Mutual Reliance Review System for Exemptive Relief Applications -- Filer to enter into share compensation arrangements with employees and senior management -- Shares to be repurchased through plan trust for tax efficiency -- Filer granted exemption from the prospectus, registration and issuer bid requirements, subject to conditions.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 95 to 100,104(2)(c).
National Instrument 45-106 -- Prospectus and Registration Exemptions.
National Instrument 45-102 -- Resale of Securities.
Citation: Lilydale Inc., 2007 ABASC 736
October 17, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
ONTARIO AND QUEBEC
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MRRS DECISION DOCUMENT
1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that:
(a) the prospectus and registration requirements of the Legislation (the Prospectus and Registration Requirements) do not apply to acquisitions of the Filer's common shares (the Common Shares) by the Plan Trust (as defined below) from Plan Participants (as defined below);
(b) in respect of the Jurisdictions other than Québec, the issuer bid requirements in the Legislation (the Issuer Bid Requirements) do not apply to acquisitions of Common Shares by the Plan Trust from Plan Participants; and
(c) in Alberta only, the Issuer Bid Requirements do not apply to acquisitions of Common Shares by the Filer from the Plan Trust.
(collectively, the Requested Relief).
2. Under the Mutual Reliance Review System for Exemptive Relief Applications (the MRRS):
(a) the Alberta Securities Commission (the Commission) is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
4. This decision is based on the following facts presented by the Filer:
(a) The Filer is a corporation continued and amalgamated under the Canada Business Corporations Act with a registered office in Edmonton, Alberta.
(b) The authorized capital of the Filer consists of an unlimited number of Common Shares issuable in series. At June 15, 2007, there were 4,627,979 Common Shares issued and outstanding held by 1175 security holders.
(c) The Filer is not a reporting issuer or the equivalent thereof in any jurisdiction of Canada and its securities are not quoted or traded on any published market or stock exchange.
(d) The Filer is in compliance in all material respects with the applicable requirements of the Legislation.
(e) The Filer intends to implement both a long-term management incentive plan (LTIP) and an employee share ownership plan (ESOP, and together with the LTIP, the Plans) in order to provide an additional incentive to management and eligible employees (the Plan Participants).
(f) Participation in the LTIP is only available to senior management of the Filer (including the chief executive officer, vice presidents and directors who report to vice presidents). Participation in the ESOP is available to all employees of the Filer who have been employed (either on a full time or regular part time basis) for at least three calendar months.
(g) The LTIP involves an annual grant of Common Shares and options to acquire Common Shares to senior management as part of management's overall compensation.
(h) The ESOP involves a right on the part of employees to purchase Common Shares through regular payroll deductions or contributions.
(i) Each of the Plans requires that when Plan Participants wish to sell Common Shares they must sell them to a trust (the Plan Trust) established by the Filer for this purpose, or in the event the Plan Trust is unable to purchase the shares for any reason, to the Filer. Plan Participants will be required to sell their Common Shares in certain circumstances, including death, disability and termination of employment. All sales of Common Shares are specified to occur at the full value per share (as established pursuant to the Plans).
(j) Participation in the Plans by employees is voluntary and such persons are not induced to participate in the Plans by expectation of employment or continued employment with the Filer.
(k) The administration of the Plans, including amendment and termination of the Plans, will at all times remain within the discretion of the Filer's board of directors. In addition, a plan committee consisting of management employees of the Filer will be established to administer the requirements of the ESOP.
(l) The Common Shares to be issued under the LTIP will be a new series of existing Common Shares designated for such purpose. The Common Shares to be issued under the ESOP will either be a new series of Common Shares designated for such purpose or a new class of Common Shares created for such purpose.
(m) The Plan Trust is being established to acquire Common Shares from Plan Participants rather than having the Common Shares repurchased directly by the Filer in order to permit Plan Participants to dispose of their Common Shares in a tax-efficient manner. After acquiring Common Shares from a Plan Participant, the Plan Trust will immediately transfer the Common Shares back to the Filer at the same value as the Plan Trust acquired the shares from the Plan Participant.
(n) The Plan Trust will be settled by the Filer as a new inter-vivos trust that is resident in Canada with nominal capital. The trustees of the Plan Trust will be various members of the board of directors or senior management of the Filer. The Plan Trust will be established with the specific purpose of purchasing Common Shares from Plan Participants who wish to or are required to sell their Common Shares. The only beneficiary of the Plan Trust will be the Filer and it will not conduct any other activities.
5. 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.
6. The decision of the Decision Makers under the Legislation is that the Requested Relief is granted, provided that:
(a) the Common Shares are acquired by a Plan Participant in compliance with Section 2.24 of National Instrument 45-106 Prospectus and Registration Exemptions; and
(b) the first trade of the Common Shares acquired by the Plan Trust pursuant to this decision will be subject to Section 2.6 of National Instrument 45-102 Resale of Securities.