L’Oréal S.A.
Headnote
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 Regulation 45-106 respecting 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 employees 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 -- 5 year sunset clause.
Applicable Legislative Provisions
Securities Act (Québec), ss. 11, 148, 263.
Regulation 45-106 respecting Prospectus Exemptions, s. 2.24.
Regulation 31-103 respecting Registration Requirements and Exemptions, s. 8.16.
Regulation 45-102 respecting Resale of Securities, s. 2.14.
April 27, 2018
TRANSLATION
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF L'ORÉAL S.A. (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for:
1. An exemption from the prospectus requirement (the Prospectus Relief) so that such requirement does not apply to:
a) trades of:
i) units (the Principal Classic Units) of a fonds commun de placement d'entreprise or "FCPE", a form of collective shareholding vehicle commonly used in France for the conservation and custodianship of shares held by employee-investors named "L'Oréal Employee Share Plan" (the Principal Classic Fund); and
ii) units (the Temporary Classic Units, and together with the Principal Classic Units, the Units) of future temporary FCPEs established for Subsequent Employee Offerings (as defined below) (the Temporary Classic Funds),
made pursuant to an Employee Offering (as defined below) to or with Qualifying Employees (as defined below) resident in the Jurisdictions, Alberta, British Columbia, Manitoba, Nova Scotia and Saskatchewan (collectively, the Canadian Employees, and Canadian Employees who subscribe for Temporary Classic Units, the Canadian Participants);
b) trades of ordinary shares of the Filer (the Shares) by the Classic Fund to or with Canadian Participants upon the redemption of Units as requested by Canadian Participants (the term "Classic Fund" used herein means, prior to the Merger (as defined below), the Principal Classic Fund for the 2018 Employee Offering (as defined below) and a Temporary Classic Fund for Subsequent Employee Offerings, and following the Merger, the Principal Classic Fund);
2. An exemption from the dealer registration requirement (the Registration Relief, and together with the Prospectus Relief, the Exemption Sought) so that such requirement does not apply to the Filer and its Local Related Entities (as defined below), the Classic Fund and Amundi Asset Management (the Management Company) in respect of:
a) trades in Units made pursuant to an Employee Offering to or with Canadian Employees; and
b) trades in Shares by the Classic Fund to or with Canadian Participants upon the redemption of Units as requested by Canadian Participants.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés 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 (chapter V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, Nova Scotia and Saskatchewan; 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 (chapter V-1.1, r. 3), Regulation 11-102 and Regulation 45-106 respecting Prospectus Exemptions (chapter V-1.1, r. 21) (Regulation 45-106) 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 securities legislation of any jurisdiction of Canada. The head office of the Filer is located in France and the Shares are listed on Euronext Paris. The Filer is not in default of securities legislation of any jurisdiction of Canada.
2. The Filer carries on business in Canada through certain related entities and has established a global employee share offering (the 2018 Employee Offering) and expects to establish subsequent global employee share offerings following 2018 for the next four years that are substantially similar (Subsequent Employee Offerings, and together with the 2018 Employee Offering, the Employee Offerings) for Qualifying Employees of the Filer and of its participating related entities, including related entities that employ Canadian Employees (Local Related Entities, and together with the Filer and other related entities of the Filer, the L'Oréal Group). Each Local Related Entity is a direct or indirect controlled subsidiary of the Filer and no Local Related Entity has any current intention of becoming a reporting issuer under the securities legislation of any jurisdiction of Canada. The head office of the L'Oréal Group in Canada is located in Québec and the greatest number of employees in the L'Oréal Group in Canada reside in Québec.
3. As of the date hereof, L'Oréal Canada Inc. is the only "Local Related Entity". For any Subsequent Employee Offering, the list of "Local Related Entities" may change.
4. Each Employee Offering will be made under the terms as set out herein and for greater certainty, all of the representations will be true for each Employee Offering other than paragraphs 3, 12, 25 and 29 which may change (save for references to the 2018 Employee Offering which will be varied such that they are read as references to the relevant Subsequent Employee Offering).
5. As of the date hereof and after giving effect to any Employee Offering, Canadian residents do not and will not beneficially own more than 10% of the Shares (which term, for the purposes of this paragraph, is deemed to include all Shares held by the Classic Fund on behalf of Canadian Participants) issued and outstanding, 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.
6. The 2018 Employee Offering involves an offering of Shares to be acquired through the Principal Classic Fund.
7. Each Subsequent Employee Offering will involve an offering of Shares to be acquired through a Temporary Classic Fund, which will be merged with the Principal Classic Fund following completion of the Subsequent Employee Offering (the Classic Plan, which for greater certainty, includes the 2018 Employee Offering), subject to the decision of the supervisory board of the FCPE and the approval of the French AMF (as defined below).
8. Only persons who are employees of an entity forming part of the L'Oréal Group during the subscription period for an Employee Offering and who meet other employment criteria (the Qualifying Employees) will be allowed to participate in the relevant Employee Offering.
9. The Principal Classic Fund was established for the purpose of implementing the 2018 Employee Offering. The Principal Classic Fund was established for the purpose of implementing the Employee Offering generally. There is no current intention for the Principal Classic Fund to become a reporting issuer under the securities legislation of any jurisdiction of Canada. There is no current intention for any Temporary Classic Fund that will be established for the purpose of implementing Subsequent Employee Offerings to become a reporting issuer under the securities legislation of any jurisdiction of Canada.
10. The Principal Classic Fund is registered with, and has been approved by, the French Autorité des marchés financiers (the French AMF). It is expected that each Temporary Classic Fund established for Subsequent Employee Offerings will be an FCPE and will be registered with, and approved by, the French AMF.
11. Under the Classic Plan, each Employee Offering will be made as follows:
a) Canadian Participants will subscribe for the relevant Units, and the Principal Classic Fund under the 2018 Employee Offering or the relevant Temporary Classic Fund under Subsequent Employee Offerings will then subscribe for Shares on behalf of Canadian Participants at a subscription price that is the Canadian dollar equivalent of the average opening price of Shares (expressed in Euros) on Euronext Paris for the 20 trading days preceding the date of the fixing of the subscription price (the Reference Price) by the chief executive officer of the Filer, less a specified discount to the Reference Price.
b) For the 2018 Employee Offering, the Principal Classic Fund, and for Subsequent Employee Offerings, the relevant Temporary Classic Fund, respectively, will apply the cash received from the Canadian Participants to subscribe for Shares.
c) For the 2018 Employee Offering, the Principal Classic Fund will hold the Shares subscribed for, and for Subsequent Employee Offerings, initially, the Shares subscribed for will be held in the relevant Temporary Classic Fund. The Canadian Participants will receive Units of the Principal Classic Fund for the 2018 Employee Offering and of the relevant Temporary Classic Fund for Subsequent Employee Offerings.
d) After completion of a Subsequent Employee Offering, the relevant Temporary Classic Fund will be merged with the Principal Classic Fund (subject to the approval of the supervisory board of the FCPE and the French AMF). The Temporary Classic Units held by Canadian Participants will be replaced with units of the Principal Classic Fund (the Principal Classic Units) on a pro rata basis and the Shares subscribed for will be held in the Principal Classic Fund (such transaction being referred to as the Merger). The Filer is relying on the exemption from the prospectus requirement pursuant to section 2.11 of Regulation 45-106 in respect of the issuance of Principal Classic Units to Canadian Participants in connection with the Merger.
e) The Units will be subject to a hold period of approximately five years (the Lock-Up Period), subject to certain exceptions provided for under French law and adopted for an Employee Offering (such as death, disability, retirement or termination of employment).
f) Any dividends paid on the Shares held in the Classic Fund will be contributed to the Classic Fund and used to purchase additional Shares. The net asset value of the Units will be increased to reflect this reinvestment. No new Unit (or fraction thereof) will be issued to the Canadian Participants.
g) At the end of the relevant Lock-Up Period, a Canadian Participant may (i) request the redemption of Units in the Classic Fund in consideration for the underlying Shares or a cash payment equal to the then market value of the Shares, or (ii) continue to hold Units in the Classic Fund and request the redemption of those Units at a later date in consideration for the underlying Shares or a cash payment equal to the then market value of the Shares.
h) In the event of an early exit resulting from a Canadian Participant exercising one of the exceptions to the Lock-Up Period and meeting the applicable criteria, the Canadian Participant may request the redemption of Units in the Classic Fund in consideration for a cash payment equal to the then market value of the underlying Shares.
i) In addition, each Employee Offering provides that the Filer will also contribute additional Shares (the Bonus Shares) into the Classic Plan based on predetermined matching contribution rules, for the benefit of, and at no cost to, eligible Canadian Participants. Bonus Shares will be delivered at the end of the Lock-Up Period, subject to certain conditions being satisfied (as provided for in the L'Oréal International Employee Shareholding Plan).
12. For the 2018 Employee Offering, the number of Bonus Shares which a Canadian Participant is eligible to receive will be determined according to the following matching schedule:
Canadian Participant's Subscription
Matching Ratio
1-2 Shares
1 Bonus Share
3-6 Shares
2 Bonus Shares
7-9 Shares
3 Bonus Shares
10 or more Shares
4 Bonus Shares
Under the matching schedule for the 2018 Employee Offering, a Canadian Participant who subscribed for 10 or more Shares would receive a maximum of 4 Bonus Shares. For each Subsequent Employee Offering, the matching contribution rules may change.
13. The subscription price for an Employee Offering will not be known to Canadian Employees until after the end of the applicable subscription period. However, this information will be provided to Canadian Employees prior to the start of the revocation period, during which Canadian Participants may choose to revoke all (but not part) of their subscription under the Classic Plan and thereby not participate in the relevant Employee Offering.
14. Under French law, an FCPE is a limited liability entity. The portfolio of the Classic Fund will consist almost entirely of Shares and may include, from time to time, cash in respect of dividends paid on the Shares which will be reinvested in Shares and cash or cash equivalents pending investments in Shares and for the purposes of Unit redemptions.
15. Only Qualifying Employees will be allowed to hold Units issued pursuant to an Employee Offering.
16. The Management Company is a portfolio management company governed by the laws of France. The Management Company is registered with the French AMF as an investment manager 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 securities legislation of any jurisdiction of Canada. For any Subsequent Employee Offering, the Management Company may change. In the event of such a change, the successor to the Management Company will comply with the terms and conditions described in this paragraph.
17. The Management Company's portfolio management activities in connection with an Employee Offering and the Classic Fund are limited to purchasing Shares from the Filer, selling such Shares as necessary in order to fund redemption requests and investing available cash in cash equivalents.
18. The Management Company is also responsible for preparing accounting documents and publishing periodic informational documents as provided by the rules of the Classic Fund. The Management Company's activities do not affect the underlying value of the Shares.
19. All management charges relating to the Classic Fund will be paid from the assets of the Classic Fund or by the Filer, as provided in the regulations of the Classic Fund. The Management Company is obliged to act in the best interests of Canadian Participants and is liable to them, jointly and severally with the Depositary, for any violation of the rules and regulations governing FCPEs, any violation of the rules of the Classic Fund, or for any self-dealing or negligence.
20. None of the entities forming part of the L'Oreal Group, the Classic Fund or the Management Company is currently in default of securities legislation of any jurisdiction of Canada.
21. None of the entities forming part of the L'Oréal Group, the Classic Fund or the Management Company, or any of their directors, officers, employees, agents or representatives will provide investment advice to Canadian Employees with respect to an investment in Shares or Units.
22. Shares issued pursuant to an Employee Offering will be deposited in the Classic Fund through CACEIS Bank (the Depositary), a large French commercial bank subject to French banking legislation. The Depositary carries out orders to purchase, trade and sell securities in the portfolio and takes all necessary action to allow the Classic Fund to exercise the rights relating to the securities held in its portfolio. For any Subsequent Employee Offering, the Depositary may change. In the event of such a change, the successor to the Depositary will remain a large French commercial bank subject to French banking legislation.
23. Participation in an Employee Offering is voluntary, and Canadian Employees will not be induced to participate in an Employee Offering by expectation of employment or continued employment.
24. The total amount that may be invested by a Canadian Employee in an Employee Offering cannot exceed 25% of his or her gross annual compensation (excluding Bonus Shares).
25. For the 2018 Employee Offering, annual compensation includes the employee's gross base salary, bonus and/or overtime paid between January 1, 2018 and December 31, 2018.
26. The Unit value of the Classic Fund will be calculated and reported to the French AMF on a regular basis, based on the net assets of the Classic Fund divided by the number of Units outstanding. The value of the Units will be based on the value of the underlying Shares, but the number of Units of the Classic Fund will not correspond to the number of the underlying Shares (as dividends will be reinvested in additional Shares and increase the value of each Unit).
27. The Shares and Units are not currently listed for trading on any stock exchange in Canada and there is no intention to have the Shares or the Units so listed. As there is no market for the Shares or Units in Canada, and as none is expected to develop, any first trades of Shares or Units by Canadian Participants will be effected through the facilities of, and in accordance with, the rules and regulations of an exchange outside of Canada.
28. Canadian Employees 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 relevant Employee Offering and a description of the relevant Canadian income tax consequences of subscribing for and holding Units of the Classic Fund and requesting the redemption of such Units at the end of the applicable Lock-Up Period. Canadian Employees will also have access to the Filer's French Document de Référence filed with the French AMF in respect of the Shares and a copy of the rules of the relevant Temporary Classic Fund and the Principal Classic Fund. Canadian Employees will also have access to the continuous disclosure materials relating to the Filer that are furnished to holders of the Shares. Canadian Participants will receive an initial statement of their holdings under the Classic Plan, together with an updated statement, at least once per year.
29. For the 2018 Employee Offering, there are approximately 1,356 Qualifying Employees resident in Canada, with the greatest number resident in Québec (1,077), and the remainder in Ontario, Alberta, British Columbia, Manitoba, Nova Scotia and Saskatchewan, who represent, in the aggregate, approximately 1.5% of the number of employees in the L'Oréal Group worldwide.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
1. With respect to the 2018 Employee Offering, the prospectus requirement 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 number of owners, directly or indirectly, of securities of the class or series; and
c) the first trade is made:
i) through an exchange, or a market, outside of Canada, or
ii) to a person or company outside of Canada; and
2. With respect to any Subsequent Employee Offering under this decision completed within five years from the date of this decision unless the following conditions are met:
a) the representations other than those in paragraphs 3, 12, 25 and 29 remain true and correct with the necessary adaptations in respect of that Subsequent Employee Offering, and
b) the conditions set out in paragraph 1 apply, with the necessary adaptations, to any such Subsequent Employee Offering.