Exemption Orders (Discretionary)
INTERNATIONAL BUSINESS MACHINES CORPORATION
2001 BCSECCOM 89
Headnote
The Mutual Reliance Review System for Exemptive Relief Applications – Relief provided from the continuous disclosure requirements regarding a Canadian issuer, which only has exchangeable shares that are equivalent to and exchangeable into common shares of its US parent in the hands of the public, subject to certain conditions including that the US parent file its continuous disclosure documents. Certain insiders of the issuer granted relief from the insider reporting requirements.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 85, 87, 91(1)(b), 119
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, SASKATCHEWAN, QUÉBEC, NOVA SCOTIA, PRINCE EDWARD ISLAND AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
IN THE MATTER OF 3040696 NOVA SCOTIA COMPANY
AND
IN THE MATTER OF IBM ACQUISITION INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Saskatchewan, Québec, Nova Scotia, Prince Edward Island and Newfoundland (collectively, the “Jurisdictions”) has received an application from International Business Machines Corporation (“IBM”), 3040696 Nova Scotia Company (“IBM Holdings”) and IBM Acquisition Inc. (the “Canadian Offeror”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”), in connection with the offers (the"Offers") by the Canadian Offeror and IBM Acquisition II L.L.C. (the "US Offeror" and collectively with the Canadian Offeror, the "Offeror"), that the requirements contained in the Legislation:
(i) with respect to the Canadian Offeror, to issue a press release and file a report with the Decision Makers upon the occurrence of a material change, file interim financial statements and audited financial statements with the Decision Makers and deliver such statements to the securityholders of the Canadian Offeror, file an information circular or make an annual filing with the Decision Makers in lieu of filing an information circular, file an annual information form and provide management’s discussion and analysis of financial condition and results of operations (the “Continuous Disclosure Requirements”) shall not apply to the Canadian Offeror; and
(ii) to comply with insider reporting requirements (the “Insider Reporting Requirements”) shall not apply to any insider of the Canadian Offeror;
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Commission des valeurs mobilières du Québec is the principal regulator for this application;
AND WHEREAS IBM, IBM Holdings and the Canadian Offeror have represented to the Decision Makers that:
1. IBM is a corporation incorporated under the laws of the State of New York.
2. IBM is currently subject to the reporting requirements of the United States Securities Exchange Act of 1934 ), as amended (the"1934 Act"). IBM is not a reporting issuer (as such term is defined in applicable Canadian securities legislation) or the equivalent anywhere.
3. IBM’s authorized share capital consists of 150,000,000 shares of preferred stock (“Preferred Shares”) and 4,687,500,000 shares of common stock, par value U.S.$0.20 (the “IBM Common Stock”). As of December 31, 1999, IBM’s issued capital consisted of 2,546,011 Preferred Shares and 1,876,665,245 shares of IBM Common Stock. The IBM Common Stock is listed on the New York Stock Exchange (the “NYSE”), the Chicago Stock Exchange and the Pacific Stock Exchange.
4. IBM Holdings is an indirect wholly-owned subsidiary of IBM, incorporated under the Companies Act (Nova Scotia) for the purpose of implementing the Offers (as hereinafter defined). IBM Holdings’ registered office is located at Suite 800, 1959 Upper Water Street, Box 999, Halifax, N.S., B3J 2X2.
5. IBM Canada Limited ("IBM Canada") is a corporation incorporated under the laws of Canada. IBM Canada is an indirect wholly-owned subsidiary of IBM.
6. The Canadian Offeror is a corporation incorporated under the laws of Canada on March 10, 2000 for the purpose of making the Offers. The Canadian Offeror is an indirect wholly-owned subsidiary of IBM and, prior to consumating the Offers, it had no material assets or liabilities and no operating history.
7. The authorized capital of the Canadian Offeror consists of an unlimited number of common shares and an unlimited number of exchangeable shares (the “Exchangeable Shares”) of which 347,744 Exchangeable Shares and 109,131 Common Shares are issued and outstanding as at September 13, 2000.
8. LGS Group Inc. (“LGS”) is a corporation incorporated under the laws of Canada.
9. LGS is a reporting issuer in all Provinces of Canada that have reporting issuer provisions in their securities legislation.
10. LGS’s authorized share capital consists of an unlimited number of first preferred shares, issuable in series (“First Preferred Shares”), an unlimited number of second preferred shares, issuable in series (“Second Preferred Shares”), an unlimited number of Class A Subordinated Voting Shares (the “Class A Shares”), an unlimited number of Class B Multiple Voting Shares (the “Class B Shares” and, collectively with the Class A Shares, the “Shares”) and an unlimited number of Class C Multiple Voting Shares (“Class C Shares”). According to information provided to the Canadian Offeror by LGS, as of March 10, 2000, there were outstanding 10,041,573 Class A Shares, 2,852,000 Class B Shares and no First Preferred Shares, Second Preferred Shares or Class C Shares. In addition, LGS had outstanding Rights (as defined below) entitling holders to acquire an additional 1,859,429 Class A Shares. The Class A Shares were listed on the TSE and The Nasdaq Stock Market, Inc. at the date of the Offers but have since been delisted.
11. The Offeror offered to purchase, upon the respective terms and subject to the respective conditions described in the take-over bid circular dated March 15, 2000 (the “Circular”), (i) all of the issued and outstanding Class A Shares (the “Class A Offer”) and (ii) all of the issued and outstanding Class B Shares (the “Class B Offer” and together with the Class A Offer, the “Offers”), including, in the case of the Class A Offer, Class A Shares issuable upon the exercise of existing options, warrants, rights, or other entitlements (collectively, “Rights”) to acquire Class A Shares and in the case of the Class B Offer, Class B Shares issuable upon the exercise of existing Rights, for consideration per Share consisting of C$19.00 (the “Purchase Price”).
12. At the date of their expiry, on April 5, 2000, the Offers had been accepted by the holders of not less than 90% of the issued and outstanding Class A Shares and by the holders of 100% of the issued and outstanding Class B Shares, other than the Shares held on the date of the Offers by or on behalf of the Offeror and its “affiliates” and “associates” (as such terms are defined in the Canada Business Corporations Act (“CBCA”)), and all such shares have been taken up and paid for by the Offeror. The Offeror has exercised its rights of compulsory acquisition under the CBCA and acquired the remaining Shares, on substantially the same terms as were offered under the Offers.
13. Holders of Shares (“Shareholders”) who were residents of Canada could have elected to receive the Purchase Price in the form of Exchangeable Shares in lieu of cash (the “Share Option”). Shareholders who were not residents of Canada could have elected to receive the Purchase Price in the form of cash (the “Cash Option”) from the Canadian Offeror or shares of IBM Common Stock from the US Offeror. Shareholders who made no election were deemed to have elected the Cash Option. Eligible Shareholders (as defined in the Circular) who elected the Share Option received 0.1088 Exchangeable Share for each Share purchased in the applicable Offer, which fraction was calculated by dividing the US dollar equivalent of the Purchase Price by the average closing price of a share of IBM Common Stock on the NYSE for the ten trading days ended immediately prior to April 5, 2000, the date on which the Offeror first took up and paid for the Shares under the Offers. The US dollar equivalent was determined by reference to the noon spot rate established by the Bank of Canada for the conversion of Canadian dollars into US dollars on the business day preceding such date. Although different options were made available, the consideration paid in each case was equivalent.
14. The Canadian Offeror did not issue fractional Exchangeable Shares and any Shareholders who elected the Share Option and who was entitled to receive fractional Exchangeable Shares received cash in lieu of such fractional shares which would otherwise be issued, and any consideration paid for each such share was equivalent to its value.
15. On February 15, 2000, Mr. Raymond Lafontaine and Mr. André Gauthier, 115523 Canada Inc. and 115525 Canada Inc. (collectively, the “Locked-up Shareholders”) entered into a support agreement with IBM Canada pursuant to which the Locked-up Shareholders agreed to deposit under the Offers 305,952 Class A Shares and 2,852,000 Class B Shares, representing approximately 3.05% of the outstanding Class A Shares and 100% of the Class B Shares (2.57% and 100% on a fully-diluted basis).
16. The Exchangeable Shares were issued by the Canadian Offeror. The Exchangeable Shares are intended to be economically equivalent to shares of IBM Common Stock. Each Exchangeable Share is exchangeable, at any time at the option of the holder, into one share of IBM Common Stock. Holders of Exchangeable Shares are entitled to receive from the Canadian Offeror dividends (payable in Canadian dollars in the case of cash dividends) that are economically equivalent to any dividends paid on the IBM Common Stock. The Exchangeable Shares are subject to adjustment or modification in the event of a stock split or other changes to the IBM Common Stock so as to maintain at all times a one-to-one relationship between the Exchangeable Shares and shares of IBM Common Stock.
17. Subject to applicable law, and to the Retraction Call Right of IBM and IBM Holdings described below, holders of the Exchangeable Shares are entitled at any time to retract (that is, to require the Canadian Offeror to redeem) any or all such Exchangeable Shares owned by them and to receive in respect of each Exchangeable Share retracted, one share of IBM Common Stock, plus the “Additional Amount”. The “Additional Amount” with respect to each Exchangeable Share is an amount equal to the full amount of all declared and unpaid dividends and other distributions, if any, on each such Exchangeable Share and all dividends and other distributions, if any, declared on IBM Common Stock that have not been declared on each Exchangeable Share, in each case with a record date prior to the effective date of any exchange of Exchangeable Shares for shares of IBM Common Stock.
18. In the event a holder of Exchangeable Shares requests that the Canadian Offeror retract any or all of such Exchangeable Shares held by him, her or it, the Canadian Offeror is required to immediately notify IBM and IBM Holdings of such retraction request. IBM or IBM Holdings will then have five business days in which to exercise a retraction call right (the “Retraction Call Right”) to purchase all of the Exchangeable Shares submitted for retraction. If IBM or IBM Holdings exercises its Retraction Call Right, it must deliver or cause to be delivered, one share of IBM Common Stock, plus the Additional Amount, in respect of each Exchangeable Share submitted for retraction, to the Canadian Offeror’s transfer agent for delivery to the holder. If neither IBM nor IBM Holdings determines to exercise its Retraction Call Right, the Canadian Offeror is obligated to deliver to the holder one share of IBM Common Stock, plus the Additional Amount, in respect of each Exchangeable Share submitted for retraction unless it withdraws its request of retraction.
19. Subject to applicable law, and the Redemption Call Right of IBM and IBM Holdings described below, on any Optional Redemption Date (defined below), the Canadian Offeror may redeem all of the Exchangeable Shares then outstanding (other than those beneficially owned by IBM or its subsidiaries) in exchange for one share of IBM Common Stock, plus the Additional Amount, in respect of each Exchangeable Share redeemed. The “Optional Redemption Date” may be no earlier than April 6, 2010 unless at any time there are then less than 170,000 Exchangeable Shares outstanding (other than Exchangeable Shares held by IBM and its subsidiaries and subject to adjustment to such number of shares to reflect permitted changes to the Exchangeable Shares), in which event the Optional Redemption Date may be established as any date after such time.
20. If the Canadian Offeror elects to redeem the Exchangeable Shares, IBM and IBM Holdings will have the overriding right (the “Redemption Call Right”) to purchase on the Optional Redemption Date all of the outstanding Exchangeable Shares (other than Exchangeable Shares beneficially owned by IBM or its subsidiaries) in exchange for one share of IBM Common Stock, plus the Additional Amount, for each such Exchangeable Share. If either IBM or IBM Holdings exercises its Redemption Call Right, the Canadian Offeror’s right to redeem the Exchangeable Shares on such Optional Redemption Date will terminate.
21. Subject to applicable law and the Liquidation Call Right of IBM and IBM Holdings described below, in the event of the liquidation, dissolution or winding up of the Canadian Offeror, holders of the Exchangeable Shares will have preferential rights to receive from the Canadian Offeror one share of IBM Common Stock, plus the Additional Amount, for each Exchangeable Share they hold.
22. Upon the occurrence of any liquidation, dissolution or winding up of the Canadian Offeror, IBM and IBM Holdings will have the overriding right (a “Liquidation Call Right”) to purchase all of the outstanding Exchangeable Shares (other than Exchangeable Shares beneficially owned by IBM or its subsidiaries) on the effective date of such liquidation, dissolution or winding up, in exchange for one share of IBM Common Stock, plus the Additional Amount, for each such Exchangeable Share.
23. Except as required by law and the terms of the Exchangeable Shares, holders of Exchangeable Shares are not entitled to receive notice of or to attend any meetings of shareholders of IBM or the Canadian Offeror or to vote at any such meeting.
24. IBM, IBM Holdings, the Canadian Offeror and CIBC Mellon Trust Company (the “Trustee”) have entered an Exchange Trust Agreement.
25. One of the purposes of the Exchange Trust Agreement is to create a trust for the benefit of holders of Exchangeable Shares other than IBM and its subsidiaries (the “Non-Affiliated Holders”). The Trustee will hold the Exchange Right and the Automatic Exchange Rights (as defined below) in order to enable the Trustee to exercise such rights and will hold the other rights granted in or resulting from the Trustee being a party to the Exchange Trust Agreement.
26. The Exchange Trust Agreement provides that IBM will deliver to the Trustee copies of all proxy materials (including notices of IBM meetings but excluding proxies to vote shares of IBM Common Stock), information statement, reports (and including without limitation all interim and annual financial statements) and other written communications that are to be distributed to holders of IBM Common Stock, in sufficient quantities and in sufficient time so as to enable the Trustee to send those materials to each Non-Affiliated Holder at the same time as such materials are first sent to holders of IBM Common Stock.
27. Promptly after receipt by IBM of any material to be sent or given generally to the holders of IBM Common Stock by or on behalf of a third party, including without limitation dissident proxy and information circulars (and related information and material) and tender and exchange offer circulars (and related information and material), IBM will deliver to the Trustee copies thereof in sufficient quantities so as to enable the Trustee to forward such material (unless the same has been provided to the Trustee or sent directly to Non-Affiliated Holders by such third party) to each Non-Affiliated Holder as soon as practicable thereafter. As soon as practicable after receipt thereof, the Trustee will mail or otherwise send to each Non-Affiliated Holder, at the expense of IBM, copies of all such materials received by the Trustee from IBM.
28. Any written materials to be distributed by the Trustee to the Non-Affiliated Holders pursuant to the Exchange Trust Agreement shall be delivered or sent by mail (or otherwise communicated in the same manner as IBM utilizes in communications to holders of IBM Common Stock, subject to the Trustee being advised in writing of such method of communication and its ability to provide same) to each Non-Affiliated Holder. The Canadian Offeror shall provide or cause to be provided to the Trustee for this purpose, on a timely basis and without charge or expense:
(a) current lists of the Non-Affiliated Holders; and
(b) upon the request of the Trustee, mailing labels to enable the Trustee to carry out its duties under the Exchange Trust Agreement.
29. The Exchange Trust Agreement also provides holders of Exchangeable Shares with the Automatic Exchange Right and the Exchange Right described below.
30. Upon the occurrence of the liquidation, dissolution or winding up of IBM, whether voluntary or involuntary (an “IBM Liquidation Event”), in order for the holders of the Exchangeable Shares to participate on a pro rata basis with the holders of IBM Common Stock in the liquidation, dissolution or winding up contemplated by a IBM Liquidation Event, all the outstanding Exchangeable Shares held by holders (other than IBM and its subsidiaries) will be automatically exchanged (the “Automatic Exchange Right”) for shares of IBM Common Stock. To effect such exchange, IBM will purchase, on the fifth business day prior to the IBM Liquidation Event, all outstanding Exchangeable Shares (other than Exchangeable Shares beneficially owned by IBM or its subsidiaries) in exchange for one share of IBM Common Stock, plus the Additional Amount in respect of each Exchangeable Share.
31. Upon the institution of, or consent of the Canadian Offeror to, any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound up, and the failure by the Canadian Offeror to contest in good faith any such proceeding within 15 days of the Canadian Offeror becoming aware thereof, or the making by the Canadian Offeror of a general assignment for the benefit of its creditors, or an admission by the Canadian Offeror in writing that it is unable to pay its debts generally as they become due, or the Canadian Offeror being unable, pursuant to applicable law to redeem such shares when retracted by their holder (each a “Canadian Offeror Insolvency Event”), the Trustee on behalf of the holders of Exchangeable Shares, will have the right to require IBM to purchase (the “Exchange Right”) each Exchangeable Share then outstanding (other than Exchangeable Shares beneficially owned by IBM or its subsidiaries) in exchange for one share of IBM Common Stock, plus the Additional Amount.
32. The Trust created by the Exchange Trust Agreement shall continue until the earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Non-Affiliated Holder;
(b) each of the Canadian Offeror, IBM and IBM Holdings elects in writing to terminate the Trust and such termination is approved by the Non-Affiliated Holders of the Exchangeable Shares; and
(c) 21 years after the death of the last survivor of the descendants of His Majesty King George VI of the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust.
33. Subject to certain conditions, the Exchange Trust Agreement shall survive any termination of the Trust and shall continue until there are no Exchangeable Shares outstanding held by any Non-Affiliated Holder.
34. IBM, IBM Holdings and the Canadian Offeror have entered into a Support Agreement to give effect to the provisions of the Exchangeable Shares.
35. Under the Support Agreement, IBM has covenanted to do, among other things, the followings:
(a) IBM will take all necessary actions to ensure that, if any dividends are declared on the IBM Common Stock, the Canadian Offeror will have sufficient money or other assets or authorized securities available to enable the due declaration and payment of an equivalent dividend on the Exchangeable Shares;
(b) IBM will take all actions necessary to ensure that the record date and payment date for dividends on the Exchangeable Shares are the same as those established for the IBM Common Stock;
(c) IBM will take all actions and do all things necessary to ensure that the Canadian Offeror is able to pay to the holders of the Exchangeable Shares the required number of shares of IBM Common Stock, plus the Additional Amount per Exchangeable Share, in the event of a liquidation, dissolution or winding up of the Canadian Offeror, the receipt of a retraction request from a holder of Exchangeable Shares or a redemption of Exchangeable Shares by the Canadian Offeror; and
(d) IBM will not vote or otherwise take any action or omit to take any action causing the liquidation, dissolution or winding up of the Canadian Offeror.
36. The Circular filed in connection with the Offers stipulates that the Canadian Offeror will become a reporting issuer in certain of the Canadian provinces and relief is hereby requested from the statutory financial and insider reporting requirements of the legislation.
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 in the Jurisdictions under the Legislation is that the requirements contained in the legislation concerning the Continuous Disclosure Requirements shall not apply to the Canadian Offeror provided that at the time that any such requirement would otherwise apply :
(a) IBM will send to all holders of Exchangeable Shares resident in the Jurisdictions all disclosure material furnished to holders of IBM Common Stock resident in the United States, including, but not limited to, copies of its annual report and all proxy solicitation materials;
(b) IBM will file with the Decision Makers copies of all documents filed by it with the SEC under the Exchange Act, including, but not limited to, copies of any Form 10-K, Form 10-Q, Form 8-K, quarterly statements and proxy statements prepared in connection with IBM’s annual meetings;
(c) IBM will comply with the requirements of the NYSE in respect of making public disclosure of material information on a timely basis and forthwith issue in the Jurisdictions and file with the Decision Makers any press release that discloses a material change in IBM’s affairs;
(d) the Canadian Offerer complies with the requirements of the Legislation in respect of public disclosure of material information on a timely basis in respect of material changes in the affairs of the Canadian Offeror that would be material to holders of Exchangeable Shares but would not be considered material to holders of IBM Common Stock;
(e) IBM will include in all future mailings of proxy solicitation materials to holders of Exchangeable Shares a clear and concise insert explaining the reason for the mailed material being solely in relation to IBM and not to the Canadian Offeror, such insert to include reference to the economic equivalency between the Exchangeable Shares and IBM Common Stock; and
(f) IBM retains directly or indirectly, the ability to direct the control and direction of the Canadian Offeror.
(g) the Canadian Offeror does not conduct any business or any offering of securities unconnected with the Offers or the fulfilling of the terms of the Exchangeable Shares.
The Insider Reporting Requirements shall not apply to any insider of the Canadian Offeror other than an insider who if IBM was a reporting issuer would be an insider of IBM under the Legislation. However, neither IBM, IBM World Trade Corporation, IBM Holdings nor the Canadian Offeror shall be required to file insider reports in connection with transactions in securities which give effect to or relate to the Exchangeable Share terms, including transactions relating to the repurchase by the Canadian Offeror for cancellation of Exchangeable Shares held by IBM Holdings.
DATED at Montréal, Québec this 19th day of October 2000.
Guy Lemoine Viateur Gagnon