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Commission Approval of Final Rule: OSC Rule - 45-502 - Dividend or Interest Reinvestment and Stock Dividend Plans
Commission Approval of Final Rule: OSC Rule - 45-502 - Dividend or Interest Reinvestment and Stock Dividend Plans
NOTICE OF RULE 45-502 UNDER
THE SECURITIES ACT
DIVIDEND OR INTEREST REINVESTMENT
AND STOCK DIVIDEND PLANS
Notice of Rule
The Commission has, under Section 143 of the Securities Act (the "Act"), made Rule 45-502 Dividend or Interest Reinvestment and Stock Dividend Plans (the"Rule").
The Rule and the material required by the Act to be delivered to the Minister of Finance were delivered on April 8, 1998. If the Minister does not approve the Rule, reject the Rule or return it to the Commission for further consideration, the Rule will come into force on June 22, 1998. If the Minister approves the Rule,the Rule will come into force 15 days after it is approved.
Concurrently with making Rule 45-502, the Commission revoked clause 14(e) and subsection 19(5) of the Regulation and subsection 21(2) of Schedule 1 to theRegulation and has amended subsection 21(1) of Schedule 1 to the Regulation. See "Regulations Revoked or Amended" below.
Substance and Purpose of Rule
The substance and purpose of the Rule is to provide for exemptions from the registration and prospectus requirements of the Act for trades of securities underdividend or interest reinvestment plans, and the cash payment option of dividend or interest reinvestment and stock dividend plans, subject to certain terms andconditions, and to provide for simplified disclosure of, and fees for, exempt trades under these exemptions.
The Rule replaces and expands upon the Rule In the Matter of Dividend Reinvestment and Stock Dividend Plans (1997), 20 OSCB 1218, which in turnincorporated the Blanket Ruling of the same name, (1993), 16 OSCB 5928 as amended by an order dated April 26, 1994 (1994), 17 OSCB 1978 (the "CombinedPlan Blanket Ruling"), which replaced and updated a ruling dated October 27, 1983, 6 OSCB 3737, which in turn replaced and expanded upon a ruling datedMarch 18, 1982, 4 OSCB 511E. The Combined Plan Blanket Ruling exempted certain trades made pursuant to dividend or interest reinvestment and stockdividend plans which had a cash payment option from the application of the registration and prospectus requirements of the Act, subject to certain terms andconditions, and provided for simplified reporting of the exempt trades under such plans.
The Rule also incorporates and replaces the prospectus and registration exemptions for dividend and interest reinvestment plans contained in clauses 14(e) and151(a), respectively, of the Regulation.
Summary of Rule
Section 2.1 of the Rule provides for exemptions from the registration and prospectus requirements of the Act for trades by an issuer or an administrator of theissuer in a security of the issuer's own issue under a dividend or interest reinvestment plan. Part 1 of the Rule defines a dividend or interest reinvestment plan asan arrangement under which a holder of securities of an issuer is permitted to direct that the dividends or interest paid on those securities be applied to thepurchase from the issuer or an administrator of the issuer of securities of the issuer's own issue. Part 1 of the Rule defines an administrator to mean, for an issuer,a trustee, a custodian or an administrator of a dividend or interest reinvestment plan or a stock dividend plan of the issuer.
Section 3.1 provides for exemptions from the registration and prospectus requirements of the Act for trades by an issuer or an administrator of the issuer in asecurity of the issuer's own issue under the cash payment option of a combined plan on certain conditions.
A combined plan is defined in Part 1 to be a dividend or interest reinvestment plan or a stock dividend plan that contains a cash payment option. The Rule defines"cash payment option" to mean a provision in a plan under which a participant is permitted to make cash payments to purchase from the issuer or anadministrator of the issuer securities of the issuer's own issue, in addition to the securities (a) purchased using the amount of the dividend or interest payable to orfor the account of the participant; or (b) acquired as a stock dividend or other distribution out of earnings or surplus.
The conditions of the exemptions contained in section 3.1 are that (a) the issuer is either a reporting issuer under the Act, and to the best of its belief not indefault under the Act or regulations, or if not a reporting issuer, is an issuer of which the class of securities that are issuable under the plan is listed and posted fortrading, traded, or quoted, on a specified stock exchange or market; and (b) one of (i) in the financial year of the issuer during which the trade takes place, theaggregate number of securities issued under the cash payment option of the combined plan before the trade, plus the aggregate number of securities issued in thetrade, does not exceed two percent of the number of the class of securities outstanding at the commencement of that financial year, (ii) at the time of the trade,persons or companies whose last address as shown on the books of the issuer is in Ontario and who held securities of the class of securities (A) did not hold morethan 10 percent of the outstanding securities of the class of securities, and (B) did not represent in number more than 10 percent of the total number of holders ofsecurities of the class of securities or (iii) at the time of the trade, persons or companies who are in Ontario and beneficially own securities of the class ofsecurities (A) did not beneficially own more than 10 percent of the outstanding securities of the class of securities, and (B) did not represent in number more than10 percent of the total number of holders of securities of the class of securities.
Section 4.1 provides that a person or company may trade a security acquired under an exemption contained in section 2.1 or 3.1 only (a) if the first trade is madeunder a prospectus for which a receipt has been obtained from the Director; (b) if the first trade is made under an exemption in Ontario securities law fromsection 53 of the Act; or (c) if (i) at the time of the trade, the issuer of the security is a reporting issuer and has been a reporting issuer for at least 12 months, (ii)in the case of a person or company that is in a special relationship with the issuer, the person or company has reasonable grounds to believe that the issuer is notin default under the Act or the regulations, (iii) disclosure to the Commission has been made of the trade under section 2.1 or section 3.1 in accordance with Part5, (iv) no unusual effort is made to prepare the market or to create a demand for the security and no extraordinary commission or consideration is paid for thetrade and (v) the trade is not a control person distribution. (The first trade relief previously provided in the Combined Plan Blanket Ruling for issuers with a deminimis market in Ontario will continue to be provided in proposed Rule 72-501 Prospectus Exemption For First Trade in Certain Securities Over A MarketOutside Ontario, April 18, 1997 (1997), 20 OSCB 2055.)
Part 5 of the Rule provides for disclosure of exempt trades under clause 72(5)(b) of the Act for securities acquired under the exemption contained in subclause72(1)(f)(i) of the Act and disclosure of exempt trades under clause 4.1(c)(iii) of the Rule for securities acquired under the exemptions contained in sections 2.1and 3.1 of the Rule. Section 5.l provides that the disclosure contemplated by section 4.1 for securities acquired under the exemptions contained in sections 2.1and 3.1 of the Rule shall be made in accordance with Part 5 and the disclosure contemplated by clause 72(5)(b) of the Act for securities acquired under theexemption contained in subclause 72(1)(f)(i) of the Act may be made in accordance with Part 5. Section 5.2 provides that the disclosure referred to in section 5.1may be made by the issuer by disclosing the date of the trade, the number of securities purchased and the purchase price paid or to be paid, either in aninformation circular or take-over bid circular filed in accordance with the regulations or a letter filed with the Commission by a person or company certifying thatthe person or the company has knowledge of the facts contained in the letter, if in either case the filing is effected before any resale of the securities. Section 5.3provides that the disclosure referred to in section 5.1 may also be made annually if the number of securities issued in any calendar month under the plan inreliance on these exemptions does not exceed one percent of the securities of that class outstanding at the beginning of the calendar month in which the securitieswere issued. Subsection 5.4(1) provides that, if the number of securities of the class of securities issued in any calendar month under the plan in reliance on theseexemptions exceeds this threshold, the issuer may file a report for that month within 10 days of after the end of the month. Subsection 5.4(2) provides that theissuer may make disclosure in accordance with section 5.3 for the other calendar months in the annual period excluding such month or months for whichdisclosure has been made under subsection (1). Section 5.5 clarifies that, for the purposes of sections 5.3 and 5.4, the disclosure may be made in the form of aletter filed with the Commission by a person or company disclosing the date of the trade, the number of securities purchased and the purchase price paid or to bepaid and certifying that the person or the company has knowledge of the facts contained in the letter.
Part 6 provides for annual fees of $100 payable to the Commission for securities acquired under each of these exemptions on the date the plan is commenced andon each anniversary of the date of commencement of the plan if securities were issued or distributed in Ontario.
Part 7 provides that the Director may grant an exemption to the Rule in whole or in part, subject to such conditions or restrictions as may be imposed in theexemption.
Summary of Written Comments Received by the Commission
A proposed version of the Rule was published by the Commission for comment on September 19, 1997 (1997), 20 OSCB 4779 (the "September 1997 Version").The Commission received one comment letter on the September 1997 Version. As a result of staff's consideration of that comment letter, recommendations anddeliberations of the Commission, the Commission published an amended version of the Rule on February 27, 1998 (1998), 21 OSCB 1385 (the "February 1998Version") for comment in accordance with the requirements of subsection 143.2(7) of the Act. The changes made to the February 1998 Version from theSeptember 1997 Version, together with a summary of the comments made on the September 1997 Version were described in a Commission Notice publishedwith the February 1998 Version. No written comments were received on the February 1998 Version.
Regulations Revoked or Amended
The Commission has, by regulation, revoked clause 14(e) and subsection 19(5) of the Regulation and subsection 21(2) of Schedule 1 to the Regulation andamended subsection 21(1) of Schedule 1 to the Regulation to delete the exception for notices in respect of a dividend or interest investment plan or a stockdividend plan.
The Notice accompanying the February 1998 Version indicated that the Commission proposed to revoke subsection 69(3) of the Regulation. As it is theCommission's intention that other proposed rules will contain provisions similar to subsection 69(3) and that subsection 69(3) will be revoked at the time of theadoption of such rules, the Commission has made Rule 45-502 without revoking subsection 69(3) at this time. In this regard, the Commission notes that Rule45-502 does not conflict with subsection 69(3) of the Regulation.
The regulation is subject to the approval of the Minister of Finance and will not be effective before the Rule comes into force.
Text of Rule
The text of the Rule follows. Apart from minor changes in wording in sections 5.1, 5.3, 5.4 and 5.5, the Rule is unchanged from the February 1998 Version.
DATED: April 10, 1998
ONTARIO SECURITIES COMMISSION RULE
RULE 45-502
DIVIDEND OR INTEREST REINVESTMENT
AND STOCK DIVIDEND PLANS
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions
1.2 Interpretation
PART 2 EXEMPTION FOR TRADES UNDER A DIVIDEND OR INTEREST REINVESTMENT PLAN
2.1 Exemption for Trades Under a Dividend or Interest Reinvestment Plan
PART 3 EXEMPTION FOR TRADES UNDER THE CASH PAYMENT OPTION OF A COMBINED PLAN
3.1 Exemption for Trades Under the Cash Payment Option of a Combined Plan
PART 4 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER SECTION 2.1 OR 3.1
4.1 Restrictions on First Trade in Securities Acquired Under Section 2.1 or 3.1
PART 5 DISCLOSURE OF EXEMPT TRADES
5.1 Disclosure
5.2 Disclosure Before Resale
5.3 Annual Disclosure
5.4 Monthly Disclosure
5.5 Form of Disclosure
PART 6 FEES
6.1 Fees
PART 7 EXEMPTION
7.1 Exemption
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions - In this Rule
"administrator" means, for an issuer, a trustee, a custodian or an administrator of a plan of the issuer;
"cash payment option" means a provision in a plan under which a participant is permitted to make cash payments to purchase from the issuer or an administratorof the issuer securities of the issuer's own issue, in addition to the securities
(a) purchased using the amount of the dividend or interest payable to or for the account of the participant; or
(b) acquired as a stock dividend or other distribution out of earnings or surplus;
"class of securities" means the class or the series of a class of securities that are issuable under the relevant plan;
"combined plan" means a plan that contains a cash payment option;
"dividend or interest reinvestment plan" means an arrangement under which a holder of securities of an issuer is permitted to direct that the dividends or interestpaid on those securities be applied to the purchase from the issuer or an administrator of the issuer of securities of the issuer's own issue;
"plan" means a dividend or interest reinvestment plan or a stock dividend plan; and
"stock dividend plan" means an arrangement under which securities of an issuer are issued by the issuer to holders of securities of the issuer as a stock dividendor other distribution out of earnings or surplus.
1.2 Interpretation - The term "special relationship", when used in reference to a person or company in a special relationship with a reporting issuer, shall beinterpreted in accordance with subsection 76(5) of the Act.
PART 2 EXEMPTION FOR TRADES UNDER A DIVIDEND OR INTEREST REINVESTMENT PLAN
2.1 Exemption for Trades Under a Dividend or Interest Reinvestment Plan - Sections 25 and 53 of the Act do not apply to a trade by an issuer or anadministrator of the issuer in a security of the issuer's own issue under a dividend or interest reinvestment plan of the issuer.
PART 3 EXEMPTION FOR TRADES UNDER THE CASH PAYMENT OPTION OF A COMBINED PLAN
3.1 Exemption for Trades Under the Cash Payment Option of a Combined Plan - Sections 25 and 53 of the Act do not apply to a trade by an issuer or anadministrator of the issuer in a security of the issuer's own issue under the cash payment option of a combined plan of the issuer
(a) if the issuer is
(i) a reporting issuer and, to the best of its belief, is not in default under the Act or the regulations, or
(ii) an issuer other than a reporting issuer and the class of securities is listed and posted for trading, traded, or quoted, on
(A) The Montreal Exchange,(B) the Alberta Stock Exchange,
(C) the Vancouver Stock Exchange,
(D) the New York Stock Exchange,
(E) the American Stock Exchange,
(F) the Nasdaq Stock Market, or
(G) the London Stock Exchange Limited; and
(b) if
(i) in the financial year of the issuer during which the trade takes place, the aggregate number of securities issued under the cash payment option of the combinedplan before the trade, plus the aggregate number of securities issued in the trade, does not exceed two percent of the number of the securities of the class ofsecurities outstanding at the commencement of that financial year,
(ii) at the time of the trade, persons or companies whose last address as shown on the books of the issuer is in Ontario and who held securities of the class ofsecurities
(A) did not hold more than 10 percent of the outstanding securities of the class of securities, and
(B) did not represent in number more than 10 percent of the total number of holders of securities of the class of securities; or
(iii) at the time of the trade, persons or companies who are in Ontario and who beneficially own securities of the class of securities
(A) did not beneficially own more than 10 percent of the outstanding securities of the class of securities, and
(B) did not represent in number more than 10 percent of the total number of holders of securities of the class of securities.
PART 4 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER SECTION 2.1 OR 3.1
4.1 Restrictions on First Trade in Securities Acquired Under Section 2.1 or 3.1 - A person or company may trade a security acquired under an exemptioncontained in section 2.1 or 3.1 only
(a) if the first trade is made under a prospectus for which a receipt has been obtained from the Director;
(b) if the first trade is made under an exemption in Ontario securities law from section 53 of the Act; or
(c) if
(i) at the time of the trade, the issuer of the security is a reporting issuer and has been a reporting issuer for at least 12 months,
(ii) in the case of a person or company that is in a special relationship with the issuer, the person or company has reasonable grounds to believe that the issuer isnot in default under the Act or the regulations,
(iii) disclosure to the Commission has been made of the trade under section 2.1 or section 3.1 in accordance with Part 5,
(iv) no unusual effort is made to prepare the market or to create a demand for the security and no extraordinary commission or consideration is paid for the trade,and
(v) the trade is not a control person distribution.
PART 5 DISCLOSURE OF EXEMPT TRADES
5.1 Disclosure - The disclosure contemplated by section 4.1 for securities acquired under the exemptions contained in sections 2.1 and 3.1 shall, and thedisclosure contemplated by clause 72(5)(b) of the Act for securities acquired under the exemption contained in subclause 72(1)(f)(i) of the Act may, be made bythe issuer in accordance with this Part.
5.2 Disclosure Before Resale - The disclosure referred to in section 5.1 may be made by the issuer by disclosing the date of the trade, the number of securitiespurchased and the purchase price paid or to be paid, in
(a) an information circular or take-over bid circular filed in accordance with the regulations; or
(b) a letter filed by a person or company certifying that the person or the company has knowledge of the facts contained in the letter
if in either case the filing is effected before any resale of the securities.
5.3 Annual Disclosure - The disclosure referred to in section 5.1 may also be made by the issuer when the plan is commenced and not less frequently thanannually after the first disclosure, if the number of securities of the class of securities issued under the plan in any calendar month in reliance on the exemptionsdescribed in section 5.1 does not exceed one percent of the securities of that class that were outstanding at the beginning of the calendar month in which thesecurities were issued.
5.4 Monthly Disclosure
(1) If the number of securities of the class of securities issued under the plan in any calendar month in reliance on the exemptions described in section 5.1 doesexceed one percent of the securities of that class that were outstanding at the beginning of the calendar month in which the securities were issued, the disclosurereferred to in section 5.1 may be made by the issuer for that calendar month, within 10 days after the end of the month.
(2) The issuer may make disclosure in accordance with section 5.3 for the other calendar months in the annual period excluding such month or months for whichdisclosure has been made under subsection (1).
5.5 Form of Disclosure - For the purposes of sections 5.3 and 5.4, the disclosure may be made in the form of a letter filed by a person or company disclosing thedate of the trade, the number of securities purchased and the purchase price paid or to be paid, and certifying that the person or the company has knowledge ofthe facts contained in the letter.
PART 6 FEES
6.1 Fees - The issuer shall pay a fee of $100.00 for securities issued under each of the exemptions contained in subclause 72(1)(f)(i) of the Act and sections 2.1and 3.1
(a) on the date the plan is commenced; and
(b) on each anniversary of the date of commencement of the plan, if securities were issued or distributed in Ontario under the plan during the twelve-monthperiod preceding the date of the anniversary.
PART 7 EXEMPTION
7.1 Exemption - The Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in theexemption.