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Final Rule: OSC Rule - 54-501 - Prospectus Disclosure in Certain Information Circulars
Final Rule: OSC Rule - 54-501 - Prospectus Disclosure in Certain Information Circulars
NOTICE OF RULE 54-501 UNDER THE SECURITIES ACT
Notice of Rule
The Commission has made Rule 54-501 Prospectus Disclosure in Certain InformationCirculars (the "Rule") under section 143 of the Securities Act (the "Act").
The Rule and the material required by the Act to be delivered to the Minister of Financewere delivered on October 13, 2000. Unless the Minister rejects the Rule or returns itto the Commission for further consideration, the Rule will come into force on December31, 2000.
The Rule has been made a rule concurrently with National Instrument 41-501 GeneralProspectus Requirements and National Instrument 44-101 Short Form ProspectusDistributions.
Substance and Purpose of the Rule
The Rule is derived from Section 24 of OSC Policy 5.1 Prospectus Disclosure inInformation Circulars: Amalgamation, Arrangements, Mergers and Reorganizations.
The Rule requires information circulars sent to holders of voting securities of areporting issuer in respect of a meeting of security holders for which proxies are beingsolicited and which is being held to consider certain transactions under which securitiesare to be issued to contain prospectus disclosure. This includes the financial statementand other disclosure that is required to be included in a prospectus if the transactionresults in the acquisition of a business.
Summary of Written Comments Received by the Commission
The Commission published for comment a draft of the Rule on March 17, 2000 at(2000), 23 OSCB 1981 (the "March Proposed Rule").
During the comment period, the Commission received submissions from twocommenters, Simon Romano and the Canadian Advocacy Council of the Associationfor Investment Management and Research.
One commenter expressed its support of the March Proposed Rule, in particular,agreeing with disclosure in information circulars that is consistent with prospectusdisclosure requirements and supporting harmonization of such disclosure acrossCanada, urging all Canadian jurisdictions to work together to achieve harmonization ofinformation circular/prospectus disclosure requirements.
Another commenter questioned how the Rule relates to subsection 88(1) of the Act,which makes the Act's information circular requirements inapplicable where corporatelaw imposes substantially similar requirements. That commenter also questioned thedesirability of rigidly prescribing prospectus requirements, concluding that the existingcorporate law test of providing sufficient information to enable security holders to makea reasoned decision is more appropriate.
The Commission considered the comment but decided not to change the requirements.The Commission is of the view that information circulars, sent in respect of a meeting toconsider a proposed transaction (as specified in the Rule) under which securities are tobe distributed, should include, at a minimum, the disclosure prescribed by this Rule.Subsection 88(1) of the Act will continue to apply except in the case of informationcirculars covered by the Rule.
As a result of consideration of the comments, the Commission has not made anychanges to the March Proposed Rule.
Rescission of Section 24 of OSC Policy 5.1
The Commission has rescinded, effective on the date that the Rule comes into force,Section 24 of Ontario Securities Commission Policy 5.1.
The text of the rescission follows:
"Section 24 of Policy 5.1 is hereby rescinded."
Text of Rule
The text of the Rule, which remains unchanged from the March Proposed Rule, follows.
DATED: October 13, 2000
PART 1 DEFINITION AND APPLICATION
1.1 Definition of "Dissident Circular" - In this Rule, "dissident circular"means an information circular that is sent to holders of voting securities ofa reporting issuer soliciting proxies otherwise than on behalf ofmanagement of the reporting issuer.
1.2 Application - Subject to section 1.3, this Rule applies only to aninformation circular that is sent to holders of voting securities of areporting issuer in respect of a meeting of those holders
(a) for which proxies are being solicited, and
(b) that is being held to consider a statutory amalgamation, statutoryarrangement, statutory merger or reorganization involving thereporting issuer and another issuer, under which securities are tobe distributed or transferred to security holders of the reportingissuer.
1.3 Exception for Dissident Circulars - This Rule does not apply to adissident circular, unless the sender of the dissident circular is proposinga statutory amalgamation, statutory arrangement, statutory merger orreorganization involving the reporting issuer and the sender, under whichsecurities of the sender, or an affiliate of the sender, are to be distributedor transferred to security holders of the reporting issuer.
PART 2 PROSPECTUS DISCLOSURE IN CIRCULARS
2.1 Prospectus Disclosure of Issuers Distributing Securities
(1) An issuer sending an information circular, other than a dissidentcircular, shall include in the information circular the disclosure thatwould be required in a prospectus if the information circular were aprospectus of each issuer whose securities are being distributed ortransferred in connection with the transaction referred to in section1.2, with necessary modifications.
(2) A sender of a dissident circular shall include in the dissidentcircular the disclosure that would be required in a prospectus if thedissident circular were: (a) a prospectus of the sender, if securitiesof the sender are to be distributed; or (b) a prospectus of theaffiliate, if securities of an affiliate are to be distributed, in eithercase with necessary modifications.
2.2 Interpretation of Section 2.1 - The disclosure required under section 2.1to be included in an information circular concerning an issuer whosesecurities are being distributed or transferred includes the financialstatement and other disclosure, if any, of a business acquired or to beacquired by the issuer prescribed by Part 6 or 7 of Rule 41-501 GeneralProspectus Requirements or Part 4 or 5 of National Instrument 44-101Short Form Prospectus Distributions, as applicable.
2.3 Business Acquisition Disclosure for the Sender of the Circular - If nodisclosure concerning the issuer sending an information circular isrequired under subsection 2.1(1), the issuer sending the informationcircular shall include in the information circular the financial statementand other disclosure, if any, that would be required under Part 6 or 7 ofRule 41-501 or Part 4 or 5 of National Instrument 44-101, as applicable, ifthe information circular were a prospectus of the issuer.
PART 3 EXEMPTION
3.1 Exemption - The Director may grant an exemption to this Rule, in wholeor in part, subject to such conditions or restrictions as may be imposed inthe exemption.