Veolia Environnement S.A.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -Dual application for Exemptive Relief Applications -- Application for relief from the prospectus and registration requirements for certain trades made in connection with an employee share offering by a French issuer -- The issuer cannot rely on the employee exemption in section 2.24 of National Instrument 45-106 Prospectus and Registration Exemptions as the securities are not being offered to Canadian employees directly by the issuer but rather through special purpose entities -- Canadian participants will receive disclosure documents -- The special purpose entities are subject to the supervision of the local securities regulator -- Canadian participants will not be induced to participate in the offering by expectation of employment or continued employment -- There is no market for the securities of the issuer in Canada -- The number of Canadian participants and their share ownership are de minimis -- Relief granted, subject to conditions.
Applicable Legislative Provisions
Securities Act (Ontario), ss. 25, 53 and 74.
National Instrument 45-106 Prospectus and Registration Exemptions
National Instrument 31-103 Registration Requirements and Exemptions
Translation
November 12, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
(the "Filing Jurisdictions")
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
VEOLIA ENVIRONNEMENT S.A.
(the "Filer")
DECISION
Background
The securities regulatory authority or regulator in each of the Filing Jurisdictions (the "Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Filing Jurisdictions (the "Legislation") for:
1. an exemption from the prospectus requirements of the Legislation (the "Prospectus Relief") so that such requirements do not apply to
(a) trades in
(i) units (the "Principal Classic Units") of Sequoia Classique International, (the "Principal Classic Fund"), a fonds commun de placement d'entreprise or "FCPE," a form of collective shareholding vehicle of a type commonly used in France for the conservation and custodianship of shares held by employee-investors;
(ii) units (the "Temporary Classic Units" and, together with the Principal Classic Units, the "Classic Units") of a temporary FCPE named Sequoia Classique International Relais 2010 (the "Temporary Classic Fund, which will will be merged with the Principal Classic Fund following completion of the Employee Share Offering (as defined below), such transaction being described as the "Merger" in paragraph 9(d) of the Representations) (the term "Classic Fund" used herein means, prior to the Merger, the Temporary Classic Fund and, following the Merger, the Principal Classic Fund); and
(iii) units (the "Leveraged Units," and together with Classic Units, the "Units") of a permanent FCPE named Sequoia Plus International 2010 (the "Leveraged Fund" and, together with the Principal Classic Fund and the Temporary Classic Fund, the "Funds")
made pursuant to the Employee Share Offering to or with Qualifying Employees (as defined below) of Canadian Affiliates (as defined below) resident in the Filing Jurisdictions and in British Columbia and Alberta that elect to participate in the Employee Share Offering (collectively, the "Canadian Participants");
(b) trades in ordinary shares of the Filer (the "Shares") by the Funds to or with Canadian Participants upon the redemption of Units as requested by Canadian Participants; and
(c) the issuance of Principal Classic Units to holders of Leveraged Units upon a transfer of Canadian Participants' assets in the Leveraged Fund to the Principal Classic Fund at the end of the Lock-Up Period (as defined below).
2. an exemption from the dealer registration requirements of the Legislation (the "Registration Relief") so that such requirements do not apply to the Veolia Group (as defined below), the Funds and the Management Company (as defined below) in respect of the following:
(a) trades in Classic Units made pursuant to the Employee Share Offering to or with Canadian Participants;
(b) trades in Leveraged Units made pursuant to the Employee Share Offering to or with Canadian Participants not resident in Ontario;
(c) trades in Shares by the Funds to or with Canadian Participants upon the redemption of Units as requested by Canadian Participants; and
(d) the issuance of Principal Classic Units to holders of Leveraged Units upon a transfer of Canadian Participants' assets in the Leveraged Fund to the Principal Classic Fund at the end of the Lock-Up Period;
(the Prospectus Relief and the Registration Relief, collectively, the "Offering Relief").
3. Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application),
(a) the Autorité des marches financiers is the principal regulator for this application,
(b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System ("Regulation 11-102") is intended to be relied upon in British Columbia and Alberta (the "Other Offering Jurisdictions" and, together with the Filing Jurisdictions, the "Jurisdictions"), and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 14-101 respecting Definitions, Regulation 45-102 respecting resale of securities, Regulation 45-106 respecting Prospectus and Registration Exemptions and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation formed under the laws of France. It is not and has no current intention of becoming a reporting issuer under the Legislation or under the securities legislation of the Other Offering Jurisdictions. The head office of the Filer is located in France and the Shares are listed on Euronext Paris.
2. The Filer carries on business in Canada through the following affiliated companies: Veolia ES Canada Inc., Veolia ES Canada Services Industriels Inc., Veolia ES Canada Industriel Services Inc., Veolia ES Matières Résiduelles Inc., Veolia Transport Québec Inc., Autobus Boulais Ltée, Veolia Water Canada Inc., John Meunier Inc., and Veolia Transportation Inc. (collectively, the "Canadian Affiliates" and, together with the Filer and other affiliates of the Filer, the "Veolia Group"). Each of the Canadian Affiliates is a direct or indirect controlled subsidiary of the Filer and is not, and has no current intention of becoming, a reporting issuer under the Legislation or under the securities legislation of the Other Offering Jurisdictions. The head office of each of the major operating divisions of the Veolia Group in Canada is located in Montréal, Québec, and the greatest number of employees of Canadian Affiliates are employed in Québec.
3. As of the date hereof and after giving effect to the Employee Share Offering, Canadian residents do not and will not beneficially own (which term, for the purposes of this paragraph, is deemed to include all Shares held by the Funds on behalf of Canadian Participants) more than 10% of the Shares and do not and will not represent in number more than 10% of the total number of holders of Shares as shown on the books of the Filer.
4. The Filer has established a global employee share offering for employees of the Veolia Group (the "Employee Share Offering"). The Employee Share Offering is comprised of two subscription options:
(a) an offering of Shares to be subscribed through the Temporary Classic Fund, which Temporary Classic Fund will be merged with the Principal Classic Fund following completion of the Employee Share Offering (the "Classic Plan"); and
(b) an offering of Shares to be subscribed through the Leveraged Fund (the "Leveraged Plan").
5. Only persons who are employees of a member of the Veolia Group during the subscription period for the Employee Share Offering and who meet other employment criteria (the "Qualifying Employees") will be allowed to participate in the Employee Share Offering. Retired employees of the Veolia Group in Canada will not be permitted to participate in the Employee Share Offering.
6. The Funds have been established for the purpose of implementing the Employee Share Offering. There is no current intention for any of the Funds to become a reporting issuer under the Legislation or under the securities legislation of the Other Offering Jurisdictions.
7. Each of the Funds is an FCPE, which is a shareholding vehicle of a type commonly used in France for the conservation and custodianship of shares held by employee investors. The Funds will be registered with, and approved by, the Autorité des marchés financiers in France (the "French AMF") prior to the commencement of the subscription period in respect of the Employee Share Offering.
8. All Units acquired under the Classic Plan or the Leveraged Plan by Canadian Participants will be subject to a hold period of approximately five years (the "Lock-Up Period"), subject to certain exceptions prescribed by French law (such as a release on death, disability or termination of employment).
9. Under the Classic Plan:
(a) The Temporary Classic Fund will subscribe for Shares on behalf of the Canadian Participants at a subscription price that is equal to the price calculated as the arithmetical average of the opening Share price on Euronext Paris on the 20 trading days preceding the date of the fixing of the subscription price by the Board of Directors of the Filer (the "Reference Price"), less a 10% discount (the "Subscription Price").
(b) Subject to the limitations on total employer matching contribution discussed below, the Canadian Affiliate employing a Canadian Participant will match the amount contributed by such Canadian Participant into the Classic Plan. The maximum employer matching contribution for each Canadian Participant under both the Classic Plan and the Leveraged Plan, collectively, is the Canadian dollar equivalent of 600€ (currently approximately $800). A Canadian Participant may subscribe for more Shares under the Classic Plan; however, they will not be matched by the Canadian Affiliate.
(c) The Temporary Classic Fund will apply the cash received from Canadian Participants and the cash received in respect of the matching contribution from Canadian Affiliates (whether matched under the Classic Plan or the Leveraged Plan, as described below) to subscribe for Shares of the Filer. The Shares will be held in the Temporary Classic Fund and the Canadian Participants will receive Temporary Classic Units representing the subscription of all Shares, including Shares purchased using the employer matching contribution under both the Classic Plan and the Leveraged Plan.
(d) Following the completion of the Employee Share Offering, the Temporary Classic Fund will be merged with the Principal Classic Fund (subject to the French AMF's approval). Temporary Classic Units held by Canadian Participants will be replaced with Principal Classic Units on a pro rata basis and the Shares subscribed for under the Employee Share Offering will be held in the Principal Classic Fund (such transaction being referred to as, the "Merger").
(e) Dividends paid on the Shares held in the Classic Fund will be contributed to the Classic Fund and used to purchase additional Shares. To reflect this reinvestment, new Classic Units (or fractions thereof) will be issued to Canadian Participants.
(f) At the end of the Lock-Up Period or in the event of an early redemption resulting from the Canadian Participant relying on one of the exceptions to the Lock-Up Period prescribed by French law, a Canadian Participant may
(i) request to have his or her Classic Units redeemed in consideration for the underlying Shares or a cash payment equal to the then market value of the underlying Shares; or
(ii) continue to hold Classic Units in the Classic Fund and request to have those Classic Units redeemed at a later date.
10. Under the Leveraged Plan:
(a) The subscription price for the Shares under the Leveraged Plan is the Subscription Price (i.e., the Reference Price less a 10% discount).
(b) Canadian Participants will contribute 16.66% of the price of each Share, expressed in Euros, to be subscribed for by the Leverage Fund (the "Leveraged Plan Employee Contribution"). The Leveraged Fund will enter into a swap agreement (the "Swap Agreement") with Crédit Agricole CIB (the "Bank"). Under the terms of the Swap Agreement, the Bank will contribute the remaining 83.34% of the price of each Share to be subscribed for by the Leveraged Fund (the "Bank Contribution").
(c) The Canadian Affiliate employing a Canadian Participant will match the Leveraged Plan Employee Contribution. As discussed above, the Temporary Classic Fund (and not the Leveraged Fund) will apply the cash received from such employer matching contribution and subscribe for additional Shares at the Subscription Price. Such additional Shares shall be for the benefit of, and at no cost to, the Canadian Participant. These additional Shares will be held by the Temporary Classic Fund, not the Leveraged Fund, and Canadian Participant will receive additional Units in the Temporary Classic Fund. The maximum matching contribution under the Leveraged Plan is the Canadian dollar equivalent of 300€ (currently approximately $400).
(d) The Leveraged Fund will apply the cash received from the Leveraged Plan Employee Contribution and the Bank Contribution to subscribe for Shares from the Filer.
(e) The Canadian Participants will receive Units in the Leveraged Fund representing the Shares subscribed for with the Employee Contribution and the potential gain on the Shares subscribed for with the Bank Contribution.
(f) Under the terms of the Swap Agreement, at the end of the Lock-Up Period, the Leveraged Fund will owe to the Bank an amount equal to A -- [B+C], where:
(1) "A" is the market value of all the Shares at the end of the Lock-Up Period that are held in the Leveraged Plan (as determined pursuant to the terms of the Swap Agreement),
(2) "B" is the aggregate amount of all Leveraged Plan Employee Contributions;
(3) "C" is an amount (the "Appreciation Amount") equal to the sum of
(A) a 2% annual return on the aggregate amount of all Leveraged Plan Employee Contributions (the "2% Return"); and
(B) 1.5 times the positive difference, if any, between
(I) the average price of the Shares based on the last closing price of the Shares of each month over the Lock-Up period (i.e., a total of 60 readings),1 and
(II) the Subscription Price,
multiplied by
(III) the number of Shares subscribed with the Leveraged Plan Employee Contributions in the Leveraged Fund.
(g) In addition to the above, if, at the end of the Lock-Up Period, the market value of the Shares held in the Leveraged Fund (i.e., item "A" in the above-noted formula) is less than 100% of the Leveraged Plan Employee Contributions, the Bank will, pursuant to a guarantee arrangement contained in the Swap Agreement, make a contribution to the Leveraged Fund to make up any shortfall (i.e. to cover the Leveraged Plan Employee Contributions and the 2% return).
(h) At the end of the Lock-Up Period, a Canadian Participant may elect to have his or her Leveraged Units redeemed in consideration for cash or Shares equivalent to
(i) the Leveraged Plan Employee Contribution; and
(ii) his or her portion of the Appreciation Amount,
(the "Redemption Formula").
(i) If a Canadian Participant does not request the redemption of his or her Leveraged Units at the end of the Lock-Up Period, his or her investment in the Leveraged Fund will be transferred to the Principal Classic Fund (subject to the decision of the supervisory board of the Leveraged Fund and the approval of the French AMF). New Principal Classic Units will be issued to the applicable Canadian Participants in recognition of the assets transferred to the Principal Classic Fund. Canadian Participants may request the redemption of the new Principal Classic Units whenever they wish. However, following a transfer to the Principal Classic Fund, the Leveraged Plan Employee Contribution and the Appreciation Amount will no longer be covered by the Swap Agreement (nor the Bank's guarantee contained therein).
(j) Pursuant to the terms and conditions of the guarantee contained in the Swap Agreement, a Canadian Participant in the Leveraged Plan will be entitled to receive 100% of his or her Leveraged Plan Employee Contribution and the corresponding 2% Return at the end of the Lock-Up Period or upon the occurrence of an early unwind resulting from the Canadian Participant relying on one of the exceptions to the Lock-Up Period. The Management Company is permitted to cancel the Swap Agreement (which will have the effect of cancelling the guarantee) in certain strictly defined conditions where it is in the best interests of the holders of Leveraged Units. The Management Company is required under French law to act in the best interests of the holders of Leveraged Units. In the event that the Management Company cancelled the Swap Agreement and this was not in the best interests of the holders of Leveraged Units, then such holders would have a right of action under French law against the Management Company. Under no circumstances will a Canadian Participant in the Leveraged Fund be responsible to contribute an amount greater than his or her Leveraged Plan Employee Contribution.
(k) In the event of an early unwind resulting from the Canadian Participant relying on one of the exceptions to the Lock-Up Period prescribed by French law and meeting the applicable criteria, a Canadian Participant may request the redemption of Leveraged Units using the Redemption Formula. The measurement of the increase, if any, above the Reference Price will be carried out in accordance with similar rules to those applied to redemption at the end of the Lock-up Period, but it will be measured using values of the Shares on or about the time of the early unwind instead.
(l) Under the terms of the Swap Agreement, the Leveraged Fund will remit to the Bank an amount equal to the net amounts of any dividends paid on the Shares held in the Leveraged Fund as partial consideration for the obligations assumed by the Bank under the Swap Agreement.
(m) For Canadian federal income tax purposes, a Canadian Participant in the Leveraged Plan will be deemed to receive all dividends paid on the Shares financed by either the Leveraged Plan Employee Contribution or the Bank Contribution at the time such dividends are paid to the Leveraged Fund, notwithstanding the actual non-receipt of the dividends by the Canadian Participants.
(n) The payment of dividends on the Shares (in the ordinary course or otherwise) is strictly determined by the Board of Directors of the Filer and approved by the shareholders of the Filer. The Filer has not made any commitment to the Bank as to any minimum payment of dividends during the term of the Lock-Up Period.
(o) To respond to the fact that, at the time of the initial investment decision relating to participation in the Leveraged Plan, Canadian Participants will be unable to quantify their potential income tax liability resulting from such participation, the Filer or the Canadian Affiliates will indemnify each Canadian Participant in the Leveraged Plan for the following costs: all tax costs to the Canadian Participants associated with the payment of dividends in excess of a specified amount of Euros per calendar year per Share during the Lock-Up Period; such that, in all cases, a Canadian Participant will, at the time of the original investment decision, be able to determine his or her maximum tax liability in connection with dividends received by the Leveraged Fund on his or her behalf under the Leveraged Plan.
(p) At the time the Leveraged Fund's obligations under the Swap Agreement are settled, the Canadian Participant will realize a capital gain (or capital loss) by virtue of having participated in the Swap Agreement to the extent that amounts received by the Leveraged Fund, on behalf of the Canadian Participant, from the Bank exceed (or are less than) amounts paid by the Leveraged Fund, on behalf of the Canadian Participant, to the Bank. Any dividend amounts paid to the Bank under the Swap Agreement will serve to reduce the amount of any capital gain (or increase the amount of any capital loss) that the Canadian Participant would have realized. Capital losses (gains) realized by a Canadian Participant may generally be offset against (reduced by) any capital gains (losses) realized by the Canadian Participant on a disposition of the Shares, in accordance with the rules and conditions under the Income Tax Act (Canada) or comparable provincial legislation (as applicable).
11. Under French law, each of the Funds is an FCPE, which is a limited liability entity. Each Fund's portfolio will almost exclusively consist of Shares, although the Leveraged Fund's portfolio will also include rights and associated obligations under the Swap Agreement. The Funds may also hold cash or cash equivalents pending investments in Shares and for the purposes of facilitating Unit redemptions.
12. The manager of the Funds, Natixis Asset Management (the "Management Company"), is a portfolio management company governed by the laws of France. The Management Company is registered with the French AMF to manage French investment funds and complies with the rules of the French AMF. The Management Company is not, and has no current intention of becoming, a reporting issuer under the Legislation or the securities legislation of any of the Other Offering Jurisdictions.
13. The Management Company's portfolio management activities in connection with the Employee Share Offering and the Funds are limited to subscribing for Shares from the Filer, selling such Shares as necessary in order to fund redemption requests, and such activities as may be necessary to give effect to the Swap Agreement.
14. The Management Company is also responsible for preparing accounting documents and publishing periodic informational documents. The Management Company's activities will not affect the underlying value of the Shares.
15. None of the Filer, the Management Company, the Canadian Affiliates or any of their employees, agents or representatives will provide investment advice to the Canadian Participants with respect to investments in the Shares or the Units.
16. Shares issued in the Employee Share Offering will be deposited in the respective Fund's accounts with CACEIS Bank (the "Depositary"), a large French commercial bank subject to French banking legislation.
17. Under French law, the Depositary must be selected by the Management Company from among a limited number of companies identified on a list maintained by the French Minister of the Economy, Finance and Industry and its appointment must be approved by the French AMF. The Depositary carries out orders to purchase, trade and sell Shares and takes all necessary action to allow the Funds to exercise the rights relating to the Shares held in their respective portfolios.
18. Participation in the Employee Share Offering is voluntary, and the Canadian Participant will not be induced to participate in the Employee Share Offering by expectation of employment or continued employment.
19. The total amount invested by a Canadian Participant in the Employee Share Offering cannot exceed 25% of his or her estimated gross annual compensation for the 2010 calendar year (the calculation of the investment limit takes into account the Bank Contribution but not the amounts contributed by the employer).
20. The Shares are not currently listed for trading on any stock exchange in Canada and there is no intention to have the Shares so listed. As there is no market for the Shares in Canada, and as none is expected to develop, any first trades of Shares by Canadian Participants will be effected through the facilities of, and in accordance with, the rules and regulations of Euronext Paris. The Units will not be listed for trading on any stock exchange and there is no intention to have the Units listed.
21. The Filer will retain a securities dealer registered as a broker/investment dealer (the "Registrant") under the securities legislation of Ontario to provide advisory services to Canadian Participants resident in Ontario who express interest in the Leveraged Plan and to make a determination, in accordance with industry practices, as to whether an investment in the Leveraged Plan is suitable for each such Canadian Participant based on his or her particular financial circumstances.
22. Canadian Participants will receive an information package in the French or English language (according to their preference) which will include a summary of the terms of the Employee Share Offering, a tax notice containing a description of Canadian income tax considerations relating to the subscription to and holding of Units and the redemption thereof at the end of the Lock-Up Period, an information notice approved by the French AMF for each Fund describing its main characteristics and a subscription form. The information package for Canadian Participants in the Leveraged Plan will include all the necessary information for general inquiry and support with respect to the Leveraged Plan and will also include a risk statement which will describe certain risks associated with an investment in Leveraged Units pursuant to the Leveraged Plan.
23. Canadian Participants will also receive an annual statement indicating the number of Units they hold, as well as their value.
24. Canadian Participants may consult the Filer's annual report on Form 20-F filed with the SEC and/or the French Document de référence filed with the French AMF in respect of the Shares as well as a copy of the relevant Fund's rules (which are analogous to company by-laws in a corporate context). Canadian Participants will also have access to copies of the continuous disclosure materials relating to the Filer that are furnished to its shareholders generally.
25. There are approximately 2,300 Qualifying Employees resident in Canada, with the largest number residing in Québec (approximately 1,167) and the second largest number residing in Ontario (approximately 588). Qualifying Employees are also located in British Columbia and Alberta. The total number of Qualifying Employees resident in Canada is less than 1% of the total number of Qualifying Employees of the Veolia Group worldwide.
26. The Filer is not, and none of the Canadian Affiliates are, in default under the Legislation or the securities legislation of any Other Offering Jurisdictions. To the best of the Filer's knowledge, the Management Company is not in default of the Legislation or the securities legislation of any Other Offering Jurisdictions.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Offering Relief is granted provided that:
1. the prospectus requirements of the Legislation will apply to the first trade in any Units or Shares acquired by Canadian Participants pursuant to this Decision, unless the following conditions are met:
(a) the issuer of the security
(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date, or
(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;
(b) at the distribution date, after giving effect to the issue of the security and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security, residents of Canada
(i) did not own, directly or indirectly, more than 10% of the outstanding securities of the class or series, and
(ii) did not represent in number more than 10% of the total number of owners, directly or indirectly, of securities of the class or series; and
(c) the first trade is made
(i) through the facilities of an exchange, or a market, outside of Canada, or
(ii) to a person or company outside of Canada;
2. in Québec, the required fees are paid in accordance with Section 271.6(1.1) of the Securities Regulation (Québec).
1 In the event this Share price is lower than the Subscription Price, the Subscription Price will be used instead.