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SDM Corporation - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - relief from registration and prospectus requirementsin connection with the distribution, from time to time, of non-voting shares to Associates (Pharmacy owners) - Associatesnot technically employees or consultants but required under contract to devote their full time and attention to thepharmacy business - relief from the issuer bid requirements where issuer repurchases the non-voting shares from theAssociates pursuant to certain agreements entered into concurrently with the distribution.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O., 1990, c.S.5, as amended, ss. 25, 53, 74(1) and 104(2)(c).
Applicable Ontario Rules
Ontario Securities Commission Rule 45-503 - Trades to Employees, Executives and Consultants.
IN THE MATTER OF
THE SECURITIES LEGISLATION
OF ALBERTA, BRITISH COLUMBIA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND, NEW BRUNSWICK, NORTHWEST TERRITORIES,
AND YUKON
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SDM Corporation
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, Prince Edward Island,Newfoundland, New Brunswick, Northwest Territories, and Yukon (the "Jurisdictions") has received anapplication from SDM Corporation ("SDM") for a decision under the securities legislation of the Jurisdictions (the"Legislation") that the requirements contained in the Legislation to be registered to trade in a security and tofile and receive a receipt for a prospectus (the "Registration and Prospectus Requirements") do not apply toSDM with respect to certain proposed distributions, from time to time, of non-voting shares by it and that therequirement contained in the Legislation to comply with the rules governing issuer bids (the "Issuer BidRequirement") does not apply to SDM with respect to certain repurchases by SDM of non-voting shares issuedby it pursuant to the distribution;
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 SDM has represented to the Decision Makers that:
3.1 SDM is a corporation amalgamated under the laws of the Province of New Brunswick;
3.2 SDM is not a reporting issuer, or its equivalent, in any of the Jurisdictions;
3.3 the authorized capital of SDM consists of an unlimited number of voting common shares ("CommonShares") and an unlimited number of non-voting shares ("Non-Voting Shares");
3.4 the securities of SDM are not listed on any stock exchange or traded over the counter;
3.5 in February, 2000 SDM acquired the Shoppers Drug Mart/Pharmaprix business ("Shoppers") fromBritish America Tobacco (Canada) Limited (the "Acquisition"). SDM is a holding company whose onlybusiness is holding the shares of the companies which operate Shoppers;
3.6 Shoppers Drug Mart/Pharmaprix business includes the licensing of retail operations consisting of over790 drug stores. Each drug store is operated by a pharmacist (an "Associate") who, through a wholly-owned corporation, has entered into a licensing agreement with a wholly-owned subsidiary of SDM.Each such licensing agreement requires that the Associate devote their full time and attention to theoperation and management of the drug store that is the subject of the license. As a result, eachAssociate has detailed knowledge of the business operated by SDM;
3.7 the shareholders of SDM include certain institutional investors, the senior management and otheremployees of Shoppers, and over 550 Associates who invested an aggregate of over $41,000,000in SDM in connection with the Acquisition;
3.8 SDM proposes to offer Non-Voting Shares of SDM, from time to time, to (i) Associates who havejoined Shoppers after the initial investment opportunity in connection with the Acquisition; (ii) ongoingAssociates who did not invest at that time; and (iii) Associates who are already shareholders of SDM;
3.9 SDM also proposes to allow Associates to purchase Non-Voting Shares through a RegisteredRetirement Savings Plan ("RRSP") of which they are the beneficiary. In order to permit RRSPinvestment by Associates in connection with the Acquisition, SDM created the Non-Voting Shares asa separate class of securities. The Common Shares and the Non-Voting Shares are RRSP eligibleinvestments under the Income Tax Act (Canada);
3.10 Associates who purchase Non-Voting Shares, either directly or through an RRSP of which they arethe beneficiary, will be required to enter into a unanimous shareholders' agreement and certain otheragreements (the "Governing Agreements") which will restrict their ability to deal with the Non-VotingShares so acquired. Among other things, the Governing Agreements will place certain transferrestrictions on the Non-Voting Shares, will provide SDM with a right of first refusal in certaincircumstances and will give SDM the right to repurchase the Non-Voting Shares from the Associatein certain circumstances, including in the event that the licensing agreement respecting the Associateis terminated. The Governing Agreements will also provide drag-along rights to certain institutionalholders of Common Shares and will provide certain coattail and tag-along rights to the holders of Non-Voting Shares;
3.11 prior to any purchase by them of Non-Voting Shares, Associates will be provided with a full descriptionof the attributes of the Non-Voting Shares, copies of the Governing Agreements, a summary of theprovisions of the Governing Agreements and full information concerning resale restrictions applicableto the Non-Voting Shares;
3.12 the participation of Associates in any offering of Non-Voting Shares will be voluntary. No Associatewill be induced, directly or indirectly, to purchase Non-Voting Shares by expectation of maintaining orcontinuing their status as an Associate;
3.13 there are Associates resident in each of the Jurisdictions;
3.14 associates are not employees of SDM, no exemption from the Registration and ProspectusRequirements exists under the Legislation to allow SDM to issue Non-Voting Shares to Associates;
3.15 any repurchase by SDM of Non-Voting Shares pursuant to the terms of the Governing Agreementswill constitute an issuer bid under the Legislation. No exemption from the Issuer Bid Requirementexists under the Legislation with respect to such repurchases;
4. AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
5. 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;
6. THE DECISION of the Decision Makers under the Legislation is that:
6.1 the Prospectus and Registration Requirements shall not apply to the distribution, from time to time,by SDM of Non-Voting Shares to Associates or to RRSPs of which an Associate is the beneficiary,provided that the first trade of any Non-Voting Share so acquired shall be deemed a distribution, ora primary distribution to the public, in each Jurisdiction where such concept applies; and
6.2 the Issuer Bid Requirement shall not apply to any repurchase of Non-Voting Shares from Associatesor RRSPs of which an Associate is the beneficiary by SDM pursuant to the terms of the GoverningAgreements, provided that at the time of any repurchase there is no published market for the Non-Voting Shares.
DATED at Calgary, Alberta this 14th day of March, 2001.
"Stephen P. Sibold" "Glenda A. Campbell"