Exemption Orders (Discretionary)
CISCO SYSTEMS, INC.
2001 BCSECCOM 45
Headnote:
Mutual Reliance Review System for Exemptive Relief Applications - Relief from registration and prospectus requirements in respect of certain trades made in connection with the acquisition of a non-reporting Canadian company by a non-reporting US company where the statutory arrangement exemptions are not available for technical reasons. First trade relief for shares of US issuer subject to trade being effected on market outside Canada.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 45(2)(9), 48, 61, 74(2)(8), 76
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ONTARIO AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF CISCO SYSTEMS, INC. AND PIXSTREAM INCORPORATED
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of British Columbia, Ontario and Newfoundland (collectively, the "Jurisdictions") has received an application from Cisco Systems, Inc. and PixStream Incorporated ("Cisco" and "Pixstream", respectively, and collectively the "Filer") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that the requirement to be registered to trade in a security (the "Registration Requirement") and to file and obtain a receipt for a preliminary prospectus and a prospectus (the "Prospectus Requirement") contained in the Legislation shall not apply to certain trades in securities to be made in connection with the proposed acquisition by Cisco of all of the issued and outstanding shares in the capital of PixStream (the "Acquisition") made pursuant to the terms of a merger agreement dated August 29, 2000 (the "Merger Agreement") between Cisco; 3045848 Nova Scotia Company ("Cisco Newco"), an indirect wholly-owned subsidiary of Cisco; 3801110 Canada Inc. ("Cisco Canada"), a wholly-owned subsidiary of Cisco Newco; and PixStream, as amended.
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Filer has represented to the Decision Makers that:
1. Cisco is a corporation incorporated under the laws of the State of California, with its head office in San Jose, California.
2. Cisco is currently subject to the reporting requirements of the United States Securities Exchange Act of 1934, as amended, and is not a "reporting issuer" or the equivalent concept in any of the Jurisdictions.
3. The common shares in the capital of Cisco (the "Cisco Shares") are quoted on the Nasdaq National Market ("Nasdaq").
4. Cisco is the leading global supplier of internetworking solutions, including routers, switches, dial-up access servers and network management software. These products, integrated by the Cisco IOS Software, link geographically dispersed local area networks, wide area networks, and IBM networks. Cisco is a multinational corporation with over US$12.15 billion in revenues and over 20,000 employees.
5. The authorized capital stock of Cisco consists of 20,000,000,000 Cisco Shares, par value US$0.001 per share, and 5,000,000 shares of preferred stock, par value US$0.001 per share, of which there were issued and outstanding as of September 11, 2000, 7,157,664,864 Cisco Shares and no shares of preferred stock. The Cisco Shares are fully participating, voting shares.
6. According to the share register of Cisco as at September 11, 2000, there were 371,092 Cisco Shares registered in the name of 64 holders resident in British Columbia, 1,739,747 Cisco Shares registered in the name of 214 holders resident in Ontario, and no Cisco Shares registered in the name of holders resident in Newfoundland. Those Cisco Shares, combined, represented approximately 0.03% of the total issued and outstanding Cisco Shares.
7. PixStream is a corporation incorporated under the laws of Canada with its head office in Waterloo, Ontario.
8. PixStream is not a "reporting issuer" or the equivalent concept in any of the Jurisdictions and its securities are not quoted or listed on any public market.
9. PixStream develops, manufactures and markets hardware and software solutions that enable network service providers to distribute and manage digital video.
10. PixStream is authorized to issue an unlimited number of Class A voting common shares ("Class A Shares") and an unlimited number of Class B non-voting common shares ("Class B Shares"), of which there were issued and outstanding as of August 29, 2000, 40,846,730 Class A Shares and 3,918,282 Class B Shares.
11. According to the share register of PixStream as at September 11, 2000 there were 16,250 Class A Shares held in the name of one holder with a registered address in British Columbia, 40,247,670 Class A Shares held in the name of 200 holders with a registered address in Ontario and 3,918,282 Class B Shares held in the name of 14 holders with a registered address in Ontario, and 20,000 Class A Shares held in the name of one holder with a registered address in Newfoundland.
12. As of August 29, 2000, 15,597,000 Class A Shares had been reserved for issuance and were subject to options ("Options") granted or to be granted prior to completion of the Acquisition pursuant to written agreements between PixStream and holders of Options. Options to purchase 100,000 Class A Shares are held in the name of one holder with a registered address in British Columbia, Options to purchase 12,009,000 Class A Shares are held in the name of approximately 160 holders with a registered address in Ontario, and no Options to purchase Class A Shares are held in the name of holders with a registered address in Newfoundland.
13. As of August 29, 2000, 8,950,000 Class A Shares had been reserved for issuance and were subject to outstanding warrants ("Warrants") pursuant to written agreements between PixStream and holders of Warrants. Warrants to purchase 7,817,400 Class A Shares are held by 45 holders with a registered address in Ontario and no Warrants to purchase Class A Shares are held by holders with a registered address in British Columbia or Newfoundland.
14. PixStream currently holds 100% of the issued and outstanding Class A shares and Class B shares in the capital of Kaparel Corporation ("Kaparel") plus 40% of the issued and outstanding common shares in the capital of Kaparel. PixStream intends to dispose of its interest in Kaparel prior to the completion of the Acquisition (the “Kaparel Disposition”).
15. The Acquisition will be effected through the following steps:
(a) PixStream will apply, under Section 192 of the Canada Business Corporations Act (the "CBCA"), for an order (the "Interim Order") of the Ontario Superior Court of Justice (the "Court") approving a plan of arrangement (the "Plan of Arrangement");
(b) PixStream will hold a special meeting (the "Special Meeting") of holders of Class A Shares, Class B Shares, Options and Warrants (collectively, the "PixStream Securityholders") for the purpose of considering a resolution approving the Plan of Arrangement and the Acquisition;
(c) subject to obtaining the required approval from the PixStream Securityholders, PixStream will proceed with an application to the Court for a final order approving the Plan of Arrangement (the "Final Order");
(d) in the event the Kaparel Disposition is not completed prior to the Special Meeting, PixStream will divest its interest in Kaparel to a newly formed corporation ("KHoldco") in exchange for a promissory note (the "KHoldco Note");
(e) subject to obtaining the Final Order, PixStream will file with the Director appointed pursuant to Section 260 of the CBCA, Articles of Arrangement and such other documents as may be required under the CBCA to give effect to the Plan of Arrangement;
(f) upon endorsement of the Articles of Arrangement, PixStream shall amalgamate (the "Amalgamation") with one of its corporate shareholders ("Holdco") to form "Amalco";
(g) upon the Amalgamation, all of the Class A Shares and all of the Class B Shares (except those held by Holdco, which will be cancelled) and all of the outstanding shares of Holdco ("Holdco Shares") will be converted into Amalco common shares ("Amalco Common Shares") and, in the event the Kaparel Disposition is not completed prior to the Special Meeting, Amalco special shares ("Amalco Special Shares");
(h) in the event the Kaparel Disposition is not completed prior to the Special Meeting, immediately after the Amalgamation, all of the issued and outstanding Amalco Special Shares will be transferred to KHoldco in exchange for an equal number of KHoldco common shares (the "KHoldco Shares");
(i) in the event the Kaparel Disposition is not completed prior to the Special Meeting, immediately after the transfer of Amalco Special Shares to KHoldco, the Amalco Special Shares will be purchased for cancellation by Amalco, such purchase price to be satisfied by the cancellation of the KHoldco Note;
(j) immediately after the Amalgamation, all of the issued and outstanding Amalco Common Shares will be exchanged, at an exchange ratio determined by the Merger Agreement, for Cisco Canada exchangeable shares (the "Exchangeable Shares") and certain ancillary rights;
(k) each Option shall be assumed by Cisco and will become exercisable for Cisco Shares;
(l) each Warrant will be exercised prior to the Amalgamation;
(m) Cisco Canada will transfer all of the issued and outstanding Amalco Common Shares to an indirect, wholly-owned subsidiary of Cisco ("ULC #1") which will be a Nova Scotia unlimited liability company, in exchange for ULC #1 preferred shares;
(n) Amalco will be continued from the jurisdiction of the CBCA as a Nova Scotia company; and
(o) Amalco will amalgamate with a wholly-owned subsidiary of Amalco ("ULC #2") which will be a Nova Scotia unlimited liability company, and the resulting company will be a Nova Scotia unlimited liability company which is an indirect subsidiary of Cisco.
16. The management proxy circular (the “Circular”) to be delivered to PixStream security holders in connection with the Special Meeting is being prepared in conformity with the provisions of the CBCA and the Interim Order and will contain prospectus level disclosure of the business and affairs of Cisco and Cisco Canada and a detailed description of the Acquisition and the Plan of Arrangement.
17. The Exchangeable Shares will provide their holders (the "Exchangeable Shareholders") with a security of a Canadian issuer having economic and voting rights which are, as nearly as possible, equivalent to those of a holder of Cisco Shares. Exchangeable Shares generally will be received by Canadian residents on a tax-deferred roll-over basis.
18. Under the terms of the Exchangeable Shares (the "Exchangeable Share Provisions"), and certain rights to be granted in connection with the Plan of Arrangement, the Exchangeable Shareholders will be able to exchange them at their option for Cisco Shares on a one for one basis.
19. Pursuant to the Exchangeable Share Provisions and certain rights to be granted in connection with the Plan of Arrangement, Cisco Canada and Cisco Newco will be able to redeem, retract or acquire Exchangeable Shares in exchange for Cisco Shares in certain circumstances.
20. In order to ensure that the Exchangeable Shares remain the economic equivalent of Cisco Shares prior to their exchange, the Merger Agreement provides that, in accordance with the customary structure of such cross-border exchangeable share transactions, contemporaneously with the closing of the Acquisition, Cisco, Cisco Newco and Cisco Canada will enter into a support agreement (the "Support Agreement"), which will provide that, among other things, Cisco will (a) not declare or pay any dividends on Cisco Shares unless (i) Cisco Canada has sufficient resources available to pay simultaneous and equivalent dividends on the Exchangeable Shares, and (ii) Cisco Canada simultaneously declares or pays, as the case may be, such equivalent dividends; and (b) ensure that Cisco Canada will be able to honour the redemption and retraction rights and entitlements upon liquidation which are attributes of the Exchangeable Shares.
21. In addition, Cisco, Cisco Canada and Montreal Trust Company of Canada, as trustee (the "Trustee" or the "Depositary") will enter into a voting and exchange trust agreement (the "Voting and Exchange Trust Agreement"), which will, among other things:
(a) grant to the Trustee, for the benefit of the Exchangeable Shareholders, the right to require Cisco to indirectly exchange the Exchangeable Shares for Cisco Shares upon the occurrence of specified events (the "Exchange Right"); and
(b) provide for the deposit by Cisco, with the Depositary, of Cisco Shares that will effectively provide the Exchangeable Shareholders with voting rights equivalent to those of Cisco Shares.
22. The Acquisition involves, or may involve, a number of trades (the "Trades") including: (i) the issuance of the Exchangeable Shares and Cisco Shares and the assumption of Options by Cisco; and (ii) the creation and exercise of all the various rights under the Plan of Arrangement, Voting and Exchange Trust Agreement, Support Agreement, and Exchangeable Share Provisions.
23. There may be no registration or prospectus exemptions available under the Legislation for certain of the Trades.
24. If all of the Exchangeable Shares were exchanged and all of the Assumed Options were exercised immediately after completion of the Acquisition, former PixStream security holders resident in the Jurisdictions would not in the aggregate hold more than 10% of the total number of issued and outstanding Cisco Shares or represent more than 10% of the total number of holders of Cisco Shares.
25. There is no organized market for Cisco Shares in the Jurisdictions and none is expected to develop.
26. Upon completion of the Plan of Arrangement and the Acquisition, none of Cisco, Cisco Canada, Amalco, Holdco or KHoldco will become a “reporting issuer" or the equivalent concept in any of the Jurisdictions.
27. All disclosure material furnished to holders of Cisco Shares in the United States will be concurrently furnished to Exchangeable Shareholder resident in the Jurisdictions.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS 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;
THE DECISION of the Decision Makers under that Legislation is that:
1. the Registration Requirement and the Prospectus Requirement shall not apply to the Trades;
2. the first trade of Exchangeable Shares and Cisco Shares acquired in reliance on paragraph 1 of this Decision shall be a distribution, unless, in respect of the Cisco Shares, the trade is made through the facilities of Nasdaq or other market or exchange outside Canada and in accordance with the rules and regulations applicable to that market or exchange.
DATED at Toronto this 4th day of December, 2000.
J.A. Geller R. Stephen Paddon