NP 11-203 -- Application seeking exemptive relief from the multijurisdictional disclosure system (MJDS) eligibility requirements -- issuer does not meet eligibility requirements due to technical issues relating to a prior merger with a private company -- decision exempting issuer from certain MJDS eligibility requirements subject to conditions -- decision exempting issuer from the certification requirement confirming compliance with MJDS eligibility requirements subject to conditions -- issuer unable to rely upon exemption from formal Canadian bid requirements in local implementing rule as offer made in compliance with this decision and not Part 12 of NI 71-101 -- decision exempting issuer from formal bid requirements, subject to conditions -- issuer unable to rely upon MJDS exemption from the application of MI 61-101 to issuer bids as offer made in compliance with this decision and not Part 12 of NI 71-101 -- decision exempting issuer from MI 61-101, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5., as amended, Part XX.
MI 61-101 Protection of Minority Security Holders in Special Transactions.
NI 71-101 The Multijurisdictional Disclosure System.
Rule 71-801 Implementing the Multijurisdictional Disclosure System.
May 14, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
THE PROVINCE OF ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
TOWERS WATSON & CO.
The principal regulator in the Jurisdiction has received an application from the Filer, in respect of the Offer (as defined below), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation"):
a) exempting the Filer from the eligibility requirements in sections 12.3(1)(b) and (c) of NI 71-101-- The Multijurisdictional Disclosure System ("NI 71-101") to satisfy minimum disclosure and listing requirements with the United States Securities Exchange Commission (the "SEC") and a specified U.S. stock exchange to permit the Filer to make a securities exchange issuer bid under Part 12 of NI 71-101 and exempting the Filer from the certificate requirement in section 12.10(1)(c) of NI 71-101 confirming compliance with such eligibility requirements (the "MJDS Relief");
b) exempting the Filer from complying with the formal issuer bid requirements contained in the Legislation in connection with the Offer, including the provisions relating to restrictions and requirements regarding acquisitions made prior to, during and after a bid, the delivery of an offer and bid circular and any notices of change or variation thereto, minimum deposit periods and withdrawal rights, take-up of and payment for securities tendered to a bid, disclosure, financing, restrictions upon purchases of securities, identical consideration and collateral benefits (the "Formal Bid Relief"); and
c) exempting the Filer from complying with the issuer bid requirements in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") in connection with the Offer (the "MI 61-101 Relief").
Furthermore, the principal regulator in the Jurisdiction has received a request from the Filer for a decision that the application and this decision be kept confidential and not be made public until the earlier of: (a) the date on which the Filer publicly announces the Offer; (b) the date the Filer advises the principal regulator that there is no longer any need for the application and this decision to remain confidential; and (c) the date that is 30 days after the date of this decision (the "Confidentiality Relief").
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 Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, and Quebec (each a "Local Jurisdiction").
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer, a corporation organized under the laws of the State of Delaware, has its head office at 875 Third Avenue, New York, NY, USA. The Filer's principal business is the operation of a global business consultancy.
2. The Filer is not and has never been a reporting issuer in any Canadian jurisdiction.
3. The Filer is not registered or required to be registered as an investment company under the Investment Company Act of 1940 of the United States.
4. The Filer is not a commodity pool issuer.
5. No other application in connection with the same transaction or matter has been filed in Ontario or any other Canadian jurisdiction;
6. The Filer is a successor issuer resulting from the merger of Towers, Perrin, Forster & Crosby, Inc. ("Towers Perrin") and Watson Wyatt Worldwide Inc. ("Watson Wyatt"), which merger was completed on January 1, 2010 (the "Merger").
7. Neither Towers Perrin nor Watson Wyatt was a reporting issuer in any Canadian jurisdiction prior to the Merger.
8. Prior to the Merger, Watson Wyatt's Class A Common Stock ("Class A Common Stock") had been listed on the New York Stock Exchange (the "NYSE") since 2000 and the NASDAQ Stock Market ("NASDAQ") since 2007 and Watson Wyatt was in compliance with the obligations arising from its listings on the NYSE and NASDAQ prior to the Merger.
9. Consistent with securities law requirements of the United States, the Merger approval process required that a proxy statement and prospectus, which was derived from the registration statement under the Securities Act of 1933 of the United States (the "1933 Act") on Form S-4 be sent to stockholders, which materials included 36 months of audited financial statements of Towers Perrin.
10. On January 4, 2010, following the Merger, the Filer's Class A Common Stock was listed on NYSE and NASDAQ. The Filer is in compliance with the obligations arising from the listing on the NYSE and NASDAQ.
11. The Class A Common Stock is registered under section 12(b) of the Securities Exchange Act of 1934 of the United States (the "1934 Act"), and the Filer has filed with the United States Securities and Exchange Commission (the "SEC") all filings required to be made with the SEC under sections 13, 14 and 15(d) of the 1934 Act.
12. The Class A Common Stock is widely held. As of May 7, 2010, 42,882,625 freely tradable shares of Class A Common Stock were issued and outstanding and they had a public float, as defined in NI 71-101, of over US$2 billion as of that date.
13. The Filer is currently unable to definitively determine how many holders of shares of Class A Common Stock are resident in Canada as over 99% of the Filer's Class A Common Stock is registered in the name of CEDE & Co. as the nominee partnership of the Depository Trust & Clearing Corporation. As at May 6, 2010, only eight of the Filer's registered holders of Class A Common Stock were resident in Canada holding 0.016% of the outstanding shares of that class (based on a stock holdings report generated by the Filer's registrar and transfer agent, American Stock Transfer & Trust Company, LLC, on May 6, 2010). While this number may not be an accurate predictor of the total number of holders and number of shares of Class A Common Stock held by Canadian residents, the Filer believes that less than 5% of its Class A Common Stock is held by residents of Canada.
14. The Filer currently has a class of securities called the Class B Tranche 1 Stock ("Class B-1 Common Stock") all of which was issued exclusively to employees and former employees on January 1, 2010, pursuant to the Merger.
15. The Class B-1 Common Stock are not listed or quoted and, under the terms of the Filer's Amended and Restated Certificate of Incorporation, are restricted from transfer, except in limited circumstances.
16. As at May 7, 2010, there were 12,798,117.77 shares of Class B-1 Common Stock issued and outstanding.
17. Of the 653 holders of Class B-1 Common Stock, 69 are residents of Canada, 37 of these holders are resident in Ontario, 19 are resident in Quebec, 8 are resident in Alberta and 5 are resident in British Columbia. The 37 holders in Ontario represent 5.7% of the total number of Class B-1 Common Stock holders. The 69 Canadian residents in total own 11.35% of the outstanding Class B-1 Common Stock.
18. The Class B-1 Common Stock will automatically convert on a one-to-one basis on January 1, 2011 into shares of freely tradable Class A Common Stock.
19. The Filer will be making a securities tender offer (the "Offer") to exchange its Class B-1 Common Stock for newly issued, unsecured, subordinated notes of the Filer (the "Notes") provided that the aggregate principal amount of Notes to be issued pursuant to the Offer does not exceed USD$200 million.
20. The Filer proposes to offer to exchange each share of Class B-1 Common Stock for a Note with a principal amount equal to a price indexed to the daily volume weighted average trading price at which a share of the Filer's Class A Common Stock trades during a specified period commencing on or after the date on which the Offer is commenced and ending on a date that is at least two business days prior to the expiration of the Offer. The price would be fixed at least two business days prior to the expiration of the Offer and the Notes would be issued in exchange for the Class B-1 Common Stock promptly thereafter in accordance with applicable rules.
21. If the amount of Class B-1 Common Stock tendered in the Offer would result in the aggregate principal amount of Notes to be issued pursuant to the Offer exceeding USD$200 million, then tenders will only be accepted on a pro-rata basis and Class B-1 Common Stock not accepted due to prorating will not be exchanged in the Offer.
22. The purpose of the Offer is to enable the Filer to acquire a significant amount of Class B-1 Common Stock in an orderly fashion in order to reduce the impact of any sales or potential sales that may occur on or after January 1, 2011 on the market price of Class A Common Stock or the Filer's ability to raise capital through the sale of additional securities. Sales or potential sales of such Class A Common Stock in the public market after January 1, 2011, primarily as a result of the conversion of Class B-1 Common Stock, could depress the market price of Class A Common Stock at such time.
23. Participation in the Offer will be entirely voluntary.
24. Neither the Filer, nor its Board of Directors, will make any recommendation to holders of the Class B-1 Common Stock as to whether to participate in the Offer. Class B-1 Common Stock that is not exchanged in the Offer will remain outstanding on its current terms and conditions. Class B-1 Common Stock tendered and exchanged for Notes by the Filer in the Offer will be redeemed.
25. The Filer is relying on an exemption in section 3(a)(9) of the 1933 Act, to exempt the issuance of the Notes in the Offer from the registration requirements of the 1933 Act.
26. The Filer has made an application for a no action letter to the SEC to confirm that the pricing mechanisms described above to be used in the Offer comply with the requirements of Rules 13e-4(d)(1), 13e-4(f)(1)(ii), and 14e-1(b) of the 1934 Act. Alternatively, the Filer has requested that the SEC staff confirm that it will not recommend that the SEC take enforcement action pursuant to Rules 13e-4(d)(1) (solely on the basis of the pricing mechanisms to be used in the Offer), 13e-4(f)(1)(ii) or 14e-1(b) of the 1934 Act with respect to the Offer.
27. The terms of the Offer to Canadian resident holders of Class B-1 Common Stock would be identical to those applicable to U.S. holders except for the fact that an additional requirement applies to non-U.S. participants (each a "Non-U.S. Holder"). In order for a Non-U.S. Holder's Class B-1 Common Stock to be accepted for exchange pursuant to the Offer, a Non-U.S. Holder will be required to transfer to the Company funds sufficient to satisfy applicable U.S. withholding taxes payable in connection with the redemption of such Non-U.S. Holder's shares of Class B-1 Common Stock. The withholding tax, and the amount required to be transferred, will generally equal 30% of the face amount of the Notes, unless the Non-U.S. Holder is eligible to claim, and properly claims, a reduced rate of withholding tax under an applicable tax treaty with the U.S. A Non-U.S. Holder that tenders shares of Class B-1 Common Stock in the Offer but fails to transfer to the Company sufficient cash to satisfy withholding taxes will not have his or her shares of Class B-1 Common Stock accepted for exchange pursuant to the Offer.
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:
(a) the MJDS Relief is granted, provided that:
(i) the Filer meets the eligibility criteria in sections 12.1, 12.3(1)(a) and (d) of NI 71-101;
(ii) the Filer meets the eligibility criteria set out in subparagraphs 3.1(a)(i), (ii), (iv) and (v) of NI 71-101;
(iii) the materials sent to holders of Class B-1 Stock in respect of the Offer are prepared in accordance with applicable U.S. federal securities law; and
(iv) the Filer satisfies the certificate requirement in section 12.10 of NI 71-101 by filing a modified certificate confirming that but for the criteria in sections 12.3(1)(b) and (c) of NI 71-101 for which relief is granted, it satisfies the eligibility criteria in sections 12.1 and 12.3 of NI 71-101.
(b) the MI 61-101 Relief is granted provided that less than 20% of the Class B-1 Common Stock is held by persons or companies whose last address as shown on the books of the Filer is in Canada, as determined in accordance with subsections 12.1(2) through (4) of NI 71-101.
The decision of the principal regulator under the Legislation is that:
(a) the Formal Bid Relief is granted, provided that the Offer and Filer comply with Part 12 of NI 71-101 (other than sections 12.3(1)(b), 12.3(1)(c) and 12.10(1)(c)) and conditions (i) through (iv) of the MJDS Relief;
(b) the Confidentiality Relief is granted.