Headnote NP 11-203 – relief from prospectus and dealer registration requirements to allow U.S. parent company to spin off shares of its U.S. subsidiary to investors and employees by way of share distribution and related distributions of options and restricted stock units – distributions not covered by legislative exemptions – U.S. parent company is a public company in the U.S. but is not a reporting issuer in Canada – U.S. parent company has a de minimis presence in Canada – following the spin off, U.S. subsidiary will become independent public company in the U.S. and will not be a reporting issuer in Canada – no investment decision required from Canadian shareholders in order to receive distributions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S.5., as amended, ss. 25, 53, 74(1)
December 21, 2012
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE “JURISDICTION”)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF ABBOTT LABORATORIES (“ABBOTT”)
DECISION
Background
- The principal regulator in the Jurisdiction has received an application from Abbott for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for:
(a) an exemption from the prospectus requirements of section 53 of the Securities Act (Ontario) (the “Act”) in connection with the proposed distribution of the shares of common stock of AbbVie (“AbbVie Shares”) by Abbott by way of dividend to holders (“Abbott Shareholders”) of common shares of Abbott (“Abbott Shares”) resident in Canada (“Abbott Canadian Shareholders”);
(b) an exemption from the prospectus requirements of section 53 of the Act and the dealer registration requirements of section 25 of the Act in connection with the proposed distribution by AbbVie of:
(i) options to acquire AbbVie Shares (“AbbVie Options”), to current holders of Abbott Options resident in Canada (“Abbott Canadian Optionholders”) that are former employees of Abbott or that will remain employees of Abbott (“Abbott Canadian Employees”); and
(ii) restricted stock and restricted stock units of AbbVie (collectively, “AbbVie Restricted Stock Securities”) to current holders of Abbott Restricted Stock Securities, resident in Canada (“Abbott Canadian Restricted Stockholders”) that are former employees of Abbott or that will remain Abbott Canadian Employees; and
(c) an exemption from the prospectus requirements of section 53 of the Act and the dealer registration requirements of section 25 of the Act in connection with the proposed distribution by Abbott of:
(i) options to acquire Abbott Shares (“Abbott Options”) to Abbott Canadian Optionholders that are former employees of Abbott or that will become employees of AbbVie (“AbbVie Canadian Employees”); and
(ii) restricted stock and restricted stock units of Abbott (collectively “Abbott Restricted Stock Securities”) to Abbott Canadian Restricted Stockholders that are former employees of Abbott or that will become AbbVie Canadian Employees,
(collectively, the “Requested Relief”).
- Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) Abbott has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 - Passport System (“MI 11-102”) is intended to be relied upon in each of the other provinces and territories of Canada.
Interpretation
Terms defined in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by Abbott.
Abbott is an Illinois corporation which operates a broad based health-care business. Abbott’s corporate headquarters are located in Abbott Park near Chicago, Illinois, USA.
Abbott is not a reporting issuer under the securities laws of any province or territory of Canada. Abbott has no intention of becoming a reporting issuer under the securities laws of any province or territory of Canada.
Abbott Shares are widely held and trade on the New York Stock Exchange, the Chicago Stock Exchange, the London Stock Exchange and the SIX Swiss Exchange (the “Exchanges”). Abbott Shares are not listed on any Canadian stock exchange.
As of August 31, 2012, there were 2,030 registered holders of Abbott Shares resident in Canada (the “Abbott Canadian Shareholders”) holding approximately 1,334,144 Abbott Shares, representing approximately 3.3% of the registered shareholders of Abbott worldwide and holdings of less than 0.1% of the outstanding Abbott Shares as of such date. As such, the number of registered holders of Abbott Shares resident in Canada and the number of Abbott Shares held by residents in Canada is de minimis.
Based on information obtained as of September 26, 2012, there were 17,166 beneficial holders of Abbott Shares resident in Canada, representing approximately 2.4% of all beneficial holders of Abbott Shares and holdings of less than 1.5% of the outstanding Abbott Shares. Abbott does not expect the percentage of beneficial shareholders resident in Canada to have materially changed since that date. As such, the number of beneficial holders of Abbott Shares resident in Canada and the number of Abbott Shares beneficially held by residents of Canada is de minimis. There are beneficial holders of Abbott Shares resident in every province and territory of Canada.
Abbott is proposing to spin off (the “Spin-off Transaction”) its research-based pharmaceutical business into an independent public company (AbbVie) through a series of transactions. These transactions are expected, in addition to certain related transactions, to result in the distribution (the “Stock Dividend”) by Abbott, pro rata to its shareholders of all of the AbbVie Shares, which will be 100% of the AbbVie Shares outstanding immediately prior to such distribution.
AbbVie is a Delaware corporation and a wholly owned subsidiary of Abbott that at the time of the Stock Dividend will hold, through its subsidiaries, the assets and liabilities associated with Abbott’s research-based pharmaceutical business.
In connection with the Spin-off Transaction, AbbVie filed with the SEC on October 23, 2012 amendment number 4 to a registration statement on Form 10 under the U.S. Securities Act of 1933 (as subsequently amended, restated and supplemented, the “Registration Statement”). The final prospectus filed as part of the Registration Statement will contain audited consolidated financial statements of AbbVie, and it will be made available to Abbott Shareholders for information purposes.
Fractional shares of AbbVie Shares will not be distributed under the Stock Dividend. A distribution agent will aggregate the amount of fractional shares that would otherwise have been distributed into whole shares of AbbVie and will sell such shares into the public market as soon after the Stock Dividend as practicable and as determined by the distribution agent at the then-prevailing share prices and distribute the cash proceeds in U.S. Dollars, after deducting any applicable transfer taxes and the costs and expenses of such sale and distribution. The distribution agent will distribute such net proceeds pro rata to each Abbott Shareholder who would otherwise have been entitled to receive a fractional share of AbbVie.
Abbott Shareholders will not be required to pay for the AbbVie Shares, or to surrender or exchange Abbott Shares or take any other action to be entitled to receive their AbbVie Shares. The Stock Dividend will occur automatically and without any investment decision on the part of Abbott Shareholders.
After the completion of the Spin-off Transaction, Abbott will continue to be listed and traded on the Exchanges.
AbbVie will apply to have the AbbVie Shares listed on the Exchanges before or following the Spin-off Transaction.
Abbott’s research-based pharmaceuticals business is being spun off into a separate corporation for a variety of reasons including:
(a) the investment identities of Abbott and AbbVie have evolved independently over time. The Spin-off Transaction will allow investors to separately value Abbott and AbbVie based on their unique investment identities, including the merits, performance and future prospects of their respective businesses. The Spin-off Transaction will also provide investors with two distinct and targeted investment opportunities;
(b) the Spin-off Transaction will allow each business to more effectively pursue its own distinct operating priorities and strategies, which have diverged over time, and will enable the management of both companies to pursue unique opportunities for long-term growth and profitability;
(c) the Spin-off Transaction will permit each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in a time and manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital; and
(d) the Spin-off Transaction will create an independent equity structure that will afford AbbVie direct access to capital markets and facilitate the ability to capitalize on its unique growth opportunities and effect future acquisitions utilizing AbbVie Shares.
Prior to the completion of the Spin-off Transaction, AbbVie is not and does not intend to become a reporting issuer in any province or territory in Canada or list its securities on any stock exchange in Canada. To the knowledge of Abbott, AbbVie has no intention of becoming a reporting issuer in any province or territory in Canada or listing its securities on any stock exchange in Canada after the completion of the Spin-off Transaction.
The Spin-off Transaction and the Stock Dividend will be effected under the laws of the State of Delaware and the State of Illinois, respectively.
Because the Stock Dividend will be by way of a dividend of AbbVie Shares to Abbott Shareholders, no shareholder approval of the proposed transaction is required (or being sought) under Illinois law.
All materials relating to the Spin-off Transaction sent by or on behalf of Abbott and AbbVie to registered Abbott Shareholders in the United States will be sent concurrently to the registered Abbott Canadian Shareholders. The prospectus that forms part of the Registration Statement will be sent to registered Abbott Canadian Shareholders after the SEC declares the Registration Statement effective.
Following the completion of the Spin-off Transaction and Stock Dividend, Abbott and AbbVie, respectively, will send concurrently to registered Abbott Canadian Shareholders the same disclosure materials required to be sent under applicable U.S. laws to Abbott Shareholders resident in the United States.
The Abbott Canadian Shareholders who receive AbbVie Shares as a dividend pursuant to the Spin-off Transaction will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin-off Transaction and the Stock Dividend that are available to Abbott Shareholders in the United States.
The Stock Dividend to Abbott Canadian Shareholders would be exempt from the Prospectus Requirements pursuant to subsection 2.31(2) of National Instrument 45-106 - Prospectus and Registration Exemptions (“NI 45-106”) but for the fact that AbbVie is not a reporting issuer under the Act.
As a result of the Spin-off Transaction, the value of Abbott Shares will change and, accordingly, Abbott will adjust the existing employee awards. Each outstanding Abbott Option will be converted into an adjusted Abbott Option and an AbbVie Option. The exercise prices and the number of shares subject to each such option will be adjusted pursuant to a formula that is intended to preserve the intrinsic value of the original Abbott Option. Similarly, each outstanding Abbott Restricted Stock Security will be converted into an adjusted Abbott Restricted Stock Security and an AbbVie Restricted Stock Security. The number of shares subject to each such restricted stock security will be adjusted pursuant to a formula that is intended to preserve the intrinsic value of the original Abbott Restricted Stock Security.
As of October 18, 2012 there were 119 Abbott Canadian Optionholders that held approximately 0.7% of the outstanding Abbott Options.
As of October 18, 2012 there were 286 Abbott Canadian Restricted Stockholders that held approximately 0.8% of the outstanding Abbott Restricted Stock Securities.
As part of the Spin-off Transaction certain employees of Abbott in Canada will remain Abbott Canadian Employees and other employees will become AbbVie Canadian Employees.
Abbott and AbbVie propose to make the following distributions to employees of Abbott and employees of AbbVie (together the “Security Compensation Awards Canada Distributions”):
(e) distribute adjusted Abbott Options and AbbVie Options to current Abbott Canadian Optionholders that are former employees of Abbott or will remain Abbott Canadian Employees;
(f) distribute adjusted Abbott Options and AbbVie Options to current Abbott Canadian Optionholders that will become AbbVie Canadian Employees;
(g) distribute adjusted Abbott Restricted Stock Securities and AbbVie Restricted Stock Securities to current Abbott Canadian Restricted Stockholders that are former employees of Abbott or will remain Abbott Canadian Employees; and
(h) distribute adjusted Abbott Restricted Stock Securities and AbbVie Restricted Stock Securities to current Abbott Canadian Restricted Stockholders that will become AbbVie Canadian Employees.
The current plan administrator for purposes of Abbott’s existing employee awards plans (the “Existing Plans”) will administer the Security Compensation Awards Canada Distributions.
As part of the Security Compensation Awards Canada Distributions, each Abbott Canadian Employee and AbbVie Canadian Employee will receive the same disclosure material that each United States employee of Abbott or AbbVie would receive who holds Abbott Options or Abbott Restricted Stock Securities.
It is the intention of Abbott that only the Abbott Canadian Optionholders and the Abbott Canadian Restricted Stockholders under the Existing Plans will receive the one time benefit of the exemptions granted under this Application with respect to the Security Compensation Awards Canada Distribution. Thereafter, Abbott Canadian Employees will potentially receive awards under the applicable Existing Plans, while AbbVie Canadian Employees will potentially receive AbbVie awards under any comparable employee awards plans of AbbVie, as applicable.
The Security Compensation Awards Canada Distributions to Abbott Canadian Employees and AbbVie Canadian Employees would be exempt from the Prospectus Requirements and the Dealer Registration Requirements pursuant to section 2.24 of NI 45-106, and section 8.16 of National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations but for the fact that the Security Compensation Awards Canada Distributions will occur after the Spin-off Transaction and at that time Abbott and AbbVie will not be related entities for purposes of the exemption.
To the knowledge of Abbott, Abbott and AbbVie are not in default of any securities legislation in any of the provinces or territories of Canada.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
(a) the Requested Relief is granted;
(b) the resale of AbbVie Shares acquired by Abbott Canadian Shareholders will be deemed to be a distribution unless the conditions in section 2.6 or section 2.14 of National Instrument 45-102 - Resale of Securities (“NI 45-102”) are satisfied; and
(c) the resale of:
(i) AbbVie Options, or the AbbVie Shares underlying the AbbVie Options, that are acquired by Abbott Canadian Optionholders that are former employees of Abbott or that will remain Abbott Canadian Employees;
(ii) Abbott Options, or the Abbott Shares underlying the Abbott Options, that are acquired by Abbott Canadian Optionholders that become AbbVie Canadian Employees;
(iii) AbbVie Restricted Stock Securities, or the AbbVie Shares underlying the AbbVie Restricted Stock Securities, that are acquired by AbbVie Canadian Restricted Stockholders that are former employees of Abbott or that will remain Abbott Canadian Employees; and
(iv) Abbott Restricted Stock Securities, or the Abbott Shares underlying the Abbott Restricted Stock Securities, that are acquired by Abbott Canadian Restricted Stockholders that become AbbVie Canadian Employees,
will be deemed to be a distribution unless the conditions in section 2.6 or section 2.14 of NI 45-102 are satisfied.
“Christopher Portner” “Judith Robertson”
Commissioner Commissioner
Ontario Securities Commission Ontario Securities Commission