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3/6/00 - OSC re Midnorthern Appliance and Shearhart
ONTARIO SECURITIES COMMISSION ("OSC-T") SHEARHART CORP ("SHW-V") - OSC re Midnorthern Appliance and Shearhart IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act") AND IN THE MATTER OF MIDNORTHERN APPLIANCE INC. AND IN THE MATTER OF SHEARHART CORPORATION DECISION (Clause 104(2)(a))
UPON the application of Midnorthern Appliance Inc. ("Midnorthern") to the Ontario Securities Commission (the "Commission") for a decision pursuant to clause 104(2)(a) of the Act, in connection with the offer (the "Offer") to be made by Midnorthern to acquire common shares of Shearhart Corporation ("Shearhart"), that the employment agreement (the "Employment Agreement") to be entered into with Tony Meschino ("Meschino") is being made for reasons other than to increase the value of the consideration to be paid to Meschino under the Offer and that the Employment Agreement may be entered into notwithstanding subsection 97(2) of the Act;
AND UPON considering the application and the recommendation of the staff of the Commission;
AND UPON Midnorthern having represented to the Commission as follows:
1.
Shearhart is a corporation incorporated under the laws of the Province of Alberta and operates 16 retail appliance stores in southern Ontario under the name "Home & Rural";
2.
The authorized capital of Shearhart consists of an unlimited number of Class A Preferred Shares, an unlimited number of Class B Preferred Shares and an unlimited number of common shares ("Shares"), of which 9,011,360 Shares and no Class A Preferred Shares and no Class B Preferred Shares are issued and outstanding;
3.
The Shares of Shearhart are listed and posted for trading on the Canadian Venture Exchange and prior thereto, were listed on the Alberta Stock Exchange;
4.
Shearhart is not a reporting issuer under the Act. Shearhart is a reporting issuer in the Province of Alberta and, by virtue of its listing on CDNX, has become a reporting issuer in the Province of British Columbia;
5.
Meschino is the President of Shearhart and owns 273,700 Shares (the "Meschino Shares"), representing approximately 3% of the class;
6.
Midnorthern is a private corporation amalgamated under the laws of the Province of Ontario and controlled by Mr. Willy Gnat and members of his family. Midnorthern supplies major home appliances to the construction and property management sectors in Ontario. Midnorthern also operates and franchises retail appliance stores in southern Ontario;
7.
Midnorthern has entered into lock-up agreements with Robert Shearhart, the Chairman of Shearhart, and Barbara Shearhart, pursuant to which they have agreed to deposit 5,981,014 Shares representing approximately 66.37% of the class, owned, directly or indirectly by them, to the Offer and not to withdraw such Shares unless a competing cash offer is made for all of the Shares at a price of not less than $1.85 per Share (a "Competing Offer") and which Midnorthern fails to match within a limited time;
8.
Meschino has also entered into a lock-up agreement with Midnorthern and has agreed to deposit the Meschino Shares to the Offer and not to withdraw such Shares unless there is a Competing Offer which Midnorthern fails to match:
9.
The Employment Agreement to be entered into with Meschino will provide that if the Offer is successful and Midnorthern acquires the Shares, Meschino will be employed as President of Midnorthern's retail division for an initial five-year term, renewable thereafter on a year-to-year basis. Meschino will be responsible for the Home & Rural stores and the Midnorthern stores, as well as for the integration of the retail and builder upgrade divisions of Midnorthern;
10. During 1999, Shearhart paid Meschino a salary of $126,000 and a performance bonus of $19,000. Under the terms of the Employment Agreement with Midnorthern, Meschino's base salary will be $150,000 per annum, subject to annual review. He will also be eligible to earn an annual performance bonus of up to $35,000, subject to the achievement of specific financial objectives related to the revenues and profits of Midnorthern. Meschino will also receive substantially the same benefits from Midnorthern as he currently receives from Shearhart. If Meschino's employment with Midnorthern is terminated, other than for cause, he will be entitled to receive his base salary for a period of 16 months plus one additional month for each whole year of service under the Employment Agreement. In addition, if Midnorthern should complete an initial public offering or otherwise become publicly traded during the term of his employment, Meschino will, subject to regulatory approval, be granted an option to purchase common shares of Midnorthern upon terms and conditions consistent with those provided to other senior management of Midnorthern;
11. The Employment Agreement contains covenants of Meschino not to compete with Midnorthern in the retail appliance sector and not to solicit clients, customers or employees of Midnorthern for a one-year period following termination of the Employment Agreement;
12. Midnorthern has been advised by Shearhart that Shearhart intends to pay Meschino a one-time bonus of $120,000 on completion of the Offer, pursuant to a pre- existing agreement between Meschino and Shearhart;
13. The compensation provided for under the Employment Agreement is reasonable in light of the responsibilities of Meschino as President of the resulting retail division of Midnorthern which will combine Midnorthern's retail stores and Shearhart's Home & Rural stores following completion of the Offer: and
14. The Employment Agreement is being entered into to provide continuity of senior management and not to provide additional consideration to Meschino as a selling shareholder of Shearhart.
AND UPON the Commission being satisfied that to make this decision would not be prejudicial to the public interest;
IT IS DECIDED pursuant to clause 104(2)(a) of the Act that, for the purposes of subsection 97(2) of the Act, the Employment Agreement is being made for reasons other than to increase the value of the consideration to be paid to Meschino for his Shares of Shearhart and that the Employment Agreement may be entered into notwithstanding subsection 97(2) of the Act. February 11th, 2000. "J. A. Geller" "R. Stephen Paddon" TEL: (416) 593-8313 Ontario Securities Commission
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