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Citigroup Inc. - MRRS Decision
Headnote
MRRS - prospectus and registration relief fortrades of options and shares in connection with an employeeincentive program involving the Applicant, Eligible Participants,Former Participants and certain Transferees - registration relieffor first trades of shares acquired under such employee incentiveprogram - issuer bid relief in connection with acquisition ofshares under employee incentive plans.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.
Applicable Ontario Rule
OSC Rule 45-503 - Trades to Employees, Executivesand Consultants.
Applicable Instrument
Multilateral Instrument 45-102 - Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, NOVA SCOTIA, NEWFOUNDLANDAND LABRADOR
AND PRINCE EDWARD ISLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CITIGROUP INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Nova Scotia, Newfoundland and Labrador and Prince Edward Island(the "Jurisdictions") has received an applicationfrom Citigroup Inc. (the "Applicant") for a decisionpursuant to the securities legislation of the Jurisdictions(the "Legislation") that: (a) the requirements containedin the Legislation to file and obtain a receipt for a preliminaryprospectus and a prospectus (the "Prospectus Requirements")and to be registered to trade in a security (the "RegistrationRequirements") shall not apply to certain trades to bemade in stock options (the "Options") and common shares(the "Shares") of the Applicant made in connectionwith the Applicant's equity award programs (collectively, the"Program") (b) the Registration Requirements shallnot apply to the first trades in Shares; and (c) the requirementscontained in the Legislation pertaining to bids to acquire orredeem securities of an issuer made by the issuer (the "IssuerBid Requirements") shall not apply to certain acquisitionsof Shares in accordance with the Program.
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS the Applicant has representedto the Decision Makers as follows:
1. The Applicant is a diversified global financialservices holding company whose businesses provide a broadrange of financial services to consumer and corporate customersthroughout the world. The Applicant was incorporated on March8, 1988 under the laws of the State of Delaware of the UnitedStates of America.
2. The Applicant carries on business in Canadathrough a number of financial service subsidiaries (the "CanadianSubsidiaries" and together with the Applicant, the "Group").Each Canadian Subsidiary is directly or indirectly controlledby the Applicant.
3. The Applicant's authorized capital consistsof 15 billion Shares and 30 million preferred shares. As atDecember 31, 2002, there were 5,140,671,880 Shares and 5,350,000preferred shares of the Applicant issued and outstanding.
4. The Applicant's Shares are listed in theUnited States on the New York Stock Exchange (the "NYSE")and the Pacific Exchange (the "PE"), as well asbeing listed in Mexico on the Bolsa Mexicana de Valores (the"Bolsa" and together with the NYSE and the PE, the"Foreign Exchanges"). The Applicant is subject tothe rules and regulations of each of the Foreign Exchangesand its Shares trade under the symbol "C". The Sharesare not currently listed for trading on any stock exchangein Canada, and there is no intention to have the Shares solisted.
5. The Applicant is registered with the UnitedStates Securities and Exchange Commission ("SEC")under the United States Securities Exchange Act of1934, as amended, (the "1934 Act"). The Applicantis not in default of the requirements of the 1934 Act, noris it exempt from the reporting requirements of the 1934 Act.
6. There are approximately 5,400 Canadianresident employees, directors and officers of Canadian affiliatesof the Applicant ("Eligible Participants") eligibleor expected to participate in the Program, of which approximately158 are resident in British Columbia, 181 are resident inAlberta, 32 are resident in Saskatchewan, 46 are residentin Manitoba, 4,000 are resident in Ontario, 95 are residentin Nova Scotia, 124 are resident in Newfoundland and Labradorand 18 are resident in Prince Edward Island.
7. As at February 27, 2003, residents of Canadadid not represent in number more than 1.5% of the total numberof owners directly or indirectly of Shares, and such personsdid not own directly or indirectly more than 1.5% of the totalnumber of Shares outstanding.
8. The Applicant is a reporting issuer inOntario, Saskatchewan and Québec (the "ReportingJurisdictions"). The Applicant became a reporting issuerin Ontario, Saskatchewan and Québec on September 9,1994, October 8, 1998 and June 17, 1999, respectively. TheApplicant is not a reporting issuer or the equivalent in anyother jurisdiction of Canada. The Applicant has no intentionof becoming a reporting issuer in any other Canadian jurisdictionin which it is not currently a reporting issuer.
9. To the Applicant's knowledge, it is notin default of the securities legislation of the ReportingJurisdictions.
10. On March 14, 2002, a notice of electionto become an electronic filer was filed and the Applicanthas since been an electronic filer under National Instrument13-101 - System for Electronic Document Analysis and Retrieval(SEDAR).
11. The Program generally consists of fourmain equity programs: the stock option program ("SOP"),Citigroup ownership program ("COP"), the capitalaccumulation program ("CAP") and the employee stockpurchase program ("ESPP"). The Program is used bythe Applicant to attract and retain employees, directors andofficers to provide incentives and to align the interestsof the employees, directors and officers with the financialinterests of the Group with the primary goal of increasingemployee, director and officer ownership of the Applicant,and enabling the employees, directors and officers to participatein the long-term growth and success of the Applicant.
12. Participation in the Program is voluntaryand Eligible Participants have not been, and will not be,induced to participate in the Program or to exercise Optionsor to purchase Shares by expectation of employment or continuedemployment with the Group.
13. The total number of Shares reserved forissuance through operation of the Program is not more than10% of the total number of issued and outstanding Shares asat December 31, 2002.
14. The Program is subject to regulatory oversightby the SEC and Canadian participants will receive copies ofcommunications to employees, directors and officers describingthe SOP, COP, CAP and/or ESPP, as applicable. All disclosurematerials relating to the Applicant furnished to eligibleparticipants resident in the United States, such as annualreports, proxy materials and other continuous disclosure materialswhich are required to be filed with the SEC, are also furnishedat the same time and in the same manner to Eligible Participantsresident in Canada.
15. As there is a de minimus marketfor the Shares in Canada, and the Shares are not listed ona Canadian stock exchange, first trades of Shares by EligibleParticipants resident in Canada will be affected through thefacilities of, and in accordance with, the rules and regulationsof the Foreign Exchanges.
16. The Applicant uses the services of anagent in connection with the administration and operationof the Program (the "Program Agent"). The role ofthe Program Agent may generally include: (a) disseminatinginformation and materials to Eligible Participants; (b) assistingwith the general administration of the Program and providingcertain record keeping services; (c) facilitating option exercises;(d) maintaining accounts on behalf of participants under theProgram; (e) holding Shares on behalf of participants; and(f) facilitating the resale of Shares acquired under the Program.
17. Salomon Smith Barney Inc. ("SSB")has been appointed by the Applicant to act as the ProgramAgent. SSB is registered under United States securities legislationas a securities dealer and is registered in Ontario as anInternational Dealer.
18. Under each of the SOP, CAP and COP, Optionsmay be granted by the Applicant to certain of its employees,officers and directors of the Group worldwide including EligibleParticipants who are resident in Canada. Generally, each Optionentitles an Eligible Participant to subscribe for one shareafter the lapse of a vesting period at a price determinedat the time the Options are granted (the "Exercise Price").The Options expire no more than ten years from the date ofgrant and are exercisable during that time in accordance witha vesting schedule, provided that the Eligible Participantremains in compliance with the applicable rules of the Program(which may and usually does require that the Eligible Participantremain continually employed by the Group during that time).The Shares issued under the SOP, CAP or COP, may be issuedfrom treasury or purchased in open market transactions.
19. The Exercise Price for Options is equalto the fair market value (the "FMV") of the Sharesfor the period and using the method so determined by the Applicantin accordance with applicable SEC and NYSE rules and regulations.For example, the FMV may include, but is not limited to, theclosing price of the Shares as quoted on the NYSE on the tradingday immediately prior to the date on which the Option is grantedor may be based on the average of the closing prices of theShares for each of five business days prior to the date ofthe grant of the Option.
20. The methods of payment of the ExercisePrice for Options, in accordance with the Program rules applicableto a particular award of Options, may include: (a) cash; (b)the use of proceeds from the immediate sale of all or a portionof the Shares otherwise issuable upon the exercise of theOption; (c) the use of Shares by the Eligible Participantthat the Eligible Participant has already owned for at leastsix months prior to the date of exercise of the Option; and(d) by using a process of "attestation" (wherebythe Eligible Participant "attests" that he or shehas sufficient Shares, that have been owned for at least sixmonths prior to the date of exercise of the Option, that aregreater in value than the exercise cost of the Option).
21. In accordance with Program rules applicableto a particular award of Options, Eligible Participants maysatisfy any tax withholding obligation on the exercise ofan Option in the following ways: (a) in cash; (b) by havingShares withheld from the Shares otherwise issuable upon theexercise of an Option; and (c) by the use of proceeds fromthe sale of Shares otherwise issuable upon exercise of anOption.
22. In certain circumstances, former employees,directors and officers of the Applicant and its Canadian affiliateswho were Eligible Participants ("Former Participants")may exercise Options for a limited time following the terminationof employment by reason of job discontinuance, disability,leave of absence, retirement or involuntary termination.
23. Upon the death of the Eligible Participant,in accordance with the applicable Program rules, Options maybe exercised by the estate of the Eligible Participant ordesignated beneficiary, or, in the absence of a designatedbeneficiary, by another individual or entity, so designatedby will or the laws of descent and distribution, (all suchpersons collectively, the "Permitted Transferees).
24. In accordance with applicable Programrules, an Eligible Participant who is selected to receivea total discretionary incentive and retention award that hasa value equal to, or greater than, a certain eligibility threshold,will receive a percentage of that award in the form of a cashincentive bonus, and a percentage in the form of a restrictedstock ("Restricted Stock") or deferred stock ("DeferredStock" and together with Restricted Stock, the "CAPShares") award.
25. An award of CAP Shares vests in accordancewith the vesting schedule applicable to that award (whichto date, has generally been three years from the date of theaward) pursuant to the terms of the Program, which may andusually do require that from the award date, the EligibleParticipant remain continually employed by the Group duringthe applicable vesting period.
26. Restricted Stock and Deferred Stock aresubject to transfer restrictions and risk of cancellationduring the vesting period following the date of the award.Ultimate unconditional delivery of Restricted Stock and DeferredStock may be and usually is contingent on the continued employmentof the Eligible Participant throughout the vesting period.
27. An Eligible Participant who is awardedRestricted Stock pursuant to an award of CAP Shares is entitledto full voting and dividend rights during the vesting period.An Eligible Participant who receives an award of DeferredStock pursuant to an award of CAP Shares will receive dividendequivalent payments during the vesting period at or aboutthe same time as dividends are distributed to holders of Shares.Recipients of Deferred Stock awards do not have any votingor other shareholder rights during the vesting period. Thedetermination as to whether an employee receives an awardof CAP Shares containing Restricted Stock or Deferred Stockis made in the sole discretion of the Applicant in accordancewith the applicable terms of the Program.
28. The number of CAP Shares awarded is aU.S. dollar value divided by the FMV of one Share, (as establishedby the Applicant pursuant to the Program in accordance withapplicable SEC and NYSE regulation) discounted by a percentagedetermined by the Applicant pursuant to the Program in accordancewith applicable SEC and NYSE regulation (e.g. 25% for 2003).The FMV is calculated as the average closing price of Sharesfor a defined period immediately preceeding the award date.
29. Upon the death of an Eligible Participant,in accordance with applicable Program rules, CAP Shares maybe distributed to Permitted Transferees.
30. Certain Eligible Participants may be offeredthe choice of electing to receive their award in the formof a combination of CAP Shares and Options (a "CAP Award"),as opposed to Restricted or Deferred Stock exclusively. Ifan Eligible Participant is offered, and chooses this alternative,the terms of the Options granted under the CAP Award willbe identical to the description of Options provided abovein accordance with the applicable Program rules.
31. Further, certain Eligible Participantsmay also be offered the opportunity to elect to receive anaward under the SOP in the form of Options and Deferred Stockor Restricted Stock (as opposed to Options exclusively) inaccordance with the provisions of the Program applicable tothe particular Eligible Participant and a particular award.The size of any equity award made under the Program shallbe within the sole discretion of the Applicant.
32. The ESPP enables Eligible Participantsto purchase Shares using funds accumulated by way of authorizedpayroll deductions during separate offering periods of varyingduration.
33. At the end of an offering period applicableto an Eligible Participant, such participant will be entitledto use the accumulated amounts deducted from their payroll,plus interest accumulated thereon, to purchase Shares at aprice as determined by the applicable Program rules at thebeginning of the applicable offering period (the "OfferingPrice"). In certain circumstances, an Eligible Participantmay use the accumulated funds to make a purchase of Sharesearlier than the end of the offering period. The OfferingPrice is the fair market value of the Shares as determinedby the Applicant over a specified period in accordance withapplicable Program provisions and SEC and NYSE rules and regulations.
34. Under the ESPP, if the price of Shareson the closing date of the applicable offering period is lowerthan the Offering Price, all funds accumulated on behalf ofthe Eligible Participant (plus accrued interest) shall berefunded to such participant.
35. The Legislation of all of the Jurisdictionsdoes not contain exemptions from the Prospectus and RegistrationRequirements for all the intended trades under the Program,including trades made through the Program Agent.
36. The exemptions in the Legislation maynot be available in connection with certain first trades ofShares because the Applicant is a reporting issuer in certainCanadian jurisdictions.
37. The exemptions in the Legislation fromthe Issuer Bid Requirements may not be available for all acquisitionsof Shares under the Program and acquisitions may occur ata price that is not calculated in accordance with the "marketprice" as that term is defined in the Legislation.
AND WHEREAS pursuant to the System, thisDecision Document 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:
1. the Registration Requirements and ProspectusRequirements shall not apply to any trades or distributionsof Options or Shares made in connection with the Program,including trades and distributions involving the Applicant,Eligible Participants, Former Participants or Permitted Transfereesand trades carried out with or through the Program Agent,provided that:
(i) participation in the trade by the EligibleParticipants, Former Participants or Permitted Transfereesis voluntary;
(ii) the Applicant is listed on the NYSE;and
(iii) the first trade in Shares acquiredpursuant to the Program will be deemed to be a distributionor primary distribution to the public under the Legislationunless the conditions in subsection 2.6 of MultilateralInstrument 45-102 - Resale of Securities are satisfied;
2. the first trade in Shares acquired underthe Program by an Eligible Participant, Former Participant,Permitted Transferee or the Program Agent, including firsttrades effected through the Program Agent shall not be subjectto the Registration Requirements provided that:
i. such trade is executed on the NYSE; and
ii. at the time of the acquisition of theShares or Options, as applicable, residents of Canada
(a) did not own directly or indirectlymore than 5 percent of the outstanding Shares; and
(b) did not represent in number more than5 percent of the total number of owners directly or indirectlyof Shares.
3. the Issuer Bid Requirements do not applyto the acquisition of Shares by the Applicant in accordancewith the Program from an Eligible Participant, Former Participant,Permitted Transferee or the Program Agent acting on behalfof or for the benefit of any of the foregoing persons.
March 25, 2003.
"Robert L. Shirriff" "PaulM. Moore"