MRRS - registration and prospectus relief forissuance of securities by foreign issuer to Canadian employeesand related trades under option and incentive plans - issuerbid relief for foreign issuer in connection with acquisitionof shares under option and incentive plans.
Applicable Ontario Statutory Provisions
Securities Act, 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).
Applicable Ontario Regulation
Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., ss. 183(1) and 203.1(1).
Applicable Ontario Rule
OSC Rule 45-503 - Trades to Employees, Executivesand Consultants - ss. 2.2, 2.4, 3.3 and 3.5.
Multilateral Instrument 45-102 -6 Resale ofSecurities - s. 2.14(1).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO, BRITISH COLUMBIA,ALBERTA, SASKATCHEWAN,
MANITOBA, NOVA SCOTIA, NEWBRUNSWICK AND
NEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Makers") ineach of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba,Nova Scotia, New Brunswick and Newfoundland and Labrador (the"Jurisdictions") has received an application fromNovartis Corporation ("Novartis US") for a decisionpursuant to the securities legislation of the Jurisdictions(the "Legislation") that: (i) the requirement containedin the Legislation to be registered to trade in a security (the"Registration Requirement") and to file and obtaina receipt for a preliminary prospectus and a prospectus (the"Prospectus Requirements") shall not apply to certaintrades to be made in stock options ("Stock Options"),stock appreciation rights ("SARs") and American DepositaryShares of Novartis AG (or such other authorized shares of stockof Novartis AG as may from time to time be authorized for useunder the Plan (defined below)) ("ADSs") made in connectionwith the Novartis US 2001 Stock Incentive Plan for North AmericanEmployees (the "Plan"), including first trades and(ii) the requirements contained in the Legislation relatingto the delivery of an offer and issuer bid circular and anynotices of change or variation thereto, minimum deposit periodsand withdrawal rights, taking up and paying for securities tenderedto an issuer bid, disclosure, restrictions upon purchases ofsecurities, bid financing, identical consideration and collateralbenefits together with the requirement to file a reporting formwithin 10 days of an exempt issuer bid and payment of a relatedfee (the "Issuer Bid Requirements") shall not applyto certain acquisitions of ADSs by Novartis US pursuant to thePlan;
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System")the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS Novartis US has representedto the Decision Makers that:
1. Novartis US is a wholly-owned subsidiaryof Novartis AG. Novartis US is incorporated under the lawsof New York and is not a "reporting issuer" or itsequivalent under the Legislation in any of the Jurisdictions.
2. Novartis AG is a public company incorporatedunder the laws of Switzerland. Novartis AG is subject to therequirements of Swiss law and is not a "reporting issuer"or its equivalent under the Legislation in any of the Jurisdictions.
3. Novartis AG's authorized capital consistsof 2,885,204,680 ordinary shares (the "Shares").As at January 1, 2002, there were 2,885,204,680 Shares issuedand outstanding, excluding the Novartis AG ADSs. The Sharesare traded on the SWX Swiss Exchange. The ADSs of NovartisAG are listed on the New York Stock Exchange ("NYSE").As at March 11, 2002 there were 105,161,125 ADSs issued andoutstanding. One ADS represents one Share.
4. As at July 31, 2002, persons or companieswhose last address as shown on the books on Novartis AG wasin the Jurisdictions and who held ADSs represented less thanone percent of the total number of holders of ADSs, and suchpersons held ADSs representing less than one percent of thetotal number of outstanding ADSs.
5. Novartis AG carries on business in Canadathrough subsidiaries including Novartis Pharmaceuticals CanadaInc., and may carry on business through additional Canadiansubsidiaries (collectively, the "Canadian Subsidiaries").
6. There are approximately 284 employees ofthe Canadian Subsidiaries eligible or expected to participatein the Plan, of which 103 employees are resident in Ontario,18 are resident in Alberta, 18 are resident in British Columbia,8 are resident in Manitoba, 2 are resident in Newfoundlandand Labrador, 3 are resident in New Brunswick, 9 are residentin Nova Scotia, 119 are resident in Québec, and 4 areresident in Saskatchewan. A separate application has beenfiled with the Commission des valeurs mobilières duQuébec ("CVMQ") seeking discretionary relieffrom certain requirements of the Securities Act (Québec)and CVMQ Policy Statement Q-3 with respect to the Plan, asthese requirements are materially different from the requirementsof the Jurisdictions.
7. The Board of Directors of Novartis US (the"Board") has established the Plan, which will includeparticipation by employees, directors and Consultants (asdefined below) of the Canadian Subsidiaries.
8. The purpose of the Plan is to attract ablepersons to enter and remain in the employ or in a consultingrelationship with Novartis US and its Canadian affiliatesand U.S. subsidiaries, and to provide a means whereby theycan acquire and own ADSs, or be paid incentive compensationbased on the value of the ADSs.
9. The Plan will be administered by the PolicyCommittee of the Board, or such other committee that the Boardmay appoint to administer the Plan (the "Plan Committee"),which will determine all issues relating to eligibility andthe terms and provisions of any right to receive awards underthe Plan. The Plan Committee will designate individuals eligibleto participate in the Plan. Participants must be either regularlyemployed by Novartis US or a subsidiary of Novartis AG andmust make a significant contribution to the financial resultsof such person's employer, a director of Novartis US or asubsidiary of Novartis AG, or a consultant to Novartis USor a subsidiary of Novartis AG (a "Consultant"),who, in each case, is employed or in the service of NovartisUS or a subsidiary of Novartis AG in the United States orCanada (an "Eligible Participant").
10. The Plan authorizes the following typeof awards: (i) Incentive Stock Options; (ii) Non-qualifiedStock Options; (iii) SARs and (iv) Restricted Stock Awards,or any combination of the foregoing. It is currently anticipatedthat Eligible Participants in Canada will only be grantedNon-qualified Stock Options and/or SARs independent of StockOptions. It is not anticipated that more than 1% of the outstandingADSs may be granted to any one person under the Plan.
11. The maximum number of ADSs that may beissued under the Plan is fixed at 20,000,000, including thoseavailable to Eligible Participants. The ADSs to be issuedunder the Plan will be registered with the Securities andExchange Commission under the Securities Act of 1933.
12. Participation in the Plan by employeesand directors is voluntary and participants will not be inducedto participate in the Plan by expectation of employment orappointment or continued employment or appointment with NovartisUS, a Canadian Subsidiary or any of their affiliates. Participationin the Plan by Consultants is also voluntary, and Consultantswill not be induced to participate in the Plan by expectationof the Consultant, the Consultant's consulting company orpartnership being engaged or continuing to be engaged withNovartis US, a Canadian Subsidiary or any of their affiliatesas a consultant.
13. Consultants to a Canadian Subsidiary whoare eligible to participate in the Plan will be persons orcompanies engaged to provide bona fide consulting, technical,management or other services to a Canadian Subsidiary undera written contract with a Canadian Subsidiary and who arerequired to spend a significant amount of time and attentionon the affairs and business of the Canadian Subsidiary.
14. Under the Plan, the Stock Options andSARs will vest and become exerciseable in accordance withthe schedule established by the Plan Committee and as setforth in an award agreement between a Canadian Subsidiaryand an Eligible Participant (an "Award Agreement").The Plan Committee also fixes the period at which Stock Optionsand SARs will expire. The maximum option period after whichStock Options or SARs expire is 10 years. Except as statedotherwise in an Award Agreement or in the excise of the PlanCommittee's discretion, all outstanding Stock Options andSARs will become exercisable upon a change of control as definedin the Plan.
15. The exercise price of a Stock Option willbe set by the Plan Committee at the time of grant and is expectedto be equal to or greater than the "fair market value"of the underlying ADSs on the date of grant of the Stock Option.As long as ADSs are listed for trading on the NYSE, "fairmarket value" will be the mean between the high and lowsales prices reported on the NYSE for the previous date onwhich a sale was reported (the "Fair Market Value").
16. The exercise price of a SAR (the "StrikePrice") will be set by the Plan Committee at the timeof the grant. If a SAR is granted in tandem with a Stock Option,only one of the Stock Option or the SAR may be exercised.If a SAR is granted together with a Stock Option, the exerciseprice will be the same as that of the related Stock Option.If a SAR is granted independently of a Stock Option, the exerciseprice will be at least the Fair Market Value of an ADS atthe grant date.
17. When a SAR is exercised, the CanadianSubsidiary will pay the holder an amount equal to the numberof ADSs subject to the SAR multiplied by the excess, if any,of the Fair Market Value of the ADS on the exercise date overthe Strike Price. It is expected the Canadian Subsidiary wouldpay this amount in cash, although the Plan also permits paymentin ADSs or a combination of cash and ADSs.
18. ADSs delivered upon the exercise of StockOptions may be paid for in (i) cash, (ii) by tendering previouslyissued ADSs (the "Payment-in-Kind Program") valuedat Fair Market Value, or, in the discretion of the Plan Committee,either (i) in other property having a Fair Market Value equalto the exercise price, or (ii) through a cash-less exerciseprogram ("Cash-less Program") whereby the exerciseprice of a Stock Option is satisfied upon the sale of ADSsunderlying the Stock Option, by delivering a copy of irrevocableinstructions to a stock broker to deliver promptly an amountof sale or loan proceeds sufficient to pay the exercise price.
19. A Plan Agent (defined below) can deliverADSs to Eligible Participants exercising awards under thePlan. ADSs may be authorized and unissued ADSs or ADSs heldin treasury of Novartis AG, or held by a member of the NovartisAG group or may be purchased on the open market or by privatepurchase.
20. The Canadian Subsidiaries have the rightto deduct from all awards cash and/or ADSs, valued at FairMarket Value on the date of payment, in an amount necessaryto satisfy any tax withholding obligation, and may permitthe Eligible Participants to satisfy any tax withholding obligationon the exercise of Plan awards by tendering ADSs having aFair Market Value equal to the tax obligation.
21. The Plan Committee may permit the voluntarysurrender of Stock Options and corresponding SARs, if any,conditioned upon the granting to the Eligible Participantof a new Stock Option, or require such voluntary surrenderas a condition precedent to the grant of a new Stock Option.
22. Awards and Award Agreements are subjectto equitable adjustment or substitution as determined by thePlan Committee as to the number, price or kind of share subjectto the award in the event of changes in the outstanding ADSsor capital structure of Novartis AG, changes in applicablelaw or circumstances resulting in substantial dilution orenlargement of rights under the Plan, or other events whichwarrant adjustment. In certain circumstances specified inthe Plan relating to mergers, reorganizations or similar events,awards may be cancelled and Eligible Participants will bepaid, in cash, the value of such awards based upon the priceper ADS received or to be received by shareholders of NovartisAG in the events.
23. Novartis US uses the services of an agentin connection with the administration and operation of thePlan (the "Plan Agent"). The role of the Plan Agentmay include: (a) assisting with the general administrationof the Plan and providing certain record keeping services;(b) facilitating option exercises (including the Cash-lessProgram and the Payment-in-Kind Program) under the Plan; (c)maintaining accounts on behalf of participants under the Plan;(d) holding ADSs on behalf of participants; and (e) facilitatingthe resale of ADSs acquired under the Plan through the NYSE.Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MerrillLynch") has been appointed by Novartis US to act as anagent for the Plan. Merrill Lynch is, and any additional orreplacement agent will be, a corporation registered underapplicable U.S. securities or banking legislation to provideservices under the Plan. The Plan Agent is not, and no additionalor replacement agent is expected to be, registered to conductretail trades in any of the Jurisdictions.
24. In certain circumstances, former employees,directors or Consultants of a Canadian Subsidiary (a "FormerParticipant") may exercise Stock Options or SARs fora limited time following the termination of employment byreason of disability, retirement, termination without causeor with the written approval of the Plan Committee.
25. Under the Plan, the Stock Options andSARs may be assigned or transferred to a designated beneficiaryupon the death of an Eligible Participant, or, in the absenceof a designated beneficiary by will or the laws of descentand distribution, or, in the discretion of the Plan Committee,to other persons or entities as set out in an Award Agreement(all such persons collectively, the "Permitted Transferees").
26. In connection with the implementationof the Plan, the Eligible Participants will receive a documentspecifying the main terms and conditions of the Plan as wellas the Award Agreement. All disclosure material relating toNovartis AG furnished to participants in the Plan residentin the United States will be furnished contemporaneously andin the same manner to Eligible Participants in the Jurisdictionswho receive ADSs under the Plan, including through electroniccommunications.
27. The Legislation of all the Jurisdictionsdoes not contain exemptions from the Prospectus and RegistrationRequirements for all the intended trades under the Plan, includingtrades made through the Plan Agent.
28. The exemptions in the Legislation fromthe Issuer Bid Requirements may not available for all acquisitionsof ADSs under the Plan, since such acquisitions of ADSs maybe made from persons other than employees or former employees,such as a Permitted Transferee, and acquisitions may occurat a price that is not calculated in accordance with the "marketprice," as that term is defined in the Legislation.
29. There is presently no market in any ofthe Jurisdictions for the ADSs and no such market is expectedto develop in any of the Jurisdictions. Any resale of theADSs by an Eligible Participant will be effected through thefacilities of, and in accordance with the rules applicableto, a stock exchange or market outside of Canada on whichthe ADSs may be listed or quoted for trading.
AND WHEREAS under the System this DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
(a) the Registration Requirements and ProspectusRequirements shall not apply to any trade or distributionof Stock Options, SARs or ADSs made in connection with thePlan, including trades and distributions involving NovartisUS, Novartis AG, the Canadian Subsidiaries and their affiliates,Eligible Participants, Former Participants, or PermittedTransferees, including trades carried out with or throughthe Plan Agent, provided that the first trade in ADSs acquiredthrough the Plan pursuant to this Decision will be deemeda distribution or primary distribution to the public underthe Legislation unless the conditions in subsection 2.14(1)of Multilateral Instrument 45-102 Resale of Securities aresatisfied;
(b) the first trade in ADSs acquired underthe Plan by an Eligible Participant, a Former Participant,or a Permitted Transferee or a Plan Agent acting on behalfor for the benefit of any of the foregoing persons shallnot be subject to the Registration Requirements, providedthat such trade is executed on a stock exchange or marketoutside of Canada; and
(c) The Issuer Bid Requirements do not applyto the acquisition by Novartis US of ADSs from an EligibleParticipant, a Former Participant, or a Permitted Transferee,or a Plan Agent acting on behalf or for the benefit of anyof the foregoing persons in accordance with the provisionsof the Plan.
October 1, 2002.
"Howard I. Wetston" "H.Lorne Morphy"