HeadnoteMRRS- registration and prospectus relief for issuance of securitiesby foreign issuer to Canadian employees and related trades underoption and incentive plans - issuer bid relief for foreign issuerin connection with acquisition of shares under option and incentiveplans.
ApplicableOntario Statutory ProvisionsSecuritiesAct, R.S.O. 1990, c.S.5, as am., ss. 25(1), 35(1)(12)(iii), 35(1)(17),53(1), 72(1)(f)(iii), 72(1)(k), 74(1), 89(1), 93(3)(d) and 104(2).
ApplicableOntario RegulationRegulationmade under the Securities Act, R.R.O. 1990, Reg. 1015, as am.,ss. 183(1) and 203.1(1).
ApplicableOntario RuleOSCRule 45-503 - Trades to Employees, Executives and Consultants- ss. 2.2, 2.4, 3.3 and 3.5.
ApplicableInstrumentMultilateralInstrument 45-501 - Resale of Securities - s. 2.14(1).
INTHE MATTER OF
THESECURITIES LEGISLATION OF ONTARIO,
BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
NEWBRUNSWICK, NOVA SCOTIA AND NEWFOUNDLAND AND LABRADOR
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM
FOREXEMPTIVE RELIEF APPLICATIONS
INTHE MATTER OF
ANDPHILIP MORRIS COMPANIES INC.
WHEREASthe local securities regulatory authority or regulator (the"Decision Maker") in each of Ontario, BritishColumbia, Alberta, Saskatchewan, Manitoba, New Brunswick, NovaScotia and Newfoundland and Labrador (the "Jurisdictions")has received an application from Kraft Foods Inc. ("Kraft")and Philip Morris Companies Inc. ("Philip Morris")for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that: (i)the requirements contained in the Legislation to be registeredto trade in a security (the "Registration Requirements")and to file and obtain a receipt for a preliminary prospectusand a prospectus (the "Prospectus Requirements")(collectively, the "Registration and Prospectus Requirements")shall not apply to certain trades in securities of Kraft madein connection with the Kraft Foods Inc. 2001 Incentive Plan(the "PIP"), the Philip Morris Companies DirectedShare Program (the "DSP") and the Kraft FoodsInc. Stock Option Grant Program (the "KSOGP")(the PIP, DSP and the KSOGP are collectively, the "Plans");(ii) the Registration Requirements shall not apply to firsttrades of shares of class A common stock of Kraft ("ClassA Kraft Shares") acquired under the Plans made throughthe Agent (defined below) on an exchange or market outside ofCanada; and (iii) the requirements contained in the Legislationrelating to the delivery of an offer and issuer bid circularand any notices of change or variation thereto, minimum depositperiods and withdrawal rights, take-up and payment for securitiestendered to an issuer bid, disclosure, restrictions upon purchasesof securities, financing, identical consideration, collateralbenefits, and form filing (the "Issuer Bid Requirements")shall not apply to certain acquisitions by Kraft of Class AKraft Shares pursuant to the Plans in each of the Jurisdictions;
ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
ANDWHEREAS Kraft and Philip Morris have represented tothe Decision Makers as follows:
1.Kraft is a corporation incorporated under the laws of the Stateof Virginia. The executive offices of Kraft are located in Northfield,Illinois.
2.Philip Morris is a corporation incorporated under the laws ofthe State of Virginia. The principal executive offices of PhilipMorris are located in New York, New York.
3.Neither Kraft nor Philip Morris is a reporting issuer or theequivalent in any Jurisdiction and neither has a present intentionof becoming a reporting issuer or the equivalent in any Jurisdiction.The majority of the directors and senior officers of Kraft andPhilip Morris reside outside of Canada.
4.The authorized share capital of Kraft consists of 3 billionClass A Kraft Shares, 2 billion shares of Class B common stock("Class B Kraft Shares"), and 500,000 sharesof preferred stock ("Preferred Kraft Shares").As of August 17, 2001, there were 555 million Class A KraftShares, 1.18 billion Class B Kraft Shares and 0 Preferred KraftShares issued and outstanding.
5.Prior to the initial public offering ("IPO")of Class A Kraft Shares in June 2001, Kraft was a wholly-ownedsubsidiary of Philip Morris. Subsequent to the IPO, Philip Morrisretains approximately an 84% ownership of Kraft, including 100%of the outstanding Class B Kraft Shares and Preferred KraftShares.
6.Kraft and Philip Morris are subject to the requirements of theSecurities Exchange Act of 1934, as amended, of the UnitedStates, including the reporting requirements thereof.
7.The purpose of the PIP is to support Kraft's ongoing effortsto attract and retain outstanding employees and to provide Kraftwith the ability to provide incentives to employees of Kraftand its affiliates ("Kraft Companies") thatare directly linked to the profitability of Kraft and to increasesin shareholder value.
8.Subject to adjustment as described in the PIP, the maximum numberof Class A Kraft Shares that may be issued under the PIP is75 million.
9.The purpose of the KSOGP is to provide an incentive to selectedemployees of Philip Morris or its affiliates ("PhilipMorris Companies") by providing an opportunity to benefitfrom the profitability of Kraft and increases in Kraft shareholdervalue.
10.The purpose of the DSP is to provide selected employees of PhilipMorris and its affiliates with the opportunity to purchase ClassA Kraft Shares at their offering price, in conjunction withthe IPO of the Class A Kraft Shares that took place in June2001.
11.Class A Kraft Shares offered under the Plans are registeredwith the Securities and Exchange Commission (the "SEC")under the Securities Act of 1933.
12.The Class A Kraft Shares are listed for trading on the New YorkStock Exchange (the "NYSE").
13.Awards extended to employees of the Kraft Companies under thePIP may include options ("Options") exercisablefor Class A Kraft Shares, performance-based awards ("Performance-BasedAwards"), stock appreciation rights ("SARs"),restricted stock ("Restricted Shares"), otherstock-based awards ("Other Stock Based Awards"),dividends or dividends equivalents ("Dividends or DividendsEquivalents") and incentive awards ("IncentiveAwards"). Awards extended to employees of the PhilipMorris Companies under the KSOGP, include Options. Awards underthe DSP extended to selected employees of the Philip MorrisCompanies were comprised of the opportunity to purchase ClassA Kraft Shares ("DSP Rights"). (All of theforegoing are collectively, "Awards").
14.Participation in the Plans by Canadian employees is voluntaryand such persons are not induced to participate in the Plansor to exercise their Awards by expectation of employment orcontinued employment with the Kraft Companies.
15.As of September 19, 2001, there were: (i) 731 employees residentin Canada eligible to receive Options under the PIP, including14 in British Columbia, 38 in Alberta, 7 in Saskatchewan, 3in Manitoba, 527 in Ontario; 2 in New Brunswick, 13 in NovaScotia and 2 in Newfoundland; (ii) 1 employee resident in Canadaeligible to participate in the KSOGP, residing in Ontario; and(iii) 9 employees resident in Canada, all of whom reside inOntario, who chose to participate in the DSP.
16.Kraft and Philip Morris intend to use the services of one ormore agents/brokers (an "Agent") under thePlans. The current Agent for the DSP is Fidelity Brokerage ServicesLLC. The current Agent for the PIP and KSOGP is UBS PaineWebberInc. The current Agents are, and if replaced, or if additionalAgents are appointed, will be registered under applicable U.S.securities or banking legislation and have been or will be authorizedby Kraft or Philip Morris to provide services under one or moreof the Plans. The current Agents are not registered to conductretail trades in any of the Jurisdictions and, if replaced,or if additional Agents are appointed, are not expected to beso registered in any of the Jurisdictions.
17.The Agents' role in the Plans may include: (a) assisting withthe administration of the Plans, including record-keeping functions;(b) facilitating the exercise of Awards granted under the PIPand the KSOGP, including cashless and stock-swap exercises tothe extent that they are exercisable for Class A Kraft Shares;(c) holding in broker accounts Class A Kraft Shares issued underthe Plans on behalf of employees of Kraft or the Kraft Companieswho participate in the Plans ("Participants"),Former Participants (as defined below) and Permitted Transferees(as defined below); (d) facilitating the cancellation and surrenderof Awards as permitted under the Plans; (e) facilitating thepayment of withholding taxes; and (f) facilitating the resaleof the Class A Kraft Shares issued in connection with the Plans.
18.Unless otherwise determined by the committee administering therelevant Plan, Awards are not transferable other than by willor pursuant to the laws of intestacy.
19.Under the PIP, Options, Performance-Based Awards, SARs, RestrictedShares, Dividends or Dividends Equivalents or Other Stock-BasedAwards (collectively, "PIP Awards"), may begranted to employees of the Kraft Companies.
20.The PIP is administered by the board of directors of Kraft ("KraftBoard") and/or a committee appointed by the Kraft Board("Kraft Committee").
21.The Kraft Committee shall establish procedures governing theexercise of Options. Generally, in order to exercise an Option,a Participant, Former Participant or Permitted Transferee mustsubmit to Kraft or the Agent a notice of exercise in the formand manner prescribed by the Kraft Committee ("Noticeof Exercise") identifying the Option and number ofClass A Kraft Shares being purchased, together with full paymentfor the Class A Kraft Shares.
22.Under the DSP, an opportunity to acquire Class A Kraft Sharesat the offering price ("DSP Purchase Entitlements")was extended to selected employees of the Philip Morris Companies.
23.446,700 Class A Kraft Shares were issued under the DSP.
24.Following the termination of a Participant's relationship withthe Kraft Companies or with the Phillip Morris Companies forreasons of death, disability, retirement, or any other reason,a former Participant ("Former Participant")and on the death of a Participant, where the Award has beentransferred by will or pursuant to the laws of intestacy orotherwise, as permitted by the Kraft Committee, to permittedtransferees ("Permitted Transferees"), theFormer Participants and Permitted Transferees may continue tohave rights in respect of the Plans ("Post-TerminationRights"). Post-Termination Rights may include, amongother things, the right to exercise an Award for a period determinedin accordance with the PIP or the KSOGP following terminationand the right to sell Class A Kraft Shares acquired under allof the Plans through the Agents.
25.The Kraft Committee may elect to "cash out" all or a portionof the Class A Kraft Shares to be purchased by an Option holderby paying the Option holder an amount in cash, Class A KraftShares or both equal to the fair market value of the Class AKraft Shares to be purchased, less the exercise costs for suchClass A Kraft Shares. In the event of a merger, share exchange,reorganization, consolidation, stock dividend, recapitalization,distribution or stock split, reverse stock split, stock splitup, spin-off, issuance of rights or warrants registrations orevent affecting the Class A Kraft Shares, the Kraft Board isauthorized to make an Award in substitution for an outstandingAward or to make cash payments to the holder of the PIP Awards.On a Change of Control (as defined in the Plan) the value ofall outstanding Options, Stock Appreciation Rights, RestrictedShares and other Stock Based Awards shall, at the discretionof the Kraft Committee be cashed out on the basis of the Changeof Control price. Subject to the discretion of the Kraft Committeethe Participant may on a Change in Control give notice to Kraftwithin the Exercise Period to elect to surrender all or partof the Options, SARs, Restricted Stock or Other Stock-BasedAwards to Kraft and to receive in cash a prescribed amount.Any Incentive Award relating to the Performance Cycle (as definedin the Plans) prior to the Performance Cycle in which the Changein Control occurs that has been earned but not paid shall beimmediately payable in cash (collectively along with any forfeitureof Restricted Shares ("Repurchase and Surrender Rights").
26.Withholding obligations for tax purposes arising from Awardsmay be settled with Class A Kraft Shares ("Tax WithholdingExercises").
27.A prospectus prepared according to U.S. securities laws describingthe terms and conditions of the Plans will be delivered to eachParticipant who is eligible to participate in the Plans or whoreceives an Award under any of the Plans. The annual reports,proxy materials and other materials Kraft is required to filewith the SEC will be provided or made available to CanadianParticipants at the same time and in the same manner as thedocuments are provided or made available to U.S. Participants.
28.As at October 29, 2001, Canadian shareholders did not own, directlyor indirectly, more than 10% of the issued and outstanding ClassA Kraft Shares and did not represent more than 10% of the shareholdersof Kraft.
29.As there is no market for the Class A Kraft Shares in Canadaand none is expected to develop, it is expected that the resaleby Participants, Former Participants and Permitted Transfereesof the Class A Kraft Shares acquired under the Plans will beeffected through the NYSE.
30.Participants, Former Participants or Permitted Transferees maysell Class A Kraft Shares acquired under the Plans through theAgent.
31.The Legislation of certain of the Jurisdictions does not containexemptions from the Registration and Prospectus Requirementsfor Award exercises by Participants, Former Participants orPermitted Transferees through the Agent where the Agent is nota registrant.
32.Where the Agent sells Class A Kraft Shares on behalf of CanadianParticipants, Former Participants or Permitted Transferees,none of them is able to rely on the exemption from the RegistrationRequirements contained in the Legislation of certain Jurisdictionsto effect such sales.
33.The exemptions in the Legislation from the Issuer Bid Requirementsare not available for certain acquisitions by Kraft of its ClassA Kraft Shares from Participants, Former Participants or PermittedTransferees in accordance with the terms of the Plans, sinceacquisitions relating to stock-swap exercises ("Stock-SwapExercises") may occur at a price that is not calculatedin accordance with the "market price", as that term is definedin the Legislation; as under the Plans, Kraft will acquire suchtendered Class A Kraft Shares at their fair market value, asdetermined in accordance with such Plans.
ANDWHEREAS pursuant to the System, this Decision Documentevidences the decision of each Decision Maker (collectively,the "Decision");
ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;
THEDECISION of the Decision Makers pursuant to the Legislationis that:
(a)the Registration and Prospectus Requirements shall not applyto any trade or distribution of Awards or Class A Kraft Sharesmade in connection with the Plans, including trades or distributionsinvolving Kraft, Philip Morris or their affiliates, the Agent,Canadian Participants, Former Participants or Permitted Tranferees,provided that:
(i)the first trade in Class A Kraft Shares acquired under the Planspursuant to this Decision in a Jurisdiction shall be deemeda distribution under the Legislation of such Jurisdiction unlessthe conditions in section 2.14(1) of Multilateral Instrument45-102 Resale of Securities are satisfied; and
(ii)Kraft will be subject to the relevant filing and fee requirementscontained in the Legislation of certain Jurisdictions which,but for this Decision, would apply to initial distributionsof Awards and Kraft Class A Shares made pursuant to the Plans;
(b)the first trade by Canadian Participants, Former Participantsor Permitted Transferees in Kraft Class A Shares acquired pursuantto this Decision, including first trades effected through theAgent, shall not be subject to the Registration Requirements,provided such first trade is executed through a stock exchangeor market outside of Canada; and
(c)the Issuer Bid Requirements of the Legislation shall not applyto the acquisition by Kraft of Kraft Class A Shares from CanadianParticipants, Former Participants and Permitted Transfereesin connection with Stock-Swap Exercises, Repurchase and SurrenderRights, or Tax Withholding Exercises made in connection withthe provisions of the Plans.
"R.Stephen Paddon" "H. Lorne Morphy"