Dual application for Exemptive Relief Applications – Application for relief from prospectus requirements for the first trades of common shares by Canadian shareholders after a spin-off by a U.S. publicly traded company to investors by issuing shares of spun-off entity – Distribution made pursuant to the spin-off not covered by legislative exemptions or discretionary relief – There is no market for the securities of the issuer in Canada – The number of Canadian participants and their share ownership are de minimis – Relief granted, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53 and 74.
National Instrument 45-106 Prospectus Exemptions, ss. 2.11, 2.31.
National Instrument 45-102 Resale of Securities, ss. 2.6, 2.14.
November 21, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
The securities regulatory authority or regulator in each of the Jurisdictions (collectively, the Decision Makers) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer Canadian Shareholders (as hereinafter defined) from the prospectus requirement contained in the Legislation as it relates to first trades of common shares in the capital of the Filer (Filer Common Shares) issued to WestRock Shareholders (as hereinafter defined) resident in Canada pursuant to the Spin Off (as hereinafter defined) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers (the AMF) is the principal regulator for this application,
(b) the Filer has provided notice that Section 4.7(1) of Regulation 11-102 respecting Passport System (Regulation 11-102) is intended to be relied upon in each of the provinces and territories of Canada other than the Jurisdictions, and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions and Regulation 11-102 have the same meanings if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filer:
1. The Filer was incorporated in Delaware on March 27, 2015 and is a leading global manufacturer of specialty chemicals and high performance carbon materials. The address of the Filer’s principal executive office is in North Charleston, South Carolina, in the United States.
2. The Filer is a reporting issuer in the Province of Québec and is not a reporting issuer under the securities legislation of any other jurisdiction of Canada and, currently, has no intention of becoming a reporting issuer under the securities legislation of any other jurisdiction of Canada.
3. The authorized share capital of the Filer consists of 300 million Filer Common Shares and 50 million preferred shares. As of October 2, 2017, 42,191,653 Filer Common Shares were issued and outstanding.
4. The Filer Common Shares are listed on the New York Stock Exchange (NYSE) and trade under the symbol “NGVT”. Other than the foregoing listing on the NYSE, no securities of the Filer are listed or posted for trading on any exchange or market in Canada or outside of Canada. The Filer has no present intention of listing or posting its securities on any exchange or market in Canada.
5. The Filer is a registrant with the SEC and is subject to the requirements of the 1934 Act.
6. WestRock Company (WestRock) is incorporated in Delaware. WestRock is a global provider of paper and packaging solutions in consumer and corrugated markets and is headquartered in Norcross, Georgia and its executive offices are in Norcross, Georgia, in the United States. The common shares of WestRock are listed on the NYSE and trade under the symbol “WRK”.
7. To the knowledge of the Filer, as of October 2, 2017, WestRock was a reporting issuer under the securities legislation of the provinces of British Columbia, Manitoba and Québec.
8. The Filer was formerly a wholly-owned subsidiary of WestRock and began operations as a standalone company whose shares are listed on the NYSE following the completion by WestRock on May 15, 2016 of the distribution of 100% of the outstanding Filer Common Shares on a pro rata basis by way of a dividend in specie to holders of WestRock common shares (WestRock Shareholders) under the laws of the State of Delaware (the Spin Off).
9. Under the terms of the Separation and Distribution Agreement dated May 14, 2016 between WestRock and the Filer which governs certain matters relating to the Spin Off, WestRock Shareholders were not required to make any payment, surrender or exchange their WestRock common shares, or take any other action to receive Filer Common Shares. The Spin Off occurred without any investment decision on the part of WestRock Shareholders.
10. Because the Spin Off was effected by way of a dividend to WestRock Shareholders, stockholder approval of the Spin Off was neither required nor sought under Delaware state law or any applicable U.S. federal securities laws.
11. In connection with the Spin Off, on October 6, 2015, the Filer filed a registration statement on Form 10 (as amended, the Registration Statement) with the SEC detailing the proposed Spin Off and containing prospectus level disclosure about the Filer. The Registration Statement was declared effective by the SEC on April 25, 2016.
12. On May 3, 2016, the Filer filed with the SEC an information statement regarding the distribution of the Filer Common Shares pursuant to the Spin Off which contained prospectus-level disclosure about the Filer and the Filer Common Shares.
13. Broadridge Financial Solutions, Inc. and Wells Fargo Bank, N.A., the agents and entities charged with processing, distributing and mailing materials relating to the Spin Off to registered and beneficial WestRock Shareholders, processed, distributed and mailed such materials, or a notice of access and public availability of such materials, to registered and beneficial WestRock Shareholders, including WestRock Shareholders resident in Canada (each, a Filer Canadian Shareholder).
14. Filer Canadian Shareholders who received Filer Common Shares pursuant to the Spin Off have the same rights and remedies available to WestRock Shareholders resident in the United States under U.S. federal securities laws in respect of the disclosure documentation received in connection with the Spin Off.
15. The Spin Off would have been exempt from the prospectus requirement pursuant to Subsection 2.31(2) of Regulation 45-106 respecting Pros-pectus Exemptions (Regulation 45-106) but for the fact that the Filer was not a reporting issuer under the securities legislation of any jurisdiction in Canada at such time.
16. No prospectus was prepared for the distribution of the Filer Common Shares to Filer Canadian Shareholders in connection with the Spin Off and, to the knowledge of the Filer, no exemption from the prospectus requirement was applied for in connection therewith.
17. According to a registered shareholder report prepared for the Filer by Wells Fargo Shareowner Services, as July 21, 2017, there were 28 registered Filer Canadian Shareholders holding an aggregate of 1,129 Filer Common Shares, representing approximately 0.47% of the registered shareholders of the Filer worldwide and less than 0.01% of the total outstanding Filer Common Shares as at such date. The Filer does not expect these numbers to have materially changed since that date.
18. According to a beneficial ownership report (the Beneficial Ownership Report) prepared for the Filer by Broadridge Financial Solutions, Inc., as of July 26, 2017, (the Report Date), Filer Canadian Shareholders (i) beneficially owned 494,257 Filer Common Shares, representing approximately 1.19% of the total number of Filer Common Shares identified in the Beneficial Ownership Report, and (ii) represented in number 335 beneficial owners of Filer Common Shares, representing approximately 0.81% of the total number of beneficial holders identified in the Beneficial Ownership Report. The Beneficial Ownership Report accounts for approximately 98.59% of the total number of issued and outstanding Filer Common Shares as at the Report Date and is the most comprehensive source of information available to the Filer regarding the holdings and jurisdictions of residence of the beneficial holders of Filer Common Shares. The Filer does not expect these numbers to have materially changed since that date.
19. Based on the above information, the number of registered and beneficial Filer Canadian Shareholders and the proportion of Filer Common Shares held by such shareholders is de minimis.
20. The Filer was deemed to have become a reporting issuer in Québec as a result of the Spin Off. The Filer does not have a present intention of becoming a reporting issuer in any other province or territory of Canada.
21. The Filer is not in default under applicable securities legislation in any jurisdiction of Canada.
22. In the absence of an order granting the Exemption Sought, the first trade of the Filer Common Shares by Filer Canadian Shareholders would be considered to constitute a distribution in respect of which a prospectus must be prepared, subject to the availability of a prospectus exemption.
23. There is no active trading market for the Filer Common Shares in Canada and none is expected to develop. It is expected that any resale of the Filer Common Shares will be made through the NYSE.
24. At this time, the preparation of a prospectus by the Filer would be a disproportionate expense given the de minimis shareholdings by Filer Canadian Shareholders.
25. Since WestRock did not seek a formal exemption from the prospectus requirements from a securities regulatory authority or regulator in any of the Jurisdictions, the Filer Common Shares held by Filer Canadian Shareholders are subject to an indefinite hold period which, in the absence of an order granting the Exemption Sought, would prevent the Filer Canadian Shareholders from reselling the Filer Common Shares in the Jurisdictions unless a prospectus is filed. Creating an indefinite hold period for Filer Canadian Shareholders may be prejudicial to them, particularly in circumstances where other holders of Filer Common Shares are able to freely trade such securities through the facilities of the NYSE.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted, provided that the first trade in Filer Common Shares issued to Filer Canadian Shareholders in connection with the Spin Off will be deemed to be a distribution unless the conditions in Section 2.6 or Subsection 2.14(1) of Regulation 45-102 respecting Resale of Securities are satisfied.
“Lucie J. Roy”
Directrice principale du financement des sociétés