Exemption Orders (Discretionary)
SIXTY SPLIT CORP.
2001 BCSECCOM 596
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from the underwriter conflicts requirements contained in the Legislation to permit registrant to act as underwriters in connection with the distribution of securities of a related or connected issuer - nature of the investment vehicle involved and the relationship between the issuer and the registrant does not give rise to conflict on interest concerns.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 48
Securities Rules, B.C. Reg 194/97, s. (78)(2)(b)
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, BRITISH COLUMBIA, QUÉBEC AND NEWFOUNDLAND,
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF SIXTY SPLIT CORP.
AND
IN THE MATTER OF SCOTIA CAPITAL INC.
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of Alberta, British Columbia, Québec and Newfoundland (the “Jurisdictions”) has received an application from Sixty Split Corp. (the “Issuer”) and Scotia Capital Inc. (“Scotia Capital”) for decisions under the securities legislation (the “Legislation”) of the Jurisdictions that the restrictions contained therein restricting registrants from acting as underwriters in connection with the distribution of securities of a related or connected issuer (the “Underwriting Restrictions”) shall not apply to Scotia Capital in connection with the initial public offering (the “Offering”) of class A capital shares (the “Capital Shares”) and class A preferred shares (the “Preferred Shares”) of the Issuer subject to certain restrictions;
2. AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Alberta Securities Commission is the principal regulator for this application;
3. AND WHEREAS the Issuer has represented to the Decision Maker that:
3.1. Scotia Capital was incorporated under the laws of Ontario and is a direct, wholly-owned subsidiary of The Bank of Nova Scotia and is registered under the Legislation as a dealer in the categories of “broker” and “investment dealer” and is a member of the Investment Dealers Association of Canada and The Toronto Stock Exchange.
3.2. Scotia Capital is the promoter of the Issuer and will be establishing a credit facility in favour of the Issuer in order to facilitate the acquisition of the Portfolio Shares (as defined below)by the Issuer.
3.3. The Issuer was incorporated on January 30, 2001 under the laws of the Province of Ontario, has its principal office in Toronto, Ontario and is authorized to issue an unlimited number of Class J Shares.
3.4. The Issuer has filed with the securities regulatory authorities of the Jurisdictions a preliminary prospectus dated January 30, 2001 (the “Preliminary Prospectus”) in respect of the Offering to the public.
3.5. The Issuer intends to become a reporting issuer under the Legislation by filing a final prospectus (the “Final Prospectus”) relating to the Offering. Prior to the filing of the Final Prospectus relating to the Offering, the Articles of the Issuer will be amended so that the authorized capital of the Issuer will consist of an unlimited number of Capital Shares, an unlimited number of Preferred Shares, an unlimited number of Class B, Class C, Class D and Class E Capital Shares, issuable in series, and an unlimited number of Class J Shares, having the attributes set forth under the headings “Description of Share Capital” and “Details of the Offerings” commencing on page 20 of the Preliminary Prospectus.
3.6. The Capital Shares and Preferred Shares may be surrendered for retraction at any time in the manner described in the Preliminary Prospectus.
3.7. Application will be made to list the Capital Shares and Preferred Shares on The Toronto Stock Exchange.
3.8. The Class J Shares will be the only voting shares in the capital of the Issuer. There are currently, and will be at the time of filing the Final Prospectus, 100 Class J Shares issued and outstanding. Scotia Capital owns 50 of the issued and outstanding Class J Shares of the Issuer and Sixty Split Holdings Corp. owns the remaining 50 issued and outstanding Class J Shares of the Issuer. Two employees of Scotia Capital each own 50% of the issued and outstanding common shares of Sixty Split Holdings Corp.
3.9. The Issuer has a board of directors which currently consists of three directors. All of the directors are employees of Scotia Capital. Also, the offices of President/Chief Executive Officer and Chief Financial Officer/Secretary of the Issuer are held by employees of Scotia Capital. Prior to filing the Final Prospectus, it is contemplated that at least two additional directors, independent of Scotia Capital, will be appointed to the board of directors of the Issuer.
3.10. Pursuant to an agreement to be made between the Issuer and Scotia Capital and such other agents as may be appointed after the date of this application (collectively, the “Agents”), the Issuer will appoint the Agents, as its agents, to offer the Capital Shares and Preferred Shares of the Issuer on a best efforts basis and the Final Prospectus qualifying the Offering will contain a certificate signed by each of the Agents in accordance with the Legislation.
3.11. The Issuer is considered to be a mutual fund as defined in the Legislation, except in Quebec. Since the Issuer does not operate as a conventional mutual fund, it has made application for a waiver from certain requirements of National Instrument 81-102 in the applicable Jurisdictions.
3.12. The Issuer is a passive investment company whose principal undertaking will be to invest the net proceeds of the Offering in a portfolio (the “Portfolio”) of publicly listed common shares (the “Portfolio Shares”) of the companies that make up the S&P/TSE 60 Index in order to generate dividend income for the holders of Preferred Shares and to enable holders of Capital Shares to participate in capital appreciation in the Portfolio Shares after payment of administrative and operating expenses and a portion of the fixed distribution on the Preferred Shares.
3.13. Scotia Capital’s economic interest in the Issuer and in the material transactions involving the Issuer are disclosed in the Preliminary Prospectus and will be disclosed in the Final Prospectus under the heading “Interest of Management and Others in Material Transactions".
3.14. The net proceeds from the sale of the Capital Shares and Preferred Shares under the Final Prospectus, after payment of commissions to the Agents, expenses of issue and carrying costs relating to the acquisition of the Portfolio Shares, will be used by the Issuer to:
3.14.1. pay the acquisition cost (including any related costs or expenses) of the Portfolio Shares; and
3.14.2. pay the initial fee payable to Scotia Capital for its services under the Administration Agreement (as defined below).
3.15. All Capital Shares and Preferred Shares outstanding on a date approximately 10 years from the closing of the Offering will be redeemed by the Issuer on such date and Preferred Shares will be redeemable at the option of the Issuer on any Annual Retraction Payment Date (as described in the Preliminary Prospectus).
3.16. Pursuant to an administration agreement (the “Administration Agreement”) to be entered into, the Issuer will retain Scotia Capital to administer the ongoing operations of the Issuer and will pay Scotia Capital a fee equal to:
3.16.1. monthly fee determined with reference to the market value of the Portfolio Shares held in the Portfolio; and
3.16.2. any interest income earned by the Issuer during the term of the Administration Agreement excluding interest earned on any investment of surplus dividends received on the Portfolio Shares.
3.17. By virtue of Scotia Capital’s relationship with the Issuer, including the fact that three of the directors of the Issuer and all of the officers of the Issuer are employees of Scotia Capital and Scotia Capital is the promoter of the Issuer, the Issuer is a connected issuer (or its equivalent) and/or related issuer (or its equivalent) of Scotia Capital under the Legislation.
3.18. Although Scotia Capital will be lead underwriter of the Offering, it is not known at this time what proportions of the Offering, if any, will be sold by Agents other than Scotia Capital.
4. AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
5. AND WHEREAS the Decision Maker is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
6. THE DECISION of the Decision Maker pursuant to the Legislation is that:
6.1. The Underwriting Restrictions shall not apply to Scotia Capital in connection with the Offering.
DATED this 6th day of March, 2001.
Stephen P. Sibold, Q.C. Chair Eric T. Spink, Vice-Chair