C.T.C. Dealer Holdings Limited (Re), 2013 CanLII 30169

Headnote National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions – Application for relief from prospectus requirement in respect of deemed distributions on resale, and acts in furtherance of such deemed distributions, of beneficial ownership interests in common shares of the Filer held by present or former dealers, each of whom pursuant to a joint venture arrangement with a publicly traded national retailer directly or indirectly owns and manages, or has owned and managed, the retail operations of the retailer’s store including ownership of store inventories and fixtures and including employment of store staff – Filer has no active business and its sole activity consists of the ownership of publicly traded securities of the retailer and matters ancillary thereto – Relief granted subject to conditions Applicable Legislative Provisions Securities Act, R.S.O. 1990, c.S.5, as am., ss. 53 and 74(1) National Instrument 45-102 Resale of Securities National Instrument 45-106 Prospectus and Registration Exemptions

May 28, 2013

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 C.T.C. DEALER HOLDINGS LIMITED (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation (the Legislation) of the Jurisdiction for relief from the prospectus requirements in the Legislation in connection with any of the following distributions or trades arising as part of an Annual Share Changeover (as defined below) after the date of this Decision:

(a) the deemed distribution on resale of beneficial ownership interests in common shares of the Filer by CTC Dealers to other CTC Dealers in accordance with the Member Agreement; and

(b) the acts in furtherance of distributions (as described below) made by the Filer to arrange for and facilitate deemed distributions on resale by CTC Dealers to other CTC Dealers in accordance with the Member Agreement

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the OSC) 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 each province and territory of Canada other than Ontario (collectively 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

The Decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a holding company with its registered and head office in Toronto, Ontario. The common shares of the Filer are beneficially owned by approximately 515 present or former dealers (each a CTC Dealer), each of whom pursuant to a joint venture arrangement with Canadian Tire Corporation, Limited (CTC) directly or indirectly owns and manages, or has owned and managed, the retail operations of a CTC store including ownership of store inventories and fixtures and including employment of store staff.

2. The Filer was incorporated by letters patent as a private company in Ontario on June 26, 1963. Supplementary letters patent were filed on June 27, 1963 deleting the private company restrictions in the Filer’s letters patent such that it is not, and has not been since that time, a “private company” or “private issuer” within the meaning of the Legislation.

3. The Filer was established in 1963 by the CTC Dealers working with one of the controlling shareholders and founders of CTC, A.J. Billes, to ensure, among other things, that CTC Dealers could acquire a significant equity position in CTC through the acquisition of voting shares, thereby aligning the interests of CTC Dealers with the interests of CTC and its controlling shareholder.

4. The purpose of the Filer is, and has been since incorporation, to purchase and hold common shares and Class A non-voting shares of CTC (collectively, the CTC Shares) and to give CTC Dealers an opportunity through CTC board representation to assist and/or participate in the development and implementation of the strategy, policies and business practices and the selection by CTC of its senior officers.

5. Currently, the Filer owns 700,384 CTC common shares and 812,400 CTC Class A non-voting shares, representing 20.5% and approximately 1%, respectively, of the outstanding shares of each class. As at June 30, 2012, the market value of the Filer’s investment in CTC Shares was approximately $110 million. The Filer also has some cash balances (including deposit receipts or certificates and other amounts on deposit at banks). The Filer does not have any material liabilities. The Filer has never owned any assets other than CTC Shares and cash balances.

6. The CTC Shares are listed on the Toronto Stock Exchange (the TSX). CTC is a reporting issuer in all of the Jurisdictions.

7. The Filer periodically purchases CTC Shares of both classes on the TSX and has in the past sold Class A non-voting shares of CTC.

8. The Filer does not have any active business. It has no offices, employees or telephone number and does not receive any fees or other income other than interest income on its cash balances and dividend income from its CTC Shares. Its sole activity consists of the ownership of the CTC Shares and matters ancillary thereto such as receiving dividends thereon and exercising rights under the CTC Shareholders’ Agreement (as defined below). Any dividends earned by the Filer on its CTC Shares are typically used to fund the Filer’s operating expenses and to buy additional CTC Shares.

9. In 1986 and 1987, the Filer made a take-over bid (the Bid) to acquire control of CTC, which Bid was cease-traded by the OSC.

10. In settlement of certain claims resulting from the unsuccessful Bid, the Filer and the Billes family entered into a shareholders’ agreement (the CTC Shareholders’ Agreement).

11. Subsequent thereto, Martha Billes bought out the other members of the Billes family and is now the controlling shareholder of CTC owning 61.4% of the outstanding CTC common shares. Ms Billes remains a party to the CTC Shareholders’ Agreement.

12. The Filer is entitled pursuant to the CTC Shareholders’ Agreement to have three of its nominees elected to the CTC board (i.e., a maximum of two of the representatives are CTC Dealers and at least one must be a non-CTC Dealer) and to exercise a right of first refusal on the CTC common shares directly or indirectly owned or controlled by Ms Billes.

13. As a result of its board representation on CTC, the Filer through its nominees on the CTC board has influence on the CTC board. This gives the Filer through such nominees a direct channel of communication to the most senior level of CTC, including having the opportunity to assist in the development of CTC’s strategy, policies and business practices, and the selection by CTC of its senior officers. The Filer believes that this influence and role are extremely important to the ongoing relationship between the CTC Dealers and CTC, and contributes to the overall performance of CTC and its success. The Filer and its officers and directors do not in the ordinary course have material access to the CTC board, CTC management or Ms Billes except through the Filer’s nominees on the CTC board.

Ownership Structure of the Filer

14. The Filer is authorized to issue an unlimited number of common shares, which can only be held by CTC Dealers. The Filer currently has 1,184,800 common shares issued and outstanding.

15. The only registered shareholder of the Filer is C.T.C. Dealer Subco Inc. (Dealer Subco), a wholly owned subsidiary of the Filer.

16. Dealer Subco holds all of the issued and outstanding common shares of the Filer in trust on behalf of the CTC Dealers in accordance with the terms of a member agreement and related documents (collectively, the Member Agreement). Dealer Subco maintains a book entry register to record each CTC Dealer’s interest in the common shares of the Filer.

17. Dealer Subco holds the common shares of the Filer as “bare trustee” for the CTC Dealers. Each CTC Dealer has full beneficial ownership of the common shares of the Filer held by Dealer Subco in trust for that CTC Dealer, including a right to vote such common shares and a right to receive dividends, if any, declared with respect to such common shares. The Filer has not declared dividends in many years.

18. The acquisition and disposition of the common shares of the Filer are governed by the Member Agreement.

19. The Member Agreement applies to each CTC Dealer that currently owns, and will apply to each CTC Dealer that in the future decides to buy, common shares of the Filer.

20. Only a CTC Dealer (acting directly or indirectly) can become an owner of the common shares of the Filer pursuant to the Member Agreement.

21. No CTC Dealer is allowed to own more than 1% of the common shares of the Filer.

22. Based on current market values for the CTC Shares, the value of the average investment by a CTC Dealer in common shares of the Filer (which investment is accumulated over a period of time) is approximately $225,000.

23. Each CTC Dealer annually receives an account summary (an Annual Account Summary) from the Filer showing any share transactions involving such CTC Dealer, as well as how many common shares of the Filer are held directly or indirectly by such CTC Dealer.

24. The Filer provides or makes available to each CTC Dealer an annual report (the Annual Report) containing audited comparative annual financial statements together with notes on the financial statements including “Financial Review and Analysis” and “Dealer’s Return on Investment” and an annual supplemental corporate information form containing information concerning the Filer. As well, the Filer provides or makes available to each CTC Dealer at the time of the Annual Share Changeover referred to in paragraph 25 below an unaudited year-to-date financial statement and an interim supplemental corporate information form.

The Annual Share Changeover

25. When a CTC Dealer retires, the retiring CTC Dealer must, within a specified time period, sell his or her common shares of the Filer at an annual share changeover, which normally takes place at the end of June in each year (the Annual Share Changeover).

26. A CTC Dealer may also sell common shares of the Filer during the Annual Share Changeover if, based on a formula calculation, such CTC Dealer has an excessive number of common shares of the Filer. There are no additional situations where a CTC Dealer has the right to sell his or her common shares of the Filer.

27. A CTC Dealer who wishes to sell common shares of the Filer will so notify the Filer. The Filer ascertains which CTC Dealers are entitled to acquire common shares of the Filer based on a formula calculation.

28. The Filer facilitates the Annual Share Changeover by allocating shares in the manner described below in accordance with the Member Agreement. The Filer does not receive any compensation for facilitating the Annual Share Changeover.

29. A retiring CTC Dealer’s common shares of the Filer that the retiring CTC Dealer sells at the Annual Share Changeover are offered to the other CTC Dealers based on a formula calculation, as are the shares offered for sale by any CTC Dealer who has an excessive number of common shares of the Filer based on a formula calculation. The transfer price of the Filer’s common shares during the Annual Share Changeover is a calculated price based primarily upon the market value of the CTC Shares held by the Filer.

30. Typically, the demand from CTC Dealers to purchase common shares of the Filer exceeds the shares available to be purchased such that the Filer allocates those common shares that can be acquired among the interested CTC Dealers who are eligible to and who wish to purchase same based on a pro rata formula calculation.

31. The Annual Share Changeover does not change the number of common shares of the Filer that are issued and outstanding.

32. With one exception, there have been no trades of common shares of the Filer over the last 20 years except during the Annual Share Changeover.

Reasons for CTC Dealers to invest in the Filer

33. The Filer ensures that each person, upon becoming a CTC Dealer, will have the opportunity to own shares of the Filer based on a formula calculation. Generally, a person who becomes a CTC Dealer remains in that role for 25 to 30 years and continues to own common shares of the Filer throughout.

34. The ownership of common shares of the Filer by a CTC Dealer is voluntary. All CTC Dealers as at the time of the 2011 Annual Share Changeover, with one exception, have elected to own common shares of the Filer due to the integral relationship between CTC and the CTC Dealers, and there are CTC Dealers who would like to acquire more shares when such shares become available. The one exception is Owen Billes, a dealer and the son of Ms Martha Billes, CTC’s controlling shareholder. Ms Billes has used her voting rights to cause Mr. Billes to be elected to the CTC board.

35. The Filer believes that the relationship between CTC and the Filer is unique and is highly valued by the CTC Dealers and transcends mere investment considerations. Unlike the situation of other franchises, the principal value to the shareholders of CTC Dealers of their investment in the Filer includes the following:

(a) to enable the Filer to represent to CTC that the Filer speaks for all CTC Dealers and therefore speaks with authority when in discussions with CTC;

(b) to have the opportunity to interact with the most senior officers of CTC through the Filer’s three CTC board nominees;

(c) to have influence over CTC hiring decisions as regards senior officers through the Filer’s three CTC board nominees;

(d) to have influence in CTC decisions and how it operates through the Filer’s three CTC board nominees;

(e) to be able to meet with, and to be viewed by, Ms Billes as business partners; and

(f) to have influence over how the Filer utilizes its right of first refusal on the shares owned or controlled by Ms Billes.

36. Nevertheless, the Filer acknowledges that CTC Dealers are making an investment decision when deciding whether to invest in common shares of the Filer since:

(a) based on current market values for the CTC Shares, the value of the average investment by a CTC Dealer in common shares of the Filer is approximately $225,000;

(b) an investment by CTC Dealers in the Filer is voluntary;

(c) CTC Dealers are able to invest in the Filer up to a limit based on a formula calculation;

(d) the price at which the Filer’s common shares are offered to CTC Dealers is a formula price based on the underlying market value of a common share of the Filer which is based on its holdings of CTC Shares and various other assets or liabilities of the Filer;

(e) CTC Dealers acquire the shares and hold them for the duration of their tenure, and may enjoy capital appreciation of the shares upon retirement; and

(f) the Filer provides disclosure about the financial condition and investment performance of the Filer and its investment in CTC Shares over the past year in each Annual Report of the Filer. The notes on the financial statements include “Financial Review and Analysis” and “Dealer’s Return on Investment”.

37. The Filer acknowledges that acquiring common shares of the Filer is not as attractive an investment decision as compared to acquiring CTC Shares directly for the following reasons:

(a) unlike direct ownership of CTC Shares, the shares of the Filer have only limited liquidity and are not easily valued due to that illiquidity;

(b) unlike direct ownership of CTC Shares, shareholders of the Filer do not have possession of the certificates representing the Filer's common shares, and such shareholders have only limited ability to borrow against such shares;

(c) unlike direct ownership of CTC Shares, the shares of the Filer have not historically paid dividends. Although the Filer receives dividends on its CTC Shares, the Filer, not an individual CTC Dealer, determines how to spend the dividend proceeds; and

(d) unlike direct ownership of CTC Shares, the CTC Shares that are held by the Filer do not give an individual CTC Dealer any voting or dissent rights in relation to such shares

(the Additional Risk Considerations).

38. In addition, CTC Dealers may finance their investments through bank financing or other means. There may be additional risks associated with an investment based on leverage (Risks Associated with Leverage). The Filer has not provided or arranged for financing to CTC Dealers to facilitate their investment in the last 10 years.

39. The Filer has not historically provided disclosure to CTC Dealers about the Additional Risk Considerations or Risks Associated with Leverage prior to a CTC Dealer making an investment decision. If the requested relief is granted, the Filer will provide CTC Dealers with a summary document that includes these risks and that contains prospectus-level risk factor disclosure prior to a CTC Dealer making an investment decision.

Compliance Issues

(a) the prospectus requirement

40. The Filer has previously distributed (beneficial interests in) common shares of the Filer to CTC Dealers in the Jurisdictions.

41. The only previous issuances of (beneficial interests in) common shares of the Filer by the Filer to CTC Dealers have been as follows:

(a) the issuance of common shares of the Filer to CTC Dealers at the time of the Filer’s incorporation in 1963;

(b) the issuance of 700,000 common shares of the Filer for proceeds of approximately $31.5 million in 1988 to finance the Bid for control of CTC and the ultimate settlement with the Billes;

(c) the issuance of common shares of the Filer to CTC Dealers pursuant to a stock dividend in 1991; and

(d) the issuance of common shares of the Filer to CTC Dealers on three occasions in connection with a subdivision of stock.

42. The Filer was professionally advised by reputable law firms at the time of the share issuances referred to in paragraph 41 and believes that such share issuances were in conformity with the Legislation.

43. The procedures relevant to the Annual Share Changeover are based upon the Member Agreement and that agreement together with such procedures were developed by the Filer over many years and with the benefit of professional advice from a reputable law firm.

44. To the extent that such distributions of securities were validly made to CTC Dealers in compliance with the Legislation, the resale of such securities would generally have been a distribution under the Legislation and subject to resale restrictions.

45. When the Member Agreement was originally entered into in 1984, and the Filer was receiving legal advice as set forth in paragraph 43, the Filer believed that each such resale distribution would have been in conformity with the Legislation. Although the Legislation changed subsequent to the time the Member Agreement was originally entered into (December 31, 1984), the Filer was not aware of such changes or their potential impact on the Annual Share Changeover. Thus, it did not change the procedures that it had historically followed in connection with the Annual Share Changeover in any material respect.

46. Accordingly, the Filer acknowledges that some CTC Dealers may not have been qualified during the Annual Share Changeover to purchase securities under a prospectus exemption whether based on the “$150,000 private placement exemption”, the former “accredited investor” exemption under OSC Rule 45-501 Exempt Distributions (available since November 2001), or the “accredited investor” exemption in National Instrument 45-106 Prospectus and Registration Exemptions (available since September 2005). The Filer further acknowledges that, to the extent such distributions (including deemed distributions on resale) of securities were made to CTC Dealers without an available exemption, such distributions were made in contravention of the prospectus requirement of the Legislation.

47. The Filer acknowledges that, to the extent deemed distributions on resale of securities were made in contravention of the prospectus requirement of the Legislation, the Filer has done acts in furtherance of such trades, including the following (collectively the Filer’s acts in furtherance of distributions):

(a) identifying which CTC Dealers are entitled to acquire common shares of the Filer based on a formula calculation;

(b) allocating shares among CTC Dealers in accordance with the Member Agreement;

(c) calculating the transfer price of the Filer’s common shares during the Annual Share Changeover based upon the market value of the Filer’s CTC Shares plus (minus) the amount of the fair market value of all other net assets (liabilities);

(d) preparing disclosure about the financial condition and investment performance of the Filer and its investment in CTC Shares over the past year in each Annual Report; and

(e) preparing and issuing account statements to evidence a deemed distribution on resale.

48. The Filer acknowledges that, to the extent deemed distributions on resale of securities were made in contravention of the prospectus requirement of the Legislation, the Filer’s acts in furtherance of distributions were in contravention of the prospectus requirement of the Legislation.

49. In 2005, the Filer identified that such procedures might not be in conformity with applicable securities laws. Accordingly, in 2005 it made voluntary disclosure to its principal regulator regarding its situation and also sought appropriate discretionary relief in order to permit it to continue with the Annual Share Changeover. Although correspondence and other communications with the principal regulator ensued in 2005 and 2006, through inadvertence the application of the Filer for discretionary relief did not proceed and the Filer did not realize the need to obtain formal relief. In 2012 as a result of obtaining further legal advice, the Filer realized that it needed to obtain formal relief and therefore brought an application in order to seek the within Decision.

50. The Filer believes that currently a substantial majority of the CTC Dealers are “accredited investors”. The Filer has not ascertained how many CTC Dealers are accredited investors. The Filer would be in a position to make such inquiries when shares of the Filer are being traded. The vast majority of the CTC Dealers will not be trading their shares of the Filer in the immediate future.

51. In connection with the 2012 Annual Share Changeover, the Filer enquired of proposed purchasers whether they were “accredited investors” and, if so, on what basis they claimed that status. Only “accredited investors” were allowed to purchase shares of the Filer pursuant to the 2012 Annual Share Changeover. Other proposed purchasers did not participate in the 2012 Annual Share Changeover.

(b) the dealer registration requirement

52. The Filer acknowledges that the Filer has engaged in trades, including the Filer’s acts in furtherance of distributions, and may not have had the benefit of a registration exemption for some or all of these trades prior to the introduction of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) in September 2009.

53. The Filer has considered whether, under NI 31-103 and the Legislation, it could be considered to be engaged in or holding itself out as engaging in the business of trading in securities and therefore required to register as a dealer, rely on another exemption from the dealer registration requirement or seek exemptive relief from the dealer registration requirement. In light of the particular facts and circumstances of the Filer, including the fact that it has no offices or employees, does not receive any fees or other income from engaging in trades or acts in furtherance of distributions, and its activities do not have the attributes typical of a person or company carrying on the business of a dealer, and having considered the guidance in section 1.3 of the Companion Policy to NI 31-103, the Filer has concluded that it should not be considered to be engaged in registrable activities and therefore does not require relief from the registration requirement of the Legislation.

(c) the insider reporting requirement

54. The Filer acknowledges that:

(a) the Filer is an insider of CTC under the Legislation;

(b) directors and officers of the Filer are insiders of CTC under the Legislation;

(c) the Filer is a “significant shareholder” of CTC and therefore a “reporting insider” of CTC under those definitions in National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104), which came into force in April 2010;

(d) the only officers of the Filer are its President, its Vice-President and its Secretary-Treasurer and one or more of them may be considered to be reporting insiders of CTC under NI 55-104;

(e) securities of the Filer derive all or substantially all of their value from the Filer’s holdings of the CTC Shares and therefore may be considered:

(i) instruments covered by Part 2 of former MI 55-103 Insider Reporting of Certain Derivative Transactions (Equity Monetization)(MI 55-103) (in force from March 2004 to April 2010 but of which the Filer was unaware); and

(ii) since April 2010, “related financial instruments” under NI 55-104;

(f) the Filer and officers and directors of the Filer have filed all required insider reports on the System for Electronic Disclosure by Insiders in connection with their holdings of and transactions in securities of CTC;

(g) previous and current officers and directors of the Filer have not filed any insider reports in connection with their holdings of and transactions in securities of the Filer;

(h) the Filer believes that, since April 2010, the officers and directors of the Filer have been entitled to rely on the exemption in section 9.3 of NI 55-104 on the basis that they do not “in the ordinary course receive or have access to” material undisclosed information about CTC prior to general disclosure; and

(i) similarly, the directors of CTC who are CTC Dealers and who have been appointed by the Filer to the CTC board have not, so far as the Filer is aware, filed any insider reports in connection with their holdings of and transactions in securities of the Filer;

55. Staff of the Canadian Securities Administrators have noted that circumstances may arise whereby the Filer and its officers and directors are not entitled to rely on section 9.3 of NI 55-104 for the following reasons:

(a) the Filer is a party to the CTC Shareholders’ Agreement and Ms Billes might consult with the Filer on, and thereby impart knowledge of, significant decisions and proposed decisions at the controlling shareholder level, including decisions relating to changes in the capital or ownership structure of CTC, and the potential exercise by the Filer in the future of its right of first refusal to acquire CTC Shares from Ms Billes;

(b) the Filer’s nominees on the CTC board could from time to time consult with the Filer, and thereby impart knowledge of, material undisclosed information about CTC prior to general disclosure; and

(c) in connection with CTC Dealer participation in CTC/CTC Dealer committees, CTC could impart to CTC Dealers who are directors and officers of the Filer knowledge of material undisclosed information about CTC prior to general disclosure.

56. Although the Filer believes that, since April 2010, the officers and directors of the Filer have been entitled to rely on the exemption in section 9.3 of NI 55-104, in light of the relationship between the Filer and CTC, the officers and directors of the Filer have agreed to file insider reports disclosing their existing holdings of and future transactions in securities of CTC and related financial instruments of securities of CTC without regard to the exemption in section 9.3 of NI 55-104.

57. The Filer acknowledges that its former and current directors and officers may have been in default of their insider reporting requirements as a result of the failure to file insider reports in respect of their holdings of securities of the Filer under former MI 55-103 and, if it is determined that the exemption in section 9.3 of NI 55-104 was not available at any time under NI 55-104.

58. While the Filer was not aware of former MI 55-103, it takes insider trading issues seriously. For example, the Filer has established an insider trading policy (the Insider Trading Policy) that is modelled after that of CTC. The Insider Trading Policy prohibits the Filer’s directors, during a CTC blackout period (as defined in the Insider Trading Policy) or at any other time when the Filer’s directors may be in possession of material undisclosed information about CTC from:

(a) any purchase or sale of a security of CTC; or

(b) any acquisition or disposition of an interest in, or right or obligation associated with, a related financial instrument (including an interest in common shares of the Filer).

Governance structure of the Filer

59. The Filer is managed by a board of nine directors, five of whom are elected on a regional basis and four of whom are elected on a national basis. Each director is elected for a three-year term with three director positions eligible for election annually. Directors may only serve for two consecutive terms but may run for re-election after having been off the board for one year. Pursuant to the Filer’s Compliance & Governance Policy, a nomination committee of directors of the Filer is established annually to recommend nominees for election to the Filer’s board.

60. No director of the Filer receives any remuneration for his or her services, but directors are reimbursed for any out-of-pocket expenses.

61. The Filer has no staff and all services are provided by subcontract. The Filer’s directors have established a compliance and governance committee, an audit committee and a nominating committee for the three CTC directors the Filer is entitled to nominate. The Filer’s compliance and governance committee, audit committee and nominating committee meet on a regular basis, as required, and carry out appropriate duties for that committee.

62. The Filer is not currently contemplating any further issuance of shares from its treasury. The Filer may at some point in the future wish to issue additional shares to CTC Dealers (likely based on a formula calculation). If that were to occur, it would likely only occur if the Filer is presented with an opportunity to buy additional shares of CTC in circumstances where it needs to raise more capital for that purpose. The Filer is not contemplating nor has it been in discussions with CTC and/or any shareholders of CTC in connection with any proposed transfer of CTC Shares, any reorganization of CTC’s capital structure or any other transaction.

63. Other than the past compliance issues set out in representations 40 through 58, the Filer is not in default of any requirements under the Legislation.

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:

(a) the Filer is not a reporting issuer in any of the Jurisdictions;

(b) securities of the Filer are not traded on a marketplace as defined in National Instrument 21-101 Marketplace Operation;

(c) the Filer has no active business and its sole activity consists of the ownership of the CTC Shares and matters ancillary thereto;

(d) CTC is and remains a reporting issuer in at least one of the Jurisdictions and is not noted in default of its obligations under the Legislation in any Jurisdiction;

(e) the Filer provides each CTC Dealer that is a current member of the Filer with a copy of this Decision within 30 business days of the date of this Decision;

(f) before a CTC Dealer acquires common shares of the Filer, the Filer gives the CTC Dealer:

(i) a copy of the Member Agreement if the CTC Dealer has not already been provided with a copy of such document;

(ii) a copy of a summary document (that will be an offering memorandum pursuant to section 130.1 of the Securities Act (Ontario) (the Act) or the corresponding provisions in the Legislation of a Jurisdiction other than Ontario) that contains:

(A) prospectus-level disclosure about the Additional Risk Considerations and Risks Associated with Leverage;

(B) a description of the CTC Dealer’s statutory rights under section 130.1 of the Act or the corresponding provisions in the Legislation of a Jurisdiction other than Ontario; and

(C) the Filer’s most recent audited financial statements;

(iii) a copy of this Decision, if not already provided; and

(iv) a statement to the effect that as a consequence of this Decision, certain protections, rights and remedies provided by the Legislation, including statutory rights of rescission or damages will not be available to the CTC Dealer and that certain restrictions are imposed on the subsequent disposition of the common shares of the Filer;

(g) each Annual Account Summary shall as soon as practicable, and each new Annual Account Summary shall, bear a legend stating that the right to transfer the shares described in such Annual Account Summary are subject to the restrictions contained in the Member Agreement and restrictions under the Legislation;

(h) the exemptions contained in this Decision shall cease to be effective if the Member Agreement is amended in any material respect relevant to the Exemption Sought without prior written notice to, and consent by, the OSC;

(i) the Filer prepares and sends audited financial statements to each of its beneficial shareholders on an annual basis within 140 days of the Filer’s financial year end;

(j) the Filer conducts annual meetings in accordance with applicable corporate law; and

(k) the first trade in any security acquired in reliance on an exemption contained in this Decision, including the first trade by a CTC Dealer in a security of the Filer acquired in reliance on this Decision, is deemed to be a distribution.

“Christopher Portner” “Wes M. Scott”

Commissioner Commissioner

Ontario Securities Commission Ontario Securities Commission