Headnote National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – approval granted for indirect change of control of mutual fund manager under s. 5.5(2) of NI 81-102 – indirect change in control of the manager will not result in any change in how the manager operates or acts in relation to the mutual funds.
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds – s. 5.5(2).
December 8, 2011
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATION IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF GALILEO FUNDS INC. (the Manager)
Background
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Manager for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval pursuant to subsection 5.5(2) of National Instrument 81-102 Mutual Funds (NI 81-102) of an indirect change of control of the Manager (the Approval 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 Manager 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 Alberta, British Columbia, Manitoba, Newfoundland and Labrador, New Brunswick, Nova Scotia, Prince Edward Island, Québec, Saskatchewan, Northwest Territories, Yukon and Nunavut (together with Ontario, the Jurisdictions).
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
Representations
This decision is based on the following facts represented by the Manager:
The Manager and the Funds
The Manager is a corporation incorporated under the laws of the Province of Ontario and is registered in Ontario in the category of investment fund manager. The Manager’s head office is located in Ontario. The Manager is not in default of securities legislation in any Jurisdiction.
The Manager is the investment fund manager of Galileo High Income Plus Fund and Galileo Global Opportunities Fund (collectively, the Funds).
The Manager is a wholly-owned subsidiary of Galileo Global Equity Advisors Inc. (GGEA), a corporation incorporated under the laws of the Province of Ontario.
GGEA is registered: (a) in Ontario, as an exempt market dealer and portfolio manager; (b) in Alberta, as a portfolio manager; (c) in Manitoba, as a portfolio manager; (d) in British Columbia, as a portfolio manager, (e) in Nova Scotia, as a portfolio manager and (f) in Québec, as a portfolio manager and an exempt market dealer.
Investment advice and portfolio management services to the Funds are provided by GGEA.
The Funds are reporting issuers in the Jurisdictions and are not in default of any of the securities law requirements of those Jurisdictions. The securities of the Funds are qualified for distribution in the Jurisdictions by a simplified prospectus and annual information form.
The Funds are marketed and distributed through registered dealers.
The Proposed Acquisition
- On October 18, 2011, Michael Waring, the controlling shareholder of GGEA, entered into an agreement with Michael Wekerle, Stephen Craig, Joseph MacDonald and Paul Sparkes (collectively, the Purchasers) pursuant to which Michael Waring has agreed to sell approximately 75% of the issued and outstanding common shares of GGEA to the Purchasers (the Transaction). Michael Waring currently holds 6,874,886,928 Class A common shares in the capital of GGEA, representing approximately 99.9999985% of the total issued and outstanding common shares of GGEA. Following the completion of the Transaction, the issued and outstanding common shares of GGEA will be owned as follows:
| Name of Shareholder | Number of Class A Common Shares | % of Total |
|---|---|---|
| Michael Waring | 1,718,721,732 | 24.9999996% |
| Joseph MacDonald | 1,718,721,732 | 24.9999996% |
| Michael Wekerle | 1,718,721,732 | 24.9999996% |
| Stephen Craig | 1,374,977,386 | 19.9999997% |
| Paul Sparkes | 343,744,346 | 4.9999999% |
| Other shareholders | 100 | 0.0000015% |
| Totals | 6,874,887,028 | 100% |
- The completion of the Transaction is subject to the satisfaction of closing conditions, including regulatory approvals, and is expected to close prior to December 31, 2011 following receipt of the regulatory approvals and the expiration of the notice period provided for in section 5.8(1)(a) of NI 81-102.
Proposed Change of Control
The Transaction will result in an indirect change of control of the Manager.
The current directors of GGEA and the Manager are Michael Waring, Joseph MacDonald and Evelyn Foo. Following the closing of the Transaction, Michael Wekerle, Stephen Craig and Paul Sparkes will also join the board of directors of GGEA and the Manager.
The Purchasers are experienced executives. By adding the Purchasers as shareholders and directors of both GGEA and the Manager, the Transaction is intended to enhance GGEA’s reputation as a leading provider of specialized asset management in Canada, and to assist in growing GGEA’s assets under management.
A press release describing the Transaction was issued by the Manager on October 18, 2011 and filed under SEDAR Project No. 01812994.
Securityholder notice regarding the change of control was posted on SEDAR under SEDAR Project No. 01815014 and was sent to securityholders of the Funds on October 25, 2011, pursuant to section 5.8(1)(a) of NI 81-102.
In respect of the impact of the proposed change of control on the Manager and the management and administration of the Funds:
(a) The indirect change of control of the Manager will have no negative consequences on the ability of the Manager to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Funds.
(b) Following the Transaction, while Michael Waring will no longer own a controlling indirect interest in the Manager, and the shares of the Manager will be indirectly owned by several shareholders none of whom owns more than 25% of the outstanding shares, the Transaction will not result in any change in how the Manager operates or acts in relation to the Funds. The Transaction will not have a negative impact on the Funds or their securityholders.
(c) There are no current plans to change the Funds’ portfolio manager or the individual portfolio managers of GGEA who are responsible for managing the investment portfolios of the Funds within a foreseeable period of time following the closing of the Transaction.
(d) Following the Transaction, while there will be changes to the board of directors and the officers of GGEA and the Manager, the individuals chiefly responsible for the management and administration of the Funds, namely, Michael Waring (President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer), Evelyn Foo (Chief Financial Officer and Secretary) and Joseph MacDonald (Chief Operating Officer), will continue in their current capacities. All directors and officers of the Manager following closing of the Transaction will continue to have the requisite integrity and experience to fulfil their roles.
(e) Although the current members of the Funds’ independent review committee (IRC) will automatically cease to be members of the IRC by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review