A spin-off transaction involving a non-reporting subsidiary that is structured as a dividend does not fit into an available exemption. US registration, disclosure and rights and remedies being provided to Canadians sufficient to permit distribution without a prospectus.
Kimberly-Clark is a Delaware corporation primarily known for its Kleenex and Huggies brands. It is listed on the New York Stock Exchange but not on any Canadian stock exchange, nor does it report in Canada. Approximately 0.63% of its registered shareholders worldwide, holding approximately 230,364 shares, representing approximately 0.06% of the outstanding shares, were located in Canada. In addition Canadians represented approximately 21,000 beneficial shareholders (approximately 3.55% of the shareholders worldwide) holding approximately 6,583,963 shares (approximately 1.76% of the outstanding shares).
Kimberly–Clark was spinning-off its health care business (the “Spin-Off”) through a distribution by way of dividend of the shares of a new subsidiary (“Spinco”). Shareholders were not required to pay any consideration, or to surrender or exchange Kimberly-Clark shares or take any other action to be entitled to receive their Spinco shares. The Spin-Off would occur automatically and without any investment decision. No shareholder approval was being sought. Spinco was listing its shares on the NYSE, filing a registration statement for the shares with the SEC and delivering an information statement to Kimberly-Clark shareholders, which statement would contain prospectus level disclosure about Spinco. Canadian shareholders who received Spinco shares would have the same rights and remedies in respect of the disclosure documentation as shareholders in the United States and would receive all the same continuous disclosure documents. On that basis, the Spinco shares were permitted to be distributed on a prospectus exempt basis, with first trades being permitted on the terms in subsection 2.14(1) of National Instrument 45-102 - Resale of Securities, being essentially sales outside of Canada. If Spinco ever became a reporting issuer, first trades would be permitted following the end of its “seasoning” period.