(2) of NI 52-107, and
i) THI complies with the conditions in paragraphs 3.8(1)(a) and (b) of NI 52-107, subject to the exception in section 3.8(2) of NI 52-107;
6. in respect of the THI Insider Reporting and Profile Requirements,
a) following the Arrangement, Holdings (or its successor) beneficially owns, either directly or indirectly, all of the outstanding equity securities of THI (provided that such determination is to be without regard to any outstanding Exchangeable Units),
b) following the Arrangement, THI does not issue any new securities (including debt securities), other than securities of a Wholly-Owned Class,
c) the Exemption Sought will not apply to any trade or trades which would cause the securities being traded to no longer be a Wholly-Owned Class, and
d) for greater certainty, THI discloses in its annual and interim management's discussion and analysis the disclosure required by section 5.4 of NI 51-102 and a summary of the Exemption Sought in respect of the THI Insider Reporting Requirement and Profile Requirement granted by this decision.
As to the Exemption Sought (other than from the Insider Reporting Requirements in the Securities Act (Ontario) and from the Canadian Accounting and Auditing Requirements):
As to the Exemption Sought from the Canadian Accounting and Auditing Requirements:
As to the Exemption Sought from the Insider Reporting Requirements in the Securities Act (Ontario):
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"James Turner"
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"Monica Kowal"
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Vice-Chair
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Vice-Chair
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Ontario Securities Commission
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Ontario Securities Commission
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APPENDIX A
The exchangeable units of Partnership are intended to provide economic rights that are substantially equivalent, and voting rights with respect to Holdings that are equivalent, to the corresponding rights afforded to holders of Holdings common shares. Under the terms of the partnership agreement, the rights, privileges, restrictions and conditions attaching to the exchangeable units include the following:
• From and after the one year anniversary of the date of the effective time of the merger, the exchangeable units will be exchangeable at any time, at the option of the holder, on a one-for-one basis for Holdings common shares, subject to the right of the General Partner (subject to the approval of the conflicts committee in certain circumstances) to determine to settle any such exchange for a cash payment in lieu of Holdings common shares. If Holdings elects to make a cash payment in lieu of issuing common shares, the amount of the cash payment will be the weighted average trading price of the Holdings common shares on the NYSE for the 20 consecutive trading days ending on the last business day prior to the exchange date. Exchangeable units will not be exchangeable prior to the one year anniversary of the date of the effective time of the merger.
• If a dividend or distribution has been declared and is payable in respect of a Holdings common share, Partnership will make a distribution in respect of each exchangeable unit in an amount equal to the dividend or distribution in respect of a Holdings common share. The record date and payment date for distributions on the exchangeable units will be the same as the relevant record date and payment date for the dividends or distributions on the Holdings common shares.
• If Holdings issues any Holdings common shares in the form of a dividend or distribution on the Holdings common shares, Partnership will issue to each holder of exchangeable units, in respect of each exchangeable unit held by such holder, a number of exchangeable units equal to the number of Holdings common shares issued in respect of each Holdings common share.
• If Holdings issues or distributes rights, options or warrants or other securities or assets of Holdings to all or substantially all of the holders of Holdings common shares, Partnership is required to make a corresponding distribution to holders of the exchangeable units.
• No subdivision or combination of the outstanding shares of Holdings common shares is permitted unless a corresponding subdivision or combination of exchangeable units is made.
• Holdings and its board of directors are prohibited from proposing or recommending an offer for the Holdings common shares or for the exchangeable units unless the holders of the exchangeable units and the holders of common shares are entitled to participate to the same extent and on equitably equivalent basis.
• Upon a dissolution and liquidation of Partnership, if exchangeable units remain outstanding and have not been exchanged for Holdings common shares, then the distribution of the assets of Partnership between holders of holdings common shares and holders of exchangeable units will be made on a pro rata basis based on the numbers of Holdings common shares and Partnership exchangeable units outstanding. Assets distributable to holders of exchangeable units will be distributed directly to such holders. Assets distributable in respect of Holdings common shares will be distributed to Holdings. Prior to this pro-rata distribution, Partnership is required to pay to Holdings sufficient amounts to fund the expenses or other obligations of Holdings (to the extent related to its role as the General Partner or the business and affairs of Holdings that are conducted through Partnership or its subsidiaries) to ensure that any property and cash distributed to Holdings in respect of the common shares will be available for distribution to holders of Holdings common shares in an amount per share equal to distributions in respect of each exchangeable unit. The terms of the exchangeable units do not provide for an automatic exchange of exchangeable units into Holdings common shares upon a dissolution or liquidation of Partnership or Holdings.
• Approval of holders of the exchangeable units is required for an action (such as an amendment to the Partnership agreement) that would affect the economic rights of an exchangeable unit relative to a Holdings common share.
• The holders of exchangeable units are indirectly entitled to vote in respect of matters on which holders of Holdings common shares are entitled to vote, including in respect of the election of directors of Holdings, through a special voting share of Holdings. The special voting share is held by a trustee, entitling the trustee to that number of votes on matters on which holders of Common Shares are entitled to vote equal to the number of exchangeable units outstanding. The trustee is required to cast such votes in accordance with voting instructions provided by holders of exchangeable units. The trustee will exercise each vote attached to the special voting share only as directed by the relevant holder of exchangeable units and, in the absence of instructions from a holder of an exchangeable unit as to voting, will not exercise those votes.