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NeuroMed Technologies Inc. and NeuroMed Pharmaceuticals Inc. - MRRS Decision
Headnote
Subsection 74(1) -- registration and prospectusrelief granted regarding trades in shares of non-reporting issuersin connection with corporate reorganization utilizing exchangeableshare structure -- first trade relief granted in respect oftrades in shares of U.S. non-reporting issuer subject to certainconditions including existence of a de minimus Canadianmarket at time of first trade and certain other conditions aremet.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5. as am,ss. 25, 53, 74 (1).
Rules Cited
Ontario Securities Commission Rule 45-501 --Exempt Distributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,ONTARIO AND THE YUKON TERRITORY
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
NEUROMED TECHNOLOGIES INC.
AND
NEUROMED PHARMACEUTICALS INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in BritishColumbia, Alberta, Ontario and the Yukon (the "Jurisdictions")has received an application from NeuroMed Technologies Inc.("NeuroMed Canada") and NeuroMed Pharmaceuticals Inc.("NeuroMed US") for a decision under the securitieslegislation of the Jurisdictions (the "Legislation")that the requirement to be registered to trade in a securityand to file and obtain a receipt for a preliminary prospectusand prospectus (the "Registration and Prospectus Requirements")do not apply to certain trades in securities relating to a reorganizationand subsequent financing of NeuroMed Canada and NeuroMed US;
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the British Columbia Securities Commission is the principalregulator for this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;
AND WHEREAS NeuroMed Canada and NeuroMedUS have represented to the Decision Makers that:
1. NeuroMed US is incorporated under the lawsof Delaware and is not a reporting issuer (or equivalent)in any jurisdiction in Canada;
2. none of the shares of NeuroMed US are listedor posted for trading on any exchange, and transfer of itsshares is restricted;
3. the authorized capital of NeuroMed US consistsof common stock and preferred stock divided into thirteenseries, including series A-1, A-2, B-1, B-2, C-1 and C-2 preferredstock (collectively the "Series Preferred Stock")and series A-1, A-2, B-1, B-2, C-1, C-2 and common specialvoting stock (collectively the "Special Voting Stock");
4. NeuroMed Canada is incorporated under theYukon Business Corporations Act, and is not a reportingissuer (or equivalent) in any jurisdiction in Canada;
5. none of the shares of NeuroMed Canada arelisted or posted for trading on any exchange;
6. NeuroMed Canada's authorized capital isan unlimited number of:
(a) common shares ("NeuroMed CanadaCommon Shares") of which 3,875,833 are issued and outstanding;and
(b) preferred shares ("NeuroMed CanadaPreferred Shares"), issuable in series, of which 1,865,671Series A-1, 1,404,493 Series A-2, 5,888,715 Series B-1 and4,301,036 Series B-2 are issued and outstanding;
7. prior to completing the reorganization,NeuroMed Canada will have 51 shareholders, of which nine willbe employees or former employees of NeuroMed Canada or itsaffiliates;
8. the reorganization will be effected by:
(a) amending the articles of NeuroMed Canadato create the following:
(i) ten New Common Shares ("New CommonShares");
(ii) unlimited Common Exchangeable Shares("Common Exchangeable Shares");
(iii) unlimited Class A/B Preferred ExchangeableShares issuable in series (A-1, A2, B-1, B-2) (the "ClassA/B Preferred Exchangeable Shares");
(iv) unlimited Class C Preferred ExchangeableShares issuable in series (C-1, C-2) ("Class C PreferredExchangeable Shares");
(v) unlimited Special Voting Shares ("SpecialVoting Shares"); and
(vi) unlimited Non-Voting Preferred Shares("Non-Voting Preferred Shares"),
(Class A/B Preferred Exchangeable Sharesand Class C Preferred Exchangeable Shares are collectivelythe "Preferred Exchangeable Shares" and CommonExchangeable Shares and Preferred Exchangeable Shares arecollectively the "Exchangeable Shares");
(b) changing all of the issued and outstandingNeuroMed Canada Common Shares into Common Exchangeable Sharesand Special Voting Shares on the basis of one NeuroMed CanadaCommon Share being exchanged for 0.5602 of a Common ExchangeableShare and 0.5602 of a Special Voting Share;
(c) changing all of the issued and outstandingNeuroMed Canada Preferred Shares (per series) into PreferredExchangeable Shares (of the corresponding series) and SpecialVoting Shares on the basis of one NeuroMed Canada PreferredShare being exchanged for 0.5602 of a Preferred ExchangeableShare and 0.5602 of a Special Voting Share; and
(d) deleting and cancelling the authorizedand unissued NeuroMed Canada Common Shares and NeuroMedCanada Preferred Shares as classes of shares (includingall series);
9. the NeuroMed Canada shareholders approvedthe reorganization by consent resolution, and the reorganizationwill not be completed by way of a statutory procedure;
10. each NeuroMed Canada Shareholder willbe required to purchase from NeuroMed US, for nominal consideration,Special Voting Stock as follows:
(a) for each Common Exchangeable Share receivedunder the exchange, one share of Common Special Voting Stock,and
(b) for each Preferred Exchangeable Share(per series) received under the exchange, one share of SpecialVoting Stock (of the corresponding series);
11. NeuroMed Canada has outstanding incentivestock options granted under one of two stock option plans(the "NeuroMed Canada Plan" and the "AffiliatePlan") entitling Canadian and US holders, respectively,to purchase up to 1,507,050 NeuroMed Canada Common Shares;
12. NeuroMed Canada will amend the NeuroMedCanada Plan to provide for a joint NeuroMed US - NeuroMedCanada stock option plan (the "Joint NeuroMed US - NeuroMedCanada Plan") under which optionees will be entitledto purchase units consisting of one Common Exchangeable Share,one Special Voting Share and one share of Common Special VotingStock, or, if all of the Exchangeable Shares that have beenissued have been redeemed or acquired by NeuroMed US, oneshare of common stock of NeuroMed US;
13. existing options governed by the NeuroMedCanada Plan will be replaced with options governed by theJoint NeuroMed US - NeuroMed Canada Plan;
14. NeuroMed Canada will amend the AffiliatePlan to provide for a joint NeuroMed US - NeuroMed Canadastock option plan (the "Joint NeuroMed US - NeuroMedCanada Affiliate Plan") under which optionees will beentitled to purchase units consisting of one share of commonstock of NeuroMed US and one Special Voting Share, or, ifall of the Exchangeable Shares that have been issued havebeen redeemed or acquired by NeuroMed US, one share of commonstock of NeuroMed US;
15. existing options governed by the AffiliatePlan will be replaced with options governed by the Joint NeuroMedUS -- NeuroMed Canada Affiliate Plan;
16. NeuroMed Canada and NeuroMed US are notaffiliated as that term is defined in the Legislation;
17. certain investors (the "Series CInvestors") are proposing to provide up to approximatelyUS$32 million of additional financing to NeuroMed Canada andNeuroMed US in two separate tranches;
18. the Series C Investors may choose to receiveunits consisting of either:
(a) one Series C-1 Exchangeable Share, oneSpecial Voting Share and one share of Series C-1 SpecialVoting Stock on the first tranche and units consisting ofone Series C-2 Exchangeable Share, one Special Voting Shareand one share of Series C-2 Special Voting Stock on thesecond tranche; or
(b) one share of Series C-1 Preferred Stockand one Special Voting Share on the first tranche and unitsconsisting of one share of Series C-2 Preferred Stock andone Special Voting Share on the second tranche;
19. on completing the Series C Financing,NeuroMed US will purchase one New Common Share of NeuroMedCanada;
20. the holders of Common Exchangeable Shareswill have voting rights which will be, as nearly as practicable,equivalent to the holders of shares of common stock of NeuroMedUS;
21. the holders of Preferred ExchangeableShares will have voting rights which will be, as nearly aspracticable, equivalent to the holders of the correspondingseries of Series Preferred Stock;
22. the holders of Common Exchangeable Shareswill have economic rights which will be, as nearly as practicable,equivalent to the holders of shares of common stock of NeuroMedUS;
23. the holders of Preferred ExchangeableShares will have economic rights which will be, as nearlyas practicable, equivalent to the holders of shares of thecorresponding series of Series Preferred Stock of NeuroMedUS;
24. NeuroMed US or a subsidiary (other thanNeuroMed Canada), will have overriding call rights ("OverridingCall Rights") to purchase up to all of the outstandingCommon Exchangeable Shares and Preferred Exchangeable Sharesin exchange for shares of common stock or the correspondingseries of Series Preferred Stock of NeuroMed US, as applicable,using predetermined calculations (including amounts for anydeclared and unpaid dividends):
(a) on liquidation, dissolution or windingup of NeuroMed Canada;
(b) on exercise of a retraction right bya holder of Common Exchangeable Shares;
(c) on exercise of a retraction right bya holder of Preferred Exchangeable Shares;
(d) on exercise of a redemption right byNeuroMed Canada to redeem all the Common Exchangeable Shares;or
(e) on exercise of a redemption right byNeuroMed Canada to redeem all the Preferred ExchangeableShares;
25. subject to the Overriding Call Rights,a holder of Common Exchangeable Shares will be entitled toreceive shares of common stock of NeuroMed US from NeuroMedCanada and a holder of Preferred Exchangeable Shares willbe entitled to receive shares of the corresponding seriesof Series Preferred Stock of NeuroMed US from NeuroMed Canada,using predetermined calculations (including amounts for anydeclared and unpaid dividends):
(a) on liquidation, dissolution or winding-upof NeuroMed Canada; or
(b) on exercise of the retraction rightby the holder (the shares and other amounts received onretraction collectively being the "Retraction Consideration");
26. subject to the Overriding Call Rights,NeuroMed Canada will be entitled to redeem all the CommonExchangeable Shares and Preferred Exchangeable Shares thenoutstanding at any time on the occurrence of particular eventsso that holders of Common Exchangeable Shares will receiveshares of common stock of NeuroMed US from NeuroMed Canadaand holders of Preferred Exchangeable Shares will receiveshares of the corresponding series of Series Preferred Stockof NeuroMed US from NeuroMed Canada using predetermined calculations(including amounts for any declared and unpaid dividends);
27. NeuroMed Canada, NeuroMed US and the shareholdersof the companies will enter into an exchange agreement (the"Exchange Agreement), under which:
(a) each holder of Common Exchangeable Sharesand Preferred Exchangeable Shares will have an exchangeright (the "Optional Exchange Right"), exercisableon the insolvency of NeuroMed Canada or the failure of NeuroMedCanada to pay the Retraction Consideration to require NeuroMedUS to purchase all or part of the holder's:
(i) Common Exchangeable Shares in exchangefor shares of common stock of NeuroMed US; and
(ii) Preferred Exchangeable Shares inexchange for shares of the corresponding series of SeriesPreferred Stock of NeuroMed,
using predetermined calculations (includingamounts for declared and unpaid dividends);
(b) on the liquidation, dissolution or winding-upof NeuroMed US, NeuroMed US will be required to purchaseall outstanding Common Exchangeable Shares and PreferredExchangeable Shares and each holder of such shares willbe required to sell such shares to NeuroMed US:
(i) in the case of Common ExchangeableShares, in exchange for shares of common stock of NeuroMedUS; and
(ii) in the case of Preferred ExchangeableShares, in exchange for shares of the corresponding seriesof Series Preferred Stock of NeuroMed US,
using predetermined calculations (includingamounts for declared and unpaid dividends)
(the "Automatic Exchange Right");
28. NeuroMed Canada and NeuroMed US will enterinto a support agreement ("Support Agreement") whereby,among other things:
(a) NeuroMed US will not declare dividendson shares of common stock or Series Preferred Stock unlessNeuroMed Canada simultaneously declares equivalent dividendson the Common Exchangeable Shares or the corresponding seriesof Preferred Exchangeable Shares, as the case may be;
(b) NeuroMed US will ensure that NeuroMedCanada is able to fulfill its obligations in respect ofredemption and retraction rights and dissolution entitlements;and
(c) except in certain circumstances, NeuroMedUS will not undertake certain rights offerings or sharecapital alterations unless the same or an economically equivalentoffering or alteration is undertaken by NeuroMed Canada,and vice versa;
29. there are exemptions from the Registrationand Prospectus Requirements or exemption orders availablefor the trades to effect the reorganization;
30. there may not be exemptions from the Registrationand Prospectus Requirements for possible trades in securitiesrelating to Common Exchangeable Shares, Preferred ExchangeableShares and securities received under the following exchangerights:
(a) issuing and delivering shares of commonstock or Series Preferred Stock of NeuroMed US by NeuroMedUS or, if applicable, trades of such shares by a subsidiaryof NeuroMed US or NeuroMed Canada (and such required tradesor transfers by NeuroMed US to a subsidiary and to NeuroMedCanada) and delivering such shares on:
(i) the liquidation, dissolution or winding-upof NeuroMed Canada;
(ii) the exercise of the Overriding CallRights;
(iii) a holder's retraction of CommonExchangeable Shares or Preferred Exchangeable Shares;
(iv) the redemption of Common ExchangeableShares or Preferred Exchangeable Shares by NeuroMed Canada;and
(v) the exercise of the Optional ExchangeRight or the occurrence of the Automatic Exchange Right;
(b) the transfer of Common ExchangeableShares or Preferred Exchangeable Shares to NeuroMed Canadaon:
(i) the liquidation, dissolution or winding-upof NeuroMed Canada;
(ii) the holder's retraction of CommonExchangeable Shares or Preferred Exchangeable Shares;and
(iii) the redemption of Common ExchangeableShares or Preferred Exchangeable Shares by NeuroMed Canada;
(c) the transfer of Common ExchangeableShares or Preferred Exchangeable Shares by the holder toNeuroMed US (or a subsidiary of NeuroMed US) on exerciseof the Overriding Call Rights;
(d) the transfer of Common ExchangeableShares or Preferred Exchangeable Shares by the holder toNeuroMed US on exercise of the Optional Exchange Right orthe occurrence of the Automatic Exchange Right; and
(e) the redemption of Special Voting Sharesby NeuroMed Canada, and the redemption of shares of SpecialVoting Stock by NeuroMed US,
(collectively, the "Exchangeable ShareTrades");
31. the Exchange Agreement will also providefor the following options (the "Equivalency Options"):
(a) options granted by each holder of SpecialVoting Stock to NeuroMed US to purchase Special Voting Stockfrom the holder for nominal consideration;
(b) options granted by each holder of SpecialVoting Shares to NeuroMed Canada to purchase Special VotingShares from the holder for nominal consideration; and
(c) options granted by NeuroMed Canada toeach holder of Special Voting Shares to purchase SpecialVoting Shares for nominal consideration,
in each case to align the number of sharesof Special Voting Stock or Special Voting Shares held withthe number of shares of common stock of NeuroMed US that theholder would hold if all of the Exchangeable Shares of NeuroMedCanada and Series Preferred Stock of NeuroMed US held by suchholder were exchanged or converted into shares of common stockof NeuroMed US;
32. as a result of the exchangeable sharestructure, discretionary relief may be necessary for:
(a) the granting of options under the JointNeuroMed US - NeuroMed Canada Plan to purchase Common SpecialVoting Stock of NeuroMed US;
(b) the granting of options under the JointNeuroMed US - NeuroMed Canada Affiliate Plan to purchaseSpecial Voting Shares of NeuroMed Canada; and
(c) the granting of the Equivalency Options,
(the "Option Trades");
AND WHEREAS under the System, this MRRSDecision 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 providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Maker underthe Legislation is that the Registration and Prospectus Requirementsdo not apply to the Exchangeable Share Trades and the OptionTrades, provided that the first trade of a security acquiredunder this Decision shall be a distribution unless:
(a) such first trade if made by a director,senior officer, employee, consultant or scientific advisoryboard member of NeuroMed Canada or an affiliate of NeuroMedCanada complies with section 2.6 of Multilateral Instrument45-102 ("MI 45-102");
(b) such first trade, in any other case, complieswith section 2.5 of MI 45-102; or
(c) if at the distribution, NeuroMed US isnot a reporting issuer in any jurisdiction in Canada, thefirst trade is made through an exchange or a market outsideCanada, or to a person or company outside of Canada, providedthat at the time of such trade, holders of shares of commonstock of NeuroMed US (together with holders of ExchangeableShares and shares of Series Preferred Stock considered tobe holders of shares of common stock of NeuroMed US) who areresidents of Canada, do not own, directly or indirectly, morethan 10% of the shares of common stock of NeuroMed US andrepresent in number, not more than 10% of the total numberof owners, directly or indirectly, of common stock of NeuroMedUS.
October 29, 2003.
"Brenda Leong"