Securities Law & Instruments

Headnote

MI 11-102 -- NP 11-203 -- take-over bid and subsequent business combination -- MI 61-101 requires sending of information circular and holding of meeting in connection with second step business combination -- target's declaration of trust provides that a resolution in writing executed by unitholders holding more than 66 2/3% of the outstanding units is as valid as if such voting rights had been exercised at a meeting of unitholders -- relief granted from requirement that information circular be sent and meeting held in connection with business combination - take-over bid circular contains disclosure required to be included in information circulars distributed in respect of business combinations -- minority approval to be obtained, albeit in writing rather than at a meeting of unitholders.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.

October 26, 2009

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 THE

TAKE-OVER BID FOR

SOMERSET ENTERTAINMENT INCOME FUND

BY FLUID MUSIC CANADA, INC.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, in connection with a take-over bid (the Offer) for all of the issued and outstanding trust units (the Trust Units ) of Somerset Entertainment Income Fund (the Fund) and all of the issued and outstanding Class B limited partnership units of Somerset Entertainment Limited Partnership (the Partnership) together with the special voting units of the Fund associated therewith (collectively, the Class B LP Units and together with the Trust Units, the Units), for a decision pursuant to the securities legislation of the Jurisdiction (the Legislation) that the following requirements of Section 4.2 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions (MI 61-101) be waived:

1. a Compulsory Acquisition or Subsequent Acquisition Transaction (each as defined below), as applicable, be approved at a meeting of the unitholders of the Fund (the Unitholders); and

2. an information circular be sent to the Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable;

(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 Quebec.

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation continued under the Canada Business Corporations Act. The head office of the Filer is located at 7825 Fay Ave., Suite LL-A, La Jolla, California, 92037. The registered office of the Filer is located at 5300 Commerce Court West, 199 Bay Street, Toronto, Canada, M5L 1B9.

2. The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of Ontario on February 8, 2005 by a declaration of trust, which was amended and restated on March 18, 2005 (the Declaration of Trust). The business of the Fund is conducted through Somerset Entertainment Ltd. The registered and head offices of the Fund and Somerset Entertainment Ltd. are located at 20 York Mills Road, Suite 600, Toronto, Ontario, M2P 2C2.

3. The Fund is authorized to issue an unlimited number of Trust Units and an unlimited number of special voting units. The Trust Units are listed and posted for trading on the Toronto Stock Exchange under the symbol SOM.UN. Special voting units may only be issued to holders of Class B LP Units and holders of other exchangeable securities. Special voting units are attached to the Class B LP Units to which they relate and are not transferable separately from such Class B LP Units. As at October 19, 2009, 14,493,300 Trust Units were issued and outstanding and 3,318,231 special voting units were issued and outstanding (17,811,531 Trust Units calculated on a fully-diluted basis).

4. The Partnership is authorized to issue various classes of partnership interests, including an unlimited number of Class A limited partnership units and an unlimited number of Class B LP Units. The Class B LP Units are exchangeable on a one-for-one basis into Trust Units. As at October 19, 2009, 3,318,231 Class B LP Units were issued and outstanding. All of the Class A limited partnership units are held indirectly by the Fund.

5. On October 12, 2009, the Filer and the Fund entered into a support agreement pursuant to which the Filer agreed to make the Offer.

6. On October 12, 2009, the Filer entered into lock-up agreements with certain holders of Trust Units and all of the holders of Class B LP Units pursuant to which such unitholders have agreed to deposit to the Offer approximately 46% of the issued and outstanding Trust Units and 100% of the issued and outstanding Class B LP Units, representing in the aggregate approximately 66% of the issued and outstanding Units (on a fully diluted basis).

7. The outstanding Trust Units are held by CDS Clearing and Depository Services Inc. in book-entry only form and the outstanding Class B LP Units are registered in the name of two unitholders, both of which unitholders have entered into lock-up agreements with the Filer.

8. On October 20, 2009, a take-over bid circular (the Circular) was mailed to holders of Trust Units and Class B LP Units in connection with the Offer. The Offer is set to expire on November 25, 2009.

9. The Circular provides that:

(a) the Offer is for all of the issued and outstanding Trust Units and Class B LP Units, including any Trust Units or Class B LP Units that may become outstanding after the date of the Offer but before the expiry time of the Offer upon the exercise of any rights to acquire Trust Units or Class B LP Units, on the basis of, at the election of the unitholder: (a) $2.12 in cash per Unit; or (b) 0.003 of a $1,000 principal amount of an 8.0% convertible unsecured subordinated debenture due 3 years following the date of first issuance per Unit; or (c) 1.1 common shares of the Filer for each Unit (the Share Alternative) (collectively, the Consideration);

(b) one of the conditions of the Offer is that there shall have been validly deposited under the Offer and not withdrawn at the expiry of the Offer that number of Units (including any Units held at the date of the expiry of the Offer by the Filer) representing at least 66 2/3% of the outstanding Units on a fully-diluted basis;

(c) if the conditions to the Offer are satisfied (or waived by the Filer) and the Filer takes up and pays for Units deposited pursuant to the Offer, the Filer may proceed with a compulsory acquisition of the Trust Units not deposited to the Offer (a Compulsory Acquisition) as permitted by section 13.12 of the Declaration of Trust for the same consideration per Trust Unit as was paid under the Offer, if within the time provided in the Offer for its acceptance or within 45 days after the date the Offer was made, which ever is shorter, the Offer is accepted by Unitholders representing at least 90% of the outstanding Trust Units;

(d) in connection with either a Compulsory Acquisition, if available and if the Filer elects to proceed thereunder, or a Subsequent Acquisition Transaction (as defined below) and if 66 2/3% of the Trust Units (calculated on a fully-diluted basis), are validly deposited under the Offer and not withdrawn at the expiry of the Offer, the Filer currently intends to amend the Declaration of Trust by the Written Resolution (as defined below) to provide that Unitholders who did not deposit their Trust Units under the Offer (the Dissenting Unitholders) will be deemed to have elected to transfer and to have transferred their Trust Units to the Filer immediately on the Filer providing the notice prescribed by the Declaration of Trust notifying Dissenting Unitholders that, among other things, the Filer is entitled to acquire their Trust Units by way of Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable (as opposed to 21 days after sending such notice, as currently provided in the Declaration of Trust), and that Dissenting Unitholders will be required to elect in the letter of transmittal accompanying the Circular the form of Consideration that they wish to receive with respect to Trust Units acquired by way of Compulsory Acquisition or Subsequent Acquisition Transaction by the expiry time of the Offer and if an election is not received by the Filer by such time, such Dissenting Unitholders will be deemed to have elected the Share Alternative in respect of such transferred Trust Units (the Notice Amendment);

(e) if a Compulsory Acquisition as permitted under the Declaration of Trust is not available to the Filer or the Filer elects not to proceed under those provisions, the Filer currently intends to acquire the Trust Units not deposited to the Offer by:

(i) causing the Declaration of Trust to be amended as permitted pursuant to its terms (the Threshold Amendment) to provide for a transaction to acquire all of the Trust Units not tendered to the Offer, which transaction could include (a) the redemption of all of the outstanding Trust Units (other than Trust Units designated by the Filer) at the same consideration per Trust Unit payable under the Offer, (b) amendments to the Declaration of Trust to facilitate the implementation of such a transaction and consequential matters (including amendments to permit or provide for the compulsory acquisition by the Filer of the Trust Units and/or the redemption of the Trust Units, in each case at the same consideration per Trust Unit payable under the Offer) and (c) a meeting and/or written resolutions of Unitholders to approve such a transaction, the amendments to the Declaration of Trust and consequential matters, and which may be effected by way of arrangement, amalgamation, merger, reorganization, consolidation, recapitalization or other transaction involving the Fund, its affiliates and the Filer or an affiliate of the Filer (a Subsequent Acquisition Transaction); and

(ii) proceeding with the Subsequent Acquisition Transaction in respect of the Trust Units not deposited to the Offer as permitted by the Declaration of Trust, as so amended;

(f) in order to effect either a Compulsory Acquisition, if available and if the Filer elects to proceed thereunder, or a Subsequent Acquisition Transaction in accordance with the foregoing, rather than seeking the Unitholders' approval at a special meeting of the Unitholders to be called for such purpose, the Filer intends to rely on section 12.10 of the Declaration of Trust, which specifies that a resolution in writing (the Written Resolution) executed by Unitholders holding more than 66 2/3% of the outstanding Trust Units (calculated on a fully diluted basis) entitled to be voted on such resolution, if such resolution is a special resolution, is as valid and binding as if such resolution had been passed at a meeting of Unitholders duly called for this purposes; which such Written Resolution will approve, among other things, the Threshold Amendment and the Notice Amendment and any Compulsory Acquisition or Subsequent Acquisition Transaction undertaken in accordance therewith, as applicable; and

(g) if the Filer decides not to pursue either the Compulsory Acquisition or the Subsequent Acquisition Transaction in the manner described above, the Filer reserves the right, to the extent permitted by applicable law, to purchase additional Units in the open market or in privately negotiated transactions, in another take-over bid or exchange offer or otherwise, or take no further action to acquire additional Units. Alternatively, the Filer may sell or otherwise dispose of any or all Units acquired pursuant to the Offer.

10. A Compulsory Acquisition or a Subsequent Acquisition Transaction would be a "business combination" under MI 61-101.

11. Notwithstanding section 12.10 of the Declaration of Trust, section 4.2 of MI 61-101 requires, in certain circumstances, that the Compulsory Acquisition or the Subsequent Acquisition Transaction, as applicable, be approved at a meeting of Unitholders called for that purpose.

12. To effect either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable, the Filer will obtain minority approval, as that term is defined in MI 61-101, in accordance with the terms of Part 8 of MI 61-101 (Minority Approval), albeit not at a meeting of Unitholders, but by Written Resolution.

13. The Circular provided to Unitholders in connection with the Offer contains all disclosure required by applicable securities laws, including without limitation, the disclosure required under the take-over bid provisions and form requirements of applicable securities legislation and the provisions of MI 61-101 relating to the disclosure required to be included in information circulars distributed in respect of business combinations.

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 Minority Approval shall have been obtained by Written Resolution.

"Naizam Kanji"
Deputy Director, Mergers & Acquisitions
Ontario Securities Commission