Securities Law & Instruments

 



ONTARIO SECURITIES COMMISSION RULES
RULE 71-801 IMPLEMENTING THE MULTIJURISDICTIONAL
DISCLOSURE SYSTEM UNDER NATIONAL INSTRUMENT 71-101


TABLE OF CONTENTS
PART 1 DEFINITIONS
1.1 Definitions
PART 2 MJDS PROSPECTUS DISTRIBUTIONS

2.1 Preliminary MJDS Prospectus
and MJDS Prospectus
2.2 Underwriters' Options
PART 3 BIDS FOR SECURITIES OF U.S. ISSUERS
3.1 Application of the Act
3.2 Application of the rules to bids
3.3 Application of the Act to MJDS directors' circulars and MJDS director's or officer's circulars
PART 4 FINANCIAL REPORTING AND PROXIES AND PROXY SOLICITATION
4.1 Certification of Financial Statements
4.2 Annual Information Form and Management's Discussion and Analysis
4.3 Proxies and Proxy Solicitation
PART 5 FORM
5.1 Submission to Jurisdiction and Appointment of Agent for Service of Process

PART 1 DEFINITIONS

Source: New

1.1 Definitions

(1) Each term used in this Rule that is defined or interpreted in Part 1 of NI 71-101 has the meaning ascribed to it in that Part.

Methodology: This section recognizes that defined terms used in NI 71-101 are used in this Rule.

Exemptions required from securities legislation in several jurisdictions and from national instruments in order to implement NI 71-101 are included in NI 71-101.This Rule contains exemptions from the requirements of the Securities Act and rules made under that Act necessary to implement NI 71-101.

A general definition rule has been adopted as Rule 14-501 Definitions. It contains definitions of certain terms used in more than one rule and also provides,among other things, that terms used in a rule and defined in section 1 of the Securities Act or subsection 1(2) of the Regulation have the respective meaningsgiven to them in the Securities Act or the Regulation. Rule 14-501 also incorporates terms defined in National Instrument 14-101 Definitions. NationalInstrument 14-101 contains, among other things, definitions for terms used in more than one national instrument.

(2) In this Rule "NI 71-101" means "National Instrument 71-101 The Multijurisdictional Disclosure System".

PART 2 MJDS PROSPECTUS DISTRIBUTIONS

2.1 Preliminary MJDS Prospectus

and MJDS Prospectus

Source: Blanket Ruling and Order dated June 24, 1991 (the "BR")

THEREFORE IT IS RULED pursuant to subsection 73(1) [74(1)] of the Act that section 52 [53] of the Act shall not apply:

1. insofar as section 52 [53] concerns the form and content of a preliminary prospectus and a prospectus filed under section 52 [53] of the Act orcommunications by an auditor to the Commission in connection with the inclusion in a preliminary prospectus or a prospectus of financial statements notreported on by the auditor, with respect to distributions of securities effected in compliance with the MJDS;

2. insofar as section 52 [53] of the Act, together with section 56 [57] of the Act, concerns the form and content and circumstances of filing of an amendment to apreliminary prospectus or amendment to a prospectus, with respect to distributions of securities effected in compliance with the MJDS; and

3. insofar as section 52 [53] of the Act, together with section 61 [62] of the Act, limits the duration of the distribution of securities pursuant to a prospectus,with respect to distributions of securities effected in compliance with the MJDS and also Rule 415 of the Securities Act of 1933 of the United States;

provided that:

4. a preliminary prospectus and prospectus complying with the MJDS are filed under section 52 [53] of the Act pursuant to and in accordance with therequirements and procedures set forth in the MJDS;

5. such preliminary prospectus and prospectus are supplemented and amended, and any amendment to a preliminary prospectus or prospectus complying with theMJDS is filed under section 56 [57] of the Act, pursuant to and in accordance with the requirements and procedures set forth in the MJDS; and

6. the distribution of securities pursuant to such preliminary prospectus and prospectus otherwise complies with and is subject to the provisions of the Act;

Source: NP45, s.5.3 (first and second sentences, set out below) for business combinations. Also implicitly from BR cited above.

Methodology: The form of preliminary prospectus and prospectus under the MJDS is prescribed for the purposes of the Act in NI 71-101. The preliminaryMJDS prospectus and MJDS prospectus will be a form of prospectus for purposes of the Act. As such, it is no longer necessary to provide for a specific section53 exemption as to form and content. An exemption from sections 54 and 56 of the Act would not be necessary as a preliminary MJDS prospectus and MJDSprospectus would comply with NI 71-101, which specifies the requirements of Ontario securities law for MJDS distributions.

If the eligibility requirements set forth in Section 5.2 are met, securities may be distributed in Canada under the MJDS in connection with a business combinationby complying with the procedures set forth in Sections 3.8, 3.9, 3.11(1), 3.11(5) and 3.14. The disclosure documents would be required to be filed both as aprospectus and as an information circular.

(1) The following provisions of the Act do not apply to a distribution of securities made by MJDS prospectus in accordance with NI 71-101

(a) subsection 57(1), insofar as that section concerns the form, content and circumstances of filing of an amendment to a preliminary prospectus or prospectus;

Source: Paragraphs 2 and 5 of the prospectus portion of the BR, above.

Methodology: The MJDS provides generally that the preliminary MJDS prospectus and the MJDS prospectus must be amended in accordance with U.S. federalsecurities law. The language in the BR has been preserved on the basis that residual elements of section 57 not relating to the form, content or circumstances offiling of an amendment, such as the requirement to file an amendment and forward it to each recipient of a preliminary prospectus, continue to apply.

(b) subsection 57(2), insofar as that subsection specifies the time period that must elapse before the distribution of additional securities may be proceeded with;

Source: New

Methodology: It has been made clearer that there is an exemption from the 10 day waiting period upon filing of an amendment to distribute additional securities.

(c) subsections 58(1) and 59(1); and

Source: New

Methodology: The certificates in subsections 58(1) and 59(1) have been replaced by specific text in sections 4.7 through 4.11 of NI 71-101.

(d) section 62, insofar as that section limits the duration of the distribution of securities under a MJDS prospectus in relation to a rule 415 offering.

Source: Paragraph 3 of the prospectus portion of the BR, above.

Methodology: The BR exempted rule 415 offerings from the 12 month duration limit to permit offerings under a rule 415 shelf prospectus for a two year period.Rule 415 offerings may be made under the MJDS only during the life of the prospectus as determined under U.S. federal securities laws.

(2) Despite subsection 65(1) of the Act, the waiting period between the issuance by the Director of a receipt for a preliminary MJDS prospectus and the issuanceby the Director of a receipt for a MJDS prospectus may be less than ten days.

Source: New

Methodology: This Rule specifically abridges the ten day waiting period.

(3) Rule 41-501 General Prospectus Requirements does not apply to a distribution of securities under NI 71-101.

Source: New.

Methodology: This section links back to section 65(3) of the Regulation which provides that its provisions apply "except as otherwise provided in the [MJDS]Rule...".

The provisions of the Regulation relating to the preparation and filing of a prospectus (including section 65(3) of the Regulation) are included in the generalprospectus rule. An exemption is provided from that rule.

Section 5.3 of NP 45 indicates that disclosure documentation used in the U.S. in connection with a business combination must be filed as both a prospectus andas an information circular in Canada. Accordingly, an issuer may decide to distribute securities under applicable exemptions (in Ontario, section 72(1)(i) of theAct) or, if an exemption would not result in freely tradeable securities immediately after the distribution under proposed Rule 72-501 Prospectus Exemptions forFirst Trade over a Market outside Ontario, may file the U.S. prospectus relating to the business combination as a MJDS prospectus in order to permit securitiesto be freely tradeable.

2.2 Underwriters' Options

Rule 48-502 does not apply to an underwriter of securities of a U.S. issuer distributed in Canada and the U.S. in accordance with NI 71-101.

Source: New.

PART 3 BIDS FOR SECURITIES OF U.S. ISSUERS

3.1 Application of the Act to bids

(1) Subject to subsections (2) to (6), sections 94 to 98 and section 100 of the Act do not apply to a bid that is made in accordance with Part 12 of NI 71-101.

(2) Subsection 94(5) of the Act applies if securityholders of the offeree issuer whose last address as shown on the books of the issuer is in Canada, as determinedin accordance with subsections 12.1(2) through (4) of NI 71-101, hold 20 percent or more of a class of securities that is the subject of the bid.

(3) Paragraph 95 1. of the Act applies except the requirement that the offeror deliver the bid to all holders of securities that before the expiry of the bid areconvertible into securities of the class that is subject to the bid who are in Ontario.

(4) Subsections 98(1), 98(3), 98(7) and 100(1) of the Act apply.

(5) The requirement in subsection 98(2) to deliver a notice of change to every person or company to whom the circular was required to be delivered and whosesecurities were not taken up at the date of the occurrence of the change applies.

(6) The requirement in subsection 98(4) to deliver a notice of variation to every person or company to whom the circular was required to be delivered and whosesecurities were not taken up at the date of the variation applies.

Source: BR

AND IT IS FURTHER ORDERED pursuant to clause 100c(2)(c) [104(2)(c)] of the Act that an offeror making a take-over bid or issuer bid effected incompliance with the MJDS shall be exempt from compliance with the following:

1. section 93 [94] of the Act, except subsection 93(5) [94(5)] where security holders of the offeree issuer whose last address as shown on the books of the issueris in Canada, as determined in accordance with the Policy, hold 20% or more of any class of securities that is the subject of the bid;

2. section 94 [95] of the Act, except the requirement in section 94.1 [95.1] to deliver the bid to all holders of securities of the class that is subject to the bidwhose last address as shown on the books of the offeree issuer is in Ontario;

3. section 95 [96] of the Act;

4. section 96 [97] of the Act;

5. section 97 [98] of the Act, except (i) the requirement in subsection 97(1) [98(1)] to deliver a take-over bid circular or issuer bid circular to all holders ofsecurities of the class that is subject to the bid whose last address as shown on the books of the offeree issuer is in Ontario, (ii) the requirement in subsection97(2) [98(2)] to deliver a notice of change to every person or company to whom the circular was required to be delivered and whose securities were not takenup at the date of the occurrence of the change, and (iii) the requirement in subsection 97(4) [98(4)] to deliver a notice of variation to every person or company towhom the circular was required to be delivered and whose securities were not taken up at the date of the variation;

6. section 99 [100] of the Act, except the requirement in subsection 99(1) [100(1)] to file any notice of change or variation;

7. section 163 [182] of the Regulation, except with respect to a take-over bid circular in respect of an insider bid or an issuer bid circular where security holdersof the offeree issuer whose last address as shown on the books of the issuer is in Canada, as determined in accordance with the Policy, hold 20% or more of anyclass of securities that is the subject of the bid;

8. section 170 [189(a)] of the Regulation, except any requirement in Form 32 prescribed under such section that is applicable because (i) the take-over bidprovides that the consideration for the securities of the offeree issuer is to be, in whole or in part, securities of the offeror or other issuer, unless the bid satisfiesthe eligibility requirements set forth in Section 4.4 of the Policy, or (ii) the offeror anticipates that a going private transaction will follow the take-over bid;

9. section 171 [189(b)] of the Regulation, except any requirement in Form 33 prescribed under such section that is applicable because an issuer bid provides thatthe consideration for the securities of the issuer is to be, in whole or in part, different securities of the issuer, unless the bid satisfies the eligibility requirements setforth in Section 4.4 of the Policy;

10. section 174 [193] of the Regulation;

11. section 175a [195] of the Regulation;

12. section 175g [201] of the Regulation; and

13. section 175i [203] of the Regulation, except the requirement therein to file in triplicate a circular or notice required under Part XIX [XX] of the Act,

provided that any delivery or filing by the offeror of any take-over bid circular or issuer bid circular or notice of change or of variation under the Act shall bemade in the circumstances and in the manner set forth in the MJDS;

Methodology: The content of MJDS bid circulars is prescribed under the Rule by reference to "MJDS take-over bid circular" and "MJDS issuer bid circular",which are specifically defined with reference to U.S. forms in section 1.1 of NI 71-101. Accordingly, these will be prescribed forms of bid circular for thepurposes of Part XX of the Act (and therefore for section 131 of the Act). As the MJDS bid circulars will be prescribed forms, subsection 98(7) of the Actshould apply and has been added to the list of applicable sections.

Note that the wording in paragraph 2 in the BR limits the obligation to deliver to holders of the class of securities subject to the bid, and not to holders ofsecurities convertible into that class (also referred to in paragraph 1).

3.2 Application of the rules to bids

(1) Parts 2 and 3 of Rule 61-501 Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions do not apply to a MJDS take-over-bidcircular in respect of an insider bid or to a MJDS issuer bid circular unless securityholders of the offeree issuer whose last address as shown on the books of theissuer is in Canada, as determined in accordance with subsections 12.1(2) through (4) of NI 71-101, hold 20 percent or more of a class of securities that is thesubject of the bid.

(2) Subject to subsection (3), Rule 62-501 Prohibited Transactions in Connection with Take-over Bids does not apply to bids made in accordance with Part 12 ofNI-101.

Methodology: The relief provided in subsection 3.2(2) is also granted in paragraph 3.1(2)(a) of Rule 62-501 Prohibited Transactions in Connection withTake-over Bids subject to the requirement in paragraph 3.1(4) to disclose bids or purchaases on a stock exchange or market.

(3) The requirement in paragraph 3.1(4) of Rule 62-501 Prohibited Transactions in Connection with Take-over Bids to disclose bids or purchases on a stockexchange or market located outside Canada applies.

Methodology: A MJDS prospectus may be filed for securities distributed in a securities exchange bid by an issuer that does not meet the eligibility criteria ofsection 12.3.

3.3 Application of the Act to MJDS directors' circulars and MJDS director's or officer's circulars

(1) Subject to subsections (2) to (4), section 99, other than subsection 99(3), and section 100, other than subsection 100(2), of the Act do not apply to directorsand individual directors and officers of an offeree issuer, the securities of which are the subject of a take-over bid made in accordance with Part 12 of NI 71-101.

(2) Subsection 99(1) applies except the requirement that the board of directors of the offeree issuer deliver the directors' circular to all holders of securities thatbefore the expiry of the bid are convertible into securities of the class that is subject to the bid who are in Ontario.

(3) The requirement in subsection 99(6) to deliver a notice of change to every person or company to whom the circular was required to be delivered and whosesecurities were not taken up at the date of the occurrence of the change applies.

(4) Subsection 99(7) applies except the requirement that the board of directors of the offeree issuer deliver the individual director's or officer's circular or noticeof change thereto to all holders of securities that before the expiry of the bid are convertible into securities of the class that is subject to the bid who are inOntario.

Source: BR

AND IT IS FURTHER ORDERED pursuant to clause 100c(2)(c) [104(2)(c)] of the Act that the directors and individual directors and officers of an offereeissuer whose securities are the subject of a take-over bid or issuer bid effected in compliance with the MJDS shall be exempt from compliance with the following:

1. section 98 [99] of the Act, except (i) the requirement in subsection 98(1) [99(1)] to deliver a directors' circular to every person or company to whom atake-over bid circular was required to be delivered, (ii) the requirement in clause 98(6) [99(6)] to deliver a notice of change to every person or company towhom the directors' circular was required to be delivered, and (iii) the requirement in subsection 98(7) [99(7)] to deliver an individual director's or officer'scircular and notice of change to every person or company to whom a take-over bid circular was required to be delivered;

2. section 99 [100] of the Act, except the requirement in subsection 99(2) [100(2)] to file every directors' circular and every individual director's or officer'scircular and any notice of change;

3. section 172 [191] of the Regulation;

4. section 173 [192] of the Regulation;

5. section 175 [194] of the Regulation;

6. section 175g [201] of the Regulation; and

7. section 175i [203] of the Regulation, except the requirement therein to file in triplicate a circular or notice required under Part XIX [XX] of the Act,

provided that:

1. the directors or individual directors or officers of the offeree issuer, as the case may be, comply with the MJDS; and

2. any delivery or filing by the directors of the offeree issuer of any directors' circular, individual director's or officer's circular or notice of change under the Actshall be made in the circumstances and in the manner set forth in the MJDS;

Methodology: As the content of a MJDS directors' circular will be prescribed in the National Instrument, subsection 99(3) should apply. The BR is currentlydrafted to provide an exemption from various provisions of section 99, other than the requirement to deliver an applicable circular or notice of change. Thisextends to the prescribed delivery periods and other matters specifically dealt with in section 99.

The lead-in language of the BR refers to an issuer bid in error. The directors and individual director's and officer's circular provisions are applicable only totake-over bids.

PART 4 FINANCIAL REPORTING AND PROXIES AND

PROXY SOLICITATION

4.1 Certification of Financial Statements - The obligations under sections 77 and 78 of the Act to certify financial statements as required by the regulations donot apply to financial statements filed under section 15.1 of NI 71-101.

Source: BR

AND IT IS FURTHER ORDERED pursuant to subclause 79(b)(iii) [80(b)(iii)] of the Act that a U.S. issuer (as defined in the Policy) that has a class ofsecurities registered pursuant to section 12 of the 1934 Act or is required to file reports pursuant to section 15(d) of the 1934 Act shall be exempt from:

1. the obligations under sections 76 [77] and 77 [78] of the Act to certify financial statements as required by the Regulation;

2. the obligation under subsection 1(4) of the Regulation to state in the notes to the financial statements which option has been applied in the choice of generallyaccepted accounting principles; and

3. the obligation under subsection 2(2) of the Regulation to prepare an auditor's report in accordance with generally accepted auditing standards;

Methodology: Amendments to the Regulation will be made in the Regulation.

4.2 Annual Information Form and Management's Discussion and Analysis -Rule 51-501 does not apply to a reporting issuer that files and sends an annual reportin accordance with section 15.2 of NI 71-101.

Methodology: The requirement to prepare an AIF and MD&A arises under Rule 51-501 (OSC Policy 5.10). In addition, POP issuers will be required to complywith NI 44-101 Prompt Offering Qualification System in relation to AIF and MD&A filing requirements. Section 4.2 of this Rule has been drafted on the basisthat the MJDS will override the AIF and MD&A provisions applicable generally, but not those of NI 44-101 as a U.S. issuer could choose to use the POPsystem in lieu of MJDS.

4.3 Proxies and Proxy Solicitation - Rule 54-501 Prospectus Disclosure in Information Circulars: Amalgamations, Arrangements, Mergers and Reorganizationsdoes not apply to materials filed and delivered under section 16.1 or 16.2 of NI 71-101.

Methodology: Section 4.3 of this Rule and sections 16.1 and 16.2 of NI 71-101 provide the same relief as the BR and add an exemption from proposed Rule54-501.

PART 5 FORM5.1 Submission to Jurisdiction and Appointment of Agent for Service of Process - A submission to jurisdiction and appointment of agent forservice of process required under section 6.9, paragraph 12.10(1)(e), or subparagraph 19.1(b)(iii) of NI 71-101 shall be prepared in accordance with Form71-101F1.