Aventis S.A. - MRRS Decision

Headnote

ApplicableOntario Statutory Provisions

ApplicableOntario Regulations

ApplicableRules

INTHE MATTER OF

THESECURITIES LEGISLATION OF

BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA,ONTARIO, QUÉBEC, NEW BRUNSWICK, NEWFOUNDLAND

ANDLABRADOR, AND NOVA SCOTIA

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

AVENTISS.A.

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the"Decision Maker") in each of British Columbia, Alberta, Saskatchewan,Manitoba, Ontario, Québec, New Brunswick, Newfoundlandand Labrador, and Nova Scotia, (collectively, the "Jurisdictions")has received an application from Aventis S.A. (the "Filer")for a decision pursuant to the securities legislation (the "Legislation")of the Jurisdictions that: (i)the requirements contained in the Legislation to file and obtaina receipt for a preliminary prospectus and a prospectus (the"Prospectus Requirements") shall not apply to certain tradesin units (the "Units") of two French employee savings funds(fonds communs de placement d'entreprise or "FCPEs"), the AventisShares Fund (the "Classic Fund") and the Aventis Performance2002 Fund (the "Leveraged Fund" and, together with the ClassicFund, the "Funds") made pursuant to the Employee Share Offering(as defined below) to or with Qualifying Employees (as definedbelow) resident in the Jurisdictions who elect to participate(the "Canadian Participants") in the Employee Share Offering; (ii)the requirements contained in the Legislation to be registeredto trade in a security (the "Registration Requirements") shallnot apply to certain trades in Units of the Classic Fund madepursuant to the Employee Share Offering to Canadian Participants; (iii)the Registration and Prospectus Requirements shall not applyto the transfer of ordinary shares (the "Shares") of the Filerby the Funds to Canadian Participants upon the redemption ofUnits by Canadian Participants, nor to the issuance of Unitsof the Classic Fund to holders of Leveraged Fund Units uponthe transfer of the assets of the Leveraged Fund to the ClassicFund; (iv)the Registration and Prospectus Requirements shall not applyto the first trade in Shares acquired by Canadian Participantsunder the Employee Share Offering, where such trade is madethrough the facilities of a stock exchange outside of Canada;and (v)the manager of the Funds, Interépargne (the "Manager")shall be exempt from the requirements contained in the Legislationto be registered as an adviser (the "Adviser Registration Requirements")to the extent that its activities in relation to the EmployeeShare Offering require compliance with the Adviser RegistrationRequirements. ANDWHEREAS under the Mutual Reliance Review System forExemptive Relief Applications (the "System"), the Ontario SecuritiesCommission is the principal regulator for this application; ANDWHEREAS the Filer has represented to the Decision Makersthat: 1.The Filer is a corporation formed under the laws of France.The Filer is not and has no intention of becoming a reportingissuer (or equivalent) under the Legislation. The Shares ofthe Filer are listed on the Deutsche Börse, Euronext Parisand the New York Stock Exchange. 2.The Filer carries on business in Canada through the followingaffiliated companies: Aventis Pharma Inc., Aventis Pharma ServicesInc., Aventis Pasteur Limited, Aventis Behring Canada, Inc andDermik Laboratories Canada Inc. (the "Canadian Affiliates",together with the Filer and other affiliates of the Filer, the"Aventis Group"). Each of the Canadian Affiliates is a director indirect controlled subsidiary of the Filer and is not, andhas no intention of becoming, a reporting issuer (or equivalent)under the Legislation. 3.The Filer has established a worldwide stock purchase plan foremployees of the Aventis Group (the "Employee Share Offering")which is comprised of two plans: (i) an offering of Shares tobe subscribed through the Classic Fund (the "Classic Plan")and (ii) an offering of Shares to be subscribed through theLeveraged Fund (the "Leveraged Plan"). 4.Only persons who are permanent employees of a member of theAventis Group at the time of the Employee Share Offering (the"Qualifying Employees") are eligible to participate in the EmployeeShare Offering. 5.The Filer has previously been granted exemptive relief in connectionwith a very similar employee share offering involving a classicand a leveraged plan by MRRS decision of the Decision Makers,in decisions dated November 29, 2001 and March 20, 2001. 6.The Funds are established for the purpose of implementing theEmployee Share Offering. The Funds are not and have no intentionof becoming reporting issuers (or equivalent) under the Legislation. 7.The Funds are collective shareholding vehicles of a type commonlyused in France for the conservation or custodianship of sharesheld by employee investors. Only Qualifying Employees will beallowed to hold Units of the Funds, and such holdings will bein amounts proportionate to their respective investments inthe Funds. 8.Under French law, all Units of either Fund acquired in the EmployeeShare Offering will be subject to a hold period (the "Hold Period")of approximately five years, subject to certain exceptions (suchas an earlier release on death, permanent disability, terminationof employment or retirement). 9.In the event of an early unwind resulting from the CanadianParticipant exercising one of the exceptions to the Hold Periodprescribed by French law, a Canadian Participant may redeemUnits (a) in the Classic Fund in consideration for the underlyingShares or (b) in the Leveraged Fund according to the RedemptionFormula (described below) but using the market value of theshares at the time of unwind to measure the Appreciation Amount(described below), if any, equal to the then-market value ofthe Shares held by the applicable Fund, to be settled by deliveryof such number of Shares equal to such amount. 10.At the end of the Hold Period, Canadian Participants who wishto redeem their Units may redeem their Units (a) in the ClassicFund in consideration for the underlying Shares or (b) in theLeveraged Fund according to the Redemption Formula (describedbelow), to be settled by delivery of such number of Shares equalto such amount. 11.After the end of the Hold Period and after any redemptions madeat that time, the Leveraged Fund will be dissolved and the assets(including Shares) in the Leveraged Fund which Canadian Participantswish to keep invested will be transferred to and held by theClassic Fund. Those Canadian Participants will receive equivalentUnits in the Classic Fund. 12.At any time following the end of the Hold Period, Canadian Participantsmay redeem their Units through the ClassicFund. 13.Under the Classic Plan, Canadian Participants will purchaseUnits in the Classic Fund, and the Classic Fund will subscribefor an equivalent number of Shares. The purchase price for eachUnit will be calculated as the average of the closing priceof the Shares on the 20 trading days preceding board approvalof the Employee Share Offering (the "Reference Price"), lessa 15% discount. Dividends paid on the Shares held in the ClassicFund will be capitalized and investors will be credited withadditional Units or fractions of Units. 14.Under the Leveraged Plan, Canadian Participants will purchaseUnits in the Leveraged Fund, and the Leveraged Fund will thensubscribe for Shares using the Employee Contribution (as describedbelow) and certain financing made available by a major Europeanbank, Deutsche Bank A.G. ("Deutsche Bank"). 15.As with the Classic Plan, Canadian Participants in the LeveragedPlan Offering enjoy the benefit of a 15% discount in the ReferencePrice. Under the Leveraged Plan, the Canadian Participants effectivelyreceive a share appreciation entitlement in the increase invalue, if any, of the Shares financed by the Deutsche Bank Contribution(described below). 16.Participation in the Leveraged Plan represents an opportunityfor Qualifying Employees potentially to obtain significantlyhigher gains than would be available through participation inthe Classic Plan, by virtue of the Qualifying Employee's indirectparticipation in a financing arrangement involving a swap agreement(the "Swap Agreement") between the Leveraged Fund and DeutscheBank. In economic terms, the Swap Agreement effectively involvesthe following exchange of payments: for each Share which maybe purchased by the Qualifying Employee's contribution (the"Employee Contribution") under the Leveraged Plan at the ReferencePrice less the 15% discount, Deutsche Bank will lend to theFund (on behalf of the Canadian Participant) an amount sufficientto enable the Fund (on behalf of the Canadian Participant) topurchase an additional nine Shares (the "Deutsche Bank Contribution")at the Reference Price less the 15% discount. 17.At the time the Canadian Participant's obligations under theSwap Agreement are settled (the "Settlement Date") (expectedto be at the end of the Hold Period, but an early unwind mayresult from the Canadian Participant satisfying one of the exceptionsto the Hold Period prescribed by French law) the Canadian Participantwill, for each Unit held by the Canadian Participant, be entitledto retain from the proceeds of the ten Shares then held by theFund (on behalf of the Canadian Participant), an amount equalto: (a)the current value of one Share (that would have been purchasedby the Employee Contribution); and (b)approximately 50% of the amount of the appreciation in value,if any, of the nine Shares purchased by the Deutsche Bank Contributionabove the Reference Price for such nine Shares (that is, approximately50% of any increase in the value of such shares over the ReferencePrice) (the "Appreciation Amount"). Atthe Settlement Date, the Leveraged Fund, on behalf of the CanadianParticipant, will be required to remit an amount equal to thebalance of the proceeds of the ten Shares then owned or deemedto be owned by such Canadian Participant to Deutsche Bank. Thispayment obligation may be satisfied by the transfer of Sharesto Deutsche Bank by the Leveraged Fund. 18.Canadian Participants who wish to retain all their Shares atthe end of the Hold Period, (i.e. the Shares subscribed to bythe Leveraged Fund with their Employee Contribution and thecorresponding Deutsche Bank Contribution) may elect to pay tothe Leveraged Fund an amount equal to the amount due to DeutscheBank under the Swap Agreement in respect of such Canadian Participant'sinvestment. 19.Under French law, the Funds, as FCPEs, have limited liability.The risk statement provided to Canadian Participants will confirmthat, under no circumstances, will a Canadian Participant inthe Leveraged Plan be liable to any of the Leveraged Fund, DeutscheBank or the Filer for any amounts in excess of his or her EmployeeContribution under the Leveraged Plan. 20.For Canadian federal income tax purposes, the Units acquiredby Canadian Participants under the Leveraged Plan will representa pro rata ownership interest by the Canadian Participants inthe Shares held by the Fund, together with the Fund's rightsand obligations under the Swap Agreement, and any other assetswhich may be held by the Fund, which status will be confirmedin the offering documents provided to Canadian Participants. 21.During the term of the Swap Agreement, dividends paid on theShares held in the Leveraged Fund will be remitted to the LeveragedFund, and the Leveraged Fund will remit an equivalent amountto Deutsche Bank as partial consideration for the obligationsassumed by Deutsche Bank under the Swap Agreement. 22.For Canadian federal income tax purposes, the Canadian Participantswill be deemed to receive all dividends paid on the Shares financedby either the Employee Contribution or the Deutsche Bank Contribution,at the time such dividends are paid to the Leveraged Fund, notwithstandingthe actual non-receipt of the dividends by the Canadian Participants.Consequently, Canadian Participants will be required to fundthe tax liabilities associated with the dividends without recourseto the actual dividends. 23.The declaration of dividends on the Shares remains at the solediscretion of the board of directors of the Filer. The Filerhas not made any commitment to Deutsche Bank as to any minimumpayment in respect of dividends. 24.To respond to the fact that, at the time of the initial investmentdecision relating to participation in the Leveraged Plan, CanadianParticipants will be unable to quantify their potential incometax liability resulting from such participation, the Filer willenter into an indemnity agreement (the "Tax Indemnity Agreement")with each Canadian Participant. 25.Pursuant to the Tax Indemnity Agreement, the Filer will indemnifyCanadian Participants in the Leveraged Plan Offering for alltax costs to the Canadian Participants associated with the paymentof dividends in excess of a specified amount per Share duringthe Hold Period such that, in all cases, a Canadian Participantwill, at the time of the original investment decision, be ableto quantify, with certainty, his or her maximum tax liabilityin connection with dividends received by the Leveraged Fundon his or her behalf under the Leveraged Plan. 26.At the time the Canadian Participant's obligations under theSwap Agreement are settled (expected to occur on the SettlementDate at the end of the Hold Period), the Canadian Participantwill realize a capital gain (or capital loss) by virtue of havingparticipated in the Swap Agreement to the extent that amountsreceived by the Leveraged Fund, on behalf of the Canadian Participant,from Deutsche Bank exceed (or are less than) amounts paid bythe Leveraged Fund, on behalf of the Canadian Participant toDeutsche Bank. To the extent that dividends on Shares that aredeemed to have been received by a Canadian Participant are paidby the Fund on behalf of the Canadian Participant to DeutscheBank, such payments will reduce the amount of any capital gain(or increase the amount of any capital loss) to the CanadianParticipant under the Swap Agreement. Capital losses (gains)realized by a Canadian Participant under the Swap Agreementmay be offset against (reduced by) any capital gains (losses)realized by the Canadian Participant on a disposition of theShares, in accordance with the rules and conditions under theIncome Tax Act (Canada) or comparable provincial legislation(as applicable). 27.The Swap Agreement will terminate at the end of the Hold Period.After the final swap payments are made, the Canadian Participantmay elect to redeem the Leveraged Fund Units in considerationfor a payment of an amount equal to the value of the CanadianParticipant's Employee Contribution and the Canadian Participant'sportion of the Appreciation Amount, if any, to be settled bydelivery of such number of Shares equal to such amount (the"Redemption Formula"). Following these redemptions, all assets(including Shares) remaining in the Leveraged Fund will be transferredto the Classic Fund. New Units of the Classic Fund will be issuedto the applicable Canadian Participants in recognition of theassets transferred to the Classic Fund. The Canadian Participantsmay redeem the new Units whenever they wish.

28.The Manager is an asset management company governed by the lawsof France. The Manager is registered with the French Commissiondes Opérations de Bourse (the "COB") to manage Frenchinvestment funds and complies with the rules of the COB. TheManager is not and has no intention of becoming a reportingissuer (or equivalent) under the Legislation. 29.The Manager may, for the Fund's account, acquire, sell or exchangeall securities in the portfolio of each Fund (the "Portfolios").The Classic Fund's Portfolio will consist of Shares and, fromtime to time, cash in respect of dividends paid on the Shares.The Leveraged Fund's Portfolio will consist of Shares and theSwap Agreement. Either Portfolio may include cash or cash equivalentswhich the Funds may hold pending investments in Shares. TheManager's Portfolio management activities in connection withthe Employee Share Offering and the Funds are limited to purchasingShares from the Filer using the Employee Contribution and theDeutsche Bank Contribution, fulfilling redemption requests,and such activities as may be necessary to give effect to theSwap Agreement.