Exemption Orders (Discretionary)
CIBC WORLD MARKETS INC.
2001 BCSECCOM 389
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from the independent underwriter requirements and certain of the self dealing requirements.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(b), 121(2)(a), 121(2)(c), 127(1)(a), 127(1)(c) and 130(b)
Securities Rules, B.C. Reg. 194/97, s. 78(2)
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, QUÉBEC, NOVA SCOTIA AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF CIBC WORLD MARKETS INC. AND BIOTECH RAIDERSTM TRUST
MRRS DECISION DOCUMENT
WHEREAS the securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan, Ontario, Québec, Nova Scotia and Newfoundland (the “Jurisdictions”) has received an application from CIBC World Markets Inc. (“CIBC WM”) and Biotech RAIDersTM Trust (the “Trust”) (collectively, the “Filer”) in connection with the distribution of units of the Trust by prospectus (the “Offering”) by CIBC WM and such other agents as may be appointed (collectively, the “Agents”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that:
(i) in the case of the Legislation of each applicable Jurisdiction, that the requirements which apply to underwriters or agents in connection with a distribution of securities of a related issuer (or equivalent) and/or connected issuer (or equivalent) (the “Independent Underwriter Requirements”) shall not apply to the Agents in respect of the Offering; and
(ii) in the case of the Legislation of each applicable Jurisdiction, that the requirements that a mutual fund shall not knowingly: (i) make or hold an investment in a person or company who is a substantial security holder of the mutual fund, its management company or distribution company; (ii) make or hold an investment in an issuer in which any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company has a significant interest; (iii) make or hold an investment in an issuer in which a responsible person or an associate of a responsible person is an officer or director unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase; or (iv) make a loan to a responsible person or an associate of a responsible person or the portfolio manager (the “Conflict of Interest Provision”) shall not apply to the Trust or CIBC WM as Administrator (defined below) of the Trust;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Filer has represented to the Decision Makers that:
1. The Trust is an investment trust to be established under the laws of Ontario pursuant to a declaration of trust. The administrator (the “Administrator”) of the Trust will be CIBC WM and the trustee (the “Trustee”) of the Trust will be CIBC Mellon Trust Company. The head office of CIBC WM is located in the Province of Ontario.
2. The Trust units (the “Units”) are designed to allow the holder thereof (a “Unitholder”) to make a diversified investment in the biotechnology industry through a single investment instrument. The value of the Units will be linked to the value of a portfolio (the “Portfolio”) of equity shares (the “Shares”) of approximately 28 companies (collectively, the “Companies”, and each a “Company”) that are currently involved in various segments of the biotechnology industry.
3. The Trust will be a “mutual fund” as defined under the Legislation of each of the Jurisdictions, except Québec. Unlike a conventional mutual fund, the Portfolio will not be actively managed and the Units will not be offered on a continuous basis. The Units will be listed on The Toronto Stock Exchange, subject to the receipt of all necessary approvals.
4. The Administrator will be entitled to a fee payable by the Trust quarterly in arrears at an annual rate equal to 0.6% of the Trust’s net asset value.
5. The Portfolio will initially be comprised of approximately equal weightings by value of the Shares of each Company, determined promptly following the closing of the Offering. Immediately following such determination, the actual number of Shares of each Company in the Portfolio and their market prices at such time will be disseminated in a press release by the Administrator, and will also be available from the Administrator.
6. Given that the Portfolio is not actively managed, the relative weighting of the value of a Share in the Portfolio will change over time with market fluctuations, and the sectoral focus of the Portfolio may change from time to time if one or more of the Companies changes the focus of its business. The composition of the Portfolio may also be affected from time to time by stock splits, stock dividends, stock consolidations, take-over or issuer bids (tender or self-tender offers), rights offerings, mergers, corporate reorganizations, insolvencies, delistings or suspensions or other events, in each case as determined by the Administrator in its discretion (“Reconstitution Events”) affecting a Company.
7. The Trust may choose to own directly certain Shares (the “Direct Portfolio”) but this direct holding will be limited so that the Units will not constitute foreign property under the Income Tax Act (Canada). Otherwise, the Trust will not own or have any interest in the remainder of the Portfolio (the “Notional Portfolio”). The Trust will own a limited recourse non-transferable deposit note (the “Deposit Note”) issued by the Canadian Imperial Bank of Commerce (“CIBC”), the value of which will be linked to the Canadian dollar equivalent of the value of the Notional Portfolio. CIBC will enter into arrangements in respect of the Notional Portfolio in order to hedge its obligations under the Deposit Note.
8. The Trust has adopted the Deposit Note structure in order that the Units may qualify as “Canadian property” under the Income Tax Act (Canada) thereby enabling Unitholders to include the Units in their registered retirement savings plan (“RRSP”) or other similar tax-deferred arrangements.
9. Under the terms of the Deposit Note, the Trust is entitled to receive the Canadian dollar equivalent of the total return on the Notional Portfolio, less expenses and withholding taxes.
10. Due to the structure of the transaction, the Trust will not benefit from, or be subject to the risks associated with, the creditworthiness of CIBC in respect of the Deposit Note.
11. The Trust intends to distribute sufficient net taxable income to Unitholders in the year earned to ensure that it has no income on which it has to pay tax. Subject to a reasonable reserve for redemptions, fees and expenses, the Trust intends to distribute all cash it receives (including any net proceeds earned thereon while held in short-term investments). The Trust will make distributions on an annual basis, or more frequently if so determined by the Administrator. Cash payments received by the Trust will generally be held in short-term deposits with CIBC or may be held in other bank deposits, evidences of indebtedness with terms to maturity of 365 days or less or similar money market instruments pending distribution or use in redemptions of Units or in the payment of fees and expenses.
12. Units may be surrendered at any time but will only be redeemed on a monthly basis on the second last business day of each month (the “Elected Redemption Date”) or on the Scheduled Redemption Date (as defined below) or other termination of the Trust, as applicable. Upon redemption, Unitholders will be entitled to receive an amount equal to the net asset value per Unit on the applicable Elected Redemption Date, less a redemption charge (the “Redemption Charge”) equal to 1.5% of the net asset value per Unit of the Units being redeemed. The Redemption Charge will not apply on the Scheduled Redemption Date or other termination of the Trust. Shares in the Direct Portfolio shall be disposed of and the Deposit Note shall be redeemed in the discretion of the Administrator to fund such redemption obligations. This right of redemption may be suspended in certain circumstances.
13. On approximately the fifth anniversary of the closing of the Offering (the “Scheduled Redemption Date”), each Unit will be redeemed automatically by the Trust for cash proceeds equal to the net asset value per Unit on that date, and will not be subject to the Redemption Charge. This right of redemption may be suspended in certain circumstances.
14. The Trust intends to file a preliminary prospectus (the “Preliminary Prospectus”) and a final prospectus (the “Final Prospectus”) as soon as possible to qualify the Offering in the Jurisdictions.
15. The Trust may be considered to be a “connected issuer” (or equivalent) and/or “related issuer” (or equivalent) of CIBC WM within the meaning of the Legislation as a cumulative result of the following factors. The Trustee will be CIBC Mellon Trust Company, which is partly owned by CIBC. CIBC Mellon Trust Company is also the custodian of the Trust. CIBC WM, one of the Agents, is the Administrator and is a wholly-owned subsidiary of CIBC and an associate of the Trustee. CIBC will issue the Deposit Note to the Trust.
16. The Offering will not comply with the Independent Underwriter Requirements. While Agents other than CIBC WM will be invited to participate, there can be no assurance that they will agree to participate in the Offering or to what extent.
17. The nature and details of the relationship between the Trust and CIBC WM will be described in the Preliminary Prospectus and Final Prospectus, including the information specified in Appendix C of proposed Multi-Jurisdictional Instrument 33-105 – Underwriting Conflicts (the “Proposed Instrument”).
18. The Trust is not a “specified party” as defined in the Proposed Instrument. The Trust is not in financial difficulty.
19. With the exception of CIBC WM, whose relationship with the Trust will be fully disclosed in the Preliminary Prospectus and Final Prospectus, the Agents will not benefit in any manner from the Offering other than the payment of their agent fees in connection with the Offering.
20. The certificate in the Preliminary Prospectus and Final Prospectus will be signed by each of the Agents as required by the Legislation.
21. Upon the issuance of a receipt for the Final Prospectus, the Trust will become a reporting issuer (or equivalent) in each applicable Jurisdiction.
22. Each of the Companies that comprise the Portfolio, including a brief description of the nature of their business, will be disclosed in the Preliminary Prospectus and Final Prospectus, and are among the largest and most liquid companies in the biotechnology industry, as measured by market capitalization and trading volume.
23. The following criteria were used in selecting the Shares (based on information as at November 14, 2000): (i) market capitalization equal to or greater than US$ 750 million; (ii) average daily trading volume of at least 235,000 shares over the past twelve months (or since the inception of the Company, if less than twelve months); (iii) average daily trading volume of at least US$ 8,500,000 over the past twelve months (or since the inception of the Company, if less than twelve months); and (iv) a trading history or at least 90 calendar days.
24. The Shares are registered under the U.S. Securities Exchange Act of 1934. Accordingly, each of the Companies files extensive financial and other information on a periodic and timely basis as specified by the U.S. Securities and Exchange Commission (the “SEC”). Such information is generally available through the SEC’s web site. In addition, information regarding the Companies may be obtained from other sources, including, but not limited to, press releases, newspaper articles and other publicly available information.
25. The Trust will prepare, file and deliver annual and semi-annual financial statements. The Trust will also prepare and file on an annual basis a report to unitholders that includes a brief description of the activities of the Trust during the last financial year, as well as a discussion of the results of the Trust, including an explanation of changes from the previous financial year and material changes in accounting principles or practices applied thereto.
26. In the event of a material change to the affairs of the Trust, the Trust will issue a press release and file a material change report in accordance with the requirements of the Legislation. In addition, if any of the Shares change because of a Reconstitution Event, a revised list of the Shares and their numbers will be made available from the Administrator or may be found on the Trust’s website.
27. In the absence of the relief granted by this Decision, the Conflict of Interest Provision would prohibit the Trust from purchasing the Deposit Note issued by CIBC. As described in paragraph 8 above, the Deposit Note structure has been adopted for tax purposes for the benefit of Unitholders. In addition, the value of the Deposit Note will be linked to the value of the Portfolio. Neither the Trust, CIBC WM nor CIBC are related to any issuer of the Shares. In addition, the parties and their relationship will be described in detail in the Preliminary Prospectus and Final Prospectus.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of each Decision Maker (the “Decision”);
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that:
(i) in the case of the Legislation of each applicable Jurisdiction, that the Independent Underwriter Requirements shall not apply to CIBC WM in respect of the Offering provided that the information specified in Appendix C of the Proposed Instrument is disclosed in the Preliminary Prospectus and Final Prospectus and the Trust is not a “specified party” as defined in the Proposed Instrument at the time of the Offering; and
(ii) in the case of the Legislation of each applicable Jurisdiction, that the Conflict of Interest Provision shall not apply to the Trust or CIBC WM in connection with the issuance by CIBC of the Deposit Note to the Trust.
DATED March 9th, 2001.
Howard I. Wetston Theresa McLeod