Mutual Reliance Review System for Exemptive Relief Applications - technicalregistration and prospectus relief for a variety of trades and possible trades inconnection with an exchangeable share acquisition of a private British Columbiacorporation by a wholly-owned subsidiary of a non-reporting NASDAQ-quotedDelaware corporation
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 48, 61, 76
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
CUBIST PHARMACEUTICALS INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the"Decision Maker") in each of the Provinces of British Columbia and Ontario (the"Jurisdictions") has received an application from Cubist Pharmaceuticals Inc.("Cubist") for a decision under the securities legislation of the Jurisdictions (the"Legislation") that the requirements contained in the Legislation to be registered totrade in a security and to file and obtain a receipt for a preliminary prospectus andprospectus in respect of the distribution of such security (the "Registration andProspectus Requirements") shall not apply to certain intended trades of securitiesin connection with the acquisition by Cubist and C&T Acquisition Corporation, itswholly-owned subsidiary, of all of the issued and outstanding securities of TerraGenDiscovery, Inc. by way of a plan of arrangement, (the "Acquisition");
AND WHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Executive Director of the British ColumbiaSecurities Commission is the principal regulator for this application;
AND WHEREAS Cubist has represented to the Decision Makers that:
1. Cubist is a corporation incorporated under the laws of the State of Delaware,the common shares of which are traded on the Nasdaq National Market;Cubist is registered under the Securities Act of 1933, as amended, andsubject to the reporting requirements of the Securities Exchange Act of 1934(U.S.), as amended, and is not a reporting issuer under the Legislation orany other Canadian provincial securities legislation.
2. The authorized share capital of Cubist consists of 50,000,000 commonshares, U.S.$0.001 par value (the "Cubist Common Shares") and 5,000,000preferred shares, U.S.$0.001 par value, of which 27,127,187 commonshares and no preferred shares were issued and outstanding as of August1, 2000.
3. None of the directors or officers of Cubist are resident in Canada and thereis no market or exchange in Canada where the Cubist Common Shares aretraded.
4 C&T is a wholly-owned subsidiary of Cubist incorporated under theCompany Act (British Columbia) on July 19, 2000 for purposes of theAcquisition and is a "private issuer" under the Legislation.
5. The authorized capital of C&T consists of 10,000,000 common shareswithout par value, 200,000,000 preferred shares issuable in series and20,000,000 exchangeable shares (the "Exchangeable Shares") of which 100common shares, no preferred shares and no Exchangeable Shares wereissued and outstanding as of August 1, 2000.
6. TerraGen is a company incorporated under the Company Act (BritishColumbia) and is not a "reporting issuer" under the Legislation.
7. The authorized capital of TerraGen consists of 60,000,000 shares withoutpar value divided into 30,000,000 Class A voting common shares, of which2,925,000 common shares are issued and outstanding as of August 23,2000, and 30,000,000 Class B voting preferred shares, issuable in series,of which four series have been designated and of which an aggregate of14,084,068 preferred shares were issued and outstanding as of August 23,2000; in addition, as of that date, there were 963,876 options outstandingentitling the holders to receive 963,876 TerraGen Common Shares;1,321,677 warrants outstanding entitling the holders to 1,372,677 TerraGenpreferred shares and one £1,500,000 convertible debentures entitling theholders to 2,017,544 TerraGen preferred shares.
8. Under an Acquisition Agreement dated August 5, 2000, Cubist has agreedto acquire all of the issued and outstanding Class A Voting Common Sharesand Class B Voting Preferred Shares of TerraGen (the "TerraGen Shares")under a Plan of Arrangement under Section 252 of the Company Act (BritishColumbia) to be approved by the Supreme Court of British Columbia.
9. In accordance with the terms of the Plan of Arrangement, each outstandingTerraGen Class A Voting Common Share and Class B Voting PreferredShare (together, the TerraGen Shares) (other than those held by dissenters)will be exchanged, at the election of the holder thereof, for either CubistCommon Shares or Exchangeable Shares and TerraGen will become anindirect wholly-owned subsidiary of Cubist through C&T.
10. The Exchangeable Shares will be authorized, and their rights and privilegesestablished, under the Plan of Arrangement, with the intent that suchExchangeable Shares will be substantially the economic equivalent of CubistCommon Shares; the Exchangeable Shares will rank parri passu with theC&T common shares with respect to the payment of dividends andliquidating distributions; the other material terms of the ExchangeableShares include the following:
(a) a right of retraction which, upon exercise, but subject to Cubist'sRetraction Call Right (as described below) requires C&T to redeemeach Exchangeable Share for a Cubist Common Share on a one-to-one basis, subject to adjustment;
(b) the right under a Voting and Exchange Rights Agreement to vote atall Cubist shareholder meetings on the basis of one vote for eachExchangeable Share;
(c) voting rights in C&T as required by applicable law in respect ofproposed changes to the special rights and restrictions attaching tothe Exchangeable Shares and in respect of any proposedamendments to or waiver or forgiveness of C&T's rights or obligationsunder a Support Agreement and the Voting and Exchange RightsAgreement (as more fully described below);
(d) automatic redemption on the second anniversary of closing of theProposed Acquisition, subject to the Cubist's Liquidation Call Right(as described below);
(e) the right to receive dividends on the same basis as Cubist CommonShares, including share dividends payable in Cubist Common Sharesand other non-cash dividends; and
(f) the right, subject to Cubist's Liquidation Call Right (as describedbelow), to participate on a pro rata basis with Cubist CommonShares, in a Cubist liquidation, through a mandatory exchange forCubist Common Shares.
11. Under the Plan of Arrangement, Cubist has the right to purchase theExchangeable Shares in exchange for Cubist Common Shares in the eventthat such Exchangeable Shares are the subject of a proposed retraction (the"Retraction Call Right"); a proposed redemption (the "Redemption CallRight") or a proposed liquidation, dissolution or winding up (the "LiquidationCall Right").
12. The Plan of Arrangement also provides for the assignment to, and theassumption by, Cubist of all obligations under TerraGen's existingoutstanding options, warrants and convertible debentures (the "TerraGenConvertible Securities") (other than those held by dissenters) and for theconversion of such TerraGen Convertible securities into options, warrantsor convertible debentures (respectively, the "Replacement Options", the"Replacement Warrants" and the "Replacement Convertible Debentures andcollectively, the "Replacement Securities") entitling the holder thereof topurchase Cubist Common Shares.
13. In each case, the exchange of TerraGen Common Shares and TerraGenConvertible Securities for Cubist Common Shares or Exchangeable Sharesor Replacement Options, Warrants or Debentures, will occur automaticallyunder the Plan of Arrangement without any further act or formality; however,under the Plan of Arrangement, any registered holder of any such TerraGensecurity who wishes to exercise a right of dissent granted under the Plan ofArrangement may require TerraGen to purchase the TerraGen securitiesheld by such holder for an amount equal to fair value.
14. Under the Voting and Exchange Trust Agreement, to be entered intoconcurrently with the effectiveness of the Plan of Arrangement, Cubist willagree to issue to and deposit with State Street Bank and Trust Company, aMassachusetts banking organization, as Trustee and holder of record, anumber of Cubist Common Shares equal to the number of issued andoutstanding Exchangeable Shares, for the benefit of holders ofExchangeable Shares and to secure the Cubist voting rights granted for thebenefit of holders of Exchangeable Shares (the "Voting TrustArrangements"); under the Agreement, the Trustee has the right, in the eventof an insolvency of C&T or of a failure of C&T to perform its obligationsunder the provisions governing the Exchangeable Shares, upon instructionfrom the holders of Exchangeable Shares, to require Cubist to purchase allissued and outstanding Exchangeable Shares (the "Exchange Rights"); inaddition, the agreement provides an automatic right of holders to exchangetheir Exchangeable Shares for Cubist Common Shares (the "AutomaticExchange Right") in the event of a voluntary or involuntary liquidation,dissolution or winding up of Cubist.
15. Under a Support Agreement to be entered into concurrently with theeffectiveness of the Plan of Arrangement, Cubist will agree to support C&T'sobligations to holders of Exchangeable Shares by issuing to C&T sufficientnumbers of Cubist Common Shares to enable C&T to meet its obligations toredeem the Exchangeable Shares and to pay dividends on theExchangeable Shares, in each case with Cubist Common Shares.
16. If all of the Exchangeable Shares and all of the Replacement Securities wereexercised to acquire Cubist Common Shares immediately after thecompletion of the Acquisition, all persons resident in Canada would in theaggregate hold of record approximately 2.2% of the total number of issuedand outstanding Cubist Common Shares and represent significantly lessthan 1% of the total number of holders of Cubist Common Shares.
17. On September 22, 2000, a special meeting (the Meeting") of the TerraGensecurityholders was held at which the Acquisition was approved by over 75%of the votes held by such securityholders.
18. An information circular ("Information Circular") was mailed to the TerraGensecurityholders in connection with the Meeting containing prospectus-leveldisclosure concerning the Acquisition and the businesses of TerraGen andCubist.
19. The Acquisition involves the following trades of Cubist Common Shares, andincidental trades of other related securities:
(a) the issuance of Cubist Common Shares by Cubist and theExchangeable Shares by C&T in exchange for TerraGen Shares onthe effective date of the Plan of Arrangement;
(b) the issuance of Replacement Options, Replacement Warrants andReplacement Convertible Debentures by Cubist for TerraGenOptions, TerraGen Warrants and TerraGen Convertible Debenturesunder the Plan of Arrangement;
(c) the issuance of Cubist Common Shares to C&T under the SupportAgreement;
(d) the trades by C&T of Cubist Common Shares upon redemption orretraction of the Exchangeable Shares or under a stock dividend orother distribution;
(e) the issuance of Cubist Common Shares upon exercise of theReplacement Options or the Replacement Warrants; or uponconversion of the Replacement Convertible Debentures;
(f) the issuance of the Retraction Call Right, the Redemption Call Rightand the Liquidation Call Right under the Plan of Arrangement and theissuance of Cubist Common Shares upon the exercise of such rights;
(g) the issuance and deposit of Cubist Common Shares under the votingtrust provisions of the Voting and Exchange Trust Agreement;
(h) the trades by holders of Exchangeable Shares of their ExchangeableShares to Cubist upon the exercise of the Retraction Call Right, theRedemption Call Right, the Liquidation Call Right, the ExchangeRight or the Automatic Exchange Right; and
(i) the issuance of the Exchange Right and the Automatic ExchangeRight by Cubist under the Voting and Exchange Rights Agreementthe issuance of Cubist Common Shares upon the exercise of suchrights.
20. For some of the Trades there is no exemption under the Legislation from theRegistration and Prospectus Requirements.
21. All disclosure material furnished to holders of Cubist Common Shares in theUnited States will concurrently be provided to holders of Cubist CommonShares resident in Canada.
AND WHEREAS under the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the testcontained in the Legislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
The Decision of the Decision Makers under the Legislation is that:
(a) the Registration and Prospectus Requirements shall not apply to theTrades;
(b) the first trade in Exchangeable Shares or any Replacement Securitiesother than in exchange for Cubist Common Shares shall be adistribution; and
(c) the first trade in any Cubist Common Shares acquired on exchangeof Exchangeable Shares or exercise of the Replacement Securitiesshall be a distribution unless the trade is executed through thefacilities of an exchange or market outside of Canada.
October 3rd, 2000."Brenda Leong"