On November 13, 2009 the Toronto Stock Exchange (the
"TSX") published for comment proposed amendments to Part VI of the TSX Company
(the "Manual") relating to certain
requirements and exemptions for acquisition of investment funds
(the "Amendments"). The comment period
ends on December 14, 2009. The Amendments are subject to approval
by the Ontario Securities Commission.
Earlier this year the TSX introduced amendments to Part VI of
the Manual relating to security holder approval when securities are
issued as payment for the acquisition of public companies (the
"Public Company Amendments"). The Public
Company Amendments came into force on November 24, 2009 and are
discussed in a recent edition of
In response to the Public Company Amendments, concerns were
raised about the application of security holder approval
requirements to investment funds. Prior to the Public Company
Amendments, a listed issuer acquiring a public company (i.e. a
reporting issuer or issuer of equivalent status having 50 or more
beneficial security holders, excluding insiders and employees) was
generally exempt from security holder approval requirements. As a
result, investment funds engaged in permitted mergers were also
generally exempt for such requirements.
The Amendments would (a) require security holder approval for an
investment fund that is an acquisition target unless certain
conditions are met, and (b) provide an exemption from security
holder approval for an acquirer investment fund, subject to certain
conditions being met.
Approval by investment fund being acquired
It is proposed that a listed issuer that is an investment fund
must obtain security holder approval for the acquisition, unless
all of the following conditions are satisfied:
(i) the listed issuer has a permitted merger clause in its
constating documents which permits the acquisition of the listed
issuer without security holder approval;
(ii) the consideration offered to security holders of the listed
issuer for the acquisition has a value that is not less than
(iii) the independent review committee of the listed issuer
being acquired has: (A) determined that the investment objectives,
valuation procedures and fee structure of the listed issuer and the
acquiring issuer are substantially the same; and (B) approved the
(iv) the listed issuer is providing its security holders with a
redemption right for cash proceeds which are not less than its NAV,
together with adequate notice and description of such redemption
right and the acquisition.
It has been TSX practice to require investment funds to offer
security holders a redemption right for cash at NAV prior to being
acquired when security holder approval is not sought. The
Amendments would codify this practice.
Exemption for investment funds making acquisitions
It is proposed that listed investment funds intending to make an
acquisition by the issuance of securities exceeding 25% of the
fund's outstanding securities (on a non-diluted basis) be
exempt from the security holder approval requirement if all of the
following conditions are satisfied:
(i) the issuer being acquired is an investment fund that
calculates and publishes its NAV at least once a month;
(ii) the consideration being offered for the acquisition does
not exceed the NAV of the investment fund that is the subject of
the acquisition; and
(iii) the independent review committee of the acquiring listed
issuer has: (A) determined that the investment objectives of the
listed issuer and the issuer being acquired are substantially the
same; and (B) approved the acquisition; and
(iv) the number of securities issued or issuable in payment of
the purchase price for the acquisition does not exceed 100% of the
number of securities of the listed issuer which are outstanding, on
a non-diluted basis.
Rationale and Questions
The TSX notice sets out the rationale for the Amendments and a
number of specific issues on which the TSX wishes to receive
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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