National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for relief from the registration requirement for certain trades made in connection with an employee share offering by a Japanese issuer -- The offering involves the use of a subsidiary company -- The filers cannot rely on the plan administrator exemption in section 8.16 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations as the shares are not being offered to Canadian employees directly by the issuer but through the subsidiary company -- Canadian employees will receive disclosure documents.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.16.
National Instrument 45-102 Resale of Securities, s. 2.14.
National Instrument 45-106 Prospectus and Registration Exemptions, s. 2.24.
June 2, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF JT INTERNATIONAL SA (JTI SA) AND JAPAN TOBACCO INC. (the Issuer) AND JTI-MACDONALD CORP. (the Canadian Affiliate) (JTI SA, the Issuer and the Canadian Affiliate, the Filers)
The principal regulator in the Jurisdiction has received an application (the Application) from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from the dealer registration requirements of the Legislation so that those requirements do not apply to the Filers (and successor parties involved in the Employee Share Offering (as defined below)) in respect of trades in common shares (the Shares) of the Issuer made under the Employee Share Offering to, on behalf of or with Qualifying Employees (as defined below) employed in the Jurisdiction or in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, and Nova Scotia (the Other Jurisdictions) who elect to participate in the Employee Share Offering (the Canadian Participants) (the Registration Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions for a passport application:
(a) the Ontario Securities Commission is the principal regulator for the Application, and
(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, and Nova Scotia (together with Ontario, the Passport Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. JTI SA is a company organized under the laws of Switzerland.
2. The Issuer is a joint stock corporation under the Companies Act of Japan, under the Japan Tobacco Inc. Act, whose authorized share capital consists of 8,000,000,000 Shares. As at December 31, 2014, the Issuer had 182,443,388 Shares issued and outstanding. The Issuer is not in default under the Legislation or the securities legislation of the Other Jurisdictions.
3. The Shares are listed and trading on the Tokyo Stock Exchange (the Open Market) and are subject to the rules and regulations of this foreign exchange. The Shares trade under the symbol "TSE: 2914". The Shares are not currently listed for trading on any stock exchange in Canada and there is no intention to have the Shares so listed.
4. The Issuer indirectly carries on business in Canada through the Canadian Affiliate (the Canadian Affiliate, together with the Issuer, JTI SA, JT International Group Holding B.V. (JTI Holding BV), a company organized under the laws of The Netherlands, and any company other than JTI SA in which JTI Holding BV holds a majority interest, the JTI Group).
5. JTI SA and the Canadian Affiliate are, directly or indirectly, controlled subsidiaries of the Issuer. They are not, and have no current intention of becoming, a reporting issuer (or equivalent) under the Legislation or the securities legislation of the Other Jurisdictions. JTI SA and the Canadian Affiliate are not in default under the Legislation or the securities legislation of the Other Jurisdictions.
6. JTI SA has established a global employee share purchase plan for employees of the JTI Group (the ESPP).
7. The ESPP is administered by the board of directors of JTI SA or committee(s) duly appointed by the board of JTI SA (the Administrator).
8. Under the ESPP, only persons who are employees of a member of the JTI Group during the subscription/revocation period for the ESPP and who meet other employment criteria (the Qualifying Employees) will be allowed to enroll and participate (Participants) in the ESPP. The ESPP gives them the opportunity to acquire Shares of the Issuer that are already trading on the Open Market (the Acquisition of Shares).
9. The Acquisition of Shares is not a distribution under the Legislation.
10. Approximately 508 employees are resident in Canada and are eligible to participate in the ESPP, of which approximately 161 are resident in Ontario, 22 are resident in British Columbia, 14 are resident in Alberta, 3 are resident in Saskatchewan, 4 are resident in Manitoba, 293 are resident in Quebec, 4 are resident in New Brunswick, 5 are resident in Nova Scotia and 3 are resident in Newfoundland and Labrador. Together, they represent in the aggregate less than 2% of the number of employees in the JTI Group worldwide.
11. The Acquisition of Shares will be effected by the Administrator, on behalf of the Canadian Participants in accordance with the ESPP, and will be paid for by (i) the Canadian Participants (the Participants' Contribution) and (ii) the Canadian Affiliate on behalf of the Canadian Participants as a matching contribution of the Canadian Participants (the Matching Contribution) (Participants' Contribution and Matching Contribution collectively the Employee Share Offering).
12. The Issuer is not a reporting issuer under the Legislation. The Issuer has no current intention of becoming a reporting issuer in any Canadian jurisdiction.
13. Under applicable Japanese legislation, all Shares acquired in the Employee Share Offering will be subject to a hold period of twelve months (the Sale Restriction Period), subject to certain exceptions prescribed in the ESPP (such as a corporate reorganization event and release on death or termination of employment).
14. The Administrator has appointed Equatex AG (the Custodian) to temporarily hold for a few days the cash amounts received by JTI SA for the benefit of the Canadian Participants until the Shares are acquired by the Canadian Participants under the Employee Share Offering. The Custodian is a securities dealer governed by the laws of Switzerland. The Custodian is registered with the Swiss Financial Market Supervisory Authority FINMA as a securities dealer and complies with, among others, the rules of the Swiss Stock Exchange Act, the Financial Market Supervision Act and the Capital Adequacy Ordinance and the Collective Investment Schemes Act. To the best of the Filers' knowledge, the Custodian is not, and has no current intention of becoming, a reporting issuer under the securities legislation of the Passport Jurisdictions.
15. JTI SA's and the Administrator's trading and portfolio management activities in connection with the Employee Share Offering are limited to administering Shares and selling Shares as necessary in order to fund redemption requests and investing available cash in Shares on behalf of Canadian Participants.
16. The Custodian's activities in relation to the Employee Share Offering do not meet the business trigger for trading securities under the Legislation and therefore dealer registration is not required.
17. Participation in the Employee Share Offering is voluntary, and the Canadian resident Qualifying Employees will not be induced to participate in the Employee Share Offering by expectation of employment or continued employment.
18. The total amount invested by a Canadian Participant in the Employee Share Offering cannot exceed 15% of his or her estimated gross annual remuneration per calendar year.
19. None of the Filers or any of their employees, agents or representatives will provide investment advice to the Canadian Participants with respect to an investment in the Shares.
20. The Shares are not currently listed for trading on any stock exchange in Canada and there is no intention to have the Shares so listed. As there is no market for the Shares in Canada, and as none is expected to develop, first trades of Shares by Canadian Participants will be effected through the facilities of, and in accordance with, the rules and regulations of the Tokyo Stock Exchange.
21. Canadian Participants will receive an information package in the French or English language, as applicable, which will include a summary of the terms of the Employee Share Offering and a tax notice containing a description of Canadian income tax consequences of subscribing to and holding the Shares at the end of the Sale Restriction Period.
22. Canadian Participants will have access to copies of the continuous disclosure materials in the French or English language, as applicable, relating to the Issuer that are furnished to the Issuer's shareholders generally.
23. Canadian Participants will have access to annual statements in the French or English language, as applicable, with respect to their shareholding of Shares.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Registration Relief is granted.