Tyco International Ltd. et al.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from prospectus requirements to allow parent company to spin-off shares of its subsidiary to investors and to allow the parent company and subsidiary to distribute certain options and stocks to existing Canadian option and stockholders in connection with the spin-off -- spin-off not technically covered by prescribed legislative exemptions -- parent company having a de minimis shareholder presence in Canada -- no investment decision from Canadian shareholders in order to receive the spin-off shares or to receive options or stock units
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
September 25, 2012
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
TYCO INTERNATIONAL LTD. ("Tyco"),
PENTAIR LTD. formerly known as Tyco Flow
Control International Ltd.) ("Tyco Flow Control")
AND THE ADT CORPORATION ("ADT" and, together
with Tyco and Tyco Flow Control, the "Filers")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filers from the prospectus requirements of section 53 of theSecurities Act (Ontario) (the "Prospectus Requirements") in connection with:
(a) the proposed distribution by Tyco of:
(i) adjusted options to acquire common shares of Tyco ("Tyco Options") to holders of options to purchase common shares of Tyco resident in Canada (the "Tyco Canadian Optionholders") who, at the time of the distribution, are not employees of Tyco or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (the "Tyco Non-Employee Canadian Optionholders");
(ii) adjusted restricted stock units of Tyco ("Tyco RSUs") to holders of restricted stock units of Tyco resident in Canada (the "Tyco Canadian RSU Holders") who, at the time of the distribution, are not employees of Tyco or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (the "Tyco Non-Employee Canadian RSU Holders"); and
(iii) adjusted participating stock units of Tyco ("Tyco PSUs")" to holders of participating stock units of Tyco resident in Canada ("Tyco Canadian PSU Holders") who, at the time of the distribution, are not employees of Tyco or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available; and
(b) the proposed distribution by Tyco and Tyco Flow Control of:
(i) adjusted options to acquire common shares of Tyco Flow Control ("Tyco Flow Control Options") (A) by Tyco to Tyco Canadian Optionholders and (B) by Tyco Flow Control to Tyco Canadian Optionholders who, at the time of the distribution, are not employees of Tyco Flow Control or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (collectively, the "New Tyco Flow Control Canadian Optionholders");
(ii) adjusted restricted stock units of Tyco Flow Control ("Tyco Flow Control RSUs") (A) by Tyco to Tyco Canadian RSU Holders and (B) by Tyco Flow Control to Tyco Canadian RSU Holders who, at the time of the distribution, are not employees of Tyco Flow Control or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (collectively, the "New Tyco Flow Control Canadian RSU Holders"); and
(iii) adjusted participating stock units of Tyco Flow Control ("Tyco Flow Control PSUs") (A) by Tyco to Tyco Canadian PSU Holders and (B) by Tyco Flow Control to Tyco Canadian PSU Holders who, at the time of the distribution, are not employees of Tyco Flow Control or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available; and
(c) the proposed distribution by Tyco and ADT of:
(i) adjusted options to acquire common stock of ADT ("ADT Options") (A) by Tyco to Tyco Canadian Optionholders and (B) by ADT to Tyco Canadian Optionholders who, at the time of the distribution, are not employees of ADT or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (collectively, the "New ADT Canadian Optionholders");
(ii) adjusted restricted stock units of ADT ("ADT RSUs") (A) by Tyco to Tyco Canadian RSU Holders and (B) by ADT to Tyco Canadian RSU Holders who, at the time of the distribution, are not employees of ADT or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available (collectively the "New ADT Canadian RSU Holders"); and
(iii) adjusted participating stock units of ADT ("ADT PSUs") (A) by Tyco to Tyco Canadian PSU Holders and (B) by ADT to Tyco Canadian PSU Holders who, at the time of the distribution, are not employees of ADT or a related entity and in respect of whom exemptions from the Prospectus Requirement would not otherwise be available; and
(d) the resale of:
(i) common shares of Tyco ("Tyco Common Shares") acquired by Tyco Non-Employee Canadian Optionholders on exercise of Tyco Options; common shares of Tyco Flow Control ("Tyco Flow Control Common Shares") acquired by New Tyco Flow Control Canadian Optionholders on exercise of Tyco Flow Control Options; and common stock of ADT ("ADT Common Shares") acquired by New ADT Canadian Optionholders on exercise of ADT Options; and
(ii) Tyco Common Shares acquired by Tyco Non-Employee Canadian RSU Holders represented by Tyco RSUs; Tyco Flow Control Common Shares acquired by New Tyco Flow Control Canadian RSU Holders represented by Tyco Flow Control RSUs; and ADT Common Shares acquired by New ADT Canadian RSU Holders represented by ADT RSUs
(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(1) of Multilateral Instrument 11-102Passport System ("MI 11-102") is intended to be relied upon in each of British Columbia, Alberta, Manitoba, Québec, Nova Scotia and Newfoundland and Labrador (together with Ontario, the "Jurisdictions").
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.
Representations
The decision is based on the following facts represented by the Filers:
1. Tyco is a corporation limited by shares organized under the laws of Switzerland. Tyco is a diversified, global company that is a leading provider of security products and services, fire protection and detection products and services, valves and controls, and other industrial products. Tyco's registered and principal office is located in Schaffhausen, Switzerland. Its management office in the United States is located in Princeton, New Jersey.
2. Tyco Flow Control is a corporation limited by shares organized under the laws of Switzerland and is a wholly owned subsidiary of Tyco, formed to hold Tyco's flow control business. Its principal executive offices are located in Schaffhausen, Switzerland.
3. ADT is a corporation incorporated under the laws of Delaware and is a wholly owned indirect subsidiary of Tyco, formed to hold Tyco's residential and small business security business in the United States and Canada. Its principal executive offices in the United States are located in Boca Raton, Florida.
4. Tyco is a reporting issuer under the Legislation of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Québec and Nova Scotia. Tyco became a reporting issuer in such jurisdictions in July, 1997 when a wholly-owned subsidiary of what was formerly known as ADT Limited merged with Tyco International Ltd. To its knowledge, none of Tyco, Tyco Flow Control nor ADT is in default of the securities legislation of the Jurisdictions.
5. As of June 30, 2012, there were 459,722,328 Tyco Common Shares outstanding (excluding shares held directly or indirectly in treasury).
6. The Tyco Common Shares are listed on the New York Stock Exchange ("NYSE"). The Tyco Common Shares are not listed on any Canadian stock exchange and Tyco has no intention of listing its securities on any Canadian stock exchange.
7. Tyco is currently subject to the U.S. Securities Exchange Act of 1934, as amended, and the rules, regulations and orders promulgated thereunder (the "U.S. Exchange Act").
8. Neither Tyco Flow Control nor ADT is a reporting issuer under the legislation of the Jurisdictions and to Tyco's knowledge, they have no current intention of becoming a reporting issuer under the legislation of the Jurisdictions or to list any of their securities on any Canadian stock exchange.
9. As of June 30, 2012, there were approximately 535 registered holders of Tyco Common Shares resident in Canada ("Tyco Canadian Shareholders"). There may be registered and beneficial Tyco Canadian Shareholders resident in each province of Canada. The Tyco Canadian Shareholders constituted less than 0.002% of the approximately 24,000,734 holders of Tyco Common Shares ("Tyco Shareholders") of record globally as of June 30, 2012. As of June 30, 2012, the Tyco Canadian Shareholders collectively held approximately 18,026 Tyco Common Shares, constituting less than 0.0039% of the 459,722,328 Tyco Common Shares outstanding as of such date.
10. As of June 30, 2012, there were 82 Tyco Canadian Optionholders. The Tyco Canadian Optionholders constituted approximately 4.3% of the approximately 1894 holders of Tyco options worldwide on June 30, 2012. As of June 30, 2012, Tyco Canadian Optionholders collectively held approximately 348,334 Tyco options, constituting approximately 1.66% of the approximately 20,991,042 outstanding Tyco options.
11. As of June 30, 2012, there were 122 Tyco Canadian RSU Holders. The Tyco Canadian RSU Holders constituted approximately 4.35% of the approximately 2803 holders of Tyco restricted stock units worldwide on June 30, 2012. As of June 30, 2012, Tyco Canadian RSU Holders collectively held approximately 84,752 Tyco restricted stock units, constituting approximately 2.51% of the approximately 3,381,327 outstanding Tyco restricted stock units.
12. As of June 30, 2012, there was one Tyco Canadian PSU Holder. The Tyco Canadian PSU Holder constituted approximately 0.68% of the approximately 147 holders of Tyco participating stock units worldwide on June 30, 2012. As of June 30, 2012, the Tyco Canadian PSU Holder held approximately 2774 Tyco participating stock units, constituting approximately 0.15% of the approximately 1,815,315 outstanding Tyco participating stock units.
13. On September 19, 2011, Tyco announced its intention to separate into three independent, publicly traded companies. Tyco's residential and small business security business in the United States and Canada will be spun off by means of a pro rata distribution of 100% of the outstanding ADT Common Shares to Tyco Shareholders. Tyco's flow control business will be spun off by means of a pro rata distribution of 100% of the outstanding Tyco Flow Control Common Shares to Tyco Shareholders. The distributions are intended to be made as special dividends out of qualifying contributed surplus. Tyco will continue to operate its commercial fire and security businesses and the residential and small business security business of Tyco outside the United States and Canada. The spin-off of ADT and the spin-off of Tyco Flow Control are not conditional on each other.
14. The Spin-Offs will be effected under the laws of Switzerland. Under the Swiss Federal Code of Obligations, approval of Tyco Shareholders is required to effect the special dividends in connection with the Spin-Offs. The Spin-Offs were approved at a special general meeting of Tyco Shareholders on September 17, 2012.
15. Subject to the satisfaction of certain conditions, it is currently anticipated that the Spin-Offs will become effective on September 28, 2012. At such time, ADT will cease to be a wholly owned subsidiary of Tyco and will become an independent, publicly traded company.
16. Tyco Flow Control and certain subsidiaries of Tyco Flow Control have entered into a merger agreement with Pentair, Inc. ("Pentair") providing that immediately following the distribution of the outstanding Tyco Flow Control Common Shares, a subsidiary will merge with and into Pentair, Inc., with Pentair, Inc. surviving the merger as a wholly-owned subsidiary of Tyco Flow Control. Tyco Flow Control will cease to be a wholly owned subsidiary of Tyco and Tyco Flow Control will be an independent, publicly-traded company. Tyco Flow Control International Ltd. changed its name to Pentair Ltd. effective September 14, 2012.
17. A definitive proxy statement for Tyco Shareholders will be filed with the United States Securities and Exchange Commission (the "SEC"). Tyco will mail the final proxy statement to Tyco Shareholders.
18. The final version of ADT's information statement will be distributed to Tyco Shareholders who hold Tyco Common Shares as of the record date for the ADT distribution. The information statement will contain information such as the audited combined financial statements of ADT, pro forma financial information for ADT after giving effect to the ADT spin-off, as well as certain risks involved in holding ADT Common Shares following the ADT distribution and risks associated with ADT's business.
19. In connection with the shareholder meeting, a prospectus pertaining to Tyco Flow Control was distributed to Tyco Shareholders who hold Tyco Common Shares as of the record date for the shareholder meeting. The prospectus contains information such as the audited financial statements of each of Tyco Flow Control and Pentair, pro forma financial information for Tyco Flow Control after giving effect to the Tyco Flow Control spin-off and the merger with Pentair, as well as certain risks involved in holding Tyco Flow Control Common Shares following the Tyco Flow Control distribution and the merger and risks associated with Tyco Flow Control and Pentair's businesses.
20. All materials relating to the Spin-Offs and the distributions sent by or on behalf of Tyco, Tyco Flow Control or ADT in the United States will be sent concurrently to the Tyco Canadian Shareholders. Subsequent to the Spin-Offs, Tyco Flow Control and ADT will send, concurrently to the holders of Tyco Flow Control Common Shares and ADT Common Shares resident in Canada, the same disclosure materials that it sends to holders of Tyco Flow Control Common Shares and ADT Common Shares resident in the United States.
21. Tyco expects that the Tyco Flow Control Common Shares and the ADT Common Shares will be qualified for public distribution in the United States and will be listed on the NYSE. Subsequent to the Spin-Offs, Tyco Common Shares will continue to trade on the NYSE.
22. Under existing stock and incentive plans under which Tyco's outstanding Tyco Options, Tyco RSUs and Tyco PSUs (collectively, the "Equity Awards") were issued, the Tyco Compensation Committee has authorized various adjustments to outstanding Equity Awards be made to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the applicable Equity Awards as a result of the Spin-Offs. The adjustments vary depending on several factors, including the type of award, the nature of the employee's post spin-off employment and whether the Equity Award was granted prior to October 12, 2011 (the date of the annual grant for fiscal year 2012). The Tyco Compensation Committee has also modified the terms of outstanding Equity Awards to make certain provisions for employees who are terminated in connection with the Spin-Offs.
23. The Equity Award adjustments are generally designed to cause the intrinsic value of each converted Equity Award immediately after the distributions to be the same as the intrinsic value of such Equity Award immediately prior to the distributions, such that the financial position of the holder with respect to the Equity Award remains the same immediately prior to and immediately after the distributions (the "intrinsic value methodology").
24. The adjustments that are expected to be made to the Equity Awards on the date of the distributions, prior to the distribution of shares in the Spin-Offs, include:
(a) for each employee who was an employee of Tyco's corporate segment on the date the Spin-Offs were announced, all outstanding Equity Awards following the distribution date:
(i) that were granted prior to October, 2011 will, as of the distribution date, convert into like-kind Equity Awards of the three separately traded companies resulting from the Spin-Offs at equivalent value determined using the intrinsic value methodology; and
(ii) that were granted on or after October, 2011 will, as of the distribution date, convert into like kind Equity Awards of the separately traded company that is the employer of such employee immediately following the distribution date at equivalent value determined using the intrinsic value methodology;
(b) for each employee that was not an employee in Tyco's corporate segment on the date the Spin-Offs were announced:
(i) all Equity Awards (other than restricted stock units granted prior to October, 2011) held by such employee will, as of the distribution date, convert into like-kind Equity Awards of the separately traded company that is the employer of such employee immediately following the distribution date at equivalent value determined using the intrinsic value methodology; and
(ii) with respect to restricted stock units granted prior to October, 2011, such awards will, as of the distribution date, convert into like-kind Equity Awards of the three separately traded companies resulting from the Spin-Offs at equivalent value determined using the intrinsic value methodology;
(c) for all persons who are former employees of Tyco as of the distribution date because they cease employment with Tyco as a result of the Spin-Offs or were former employees of Tyco prior to the Spin-Offs:
(i) all Equity Awards (other than restricted stock units granted on or after October, 2011) held by such former employees will, as of the distribution date, convert into like-kind Equity Awards of the three separately traded companies resulting from the Spin-Offs at equivalent value determined using the intrinsic value methodology; and
(ii) all restricted stock units granted on or after October, 2011 held by such former employees will, in accordance with the award certificates governing such restricted stock units, be reduced on a time-pro-rated basis and, as of the distribution date, convert into like-kind restricted stock units of the three separately traded companies resulting from the Spin-Offs at equivalent value determined using the intrinsic value methodology; and
(d) following the adjustments above, all performance share units will convert into restricted stock units as the applicable performance conditions will have been met.
25. Canadian Equity Award holders will receive written communications describing the adjustments made to the Equity Awards.
26. The issuance of Tyco Common Shares, Tyco Flow Control Common Shares and ADT Common Shares on the exercise, conversion or exchange of the Tyco Options, the Tyco RSUs, the Tyco Flow Control Options, the Tyco Flow Control RSUs, the ADT Options and the ADT RSUs will be made in accordance with all applicable laws of Switzerland and the United States. As there will be no active trading market for the Tyco Common Shares, the Tyco Flow Control Common Shares or the ADT Common Shares in Canada and none is expected to develop, it is expected that any resale of the Tyco Common Shares, the Tyco Flow Control Common Shares and the ADT Common Shares issued on such exercise, conversion or exchange will occur through the facilities of the NYSE.
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:
(a) the first trade in
(i) Tyco Common Shares acquired by Tyco Non-Employee Canadian Optionholders on exercise of Tyco Options; Tyco Flow Control Common Shares acquired by New Tyco Flow Control Canadian Optionholders on exercise of Tyco Flow Control Options; and ADT Common Shares acquired by New ADT Canadian Optionholders on exercise of ADT Options; and
(ii) Tyco Common Shares acquired by Tyco Non-Employee Canadian RSU Holders represented by Tyco RSUs; Tyco Flow Control Common Shares acquired by New Tyco Flow Control Canadian RSU Holders represented by Tyco Flow Control RSUs; and ADT Common Shares acquired by New ADT Canadian RSU Holders represented by ADT RSUs
will be deemed to be a distribution unless the conditions in section 2.6 or 2.14 of National Instrument 45-102 -- Resale of Securities (NI 45-102) are satisfied.