Securities Law & Instruments

Xenon Pharmaceuticals Inc. -- s. 9.1 of MI 61-101 Protection of Minority Security Holders in Special Transactions and s. 6.1 of NI 62-104 Take-Over Bids and Issuer Bids

 

Headnote

Section 6.1 of NI 62-104 and section 9.1 of MI 61-101 -- Issuer bid -- relief from the requirements applicable to issuer bids in Part 2 of NI 62-104 and Part 3 of MI 61-101 -- issuer proposes to acquire its own shares and receive other consideration in connection with an arm's length negotiated commercial settlement agreement -- selling shareholder not receiving cash in exchange for subject shares -- shares repurchased at a deemed value below the "market price" prior to announcement and consummation of the transaction -- repurchase not designed to give preferential treatment to the selling shareholder -- transaction is in the best interests of the issuer and its shareholders and will not adversely affect the financial position of the issuer or shareholders to whom the bid was not extended -- share repurchase will not materially affect control of the issuer.

Statutes Cited

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Part 3 and s. 9.1.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. s.5, AS AMENDED AND IN THE MATTER OF XENON PHARMACEUTICALS INC.

ORDER (Section 9.1 of Multilateral Instrument 61-101 and Section 6.1 of National Instrument 62-104)

UPON the application (the "Application") of Xenon Pharmaceuticals Inc. (the "Issuer") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") and Section 9.1(2) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") exempting the Issuer from the requirements applicable to issuer bids in Part 2 of NI 62-104 and Part 3 of MI 61-101 (the "Issuer Bid Requirements") in respect of the proposed acquisition by the Issuer from Teva Canada Limited ("Teva Canada"), an "affiliate" (as defined in the Securities Act (Ontario)) of Teva Pharmaceuticals International GmbH, formerly known as Ivax International GmbH ("Teva GmbH", and together with Teva Canada, "Teva"), of an aggregate of 1,000,000 of the Issuer's common shares (the "Subject Shares") held by Teva Canada (the "Proposed Transaction") in connection with the termination of a collaborative development and license agreement between the Issuer and Teva GmbH (the "Collaborative Development and License Agreement");

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Issuer (and Teva in respect of paragraphs 8, 9, 10 and 14 as they relate to Teva) having represented to the Commission that:

1. The Issuer was incorporated under the Company Act (British Columbia) on November 5, 1996 and continued into the federal jurisdiction under the Canada Business Corporations Act (the "CBCA") on May 17, 2000.

2. The Issuer's head and registered office is located at 200 -- 3650 Gilmore Way, Burnaby, British Columbia.

3. The Issuer completed its initial public offering in November 2014 (the "IPO") and is a reporting issuer in each of the Provinces of British Columbia, Alberta and Ontario (the "Jurisdictions"). The Issuer is not in default of any requirement of the securities legislation in any such Jurisdiction.

4. As of the date of this order (the "Order"), the Issuer is not a foreign private issuer (as defined under the Securities Exchange Act of 1934, as amended (the "1934 Act")) in the United States and therefore is subject to the rules and regulations under the 1934 Act applicable to U.S. domestic issuers. The Issuer is not in default of any requirement of securities laws of the United States.

5. The authorized share capital of the Issuer consists of an unlimited number of common shares (the "Common Shares") and an unlimited number of preferred shares (the "Preferred Shares"). As at March 22, 2018, 18,039,301 Common Shares and no Preferred Shares of the Issuer were issued and outstanding.

6. The Common Shares are listed and posted for trading on the NASDAQ Global Market under the symbol "XENE".

7. None of the Issuer's securities are listed, quoted or traded on a "marketplace" in Canada (as defined in National Instrument 21-101 Marketplace Operation).

8. Teva GmbH is a limited liability company formed under the laws of Switzerland and has its headquarters in Rapperswil, Switzerland.

9. Teva Canada is a company amalgamated under the CBCA and has its headquarters in Toronto, Canada.

10. Teva Canada is an affiliate of Teva GmbH.

11. In December 2012, the Issuer entered into the Collaborative Development and License Agreement with Teva GmbH, pursuant to which the Issuer granted to Teva GmbH an exclusive worldwide license to develop and commercialize certain products (the "Licensed Products") and Teva GmbH was responsible for, among other things, funding all development costs with respect to the Licensed Products.

12. Under the Collaborative Development and License Agreement, the Issuer had the right to require Teva GmbH or an affiliate of Teva GmbH to purchase Common Shares issued in the IPO (the "Option").

13. The Issuer exercised the Option and Teva Canada purchased 1,111,111 Common Shares (the "Teva Shares") in the IPO, at a price of US$9.00 per Common Share, pursuant to the terms of the Collaborative Development and License Agreement.

14. Teva Canada is the registered and beneficial owner of the Teva Shares.

15. The Teva Shares represent approximately 6.16% of the issued and outstanding Common Shares as at March 22, 2018.

16. None of Teva GmbH or its affiliates have any representatives on the board of directors of the Issuer, nor do they have the right to appoint any such representatives. The Issuer does not have any representatives on the board of directors of Teva or any of its affiliates, nor does it have the right to appoint any such representatives.

17. None of Teva GmbH nor its affiliates is a "related party" of the Issuer as such term is defined in MI 61-101, and the Proposed Transaction is not a "related party transaction" as such term is defined in MI 61-101.

18. The Issuer and Teva agreed to terminate the Collaborative Development and License Agreement pursuant to the terms and conditions of the Termination Agreement (as defined below) after Teva informed the Issuer that it no longer intends to further develop the Licensed Products.

19. tOn March 7, 2018, the Issuer, Teva GmbH and Teva Canada executed a termination agreement (the "Termination Agreement") pursuant to which Teva agreed to transfer and assign the Subject Shares to the Issuer for cancellation in connection with the Proposed Transaction and to return or assign to the Issuer certain intellectual property, including certain patent rights (the "Assigned Patents"), know-how and related regulatory filings. The Termination Agreement also requires the Issuer to pay a low single-digit percentage royalty to Teva based on net sales of approved products, if any, resulting from any continued development and commercialization by the Issuer of the Licensed Products during the period that (i) the Assigned Patents cover the Licensed Products or (ii) any future patents arising out of the Assigned Patents would be infringed by the commercialization of the Licensed Products in the absence of the licenses granted thereunder.

20. The Termination Agreement, including the Proposed Transaction, was negotiated by the Issuer and Teva at arm's length following extensive negotiations between the Issuer and Teva with the benefit of legal and financial advice in connection therewith.

21. On March 7, 2018, the Issuer issued and filed a press release (the "Press Release") on SEDAR announcing the execution of the Termination Agreement and disclosing, among other things: (i) the material terms and conditions of the Termination Agreement; (ii) that the Issuer made an application to the Commission for exemptive relief from the Issuer Bid Requirements; (iii) that the Proposed Transaction is conditional upon receipt from the Commission of the Order; and (iv) that, subject to obtaining the Order, the Issuer will not close and give effect to the Termination Agreement and the Proposed Transaction for at least 10 business days from the date of issuance of the Press Release.

22. The Proposed Transaction will constitute an "issuer bid" for the purposes of NI 62-104 and MI 61-101, to which the applicable Issuer Bid Requirements would apply. The Proposed Transaction cannot be made in reliance upon exemptions from the Issuer Bid Requirements contained in Part 4 of NI 62-104 and Part 3 of MI 61-101.

23. No approvals of the NASDAQ Global Market will be required in connection with the transactions contemplated by the Termination Agreement.

24. The Proposed Transaction is an integral part of, and intended to facilitate, the termination of the Collaborative Development and License Agreement for the benefit of the Issuer and its shareholders. The Proposed Transaction was not agreed to for the purpose, or with the intention of, providing preferential treatment to Teva Canada and will not adversely affect the financial position of the Issuer or the shareholders of the Issuer that are not a party to the Proposed Transaction.

25. The shareholders of the Issuer not offered the opportunity to sell their Common Shares to the Issuer under the Proposed Transaction would otherwise be entitled to sell their Common Shares into the market for cash proceeds.

26. No shareholder, including Teva Canada, will receive cash consideration in connection with the Proposed Transaction and it is impossible for the Issuer to offer to acquire Common Shares from all shareholders on the same terms and conditions as contemplated under the Proposed Transaction.

27. The cancellation of the Subject Shares is expected to increase the value of the equity position of the Issuer's other shareholders.

28. For the purposes of the Proposed Transaction, all of the members of the board of directors of the Issuer are independent directors within the meaning of MI 61-101, except for Simon Pimstone, the President and Chief Executive Officer of the Issuer.

29. The board of directors of the Issuer unanimously determined that:

a. the Proposed Transaction is in the best interests of the Issuer and its shareholders;

b. the consideration deemed to be paid for the Subject Shares is not greater than the "market price", determined in accordance with subsection 1.11 of NI 62-104;

c. the Proposed Transaction will not adversely affect the financial position of the Issuer or the shareholders to whom the issuer bid is not extended, and upon cancellation of the Subject Shares, the Proposed Transaction is expected to increase the value of the equity ownership position of the Issuer's other shareholders; and

d. the Proposed Transaction will not materially affect control of the Issuer.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to section 6.1 of NI 62-104 and section 9.1(2) of MI 61-101 that the Issuer be exempt from the Issuer Bid Requirements in respect of the Proposed Transaction, provided that the Issuer issues and files a press release on SEDAR disclosing that the Issuer has been granted exemptive relief from the Issuer Bid Requirements in connection with the Proposed Transaction.

DATED at Toronto, Ontario, this 23rd day of March, 2018.

"Naizam Kanji"
Director, Office of Mergers & Acquisitions
Ontario Securities Commission