Bank of Nova Scotia and Scotiabank Capital Trust - MRRS Decision
Headnote
Exemptions from most continuousdisclosure requirements granted to a Trust on specified conditions,including the conditions that the Bank remains a reporting issuerand security holders of the Trust receive the continuous disclosuredocuments of the parent company. Because of the terms of theTrust, a security holder's return depends upon the financialcondition of the Bank and not that of the Trust. Trust offeredTrust units to the public in order to provide the parent companywith a cost effective means of raising capital for Canadianbank regulatory purposes. No distributions are payable on theTrust units, if the Bank fails to pay dividends on its preferredshares or on its common shares, if no preferred shares are outstanding.If distributions are not paid, the Bank is prevented from payingdividends on its preferred shares. Trust units are redeemableby the Trust and are exchangeable at the option of the holderfor a series of shares of the Bank. Holders of Trust units haveno claim or entitlement to the income of the Trust or the assetsheld by the Trust.
Applicable Ontario StatutoryProvisions
Securities Act, R.S.O. 1990,c. S.5, as am., ss 77, 78,79, 80(b)(iii), 81.
Applicable Ontario RulesCited
OSC Rule 51-501- AIF and MD&AOSC Rule 52-501- Financial Statements.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC,NOVA SCOTIA
AND NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
THE BANK OF NOVA SCOTIA AND
SCOTIABANK CAPITAL TRUST
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (the Decision Maker, and collectivelythe Decision Makers) in each of the provinces of Ontario, BritishColumbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotiaand Newfoundland and Labrador (the Jurisdictions) has receivedan application (the Application) from The Bank of Nova Scotia(the Bank) and Scotiabank Capital Trust (the Trust) for a decision,pursuant to the securities legislation of the Jurisdictions(the Legislation), that the requirements contained in the Legislationto:
(a) file interim financialstatements and audited annual financial statements (collectively,Financial Statements) with the Decision Makers and deliversuch statements to the security holders of the Trust;
(b) make an annual filing(Annual Filing) with the Decision Makers in lieu of filingan information circular, where applicable;
(c) file an annual report(Annual Report) and an information circular with the DecisionMaker in Quebec and deliver such report or information circularto the security holders of the Trust resident in Quebec;and
(d) file an annual informationform (AIF) and annual management's discussion and analysis(MD&A) of the financial condition and results of operationof the Trust with the Decision Makers in Ontario, Saskatchewanand Quebec, an interim MD&A in Ontario and Saskatchewanand send such MD&A to security holders of the Trust,where applicable (collectively the AIF and MD&A Requirements);
shall not apply to the Trust,subject to certain terms and conditions;
AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the System), the OSC is the Principal Regulator for this application;
AND WHEREAS the Bankand the Trust have represented to the Decision Makers that:
The Bank
1. The Bank is a bank underthe Bank Act (Canada) and the Bank Act (Canada)is its charter.
2. The authorized share capitalof the Bank consists of an unlimited number of (i) commonshares (Bank Common Shares); and (ii) preferred shares (theBank Preferred Shares), issuable in series.
3. The Bank is a reportingissuer or the equivalent in each of the provinces and territoriesof Canada and is not, to its knowledge, in default of anyrequirement under the Legislation.
4. The Bank Common Sharesare listed and posted for trading on The Toronto Stock Exchange(the TSE), the New York Stock Exchange and the London StockExchange.
The Trust
5. The Trust is an open-endtrust established under the laws of the Province of Ontarioby Computershare Trust Company of Canada (Trustee), as trustee,pursuant to a declaration of trust made as of March 28, 2002,(the Declaration of Trust).
6. The outstanding securitiesof the Trust consist of (i) Special Trust Securities (theSpecial Trust Securities); and (ii) Scotiabank Trust Securities- Series 2002-1 (the Scotia BaTS II). The Special Trust Securitiesand the Scotia BaTS II are collectively referred to hereinas the Trust Securities. The Scotia BaTS II and the SpecialTrust Securities are not quoted or listed on any exchangeor organized market.
7. The Trust is a reportingissuer, or the equivalent, in each of the Jurisdictions asa result of having filing a final prospectus dated April 23,2002 (the Prospectus) and the issuance of a final MRRS DecisionDocument in relation to the Prospectus and is not, to itsknowledge, in default of any requirement of the Legislation.
8. The Trust was establishedsolely for the purpose of effecting a public offering of ScotiaBaTS II (the Offering) and possible future offerings of securitiesin order to provide the Bank with a cost effective means ofraising capital for Canadian financial institution regulatorypurposes by means of: (i) creating and selling the Trust Securities;and (ii) acquiring and holding assets, which consist primarilyof a senior deposit note issued by the Bank (the Bank DepositNote). The Bank Deposit Note will generate income for distributionto holders of the Trust Securities. The Trust does not andwill not carry on any operating activity other than in connectionwith the Offering and any future offerings.
Scotia BaTS II
9. The Trust distributed ScotiaBats II in the Jurisdictions under the Prospectus. The Trustalso issued and sold 1,000 Special Trust Securities, whichare voting securities of the Trust, to the Bank in connectionwith the Offering.
10. Holders of Scotia BaTSII are entitled to receive fixed, semi-annual non-cumulativedistributions (each, an Indicated Yield) on the basis describedbelow (Distributions). Each semi-annual payment date for theIndicated Yield in respect of the Scotia BaTS II (a DistributionDate) will be either a Regular Distribution Date or a DistributionDiversion Date. A Distribution Date will be a DistributionDiversion Date, with the result that the Indicated Yield willnot be paid in respect of the Scotia BaTS II but, instead,the Trust will pay the net distributable funds of the Trustto the holder of Special Trust Securities, if: (i) the Bankhas failed in the period described in the Prospectus to declareregular dividends on its Bank Non-Cumulative Preferred Sharesof any series and its Bank Parity Preferred Shares (if any)in accordance with their terms; or (ii) if no Bank Non-CumulativePreferred Shares or Bank Parity Preferred Shares are thenoutstanding and the Bank has failed in the period describedin the Prospectus to declare regular dividends on its BankJunior Preferred Shares; or (iii) if no Bank Junior PreferredShares are then outstanding and the Bank has failed in theperiod described in the Prospectus to declare regular dividendson its Bank Common Shares. In all other cases, a DistributionDate will be a Regular Distribution Date, in which case holdersof Scotia BaTS II will be entitled to receive the IndicatedYield. Bank Non-Cumulative Preferred Shares means the non-cumulativePreferred Shares of the Bank (including the Bank PreferredShares Series W and the Bank Preferred Shares Series X). BankParity Preferred Shares means preferred or preference sharesissued by the Bank ranking pari passu with the BankNon-Cumulative Preferred Shares. Bank Junior Preferred Sharesmeans preferred or preference shares issued by the Bank rankingjunior to the Bank Non-Cumulative Preferred Shares. (The BankNon-Cumulative Preferred Shares, Bank Common Shares, BankParity Preferred Shares and Bank Junior Preferred Shares arehereinafter referred to as the Bank Dividend Restricted Shares).
11. Under a Share ExchangeAgreement entered into among the Bank, the Trust and a partyacting as Exchange Trustee (the Share Exchange Agreement),the Bank has agreed, for the benefit of the holders of ScotiaBaTS II, that in the event that the Trust fails on any RegularDistribution Date to pay the Indicated Yield on the ScotiaBaTS II in full: (i) the Bank will not declare or pay Dividendson the Bank Dividend Restricted Shares, until a specifiedperiod of time has elapsed, unless the Trust first pays suchIndicated Yield (or the unpaid portion thereof) to holdersof Scotia BaTS II. Accordingly, it is in the interest of theBank to ensure, to the extent within their control, that theTrust complies with its obligation to pay the Indicated Yieldon each Regular Distribution Date.
12. Under the terms of theScotia BaTS II and the Share Exchange Agreement, the ScotiaBaTS II may be exchanged, at the option of the holders ofScotia BaTS II, for newly issued Bank Preferred Shares SeriesW. The Scotia BaTS II will be automatically exchanged, withoutthe consent of the holder, for Bank Preferred Shares SeriesW upon the occurrence of certain stated events relating tothe solvency of the Bank or actions taken by the Superintendentof Financial Institutions (the Superintendent) in respectof the Bank (the Automatic Exchange).
13. The terms of the BankPreferred Shares Series W provide, among other things, thatsuch shares are exchangeable at the option of the holder forBank Common Shares at certain times and in certain circumstances,but in any event the Bank Preferred Shares Series W are notexchangeable into Bank Common Shares until December 31, 2012.This exchange right is not operative at any time that an eventgiving rise to the Automatic Exchange in respect of the ScotiaBaTS II has occurred and is continuing.
14. The Trust may, subjectto regulatory approval, on June 30, 2007 and on any DistributionDate thereafter, redeem the Scotia BaTS II. The price payablein respect of any such redemption will include an early redemptioncompensation component (such price being the Early RedemptionPrice) in the event of a redemption of Scotia BaTS II priorto June 30, 2012 ( the Early Redemption Date). The price payablein all other cases will be $1,000 per Scotia BaTS II togetherwith any unpaid Indicated Yield thereon (the Redemption Price).
15. Upon the occurrence ofcertain regulatory or tax events affecting the Bank or theTrust, the Trust may, subject to regulatory approval, redeemat any time all but not less than all of the Scotia BaTS IIat the Early Redemption Price (if the Scotia BaTS II are redeemedprior to the applicable Early Redemption Date) and at theRedemption Price (if the Scotia BaTS II are redeemed on orafter the applicable Early Redemption Date).
16. The Bank has covenanted,under the Share Exchange Agreement, that the Bank or its affiliateswill maintain ownership, directly or indirectly, of 100% ofthe outstanding Special Trust Securities. As a result, thefinancial results of the Trust will be consolidated with thoseof the Bank. Subject to regulatory approval, the Scotia BaTSII will constitute Tier 1 Capital of the Bank.
17. As long as any ScotiaBaTS II are outstanding, the Trust may only be terminatedwith the approval of the holder of Special Trust Securitiesand with the approval of the Superintendent: (i) upon theoccurrence of a Special Event prior to June 30, 2007; or (ii)for any reason on June 30, 2007 or any Distribution Date thereafter.Holders of Trust Securities rank pari passu in the distributionof the property of the Trust in the event of a terminationof the Trust, after the discharge of any creditor claims.As long as any Scotia BaTS II are outstanding, the Bank willnot approve the termination of the Trust unless the Trusthas sufficient funds to pay the Early Redemption Price inthe case of a termination prior to the applicable Early RedemptionDate, or the Redemption Price in the case of any other termination.
18. As set forth in the Declarationof Trust, the Scotia BaTS II are non-voting except in limitedcircumstances and Special Trust Securities entitle the holdersto vote.
19. Except to the extent thatthe Distributions are payable to Scotia BaTS II holders and,other than in the event of termination of the Trust (as setforth in the Declaration of Trust), Scotia BaTS II holdershave no claim or entitlement to the income of the Trust orthe assets held by the Trust.
20. Under an AdministrationAgreement entered into between the Trustee and the Bank, theTrustee will delegate to the Bank certain of its obligationsin relation to the administration of the Trust. The Bank,as administrative agent, will provide advice and counsel withrespect to the administration of the day-to-day operationsof the Trust and other matters as may be requested by theTrustee from time to time.
21. The Trust has not requestedrelief for the purposes of filing a short form prospectuspursuant to National Instrument 44-101 C Short Form ProspectusDistributions (NI 44-101) (including, without limitation,any relief that would allow the Trust to use the Bank's AIFas a current AIF of the Trust) and no such relief is providedby this Decision Document from any of the requirements ofNI 44-101.
22. The Trust may, from timeto time, issue further series of Scotiabank Trust Securities,the proceeds of which would be used to acquire additionaldeposit notes from the Bank.
23. Because of the terms ofthe Scotia BaTS II, the Share Exchange Agreement and the variouscovenants of the Bank, information about the affairs and financialperformance of the Bank, as opposed to that of the Trust,is meaningful to holders of Scotia BaTS II. The Bank's filingsand the delivery of the same material delivered to shareholdersof the Bank will provide holders of Scotia BaTS II and thegeneral investing public with all information required inorder to make an informed decision relating to an investmentin Scotia BaTS II. Information regarding the Bank is relevantboth to an investor's expectation of being paid the IndicatedYield on the Scotia BaTS II as well as the return of the investor'sprincipal.
AND WHEREAS under theSystem this MRRS Decision Document evidences the decision ofthe Decision Makers (collectively, the Decision);
AND WHEREAS the DecisionMakers are satisfied that the tests contained in the Legislationthat provides the Decision Maker with the jurisdiction to makethe Decision have been met;
THE DECISION of the DecisionMakers under the Legislation is that the requirement containedin the Legislation:
(a) to file Financial Statementswith the Decision Makers and deliver such statements toholders of Trust Securities;
(b) to make an Annual Filing,where applicable, with the Decision Makers in lieu of filingan information circular; and
(c) to file an Annual Reportand an information circular with the Decision Maker in Quebecand deliver such report or information circular to holdersof Trust Securities resident in Quebec;
shall not apply to the Trustfor so long as:
(i) the Bank remains a reportingissuer under the Legislation;
(ii) the Bank files withthe Decision Makers, in electronic format under the Trust'sSEDAR profile, the documents listed in clauses (a) to (c)above of this Decision, at the same time as they are requiredunder the Legislation to be filed by the Bank;
(iii) the Trust pays allfiling fees that would otherwise be payable by the Trustin connection with the filing of the documents referredto in clauses (a) to (c) above of this Decision;
(iv) the Bank sends itsFinancial Statements and Annual Filing, where applicable,to holders of Trust Securities and its Annual Report toholders of Trust Securities resident in the Province ofQuebec at the same time and in the same manner as if theholders of Trust Securities were holders of the Bank CommonShares;
(v) all outstanding securitiesof the Trust are either Scotia BaTS II or Special TrustSecurities;
(vi) the rights and obligations(other than the economic terms thereof) of holders of additionalseries of Scotiabank Trust Securities are the same in allmaterial respects as the rights and obligations of the holdersof Scotia BaTS II-Series 2002-1 at the date hereof; and
(vii) the Bank or its affiliatesare the beneficial owners of all Special Trust Securities.
and provided that this Decisionshall expire 30 days after the date a material adverse changeoccurs in the affairs of the Trust.
July 26, 2002.
"Paul M. Moore" "RobertL. Shirriff"
AND THE FURTHER DECISIONof the Decision Makers in Ontario, Saskatchewan and Quebec isthat the AIF and MD&A Requirements shall not apply to theTrust for so long as:
(i) the conditions set outin clauses (i), (v), (vi) and (vii) of the Decision aboveare complied with;
(ii) the Bank files itsAIF and its annual and interim MD&A with the DecisionMakers, as applicable, in electronic format under the Trust'sSEDAR profile at the same time as they are required underthe Legislation to be filed by the Bank;
(iii) the Trust pays allfiling fees that would otherwise be payable by the Trustin connection with the filing of the documents referredto in clauses (a) to (c) above of this Decision;
(iv) the Bank sends itsannual and interim MD&A and its AIF, as applicable,to holders of Trust Securities at the same time and in thesame manner as if the holders of Trust Securities were holdersof Bank Common Shares;
and provided that this Decisionshall expire 30 days after the date a material adverse changeoccurs in the affairs of the Trust.
July 26, 2002.
"John Hughes"