Private Capital Markets

investor’s desire to redeem or sell their securities for a full or partial redemption.

Investors must be aware that issuers typically have a Redemption Notice Period during which redemptions must be made prior to any redemption date. For example, it could be 60 days before the end of a quarter for an issuer that has quarterly redemptions. If an investor provides a Redemption Notice after that date, for example, 50 days prior to the end of a quarter, the issuer does not have to accept such Redemption Notice and only give e;ect to such notice in the following quarter.

Investors are generally cautioned to provide as much notice as possible before the end of any Redemption Notice Period and to ensure they have evidence of having provided the notice to an issuer (e.g., by e-mail if permitted by an issuer which provides evidence of delivery and provided it is the form of notice required by the issuer).

Investors are also cautioned that a Redemption Notice Period could be as short as a one or two-week period, or a longer period.

Investors must make sure they strictly adhere to any Redemption Notice Period and ensure to provide the form of notice as required by an issuer. An issuer may reject a Redemption Notice if it is not in the prescribed form, as required, and/or not within the required Redemption Notice Period.

4. Redemption Date

;e Redemption Date is the actual date securities are redeemed on the books and records of an issuer. If investors are receiving income from an investment that makes distributions, investors should make sure they understand whether distributions stop at the point that a Redemption Notice is provided, on the Redemption Date, or otherwise.

5. Redemption Price

;e Redemption Price is the amount that an investor will receive upon the redemption of their securities, which may be a combination of cash (up to a maximum limit) and/or Redemption Notes. Such matters are discussed below.

6. Redemption Cash Limits

Redemptions involving private market securities sold under a Deferred Plan are generally subject to a cash redemption limit.

;is means that an investor may not
necessarily receive 100% of the value of their
investment in cash, but rather an issuer may
impose a limit on the amount of cash they
will provide a redeeming investor, with the
balance payable by the issuance of a Redemp-
tion Note.

Issuers include cash limits for various reasons, including those where their underlying investment does not have su;cient cash liquidity in order to meet all or any redemption demands by investors. For example, an issuer may invest in real estate, which is not typically liquid, and may place cash limits on redemptions at any time, and from time to time.

;e maximum cash limit of a Redemption Price may be expressed as a percentage of, or the fair market value of, all securities issued and outstanding.

As an example, an issuer may impose a quarterly redemption limit of $100,000 per quarter. Alternatively, an issuer could impose a redemption limit based on a percentage of the fair market value of an issuer’s securities as at a Redemption Date, for example, a 10% limit. However, there is nothing to preclude an issuer from paying any amount in excess of any cash redemption limit, and some do, but an issuer’s legal obligation (irrespective of business considerations or for investor relations purposes) is the cash limit set out in an issuer’s constating document (e.g., declaration of trust or limited partnership agreement, as applicable).

If investor redemption requests exceed any redemption limit, an issuer will generally redeem for cash on a pro-rata basis up to the maximum redemption limit and, unless any applicable regulatory approvals are required, pay the balance by a distribution of Redemption Notes.

7. Redemption Notes

If the aggregate redemption requests exceed any redemption cash limit, the issuer will satisfy the balance by issuing a Redemption Note in addition to the cash payment, up to the amount of the Redemption Price. Typically, these Redemption Notes are:

• Unsecured
• Subordinated and postponed to all senior
indebtedness, and which may be subject
to speci;c subordination and postpone
ment agreements
• Set at a fixed interest rate;

• Subject to earlier prepayment, set for a
fixed number of years; and
• Payable, both interest and principal as a
single payment at the end of the term or
earlier at the discretion of the issuer. (;is
means there are usually no periodic
payments and an issuer can repay the note
at any time, and from time to time).

For example, a Redemption Note can have an interest rate that is equal to ;ve percent (5%) simple interest per annum, calculated from the day the Redemption Note is issued and such other commercially reasonable terms as the issuer may prescribe, subject to, for example, a maximum term of three ( 3) years from the date of issue, as determined in the sole discretion of the issuer, provided that the applicable interest shall be paid on the anniversary date of the issue of the Redemption Note outstanding.

Redemption Notes are not liquid and will generally not be a quali;ed investment for Deferred Plans, and may even be a prohibited investment for Deferred Plans.

Redemption Notes Quali;ed Investments for Deferred Plans.

Investors must understand there could be adverse tax consequences to an investor who acquired securities under a Deferred Plan and/or its annuitant bene;ciary as a result of an investor seeking a redemption of securities. Accordingly, investors that propose (or have invested) in securities through Deferred Plans should consult with their own tax advisors before doing so (or having done so), to understand the potential tax consequences of exercising their Redemption Rights attached to such securities. In certain circumstances, an investor may consider withdrawing their Redemption Notice if there are adverse tax consequences.

8. Redemption Fees

Investors should be aware that most issuers will charge a redemption fee, or similar fee, in connection with any redemption and is generally expressed as a percentage of the redemption price or a ;at dollar amount. Issuers may also charge an early redemption fee to investors that could be step-rated, where the fee would be higher in the early investment years and lower the longer an investor holds the investment (to the point where there is no charge if an investment is held for a speci;ed length of time).

For example, the chart below illustrates an early redemption charge payable by investors that is based on a percentage of the subscription price of a security, and that gradually decreases over four years.