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CIBC World Markets Inc. & Biotech RAIDersTM Trust - MRRS Decision
Headnote
Section 233 of the Regulation - offering where underlying interest consists of portfolio of common shares of Americanbiotechnology companies - issuer related and/or connected to the agent - agent exempt from clause 224(1)(b) of theRegulation.
Section 113 and clause 121(2)(a) - investment by a mutual fund trust for specified purpose in securities of a relatedissuer - trust exempt from the self-dealing prohibitions of clauses 111(2)(a) and 111(2)(c)(ii), subsection 111(3) andclauses 118(2)(a) and (c).
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as amended, ss 1(1), 111(2)(a), 111(2)(c)(ii), 111(3), 113, 118(2)(a), 118(2)(c) and121(2)(a).
Regulations Cited
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as amended, ss. 233, 224(1)(b).
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 anapplication 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 agentsas 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 underwritersor agents in connection with a distribution of securities of a related issuer (or equivalent) and/or connectedissuer (or equivalent) (the "Independent Underwriter Requirements") shall not apply to the Agents in respectof the Offering; and
(ii) in the case of the Legislation of each applicable Jurisdiction, that the requirements that a mutual fund shall notknowingly: (i) make or hold an investment in a person or company who is a substantial security holder of themutual fund, its management company or distribution company; (ii) make or hold an investment in an issuerin which any person or company who is a substantial security holder of the mutual fund, its managementcompany or its distribution company has a significant interest; (iii) make or hold an investment in an issuer inwhich a responsible person or an associate of a responsible person is an officer or director unless the specificfact is disclosed to the client and the written consent of the client to the investment is obtained before thepurchase; or (iv) make a loan to a responsible person or an associate of a responsible person or the portfoliomanager (the "Conflict of Interest Provision") shall not apply to the Trust or CIBC WM as Administrator (definedbelow) 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 Trustwill 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 diversifiedinvestment in the biotechnology industry through a single investment instrument. The value of the Units willbe linked to the value of a portfolio (the "Portfolio") of equity shares (the "Shares") of approximately 28companies (collectively, the "Companies", and each a "Company") that are currently involved in varioussegments 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 offeredon a continuous basis. The Units will be listed on The Toronto Stock Exchange, subject to the receipt of allnecessary approvals.
4. The Administrator will be entitled to a fee payable by the Trust quarterly in arrears at an annual rate equal to0.6% of the Trust's net asset value.
5. The Portfolio will initially be comprised of approximately equal weightings by value of the Shares of eachCompany, 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 bedisseminated 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 Portfoliowill change over time with market fluctuations, and the sectoral focus of the Portfolio may change from time totime if one or more of the Companies changes the focus of its business. The composition of the Portfolio mayalso 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 orsuspensions or other events, in each case as determined by the Administrator in its discretion ("ReconstitutionEvents") affecting a Company.
7. The Trust may choose to own directly certain Shares (the "Direct Portfolio") but this direct holding will be limitedso that the Units will not constitute foreign property under the Income Tax Act (Canada). Otherwise, the Trustwill not own or have any interest in the remainder of the Portfolio (the "Notional Portfolio"). The Trust will owna limited recourse non-transferable deposit note (the "Deposit Note") issued by the Canadian Imperial Bank ofCommerce ("CIBC"), the value of which will be linked to the Canadian dollar equivalent of the value of theNotional Portfolio. CIBC will enter into arrangements in respect of the Notional Portfolio in order to hedge itsobligations 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 registeredretirement 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 totalreturn on the Notional Portfolio, less expenses and witholding 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 ithas 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 inshort-term investments). The Trust will make distributions on an annual basis, or more frequently if sodetermined by the Administrator. Cash payments received by the Trust will generally be held in short-termdeposits with CIBC or may be held in other bank deposits, evidences of indebtedness with terms to maturityof 365 days or less or similar money market instruments pending distribution or use in redemptions of Units orin 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 businessday 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 anamount equal to the net asset value per Unit on the applicable Elected Redemption Date, less a redemptioncharge (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 ofthe Administrator to fund such redemption obligations. This right of redemption may be suspended in certaincircumstances.
13. On approximately the fifth anniversary of the closing of the Offering (the "Scheduled Redemption Date"), eachUnit will be redeemed automatically by the Trust for cash proceeds equal to the net asset value per Unit on thatdate, and will not be subject to the Redemption Charge. This right of redemption may be suspended in certaincircumstances.
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 Trusteewill be CIBC Mellon Trust Company, which is partly owned by CIBC. CIBC Mellon Trust Company is also thecustodian of the Trust. CIBC WM, one of the Agents, is the Administrator and is a wholly-owned subsidiary ofCIBC 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 CIBCWM will be invited to participate, there can be no assurance that they will agree to participate in the Offeringor to what extent.
17. The nature and details of the relationship between the Trust and CIBC WM will be described in the PreliminaryProspectus 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 PreliminaryProspectus and Final Prospectus, the Agents will not benefit in any manner from the Offering other than thepayment 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 asrequired 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 liquidcompanies 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 least235,000 shares over the past twelve months (or since the inception of the Company, if less than twelvemonths); (iii) average daily trading volume of at least US$ 8,500,000 over the past twelve months (or since theinception 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 theCompanies files extensive financial and other information on a periodic and timely basis as specified by theU.S. Securities and Exchange Commission (the "SEC"). Such information is generally available through theSEC'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 prepareand file on an annual basis a report to unitholders that includes a brief description of the activities of the Trustduring the last financial year, as well as a discussion of the results of the Trust, including an explanation ofchanges from the previous financial year and material changes in accounting principles or practices appliedthereto.
26. In the event of a material change to the affairs of the Trust, the Trust will issue a press release and file amaterial change report in accordance with the requirements of the Legislation. In addition, if any of the Shareschange because of a Reconstitution Event, a revised list of the Shares and their numbers will be made availablefrom 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 Trustfrom purchasing the Deposit Note issued by CIBC. As described in paragraph 8 above, the Deposit Notestructure has been adopted for tax purposes for the benefit of Unitholders. In addition, the value of the DepositNote will be linked to the value of the Portfolio. Neither the Trust, CIBC WM nor CIBC are related to any issuerof the Shares. In addition, the parties and their relationship will be described in detail in the PreliminaryProspectus and Final Prospectus.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe 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 Requirementsshall not apply to CIBC WM in respect of the Offering provided that the information specified in Appendix C ofthe Proposed Instrument is disclosed in the Preliminary Prospectus and Final Prospectus and the Trust is nota "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 notapply to the Trust or CIBC WM in connection with the issuance by CIBC of the Deposit Note to the Trust.
March 9, 2001.
"Howard I. Wetston" "Theresa McLeod"