Paragraph 1(11)(b) and Subsection 74(1) -- Application for relief: (i) that an issuer be designated a reporting issuer immediately upon completion of the designation of the issuer as successor to the obligations of an affiliated entity under certain debt securities guaranteed by a parent credit supporter of both the predecessor and the issuer; and (ii) from the prospectus requirement in respect of the distribution of such guaranteed debt securities in respect of such designation (which includes the cancellation of predecessor's existing debt securities and the issuance of new debt securities by the issuer) -- relief subject to conditions, including: (i) the designation is completed in compliance with all requirements under the indentures governing the debt securities and applicable law; (ii) the parent credit supporter has provided full and unconditional credit support for the debt securities; (iii) the parent credit supporter is beneficial owner of all issued and outstanding equity securities of the issuer; (iv) the issuer files a press release announcing certain facts regarding the designation; and (v) the indentures and any indentures supplemental thereto are filed by the issuer on SEDAR.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(11)(b), 53, 74(1).
National Instrument 45-106 Prospectus and Registration Exemptions , s. 2.42.
March 26, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
MANULIFE FINANCIAL CORPORATION (MFC),
THE MANUFACTURERS INVESTMENT
CORPORATION (MIC) AND
MANULIFE FINANCE HOLDINGS LIMITED (MFHL)
(collectively, the Filers)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief:
1. pursuant to section 1(11)(b) of the Legislation, such that MFHL be designated a reporting issuer immediately upon completion of the MFHL Assumption (as defined below) (the Reporting Issuer Designation); and
2. pursuant to section 74(1) of the Legislation, from the requirement in section 53 of the Legislation that MFHL file and obtain a receipt for a preliminary prospectus and a prospectus (the Prospectus Exemption, and with the Reporting Issuer Designation, the Requested Relief) in respect of the distribution of the MFHL Notes (as defined below) in respect of the MFHL Assumption.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator (the Principal Regulator) for this application; and
(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (and together with the Jurisdiction, the Jurisdictions) with respect to all of the Requested Relief except for the Reporting Issuer Designation, which is only sought in the Jurisdiction.
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. The head offices of MFC and MFHL are located in Toronto, Ontario and the registered office of MIC is located in Bloomfield Hills, Michigan. The Principal Regulator was the principal regulator in respect of a previous exemptive relief application made by MFC, MIC and John Hancock Financial Services, Inc. (JHFS) for which a mutual reliance review system decision document was issued on September 26, 2008 (the September 2008 Decision Document).
2. MFC was incorporated under the Insurance Companies Act (Canada) on April 26, 1999. On September 23, 1999, in connection with the demutualization of The Manufacturers Life Insurance Company (MLI), MFC became the sole shareholder of MLI and certain holders of participating life insurance policies of MLI became shareholders of MFC. On September 24, 1999, MFC filed a final prospectus in connection with an initial treasury and secondary offering conducted in Canada and the United States. On April 28, 2004, MFC completed a merger with JHFS and as a result MFC became the beneficial owner of all of the issued and outstanding shares of JHFS common stock. MFC is a publicly traded company on the Toronto Stock Exchange, the New York Stock Exchange (the NYSE), the Stock Exchange of Hong Kong Limited and the Philippine Stock Exchange. MFC is a reporting issuer in each of the Jurisdictions and is not, to its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the Jurisdictions.
3. JHFS was incorporated under the Delaware General Corporation Law on August 26, 1999 to become the holding company for John Hancock Mutual Life Insurance Company. Effective February 1, 2000, John Hancock Mutual Life Insurance Company adopted a plan of reorganization and converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of JHFS. Also, on February 1, 2000, JHFS completed an initial public offering of its common stock in the United States. JHFS was a publicly traded company listed on the NYSE until the completion of the merger with MFC, when MFC became the beneficial owner of all of the outstanding shares of common stock of JHFS and JHFS common stock ceased to be listed on the NYSE.
4. In connection with the reorganization by MFC of certain of its U.S. subsidiaries described in the September 2008 Decision Document, effective November 26, 2008 John Hancock Canadian Corporation (JHCC) was wound up into JHFS (the JHCC Wind-Up). Pursuant to the JHCC Wind-Up, all of JHCC's assets were conveyed to JHFS and all of JHCC's liabilities were assumed by and became liabilities of JHFS.
5. JHFS was the obligor under two tranches of notes: $220 million of 6.822% non-convertible senior unsecured notes payable May 31, 2011 (the 6.822% Notes) and $175 million of 6.646% non-convertible senior unsecured notes payable November 30, 2011 (the 6.646% Notes, and with the 6.822% Notes, the JHFS Notes).
6. The 6.822% Notes were issued under the terms of an amended and restated trust indenture (the 6.822% Indenture) dated April 26, 2001, as amended and restated on October 16, 2001, between JHFS (as successor to JHCC) and Computershare Trust Company of Canada (the Trustee). The 6.646% Notes were issued under the terms of a trust indenture (the 6.646% Indenture and together with the 6.822% Indenture, the Indentures) dated October 16, 2001 between JHFS (as successor to JHCC) and the Trustee. Each of the Indentures was further amended on November 26, 2008 to evidence the JHCC Wind-Up and on December 31, 2009 as described below.
7. MFC, as the indirect parent company of JHFS, provided full and unconditional guarantees of the payments to be made by JHFS under the JHFS Notes (the MFC-JHFS Guarantees). As a consequence, holders of the JHFS Notes (Noteholders) were entitled to look to MFC to pay amounts due and owing under the JHFS Notes, with MFC as the relevant source of credit support for the JHFS Notes.
8. In accordance with a covenant of MFC pursuant to the MFC-JHFS Guarantees, the Trustee and Noteholders received MFC's audited annual financial statements including MD&A thereon and MFC's unaudited interim financial statements including MD&A thereon. Noteholders were able to assess the strength of the MFC-JHFS Guarantees by reviewing the information prepared and filed by MFC as a reporting issuer in the Jurisdictions.
9. MIC was incorporated in Michigan on October 13, 1995 and is an indirect wholly-owned subsidiary of MFC. MIC is the holding company for certain subsidiaries that carry on the life insurance business written in the United States and the reinsurance business written in Bermuda. MIC is not subject to reporting obligations in the United States under the United States Securities Exchange Act of 1934, as amended (the Exchange Act). MIC is a reporting issuer in each of the provinces of Canada and is not, to its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces of Canada.
10. MFHL was incorporated under the Canada Business Corporations Act on October 31, 2006 and is a direct wholly-owned subsidiary of MFC. MFHL is a non-operating holding company. MFHL is not a reporting issuer in any of the Jurisdictions and is not, to its knowledge, in default of any requirements under the securities legislation of any of the Jurisdictions.
11. On December 31, 2009, JHFS merged with and into MIC pursuant to a transaction effected under Michigan law with MIC continuing as the surviving entity (the MIC Merger). Exemptive relief regarding the MIC Merger was obtained in the September 2008 Decision Document. At the time of that decision document it was anticipated that the MIC Merger would take place on or about December 31, 2008. The MIC Merger was subsequently deferred to allow the entities involved to complete their planned implementation and, in so doing, to address regulatory, accounting, legal and other business issues.
12. The MIC Merger had the following results:
(a) By operation of law, all of the assets of JHFS became assets of MIC and all of the liabilities of JHFS became obligations of MIC, including the JHFS Notes. Noteholders therefore hold debt securities of MIC (MIC Notes);
(b) The Indentures were each amended by supplemental indentures effective December 31, 2009, being the date on which the MIC Merger became effective;
(c) MIC was designated a reporting issuer in Ontario pursuant to the September 2008 Decision Document and became a reporting issuer in each of the other Jurisdictions by operation of law;
(d) In accordance with the Indentures, MFC confirmed that the MFC-JHFS Guarantees continued to guarantee the obligations of MIC under the MIC Notes (the MFC-MIC Guarantees). As a consequence, during the period following the MIC Merger, Noteholders continue to be able to look to MFC to pay amounts due and owing under the MIC Notes (as they were with respect to the JHFS Notes under which JHFS was obligated). MFC is the relevant source of credit support for the MIC Notes;
(e) The MFC-MIC Guarantees include a covenant of MFC to furnish to the Trustee and Noteholders MFC's audited annual financial statements including MD&A thereon and MFC's unaudited interim financial statements including MD&A thereon;
(f) In connection with the MFC-MIC Guarantees, MFC issued and filed a press release on SEDAR which described the nature of the MFC-MIC Guarantees and related matters; and
(g) Noteholders are able to assess the strength of the MFC-MIC Guarantees by reviewing information prepared and filed by MFC as a reporting issuer in the Jurisdictions.
13. Noteholder approval was obtained on November 24, 2008 for extraordinary resolutions to permit the JHCC Wind-Up and the MIC Merger and for amendments to each Indenture to provide for, among other changes, a succession right provision whereby a successor entity within the MFC group of companies could assume the obligations under the JHFS Notes or the MIC Notes as a successor to the issuer without the need for further approval of Noteholders, subject to certain conditions being satisfied (the Succession Right Provision).
14. The holders of the 6.822% Notes voted 95.83% in favour of the applicable extraordinary resolution and the holders of the 6.646% Notes voted 96.38% in favour of the applicable extraordinary resolution. As a result, the Indentures were each amended by supplemental indentures effective November 26, 2008, being the date on which the JHCC Wind-Up became effective. Details as to the amendments that facilitated the JHCC Wind-Up and the MIC Merger, as well as of the Succession Right Provision, were set out in a Noteholders' Information Circular dated October 21, 2008 (the Noteholders' Information Circular) that was mailed to Noteholders prior to the special meetings to consider the extraordinary resolutions.
15. The Filers intend for MIC to designate MFHL, pursuant to the Succession Right Provision of the Indentures, as successor to MIC's obligations under the Indentures and the MIC Notes on or about March 30, 2010 on and subject to the terms and conditions contained in an assumption agreement between MIC and MFHL and evidenced by supplemental indentures in respect of each tranche of MIC Notes following which new global certificates representing the MIC Notes assumed by MFHL (the MFHL Notes) would be issued on behalf of MFHL and the then existing global certificates for the MIC Notes would be cancelled (collectively, the MFHL Assumption).
16. The Indentures require that the MFHL Assumption satisfy certain conditions, including that:
(a) MIC and MFHL execute, prior to or contemporaneously with the completion of the MFHL Assumption, supplemental indentures to evidence the MFHL Assumption;
(b) MFC executes a confirmation providing that the MFC-MIC Guarantees continue to guarantee the obligations of MFHL under the MFHL Notes (the MFC-MFHL Guarantees);
(c) Immediately after the execution and delivery of the supplemental indentures, the MFHL Notes shall be freely tradeable under the securities laws of Canada;
(d) Immediately before and immediately after giving effect to the MFHL Assumption, no event of default under the Indentures shall have occurred and be continuing;
(e) MFC shall not be in violation of any applicable law;
(f) The MFHL Assumption (i) shall be within the corporate powers of MFHL, MIC and MFC; (ii) shall not (A) constitute a breach of or default under any other agreement to which MFHL, MIC or MFC is a party or (B) violate or contravene the constating documents or other organizational documents of MFHL, MIC or MFC; and (iii) shall have been duly authorized by all necessary corporate action on the part of MFHL, MIC and MFC and the supplemental indentures and the MFHL Notes shall constitute legal, valid and binding obligations of MFHL; and
(g) The credit ratings of DBRS Limited (DBRS), Standard & Poor's, a division of The McGraw-Hill Companies, Inc. (S&P), and Moody's Investors Service (Moody's) of the MFHL Notes immediately after the completion of the MFHL Assumption are not lower than such credit ratings of the MIC Notes immediately before the announcement of the MFHL Assumption as a direct consequence of the MFHL Assumption (the Ratings Condition);
(collectively, the Conditions).
17. Upon the MFHL Assumption, MIC shall be relieved of all of its obligations and covenants under the Indentures and the MIC Notes.
18. The Filers are requesting that the Principal Regulator grant the Requested Relief because it is a condition of the MFHL Assumption that the MFHL Notes shall be freely tradeable and: (a) the MFHL Assumption would not appear to result in MFHL automatically becoming a reporting issuer under the definition of "reporting issuer" in section 1(1) of the Legislation, since the MFHL Assumption will not be effected in accordance with a statutory amalgamation or arrangement or a statutory procedure under which one company takes title to the assets of the other company that in turn loses its existence by operation of law, or under which the existing companies merge into a new company, where one of the amalgamating or merged companies or the continuing company has been a reporting issuer for at least twelve months; and (b) the distribution of the MFHL Notes in respect of the MFHL Assumption does not fall within any of the statutory exemptions in National Instrument 45-106 -- Prospectus and Registration Exemptions.
19. If the Requested Relief is granted, first trades in the MFHL Notes following the MFHL Assumption will not be subject to a restricted period or a seasoning period on resale and therefore will be freely tradeable in each of the Jurisdictions.
20. In contemplation of the JHCC Wind-Up and the MIC Merger, MFC, JHFS and MIC applied for and received exemptive relief, pursuant to the September 2008 Decision Document, from obligations including: (a) the requirement that JHFS file a preliminary prospectus and a prospectus in respect of the first trade in JHFS Notes following the conveyance of all of the assets of JHCC to, and the assumption of liabilities of JHCC by, JHFS pursuant to the JHCC Wind-Up; and (b) the requirement that MIC file a preliminary prospectus and a prospectus in respect of the first trade in MIC Notes following the MIC Merger.
21. MFC, MIC and MFHL will issue a joint press release on closing of the MFHL Assumption announcing that:
(a) MIC designated MFHL as successor obligor pursuant to the Succession Right Provision of the Indentures;
(b) MFHL has completed the MFHL Assumption;
(c) MFHL became a reporting issuer in the Jurisdictions upon the closing of the MFHL Assumption (in Ontario, pursuant to this decision), and disclosing MFHL's unconsolidated unaudited current assets, non-current assets, current liabilities, and non-current liabilities at the date of the MFHL Assumption;
(d) The Indentures have been amended accordingly and copies of the Indentures and indentures supplemental thereto are available on SEDAR under the company profile for MFHL;
(e) Other than the change in primary obligor, the material terms of the MIC Notes are unchanged;
(f) MFHL was incorporated under the Canada Business Corporations Act on October 31, 2006 and is a direct wholly-owned subsidiary of MFC. MFHL is a non-operating holding company. MFHL's head and registered office is located at 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5; and
(g) MFC, under the MFC-MFHL Guarantees, continues to provide full and unconditional credit support (as defined in National Instrument 41-101 -- General Prospectus Requirements) for the MFHL Notes.
In addition, the joint press release will present a calculation of the fair market value of the MFHL Notes at the time of the MFHL Assumption (since a Noteholder whose MIC Notes become MFHL Notes pursuant to the MFHL Assumption will be considered to have disposed of such MIC Notes for proceeds of disposition equal to the fair market value of the MFHL Notes received upon the MFHL Assumption).
MFHL and MIC will file the joint press release on SEDAR.
22. Following the MFHL Assumption, the note to MFC's financial statements containing the consolidating summary financial information required under subparagraph 13.4(2)(g)(ii) of National Instrument 51-102 -- Continuous Disclosure Obligations will include a separate column reflecting the summary financial information of MFHL as the issuer of the MFHL Notes. The first time this information will be disclosed will be in the quarterly financial statements of MFC following closing of the MFHL Assumption. MFC is required under the Legislation to file its interim financial statements for the period ended March 31, 2010 on or before May 15, 2010.
23. The Filers are permitted under the Indentures and applicable law to complete the MFHL Assumption pursuant to the Succession Right Provision, provided that the Filers satisfy the Conditions and the Principal Regulator grants the Requested Relief.
24. The Filers have notified DBRS, S&P and Moody's of the MFHL Assumption. The Filers have no reason to believe through notification from DBRS, S&P or Moody's or otherwise that the MFHL Assumption will not satisfy the Ratings Condition.
The decision of the Principal Regulator under the Legislation is that the Requested Relief is granted provided that:
(a) On or about March 30, 2010, the Filers complete the MFHL Assumption pursuant to the Succession Right Provision, and in compliance with all requirements under the Indentures and applicable law, including the Conditions;
(b) At the time of the MFHL Assumption, MFHL (as the "issuer" or the "credit support issuer" of the MFHL Notes) and MFC (as the "credit supporter" or the "parent credit supporter" of the MFHL Notes), satisfy all of the conditions in section 2.4 of National Instrument 44-101 -- Short Form Prospectus Distributions and item 13.2 in Form 44-101F1 -- Short Form Prospectus (Form 44-101F1), except the conditions in paragraph 13.2(f) of Form 44-101F1;
(c) The Filers jointly issue, and MFHL and MIC each file on SEDAR, the press release described in representation 21, above;
(d) MFHL files the Indentures and indentures supplemental thereto on SEDAR; and
(e) At the time of the MFHL Assumption, the Filers have no reason to believe through notification from DBRS, S&P or Moody's or otherwise that the MFHL Assumption does not or will not satisfy the Ratings Condition.