SNP Health Split Corp. - MRRS Decision

INTHE MATTER OF

THESECURITIES LEGISLATION OF

BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO,NOVA SCOTIA, NEW BRUNSWICK, PRINCE EDWARD ISLAND,

NEWFOUNDLANDAND LABRADOR

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

SNPHEALTH SPLIT CORP.

AND

INTHE MATTER OF

SCOTIACAPITAL INC.

MRRSDECISION DOCUMENT

WHEREAS the local securities regulatory authorityor regulator (the "Decision Maker") in each of Ontario, BritishColumbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, Newfoundlandand Labrador, New Brunswick, and Prince Edward Island (the "Jurisdictions")has received an application from SNP Health Split Corp. (the"Company") and Scotia Capital Inc. ("Scotia Capital") for adecision under the securities legislation (the "Legislation")of the Jurisdictions that the requirements contained in theLegislation of each of the Jurisdictions to file and obtaina receipt for a preliminary prospectus and final prospectus(the "Prospectus Requirements") shall not apply to Market MakingTrades (as hereinafter defined) by Scotia Capital in class APreferred Shares (the "Preferred Shares") and class A CapitalShares (the "Capital Shares") of the Company, subject to certainrestrictions;

AND WHEREAS under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System"), theOntario Securities Commission is the principal regulator forthis application;

AND WHEREAS the Company has represented to the DecisionMakers that:

1.Scotia Capital is a direct, wholly-owned subsidiary of The Bankof Nova Scotia and is registered under the Legislation as adealer in the categories of "broker" and "investment dealer"and is a member of the Investment Dealers Association of Canadaand The Toronto Stock Exchange (the "TSE").

2.The Company was incorporated on November 29, 2001 under thelaws of the Province of Ontario and is authorized to issue anunlimited number of Class J Shares.

3.The Company has filed with the securities regulatory authoritiesof each province of Canada a preliminary prospectus dated November29, 2001 (the "Preliminary Prospectus") in respect of the proposedoffering (the "Offering") of Capital Shares and Preferred Sharesto the public.

4.The Company intends to become a reporting issuer under the Legislationby filing a final prospectus (the "Final Prospectus") relatingto the Offering. Prior to the filing of the Final Prospectus,the Articles of the Company will be amended so that the authorizedcapital of the Company will consist of an unlimited number ofCapital Shares, an unlimited number of Preferred Shares, anunlimited number of Class B, Class C, Class D and Class E CapitalShares, issuable in series, an unlimited number of Class B,Class C, Class D and Class E Preferred Shares, issuable in series,and an unlimited number of Class J Shares, having the attributesset forth under the headings "Description of Share Capital"and "Details of the Offerings" in the Preliminary Prospectus.

5.The Capital Shares and Preferred Shares may be surrendered forretraction at any time in the manner described in the PreliminaryProspectus.

6.Application will be made to list the Capital Shares and PreferredShares on the TSE.

7.The Class J Shares will be the only voting shares in the capitalof the Company. There are currently, and will be at the timeof filing the Final Prospectus, 100 Class J Shares issued andoutstanding. Scotia Capital owns 50 of the issued and outstandingClass J Shares of the Company and SNP Health Split HoldingsCorp. owns the remaining 50 issued and outstanding Class J Sharesof the Company. Two employees of Scotia Capital each own 50%of the issued and outstanding common shares of SNP Health SplitHoldings Corp.

8.The Company has a board of directors which currently consistsof three directors. All of the directors are employees of ScotiaCapital. Also, the offices of President/Chief Executive Officerand Chief Financial Officer/Secretary of the Company are heldby employees of Scotia Capital. Prior to filing the Final Prospectus,it is contemplated that at least two additional directors, independentof Scotia Capital, will be appointed to the board of directorsof the Company.

9.Pursuant to an agency agreement to be made between the Companyand Scotia Capital and such other agents as may be appointedafter the date of this application (collectively, the "Agents"),the Company will appoint the Agents, as its agents, to offerthe Capital Shares and Preferred Shares of the Company on abest efforts basis and the Final Prospectus qualifying the Offeringwill contain a certificate signed by each of the Agents in accordancewith the Legislation.

10.The Company is considered to be a mutual fund as defined inthe Legislation. Since the Company does not operate as a conventionalmutual fund, it has made application for a waiver from certainrequirements of National Instrument 81-102 Mutual Funds.

11.The Company is a passive investment company whose principalundertaking will be to invest the net proceeds of the Offeringin a portfolio (the "Portfolio") of publicly listed common shares(the "Portfolio Shares") of the companies that make up the S&PHealth Care Sector of the S&P 500 Index (the"Health Care Index") in order to generate dividend income forthe holders of Preferred Shares and to enable the holders ofCapital Shares to participate in any capital appreciation inthe Portfolio Shares after payment of operating expenses anda portion of the fixed distribution on the Preferred Shares.

12.The fixed distributions on the Preferred Shares will be fundedfrom the dividends received on the Portfolio Shares togetherwith premiums earned from writing covered call options on aportion of the Portfolio Shares and where appropriate, cashcovered put options. To the extent that premiums generated fromoption writing are in any quarter insufficient to pay the quarterlyPreferred Share distributions, the Company may fund the paymentof a portion of the fixed distributions on the Preferred Shareson a temporary basis from borrowings under the Company's revolvingcredit facility to be established with a Canadian charteredbank.

13.The Portfolio Shares are listed and traded on either the NewYork Stock Exchange or the Nasdaq Stock Market.

14.The Company is not, and will not upon the completion of theOffering, be an insider of any of the issuers of the PortfolioShares within the meaning of the Legislation.

15.Scotia Capital's economic interest in the issuer and in thematerial transactions involving the Company are disclosed inthe Preliminary Prospectus and will be disclosed in the FinalProspectus under the heading "Interest of Management and Othersin Material Transactions".

16.The net proceeds from the sale of the Capital Shares and PreferredShares under the Final Prospectus, after payment of commissionsto the Agents and expenses of issue will be used by the Companyto:

(a) pay the acquisition cost (including any related costs orexpenses of the Portfolio Shares; and

(b) pay the initial fee payable to Scotia Capital for its servicesunder the Administration Agreement (as defined below).

17.All Capital Shares and Preferred Shares outstanding on a dateapproximately seven years from the closing of the Offering willbe redeemed by the Company on such date, as will be specifiedin the Final Prospectus, and Preferred Shares will be redeemableat the option of the Company on any Annual Retraction PaymentDate, as described in the Preliminary Prospectus.

18.Pursuant to a securities purchase agreement to be entered intobetween the Company and Scotia Capital, Scotia Capital willpurchase, as agent for the benefit of the Company, PortfolioShares in the market on commercial terms or from non-relatedparties with whom Scotia Capital and the Company deal at arm'slength. The aggregate purchase price to be paid by the Companyfor the Portfolio Shares (together with carrying costs and otherexpenses incurred in connection with the purchase of PortfolioShares) will not exceed the net proceeds from the Offering.

19.It will be the policy of the Company to hold the Portfolio Sharesand to not engage in any trading of the Portfolio Shares, exceptfor the purposes described in the Preliminary Prospectus, including:

(a) to give effect to any change in the composition or weightingof the constituent companies in the Health Care Index;

(b) to fund retractions and redemptions of the Capital Sharesand Preferred Shares; or

(c) upon the exercise of a call option written by the Companyor to meet obligations of the Company in respect of liabilities.

20.Pursuant to an investment management agreement to be enteredinto, the Company will retain Connor, Clark & Lunn CapitalMarkets Inc. to manage the Portfolio so that the Portfolio tracksthe weightings of the constituent companies of the Health CareIndex and will write covered call options and where appropriatecash covered put options, on a portion of the Portfolio Shares.

21.Pursuant to an administration agreement (the "AdministrationAgreement") to be entered into, the Company will retain ScotiaCapital to administer the ongoing operations of the Companyand will pay Scotia Capital a fee equal to:

(a) a monthly fee of 1/12 of 0.20 percent of the market valueof the Portfolio Shares held in the Portfolio; and

(b) any interest income earned by the Company during the termof the Administration Agreement (excluding interest earned onany investment of surplus dividends received on the PortfolioShares and interest earned on any cash or cash equivalents heldby the Company to cover put options written by the Company).

22.Scotia Capital will be a significant maker of markets for theCapital Shares and Preferred Shares, although it is not anticipatedthat Scotia Capital will be appointed the registered pro-traderby the TSE with respect to the Company. As a result, ScotiaCapital will, from time to time, purchase and sell Capital Sharesand Preferred Shares as principal and trade in such securitiesas agent on behalf of its clients, the primary purpose of suchtrades (the "Market Making Trades") being to provide liquidityto the holders of Capital Shares and Preferred Shares. All tradesmade by Scotia Capital as principal will be recorded daily bythe TSE.

23.As Scotia Capital owns 50% of the Class J Shares of the Company,Scotia Capital will be deemed to be in a position to affectmaterially the control of the Company and consequently, eachMarket Making Trade will be a "distribution" or "distributionto the public" within the meaning of the Legislation.

AND WHEREAS under the System, this MRRS DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");

AND WHEREAS each of the Decision Makers issatisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;

THE DECISION of the Decision Makers pursuantto the Legislation is that the Prospectus Requirements shallnot apply to the Market Making Trades by Scotia Capital in theCapital Shares and Preferred Shares provided that at the timeof each Market Making Trade, Scotia Capital and its affiliatesdo not beneficially own or have the power to exercise controlor direction over a sufficient number of voting securities ofthe issuers of the Portfolio Shares, securities convertibleinto voting securities of the issuers of the Portfolio Shares,options to acquire voting securities of the issuers of the PortfolioShares, or any other securities which provide the holder withthe right to exercise control or direction over voting securitiesof the issuers of the Portfolio Shares which in the aggregate,permit Scotia Capital to affect materially the control of theissuers of the Portfolio Shares and without limiting the generalityof the foregoing, the beneficial ownership of or the power toexercise control or direction over securities representing inthe aggregate 20 percent or more of the votes attaching to allthe then issued and outstanding voting securities of the issuersof the Portfolio Shares shall, in the absence of evidence tothe contrary, be deemed to affect materially the control ofthe issuers of the Portfolio Shares.