Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- relief from dealer registration and prospectus requirements to allow US parent company to spin-off the shares of its US subsidiary to investors by way of a dividend in specie and to allow the US parent company and US subsidiary to distribute certain options and restricted stock units in connection with the Spin-off -- Spin-off technically not covered by legislative exemptions -- US parent company having a de minimis shareholder presence in Canada -- US parent company was a public company in the United States, but not a reporting issuer in Canada. Following spin-off, US subsidiary will be an independent public company in the United States, but not a reporting issuer in Canada -- No investment decision required from Canadian shareholders in order to receive the spin-off shares or to receive options or restricted stock units.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).

August 12, 2009

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

CARDINAL HEALTH, INC. ("Cardinal") AND

CAREFUSION CORPORATION

("SpinCo" and, together with Cardinal, the "Filers")

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers (the "Application") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for relief from the prospectus requirement and dealer registration requirement in connection with: (i) the proposed distribution to Cardinal's shareholders, pro rata, of nearly all the outstanding capital stock (the "SpinCo Shares") of SpinCo, a newly created indirect wholly-owned subsidiary corporation of Cardinal; and (ii) as described in paragraph 19, the proposed distribution of stock options exercisable for common shares of Cardinal, SpinCo restricted share units and stock options exercisable for SpinCo Shares (together the "Security Compensation Awards") to certain Canadian resident holders of Cardinal restricted share units and stock options (the "Canadian Cardinal Security Compensation Award Holders") as a consequence of the Spin-off (as described below) (collectively, the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this Application, and

(b) the Filers have provided notice that section 4.7 of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in each of the other provinces and territories of Canada (the "Jurisdictions").

Interpretation

Defined terms contained in National Instrument 14-101 have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filers:

Distribution to Cardinal Shareholders

1. Cardinal is an Ohio corporation incorporated on May 16, 1979. Through its subsidiaries, Cardinal is a provider of products and services supporting the health-care industry. Cardinal's business compromises two distinct divisions, healthcare supply service and clinical and medical products ("CMP Business"). Cardinal is not a reporting issuer under the securities laws of any province or territory of Canada. Cardinal has no intention of ever becoming a reporting issuer under the securities laws of any province or territory of Canada.

2. The common shares of Cardinal ("Cardinal Shares") are widely held and trade on the New York Stock Exchange (the "NYSE"). Cardinal Shares are not listed on any Canadian stock exchange.

3. As of May 15, 2009 there were 86 registered holders of Cardinal Shares ("Cardinal Shareholders") resident in seven Canadian provinces (the "Canadian Shareholders") holding approximately 69,215 Cardinal Shares, representing less than 0.001% of the approximately 360 million Cardinal Shares outstanding. As such, the proportion of Cardinal Shares held by residents of Canada is de minimis.

4. Subject to obtaining necessary approvals, Cardinal will spin off a portion of its CMP Business into SpinCo, a company that will become an independent, publicly-traded company through a tax neutral spin-off transaction ("Spin-off"). The United States Securities and Exchange Commission (the "SEC") will be reviewing the disclosure documents filed by Cardinal for the Spin-off, namely a registration statement on Form 10 under the United States Securities and Exchange Act of 1934 which contains an information statement with pro forma financial information as an exhibit. The Spin-off was publicly announced by Cardinal on September 29, 2008 by way of press release.

5. SpinCo is an indirect, wholly owned Delaware subsidiary of Cardinal. Under the Spin-off, SpinCo will become the eventual parent of a number of Cardinal subsidiaries comprising Cardinal's CMP Business. To effect the Spin-off, Cardinal will distribute to SpinCo all of the stock of the CMP Business subsidiaries in actual or constructive exchange for SpinCo Shares, the assumption of liabilities and an amount of cash. Cardinal will then make a pro rata distribution of all of the outstanding SpinCo Shares to Cardinal Shareholders (the "Distribution"). The Distribution will be a "distribution" or a "distribution to the public" for the purposes of the Legislation.

6. Cardinal Shareholders will not be required to pay for the SpinCo shares received in the Spin-off, or to surrender or exchange Cardinal Shares or take any other action to be entitled to receive their SpinCo Shares. The Distribution will occur automatically and without any investment decision on the part of the Cardinal Shareholders.

7. After the Spin-off, Cardinal will continue to be listed and traded on the NYSE.

8. The SpinCo Shares have been authorized for listing on the NYSE.

9. SpinCo does not intend to list its shares on any stock exchange in Canada and it does not intend to become a reporting issuer in any of the Jurisdictions.

10. The Distribution and Spin-off will be effected in compliance with Ohio and Delaware law and United States federal securities laws, and the disclosure documents for the Spin-off will be reviewed by the SEC.

11. Because the Spin-off will be by way of a dividend of SpinCo Shares to the Cardinal Shareholders, no shareholder approval of the proposed transaction is required under Ohio law.

12. All materials relating to the Spin-off and the Distribution sent by or on behalf of Cardinal to registered Cardinal Shareholders in the United States will be sent concurrently to the registered Cardinal Shareholders resident in Canada.

13. Registered Cardinal Shareholders resident in Canada will be sent the information statement that is an exhibit to the registration statement on Form 10 after the SEC declares the registration statement effective.

14. Following the Spin-off, Cardinal and SpinCo, respectively, will send concurrently to the registered holders of Cardinal Shares and SpinCo Shares resident in Canada the same disclosure materials that each sends to registered holders of Cardinal Shares and SpinCo Shares with addresses, as shown on its books to be, in the United States.

15. The Canadian Shareholders who receive Cardinal Shares as a dividend pursuant to the Spin-off will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin-off and the Distribution that are available to Cardinal Shareholders in the United States.

16. The Distribution of SpinCo Shares to Canadian Shareholders would be exempt from the prospectus and registration requirements pursuant to subsection s.2.31(2) and (3) of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") but for the fact that SpinCo is not a reporting issuer under the Legislation.

Distribution to Canadian Cardinal Employees of SpinCo Security Compensation Awards

17. A small number of Cardinal employees who hold vested and unvested options for Cardinal Shares and Cardinal restricted share units (together, the "Cardinal Security Compensation Awards") under the current Cardinal 2005 Long-Term Incentive Plan, Amended and Restated Equity Incentive Plan, and Broadly-Based Equity Incentive Plan (and equity plans assumed in corporate transactions), as applicable, (collectively, the "Existing Plans") are Canadian residents.

18. As a result of the Spin-off, Cardinal Shares will be worth less. As part of the Spin-off, Cardinal wishes to adjust the existing employee restricted share units and stock options for Cardinal Shares and arrange for the issuance by SpinCo of an appropriate amount of Security Compensation Awards (the "Security Compensation Awards Distribution"). The Security Compensation Awards Distribution is intended to preserve the intrinsic value of the original grant of Cardinal Security Compensation Awards.

19. The various distributions comprising the Security Compensation Awards Distribution can be made in reliance upon section 2.24 of NI 45-106, except for the following:

(a) in the case of a holder of an option for Cardinal Shares granted on or prior to September 26, 2007 who will remain employed with Cardinal following the Spin-off, the distribution to such holder of a SpinCo stock option;

(b) in the case of a holder of options for Cardinal Shares granted on or prior to September 26, 2007 who will become employed by SpinCo upon the Spin-off, the distribution to such holder of an adjusted Cardinal stock option; and

(c) in the case of a holder of a Cardinal restricted stock unit granted on or prior to September 26, 2007, issued in exchange for an option initially granted on or prior to September 26, 2007 or granted in connection with the announcement of the plans for the Spin-off, the distribution to such holder of a SpinCo restricted stock unit representing the right to receive 0.5 SpinCo Shares.

20. The distributions described in paragraph 19 would be exempt from the prospectus and registration requirements pursuant to section 2.24 of NI 45-106, but for the fact that such distributions will occur immediately after the Spin-off, and at that time Cardinal and SpinCo will not technically be related entities for the purposes of NI 45-106. The Spin-off was structured in this manner due to tax considerations.

21. The Canadian Cardinal Security Compensation Award Holders hold less than 0.01% of all the outstanding Cardinal Security Compensation Awards. As such, the distribution of the Security Compensation Awards to the Canadian Cardinal Security Compensation Award Holders is de minimis.

22. Following the Security Compensation Awards Distribution, the Canadian Cardinal Security Compensation Award Holders will receive the same disclosure material that each United States SpinCo employee would receive who holds Security Compensation Awards.

23. Only the Canadian Cardinal Security Compensation Award Holders who hold vested and unvested Cardinal Security Compensation Awards under the Existing Plans, as applicable, will receive the one time benefit of the exemptions granted under this decision with respect to the Security Compensation Awards distributed under the Security Compensation Awards Distribution. Thereafter, Cardinal employees will potentially receive Cardinal restricted share units and/or stock options for Cardinal Shares under the applicable Existing Plan, while SpinCo employees will potentially receive SpinCo restricted share units and/or stock options for SpinCo Shares under any comparable plan of SpinCo's, as applicable.

24. The Filers are not in default of any securities legislation in any of the provinces or territories of Canada.

Decision

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 Exemption Sought is granted provided that the first trade in:

(i) SpinCo Shares issued pursuant to the Distribution,

(ii) Security Compensation Awards issued pursuant to the distributions referred to in paragraph 19 above, or

(iii) SpinCo Shares or Cardinal Shares issued on the exercise or vesting, as applicable, of Security Compensation Awards issued pursuant to the distributions referred to in paragraph 19 above,

will be deemed to be a distribution unless the conditions in section 2.6 or subsection 2.14(1) of National Instrument 45-102 Resale of Securities are satisfied.

"James E.A. Turner"
Vice-Chair
Ontario Securities Commission
 
"Paulette Kennedy"
Commissioner
Ontario Securities Commission