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Proposed Rule: OSC Rule - 45-501 - Ontario Prospectus and Registration Exemptions
Proposed Rule: OSC Rule - 45-501 - Ontario Prospectus and Registration Exemptions
ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS
TABLE OF CONTENTS
PART 1 DEFINITIONS
1.1 Definitions
1.2 Interpretation
PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT
2.1 Exemption for a Trade in a Variable Insurance Contract
2.2 Exemption for a Trade Among Control Persons or to the Issuer
2.3 Exemption for a Trade to a Promoter
2.4 Exemption for a Trade by a Promoter or Issuer in a Government Incentive Security
2.5 Exemption for a Trade in Seed Capital or Government Incentive Securities
2.6 Exemption for a Trade by a Control Person in a Security Acquired Under a Formal Take-Over Bid
2.7 Exemption for a Trade in Connection with a Securities Exchange Issuer Bid
2.8 Exemption for a Trade on an Amalgamation, Arrangement or Specified Statutory Procedure
2.9 Exemption for a Trade Upon Exercise of Conversion Rights in a Convertible Security
2.10 Exemption for a Trade Upon Exercise of Exchange Rights in an Exchangeable Security
2.11 Exemption for a Trade in Units
2.12 Exemption for a Trade in a Security of a Private Company or Private Issuer under the Execution Act
2.13 Exemption for a First Trade in a Multiple Convertible Security, Convertible Security or Exchangeable Security Acquired Under Certain Exemptions
2.14 Exemption for a First Trade in a Security Acquired in Connection with a Take-over Bid
2.15 Exemption for a First Trade in a Security Acquired to Facilitate Incorporation
2.16 Exemption for a First Trade in an Underlying Security Where the Right to Purchase, Convert or Exchange is Qualified By Prospectus
2.17 Exemption for a Trade in a Security of a Private Issuer
2.18 Further Exemptions
PART 3 REMOVAL OF CERTAIN REGISTRATION AND PROSPECTUS EXEMPTIONS
3.1 Removal of Private Placement Exemptions If Acquisition Cost Is Less Than $150,000
3.2 Satisfaction of Acquisition Cost
3.3 Removal of Exemptions if Purchaser Primary Purpose Entity
3.4 Removal of Exemptions for Investment Clubs
3.5 Removal of Asset Acquisition Exemption If Fair Value of Assets Is Less Than $150,000
3.6 Removal of Seed Capital Exemption
3.7 Determination of Number of Purchasers Under Seed Capital and Government Incentive Security Exemptions if Purchaser is a Primary Purpose Entity
3.8 Removal of Exemption for Bonds, Debentures and Other Evidences of Indebtedness
3.9 Removal of Exemption for Securities of a Private Mutual Fund With a Promoter or Manager
3.10 Removal of 72(4) Resale Exemption for Control Person Distribution
3.11 Removal of Subsection 72(7) Exemption for Control Person Distribution
3.12 Removal of Registration Exemption for Market Intermediaries
PART 4 OFFERING MEMORANDUM
4.1 Removal of Exemptions Contained in Clause 72(1)(d) of the Act and Section 2.11
4.2 Removal of Exemptions If No Contractual Right of Action Provided and Described in Offering Memorandum8
4.3 Delivery of Offering Memorandum to Commission
PART 5 DEALER REGISTRATION
5.1 Removal of Exemption Unless Dealer Registered for Trade Described in the Exemption
PART 6 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER CERTAIN EXEMPTIONS
6.1 First Trade in a Security Acquired By a Promoter Under Section 2.3 or Section 2.15
6.2 First Trade in a Security Acquired Under Section 2.4, 2.5 or 2.11
6.3 First Trade in a Security Acquired Under Clause 72(1)(h)(i) of the Act
6.4 First Trade In an Underlying Security of a Multiple Convertible Security, Convertible Security or an Exchangeable Security Acquired Under CertainExemptions
6.5 First Trade in a Security Acquired Under Section 2.9 or 2.10
6.6 First Trade in a Security Acquired Under Section 2.7, 2.8 or 2.17 or Under Subsection 2.18(1)
PART 7 FILING REQUIREMENTS AND FEES
7.1 Form 45-501F1
7.2 Form 45-501F2
7.3 Fees for Form 45-501F1
7.4 Fees for Form 45-501F2
7.5 72(4) Reports
7.6 72(5) Disclosure
7.7 Fees for Trade Made Under Section 2.8
ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS(1)
PART 1 DEFINITIONS(2)
1.1 Definitions - In this Rule
"convertible security" means a security of an issuer that is convertible into or carries the right of the holder to purchase or of the issuer to cause the purchase of,a security of the same issuer;(3)
"entity" means a company, syndicate, partnership, trust or unincorporated organization;
"exchangeable security" means a security of an issuer that is exchangeable for, or carries the right of the holder to purchase or of the exchange issuer to cause thepurchase of a security of another issuer that is a reporting issuer;(4)
"exchange issuer" means an issuer that distributes securities of a reporting issuer held by it in accordance with the terms of an exchangeable security of its ownissue;
"formal bid" has the meaning ascribed to that term in subsection 89(1) of the Act;
"government incentive security(5)" means
(a) a security, or unit or interest in a partnership that invests in a security, that is issued by a company and for which the company has agreed to renounce infavour of the holder of the security, unit or interest, amounts that will constitute Canadian exploration expense, as defined in subsection 66.1(6) of the ITA, orCanadian development expense, as defined in subsection 66.2(5) of the ITA, or Canadian oil and gas property expense, as defined in subsection 66.4(5) of theITA;
(b) a unit or interest in a partnership or joint venture that is issued in order to fund Canadian exploration expense as defined in subsection 66.1(6) of the ITA orCanadian development expense as defined in subsection 66.2(5) of the ITA or Canadian oil and gas property expense as defined in subsection 66.4(5) of theITA;(6)
(c) a unit or interest in a partnership or joint venture(7) the sole purpose of which is(8) to carry out a programme of mineral exploration designated by the Ministerof Natural Resources under the Ontario Mineral Exploration Program Act; or
(d) a security that entitles the acquiror to a unit of a limited partnership the sole purpose of which is to carry out scientific research activities as defined bysubsection 37(7) of Regulation 2900 under the ITA;
"hold period" means that period of either six, 12 or 18 months that would be applicable to a security if it had been acquired under an exemption referred to insubsection 72(4) of the Act;
"multiple convertible security" means a security of an issuer that is convertible into or exchangeable for, or carries the right of the holder to purchase or of theissuer or exchange issuer to cause the purchase of a convertible security, an exchangeable security or another multiple convertible security;(9)
"private issuer" means a person that
(a) is not a reporting issuer or a mutual fund;
(b) is an issuer all of whose issued and outstanding shares
(i) are subject to restrictions on transfer contained in the constating documents of the issuer or one or more agreements among the issuer and the holders of itssecurities; and
(ii) are beneficially owned, directly or indirectly, by not more than 50 persons or companies, counting any two or more joint registered holders as one beneficialowner, exclusive of persons
(A) that are employed by the issuer or an affiliated entity of the issuer, or
(B) that beneficially owned, directly or indirectly shares of the issuer while employed by it or an affiliated entity of it and at all times since ceasing to be soemployed have continued to beneficially own, directly or indirectly, at least one share of the issuer; and
(c) has not distributed any securities to the public.(10)
"72(4) trade" means a trade in a security under the exemption in clause 72(1)(a), (b), (c), (d), (l), (m), (p) or (q) of the Act or sections 2.4, 2.5 or 2.11 of thisRule;
"72(5) trade" means a trade in a security under the exemption in clause 72(1)(f) (other than a trade to an associated consultant as defined in Rule 45-503 Tradesto Employees, Executives and Consultants), (h), (i), (j), (k) or (n) of the Act, or section 2.7 or 2.8 of this Rule; and
"underlying security" means a security issued or transferred, or to be issued or transferred in accordance with the terms of a convertible security or anexchangeable security or a multiple convertible security.(11)
1.2 Interpretation
(1) In this Rule a person or company is considered to be an affiliated entity(12) of another person or company if one is a subsidiary entity of the other or if both aresubsidiary entities of the same person or company, or if each of them is controlled by the same person or company.
(2) In this Rule a person or company is considered to be controlled by a person or company if
(a) in the case of a person or company,
(i) voting securities of the first-mentioned person or company carrying more than 50 percent of the votes for the election of directors are held otherwise than byway of security only, by or for the benefit of the other person or company, and
(ii) the votes carried by such securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;
(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50percent of the interests in the partnership; or
(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.
(3) In this Rule a person or company is considered to be a subsidiary entity of another person or company if
(a) it is controlled by,
(i) that other, or
(ii) that other and one or more persons or companies each of which is controlled by that other; or
(b) it is a subsidiary entity of a person or company that is the other's subsidiary entity.
PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT
2.1 Exemption for a Trade in a Variable Insurance Contract(13)
(1) Sections 25 and 53 of the Act do not apply to a trade by a company licensed under the Insurance Act in a variable insurance contract, that is
(a) a contract of group insurance;
(b) a whole life insurance contract providing for the payment at maturity of an amount not less than three quarters of the premiums paid up to age 75 for abenefit payable at maturity;
(c) an arrangement for the investment of policy dividends and policy proceeds in a separate and distinct fund to which contributions are made only from policydividends and policy proceeds; or
(d) a variable life annuity.
(2) For the purposes of subsection (1), "contract", "group insurance", "life insurance" and "policy" have the respective meanings ascribed to them by sections 1and 171 of the Insurance Act.(14)
2.2 Exemption for a Trade Among Control Persons or to the Issuer(15) - Sections 25 and 53 of the Act do not apply to a trade in a security of an issuer, if
(a) each of the parties to the trade is a person or company that is, as regards the issuer, a person or company referred to in clause (c) of the definition ofdistribution in subsection 1(1) of the Act; or
(b) the trade consists of a redemption, purchase or other acquisition by the issuer of a security of the issuer.
2.3 Exemption for a Trade to or by a Promoter(16) - Sections 25 and 53 of the Act do not apply to
(a) a trade by an issuer in a security of its own issue to a promoter of the issuer;
(b) a trade by a promoter of the issuer in a security of the issuer to another promoter of the issuer; or
(c) a trade in a security of the issuer between a promoter of the issuer and a person or company that is, as regards the issuer, a person or company referred to inclause (c) of the definition of distribution in subsection 1(1) of the Act.
2.4 Exemption for a Trade by a Promoter or Issuer in a Government Incentive Security(17) - Sections 25 and 53 of the Act do not apply to a trade by anissuer or by a promoter of an issuer in a security of the issuer that is a government incentive security, if
(a) in the aggregate in all jurisdictions, not more than 75 prospective purchasers are solicited resulting in sales to not more than 50 purchasers;
(b) prospective purchasers are given a contractual right of action;(18)
(c) before entering into an agreement of purchase and sale(19), the prospective purchaser has been supplied with an offering memorandum(20) that includesinformation
(i) identifying every officer and director of the issuer,
(ii) identifying every promoter of the issuer,
(iii) giving the particulars of the professional qualifications and associations during the five years before the date of the offering memorandum of each officer,director and promoter of the issuer that are relevant to the offering,
(iv) indicating each of the directors that will be devoting his or her full time to the affairs of the issuer,and
(v) describing the contractual right of action in favour of the purchaser;
(d) the prospective purchaser has access to substantially the same information concerning the issuer that a prospectus filed under the Act would provide and
(i) because of net worth and investment experience or because of consultation with or advice from a person or company that is not a promoter of the issuer andthat is an adviser or dealer registered under the Act, is able to evaluate the prospective investment on the basis of information about the investment presented tothe prospective purchaser by the issuer or selling securityholder; or
(ii) is a senior officer or director of the issuer or of an affiliated entity of the issuer or a spouse or child of any director or officer of the issuer or of an affiliatedentity of the issuer,
(e) the offer and sale of the security is not accompanied by an advertisement and no selling or promotional expenses have been paid or incurred for the offer andsale, except for professional services or for services performed by a dealer registered under the Act;
(f) the promoter, if any, has not acted as a promoter of any other issue of securities under this exemption within the previous 12 months; and
(g) section 3.7 does not make the exemption unavailable.
2.5 Exemption for a Trade in Seed Capital or Government Incentive Securities(21) - Sections 25 and 53 of the Act do not apply to a trade in a security thatwas previously acquired under the exemption in clause 72(1)(p) of the Act or section 2.4, if
(a) in the case of a security acquired under clause 72(1)(p) of the Act, each of the parties to the trade is one of the not more than 25 purchasers; or
(b) in the case of a security acquired under section 2.4, each of the parties to the trade is one of the not more than 50 purchasers.
2.6 Exemption for a Trade by a Control Person in a Security Acquired Under a Formal Take-Over Bid(22)
(1) Section 53 of the Act does not apply to a trade that is a control person distribution in a security that was acquired under a formal bid, if
(a) the offeree issuer had been a reporting issuer for at least 12 months at the date of the bid;
(b) subject to subsection (2), the intention to make the trade was disclosed in the take-over bid circular for the take-over bid;
(c) the trade is made within the period commencing on the day of the expiry of the bid and ending 20 days after that day;
(d) a notice of intention and a declaration prepared in accordance with Form 23 to the Regulation are filed by the seller before the trade;
(e) an insider report under Form 55-101F1 is filed by the seller within three days after the completion of the trade; and
(f) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission is paid for the trade.
(2) Paragraph (1)(b) does not apply to a trade to another person or company that made a competing formal bid for securities of the same issuer for a per securityprice not greater than the per security consideration offered by that other person or company in its take-over bid.
2.7 Exemption for a Trade in Connection with a Securities Exchange Issuer Bid(23) - Sections 25 and 53 of the Act do not apply to a trade in a security thatis exchanged by or for the account of the offeror with a securityholder of the offeror in connection with an issuer bid as defined in Part XX of the Act, if at thetime of the trade, the issuer whose securities are being issued or transferred is a reporting issuer not in default under the Act or the regulations.
2.8 Exemption for a Trade on an Amalgamation, Arrangement or Specified Statutory Procedure(24) - Sections 25 and 53 of the Act do not apply to a tradein a security of an issuer in connection with
(a) a statutory amalgamation or statutory arrangement; or
(b) a statutory procedure under which one issuer takes title to the assets of the other issuer that in turn loses its existence by operation of law or under which theexisting issuers merge into a new issuer.
2.9 Exemption for a Trade Upon Exercise of Conversion Rights in a Convertible Security(25) - Sections 25 and 53 of the Act do not apply to a trade by anissuer in an underlying security of its own issue to a holder of a convertible security or multiple convertible security of the issuer on the exercise by the issuer ofits right under the convertible security or multiple convertible security to cause the holder to convert into or purchase the underlying security or on the automaticconversion of the convertible security or multiple convertible security, if no commission or other remuneration is paid or given to others for the trade except forministerial or professional services or for services performed by a registered dealer.(26)
2.10 Exemption for a Trade Upon Exercise of Exchange Rights in an Exchangeable Security - Sections 25 and 53 of the Act do not apply to a trade by anexchange issuer in an underlying security to a holder of an exchangeable security or multiple convertible security of the issuer on the exercise by the exchangeissuer of its right under the exchangeable security or multiple convertible security to cause the holder to exchange for or purchase the underlying security or onthe automatic exchange of the exchangeable security or multiple convertible security, if the exchange issuer delivers to the Commission a written notice statingthe date, amount, nature and conditions of the proposed trade, including the net proceeds to be derived by the exchange issuer if the underlying securities arefully taken up and either(27)
(a) the Commission has not informed the exchange issuer in writing within 10 days after the delivery of the notice that it objects to the proposed trade, or
(b) the exchange issuer has delivered to the Commission information relating to the underlying security that is satisfactory to and accepted by the Commission.
2.11 Exemption for a Trade in Units(28) - Sections 25 and 53 of the Act do not apply to a trade in securities of one or more issuers, other than issuers that aremutual funds or non-redeemable investment funds,(29) if
(a) the purchaser purchases as principal;
(b) the purchase is made in a single transaction in a block or unit that in the aggregate has an acquisition cost to the purchaser of not less than $150,000,provided that if the securities are of more than one issuer, the issuers are affiliated entities and are engaged in the same or related types of businesses;(30) and
(c) section 3.2, 3.3, 3.4, 4.1 or 4.2 does not make the exemption unavailable.
2.12 Exemption for a Trade in a Security of a Private Company or Private Issuer under the Execution Act(31) - Section 53 of the Act does not apply to atrade of securities by a sheriff under the Execution Act, if
(a) the issuer of the securities is a private company or private issuer;
(b) the aggregate acquisition cost to the purchaser is not more than $25,000; and
(c) each written notice to the public soliciting offers for the securities or giving notice of the intended auction of the securities is accompanied by a statementsubstantially as follows:
"These securities are speculative. No representations are made concerning the securities, or the issuer of the securities. No prospectus is available and theprotections, rights and remedies arising out of the prospectus provisions of the Securities Act, including statutory rights of rescission and damages, will not beavailable to the purchaser of these securities."
2.13 Exemption for a First Trade in a Multiple Convertible Security, Convertible Security or Exchangeable Security Acquired Under CertainExemptions(32) - Section 53 of the Act does not apply to a first trade in a multiple convertible security, convertible security or exchangeable security acquired bya holder under a 72(4) trade, if
(a) at the time of the trade the issuer of the multiple convertible security, convertible security or exchangeable security is a reporting issuer and is not in default ofthe Act or the regulations;
(b) either,
(i) the multiple convertible security, convertible security, exchangeable security or underlying security is listed and posted for trading, or traded on The TorontoStock Exchange or The Montreal Exchange and complies with the requirements of clause 433(1)(m) or (n) of the Insurance Act, and the multiple convertiblesecurity and any one or more of the underlying securities has or have been held for an aggregate period of at least six months after the later of the date of theinitial exempt trade or the date the issuer became a reporting issuer,
(ii) the multiple convertible security, convertible security, exchangeable security or underlying security is a bond, debenture, or other evidence of indebtednessissued or guaranteed by an issuer, or is a preferred share of an issuer, and complies with the requirements of clause 433(1)(k) or (m) of the Insurance Act and themultiple convertible security or any one or more of the underlying securities has or have been held for an aggregate period of at least six months after the later ofthe date of the initial exempt trade or the date the issuer became a reporting issuer,
(iii) the multiple convertible security, convertible security, exchangeable security or underlying security is listed and posted for trading, or traded on The TorontoStock Exchange or The Montreal Exchange or are bonds, debentures or other evidences of indebtedness issued or guaranteed by an issuer whose securities arelisted and posted for trading on The Toronto Stock Exchange or The Montreal Exchange and the multiple convertible security or any one or more of theunderlying securities has or have been held for an aggregate period of at least one year after the later of the date of the initial exempt trade or the date the issuerbecame a reporting issuer, or
(iv) the multiple convertible security or any one or more of the underlying securities has or have been held for an aggregate period of at least 18 months from thelater of the date of the initial exempt trade or the date the issuer became a reporting issuer;
(c) 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
(d) the trade is not a control person distribution(33).
2.14 Exemption for a First Trade in a Security Acquired in Connection with a Take-over Bid(34) - Section 53 of the Act does not apply to the first trade ina security previously acquired under the exemption contained in clause 72(1)(j) of the Act if
(a) when such exemption was relied upon, a securities exchange take-over bid circular for the securities was filed by the offeror under the Act;
(b) the trade is not a control person distribution; and
(c) the issuer of the securities was a reporting issuer before the securities exchange take-over bid was filed.
2.15 Exemption for a First Trade in a Security Acquired to Facilitate Incorporation(35) - Section 53 of the Act does not apply to the first trade in a securitypreviously acquired under the exemption contained in clause 72(1)(o) of the Act if the purchaser is a promoter of the issuer.
2.16 Exemption for a First Trade in an Underlying Security Where the Right to Purchase, Convert or Exchange is Qualified By Prospectus(36) - Section53 of the Act does not apply to the first trade in an underlying security issued or transferred in accordance with the terms of a multiple convertible security,convertible security or exchangeable security if
(a) a receipt was obtained from the Director for a prospectus qualifying the distribution of the multiple convertible security, convertible security or exchangeablesecurity;
(b) the trade is not a control person distribution; and
(c) the issuer of the underlying security issued or transferred in accordance with the terms of an exchangeable security is a reporting issuer at the time of the firsttrade.
2.17 Exemption for a Trade in a Security of a Private Issuer - Sections 25 and 53 of the Act do not apply to a trade in a security of a private issuer.(37)
2.18 Further Exemptions(38)
(1) Sections 25 and 53 of the Act do not apply to a trade if the security being traded is a security of a company that,
(a) is incorporated but not continued under the Companies Act (British Columbia);
(b) is a private issuer within the meaning of section 1 of the Securities Act (British Columbia); and
(c) does not offer its securities for sale to the public.
(2) Sections 25 and 53 of the Act do not apply to a trade if the security being traded is a bond, debenture or other evidence of indebtedness of the Conseilscolaire de l'île de Montréal.
(3) Section 53 of the Act does not apply to the first trade in a security acquired by the seller under an exemption in clause 72(1)(a), (b), (c), (d), (f), (h), (i), (j),(k), (l), (m), (n), (p) or (q) of the Act whether or not the issuer is in default of any requirement of the Act or regulations if,
(a) the seller is not in a special relationship(39) with the issuer or, if the seller is in a special relationship with the issuer, the seller has reasonable grounds to believethat the issuer is not in default under the Act or the regulations; and
(b) the first trade otherwise qualifies for the applicable exemption in subsection 72(4) or 72(5) of the Act.
PART 3 REMOVAL OF CERTAIN REGISTRATION AND PROSPECTUS EXEMPTIONS
3.1 Removal of Private Placement Exemptions If Acquisition Cost Is Less Than $150,000(40) - The registration and prospectus exemptions contained inparagraph 5 of subsection 35(1) and clause 72(1)(d) of the Act are not available for a trade in a security if the security has an aggregate acquisition cost to thepurchaser of less than $150,000.
3..2 Satisfaction of Acquisition Cost(41)
(1) The registration and prospectus exemptions contained in paragraph 5 of subsection 35(1) and clause 72(1)(d) of the Act and in section 2.11 are not availablefor a trade in a security unless the aggregate acquisition cost of the security is satisfied by the purchaser by the payment of cash or other immediately availablefunds or the incurring or assumption of a liability in accordance with subsection (2) or any combination thereof.
(2) If the acquisition cost is satisfied in whole or in part by the incurring or assumption of a liability by the purchaser, the exemptions referred to in subsection (1)are not available unless
(a) the purchaser is primarily liable for the liability and there is no understanding, arrangement or expectation that the liability or the obligation to pay it will bewaived; and
(b) the acquisition cost, including the liability that is incurred or assumed by the purchaser, has a fair value of not less than $150,000.
3.3 Removal of Exemptions if Purchaser Primary Purpose Entity(42) - The registration and prospectus exemptions contained in paragraph 5 of subsection35(1) and clause 72(1)(d) of the Act and section 2.11 are not available for a trade in a security if
(a) the purchasing entity is created or is being used primarily to permit purchases without a prospectus; and
(b) the share or portion of any member or partner of the partnership, syndicate or unincorporated organization, any beneficiary of the trust or any shareholder ofthe company of the aggregate acquisition cost to the purchasing entity of the securities being purchased is less than $150,000.
3.4 Removal of Exemptions for Investment Clubs(43) - The registration and prospectus exemptions contained in paragraph 5 of subsection 35(1) and clause72(1)(d) of the Act and section 2.11 are not available for a trade in a security if the purchasing entity is an investment club unless the share or portion of eachmember of the investment club of the aggregate acquisition cost to the investment club of the securities being purchased is at least $150,000.
3.5 Removal of Asset Acquisition Exemption If Fair Value of Assets Is Less Than $150,000(44) - The registration and prospectus exemptions contained inparagraph 18 of subsection 35(1) and clause 72(1)(l) of the Act are not available for a trade in a security if the fair value of the assets purchased is less than$150,000.
3.6 Removal of Seed Capital Exemption(45) - The registration and prospectus exemptions contained in paragraph 21 of subsection 35(1) and clause 72(1)(p) ofthe Act are not available for a trade in a security if
(a) the solicitations referred to in the clause are made in the aggregate in all jurisdictions to more than 50 prospective purchasers;
(b) the trade is to a parent, brother or sister of any director or senior officer of the issuer or of an affiliated entity of the issuer and the parent, brother or sister isnot otherwise a person referred to in subclause 72(1)(p)(ii)(A) or (B) of the Act; or
(c) the promoter is a registered dealer and has acted as a promoter of any other issuer that has traded in securities of its own issue pursuant to the prospectusexemption referred to in this section in the previous 12 months.
3.7 Determination of Number of Purchasers Under Seed Capital and Government Incentive Security Exemptions if Purchaser is a Primary PurposeEntity(46) - The exemptions in clause 72(1)(p) of the Act and section 2.4 are not available if an entity has been created or is being used primarily to permit thepurchase of securities without a prospectus, and the number of members or partners of the partnership, syndicate or unincorporated organization, the number ofbeneficiaries of the trust, or shareholders of the company, as the case may be, exceeds the number of purchasers referred to in the clause or section.
3.8 Removal of Exemption for Bonds, Debentures and Other Evidences of Indebtedness(47) - The registration and prospectus exemptions contained inparagraph 1(c) of subsection 35(2) and clause 73(1)(a) of the Act are not available for a trade in a bond, debenture or other evidence of indebtedness that issubordinate in right of payment to deposits held by the issuer or guarantor of the bond, debenture or other evidence of indebtedness.
3.9 Removal of Exemption for Securities of a Private Mutual Fund With a Promoter or Manager(48) - The registration and prospectus exemptionscontained in paragraph 3 of subsection 35(2) and clause 73(1)(a) of the Act are not available for trades in a security of a mutual fund that comes within thedefinition of "private mutual fund" in subsection 1(1) of the Act if the mutual fund is administered by a trust company and there is a promoter or manager of themutual fund other than the trust company.
3.10 Removal of 72(4) Resale Exemption for Control Person Distribution(49) - The exemption in subsection 72(4) of the Act is not available for a trade that isa control person distribution.
3.11 Removal of Subsection 72(7) Exemption for Control Person Distribution(50)
(1) Except as otherwise provided in subsection (2) or (3), the exemption contained in clauses 72(7)(b) and (c) of the Act is not available for a trade in a securityfor six months from the date of acquisition by the seller of the security or, if the security is an underlying security, six months from the date the seller acquired thefirst of the multiple convertible security, convertible security or exchangeable security.
(2) Subject to subsection (3), if a seller has acquired a security, other than an underlying security, of a class under a 72(4) trade or 72(5) trade or under anexemption contained in section 2.9 or 2.10 or in section 2.1 or 3.1 of Rule 45-502 Dividend or Interest Reinvestment and Stock Dividend Plans or in section 1.2of Rule 32-503 Registration and Prospectus Exemptions for Trades by Financial Intermediaries in Mutual Fund Securities to Corporate Sponsored Plans, theexemption contained in clauses 72(7)(b) and (c) of the Act is not available for a trade in any security of the same class until all securities of the class owned bythe seller have been held by the seller for
(a) at least six months after the date on which the last security of the class was acquired by the seller under an exemption referred to in this subsection, if thesecurity, or if the security acquired under the exemption is a multiple convertible security, convertible security or exchangeable security, the underlying security,is listed and posted for trading or traded on The Toronto Stock Exchange or The Montreal Exchange and complies with the requirements of clause 433(1)(m) or(n), as applicable, of the Insurance Act;
(b) at least six months after the date on which the last security of the class was acquired by the seller under an exemption referred to in this subsection, if thesecurity or if the security acquired under the exemption is a multiple convertible security, convertible security or an exchangeable security, the underlyingsecurity, is a bond, debenture or other evidence of indebtedness issued or guaranteed by an issuer or is a preferred share of an issuer, and complies with therequirements of clause 433(1)(k) or (m), as applicable, of the Insurance Act;
(c) at least one year after the date on which the last security of the class was acquired by the seller under an exemption referred to in this subsection, if thesecurity, or if the security acquired under the exemption is a multiple convertible security, convertible security or an exchangeable security, the underlyingsecurity, is listed and posted for trading or traded on The Toronto Stock Exchange or The Montreal Exchange or is a bond, debenture or other evidence ofindebtedness issued or guaranteed by a reporting issuer whose securities are so listed; or
(d) at least 18 months after the date on which the last security of the class was acquired by the seller under an exemption referred to in this subsection.
(3) Subsection (2) does not apply if the security referred to in that subsection has been acquired under the exemption in subclause 72(1)(f)(i) of the Act orsection 2.1 or 3.1 of Rule 45-502 Dividend or Interest Reinvestment and Stock Dividend Plans if in the financial year of the issuer during which the trade takesplace, the aggregate number of securities of an issuer acquired under the exemptions in subclause 72(1)(f)(i) of the Act and sections 2.1 and 3.1 of Rule 45-502does not exceed one percent of the number of the securities of the class of securities outstanding at the commencement of that financial year.(51)
(4) If a seller has acquired a multiple convertible security, a convertible security or an exchangeable security under a 72(4) trade or 72(5) trade or an exemptioncontained in clause 72(1)(h) of the Act or sections 2.9 and 2.10 of this Rule, the exemption contained in clauses 72(7)(b) and (c) is not available for a trade in theunderlying security until all securities of the class of the underlying security owned by the seller have been held by the seller for the applicable period set out inclause (a), (b), (c) or (d) of subsection (2) from the date of acquisition of the last multiple convertible security, convertible security or exchangeable securityacquired by the seller under one of the exemptions noted above.
(5) In this section, for purposes of calculating the period during which the seller has held a security, if the security was acquired by the seller from an affiliatedentity, the period of time that the security had been held by the affiliated entity before the transfer to the seller shall be included.(52)
3.12 Removal of Registration Exemption for Market Intermediaries - The exemptions from registration in subsection 2.1(1) and sections 2.2, 2.4, 2.5, 2.7,2.8, 2.9, 2.10, 2.11, 2.17 and 2.18 are not available to a market intermediary.(53)
PART 4 OFFERING MEMORANDUM(54)
4.1 Removal of Exemptions Contained in Clause 72(1)(d) of the Act and Section 2.11 - The exemptions contained in clause 72(1)(d) of the Act and section2.11 are not available for a trade in a security if there has been any advertisement of the securities in(55) printed public media, radio, television ortelecommunications, including electronic display, unless an offering memorandum is delivered to the purchaser before entering into an agreement of purchase andsale, the purchaser is given a contractual right of action and the contractual right of action is described in the offering memorandum.
4.2 Removal of Exemptions If No Contractual Right of Action Provided and Described in Offering Memorandum - The exemptions in clauses72(1)(c),(d) and (p) of the Act and section 2.11 are not available (56) for a trade, if the seller delivers an offering memorandum to the prospective purchaser,unless the prospective purchaser is given a contractual right of action and the contractual right of action is described in the offering memorandum.
4.3 Delivery of Offering Memorandum to Commission - If the inclusion of a contractual right of action in an offering memorandum is required by section 2.4,4.1 or 4.2 as a condition to the availability of an exemption, the seller shall deliver to the Commission a copy of the offering memorandum concurrently with orbefore the date on which a report of the trade referred to in subsection 72(3) of the Act or subsection 7.5(1) is filed with the Commission.
PART 5 DEALER REGISTRATION
5.1 Removal of Exemption Unless Dealer Registered for Trade Described in the Exemption(57) - An exemption contained in the Act or the regulations fromthe registration or prospectus requirements of the Act or the regulations that refers to a registered dealer is not available for a trade in a security unless the dealeris registered in a category that permits it to act as a dealer for the trade described in the exempting provision.
PART 6 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER CERTAIN EXEMPTIONS
6.1 First Trade in a Security Acquired By a Promoter Under Section 2.3 or Section 2.15(58) - A person or company may trade a security acquired under theexemption contained in section 2.3 or section 2.15 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(59) from section 53 of the Act; or
(c) if at the time of the trade, the issuer of the security is a reporting issuer and has been a reporting issuer for at least 18 months and is not in default of anyrequirement of the Act or the regulations,
(i) the seller, unless exempted by the regulations, files with the Commission and The Toronto Stock Exchange or The Montreal Exchange if the securities arelisted on either of those exchanges at least seven days and not more than 14 days before the first trade made to carry out the distribution,
(A) a notice of intention to sell prepared in accordance with Form 23 of the Regulation disclosing particulars of the ownership, the number of securities to besold and the method of distribution, and
(B) a declaration signed by each seller as at a date not more than 24 hours before its filing and prepared and executed in accordance with the regulations andcertified as follows:
"The seller for whose account the securities to which this certificate relates are to be sold hereby represents that the seller has no knowledge of any materialchange which has occurred in the affairs of the issuer of the securities which has not been generally disclosed and reported to the Commission, nor has the sellerany knowledge of any other material adverse information in regard to the current and prospective operations of the issuer which have not been generallydisclosed",
(ii) the seller, unless exempted by the regulations, files within three days after the completion of any trade, an insider report under Form 55-101F1;
provided that the notice required to be filed under clause (i)(A) and the declarations required to be filed under clause (i)(B) shall be renewed and filed at the endof 60 days after the original date of filing and thereafter at the end of each 28 day period so long as any of the securities specified under the original notice havenot been sold or until notice has been filed that the securities so specified or any part thereof are no longer for sale; and
(iii) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or other consideration is paid inrespect of such trade.
6.2 First Trade in a Security Acquired Under Section 2.4, 2.5 or 2.11(60) - A person or company may trade a security acquired under an exemption containedin section 2.4, 2.5 or 2.11 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;
(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) the hold period has elapsed from the later of the date of the initial exempt trade and the date the issuer became a reporting issuer;
(iv) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or consideration is paid for thetrade; and
(v) the trade is not a control person distribution.
6.3 First Trade in a Security Acquired Under Clause 72(1)(h) of the Act(61) - A person or company may trade a security acquired under the exemptioncontained in clause 72(1)(h) of the Act 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 exempt trade;
(iv) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or consideration is paid for thetrade;
(v) the trade is not a control person distribution; and
(vi) section 6.4 does not apply.
6.4 First Trade In an Underlying Security of a Multiple Convertible Security, Convertible Security or an Exchangeable Security Acquired UnderCertain Exemptions(62) - A person or company may trade an underlying security issued on conversion or exchange of a multiple convertible security, convertiblesecurity or exchangeable security if any of the multiple convertible security, convertible security or exchangeable security was acquired under a 72(4) trade 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 underlying security is a reporting issuer;
(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 the issuer is not indefault under the Act or the regulations;
(iii) the hold period has elapsed from the later of the date of the initial exempt trade and the date the issuer of the underlying security became a reporting issuer;
(iv) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or consideration is paid for thetrade; and
(v) the trade is not a control person distribution.
6..5 First Trade in a Security Acquired Under Section 2.9 or 2.10(63) - A person or company may trade an underlying security acquired under section 2.9 or2.10 on a forced conversion or exchange of a multiple convertible security, convertible security or exchangeable security acquired by the holder under a 72(5)trade 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 twelve 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 exempt trade;
(iv) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or consideration is paid for thetrade; and
(v) the trade is not a control person distribution.
6.6 First Trade in a Security Acquired Under Section 2.7, 2.8 or 2.17 or Under Subsection 2.18(1)(64) - A person or company may trade a security acquiredunder section 2.7, 2.8 or 2.17, after the issuer has ceased to be a private issuer or under subsection 2.18(1) after the issuer has ceased to be a private issuer forpurposes of the Securities Act (British Columbia), 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;
(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 twelve months or in the case of securitiesacquired under section 2.8 one of the amalgamating or merged issuers or one of the continuing issuers has been a reporting issuer for twelve 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 exempt trade;
(iv) no unusual effort is made to prepare the market or to create a demand for the securities and no extraordinary commission or consideration is paid for thetrade; and
(v) the trade is not a control person distribution; or
(d) in the case of a security acquired under section 2.7, if a securities exchange issuer bid circular in respect of the securities was filed by the offeror under theAct.
PART 7 FILING REQUIREMENTS AND FEES
7.1 Form 45-501F1(65) - Every report that is required to be filed under subsection 72(3) of the Act and subsection 7.5(1) shall be filed in duplicate and preparedin accordance with Form 45-501F1.
7.2 Form 45-501F2(66) - Every report that is required to be filed under clause 72(4)(c) of the Act and subsection 7.5(2) shall be filed in duplicate and prepared inaccordance with Form 45-501F2.
7.3 Fees for Form 45-501F1(67)
(1) A report filed in Form 45-501F1 shall be accompanied by a fee equal to the greater of
(a) $100; and
(b) subject to subsection (2), the amount calculated using the formula,
A + B
where
"A" is 0.02 percent of the aggregate gross proceeds realized in Ontario from the distribution of securities, other than special warrants, for which the report filedin Form 45-501F1 is filed, and
"B" is 0.04 percent of the aggregate gross proceeds realized in Ontario from the distribution of special warrants for which the report filed in Form 45-501F1 isfiled.
(2) The amount calculated under clause (1) is considered to be $100 if the report filed in Form 45-501F1 is filed for,
(a) a trade in securities if there is no change in beneficial ownership of the securities as a result of the trade; or
(b) a first trade in securities previously acquired under an exemption contained in clause 72(1)(a), (b), (c), (d), (l), (p) or (q) of the Act or section 2.4, 2.5 or2.11.
7.4 Fees for Form 45-501F2(68) - A report filed in Form 45-501F2 shall be accompanied by a fee of $100.
7.5 72(4) Reports
(1) If a trade has been made under section 2.4, 2.5 or 2.11,(69) the seller shall, within 10 days of the trade, file a report prepared and executed in accordance withsection 7.1.
(2) If a trade has been made under section 2.13, 6.2 or 6.4, the seller shall, within 10 days of the trade, file a report prepared and executed in accordance withsection 7.2.
(3) If a trade is made under section 2.9, the issuer shall file the notice and pay the fees prescribed by section 20 of Schedule 1 to the Regulation, as if theunderlying security had been acquired in a distribution exempt from section 53 of the Act by subclause 72(1)(f)(iii) of the Act.
(4) If a trade is made under section 2.10 the exchange issuer shall pay the fees prescribed by section 21 of Schedule 1 to the Regulation as if the security hadbeen acquired in a distribution exempt from section 53 of the Act by clause 72(1)(h) of the Act.
7.6 72(5) Disclosure - The disclosure contemplated by clause 72(5)(b) of the Act and sections 6.3, 6.5 and 6.6 may be made by the issuer by disclosingparticulars of the date of the trade, the number of securities purchased 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 company has knowledge of the facts contained in the letter
if in either case the filing is effected before any resale of the securities.(70)
7.7 Fees for Trade Made Under Section 2.8 - If a trade is made under section 2.8 the issuer shall pay the fees prescribed by section 23 of Schedule I of theRegulation as if section 23 referred to section 2.8 instead of clause 72(1)(i) of the Act.
Footnotes
1. This Rule is derived from the following rules of the Ontario Securities Commission:
(1) In the Matter of Trades by Issuers Upon Exercise of Certain Conversion or Exchange Rights and In the Matter of the First Trade in Securities AcquiredUpon Exercise of Such Conversion or Exchange Rights (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2333, that incorporated by reference, aBlanket Ruling of the same name (1994), 17 OSCB 2877 ("Trades by Issuers on Certain Conversions or Exchanges"),
(2) In the Matter of Certain Proposed Amendments (1997), 20 OSCB 1220, as amended at (1998), 21 OSCB 2334, that incorporated by reference a BlanketOrder of the same name (1987), 10 OSCB 5936 ("Hold Periods and First Trades For Convertible Securities and Underlying Securities"),
(3) In the Matter of Trades by Issuers in Connection with Securities Exchange Issuer Bids and In the Matter of Trades by Holders of Securities of a Companyto Another Company in Connection with an Amalgamation, an Arrangement or a Specified Statutory Procedure (1997), 20 OSCB 1218, as amended at (1998),21 OSCB 2332, that incorporated by reference a Blanket Ruling of the same name (1994), 17 OSCB 1975 ("Trades on Securities Exchange Issuer Bids andAmalgamations"),
(4) In the Matter of Trades in Securities of a Private Company Under the Execution Act (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2330, thatincorporated by reference a Blanket Ruling of the same name (1985), 8 OSCB 127, and
(5) In the Matter of Dividend Reinvestment Plans (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2335, that incorporated by reference a BlanketRuling of the same name (1994), 17 OSCB 1178 ("Dividend Reinvestment Plans"),
and from Ontario Securities Commission Policy Statement No. 6.1 ("Policy 6.1"). In addition, the following provisions of the Regulation relating to exemptdistributions are restated in the Rule:
(1) sections 14 to 32 and sections 67 and 68 (excluding clauses 14(e) and 19(5) of the Regulation which are incorporated in proposed Rule 45-502 Dividend orInterest Reinvestment and Stock Dividend Plans, clause 14(g) which has been incorporated in Rule 32-503 Registration and Prospectus Exemptions For Tradesby Financial Intermediaries in Mutual Fund Securities to Corporate Sponsored Plans and sections 26, 27(2) and 29 which will be revoked);
(2) subsection 69(3);
(3) clause 151(a); and
(4) sections 22 and 25 of Schedule I.
Certain items contained in Policy 6.1 are reflected in the Companion Policy.
2. A general definition rule has been adopted as Rule 14-501 Definitions. It contains definitions of certain terms used in more than one rule. Rule 14-501 alsoprovides, 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 will have the respectivemeaning given to them in the Securities Act or the Regulation, as appropriate. Rule 14-501 also incorporates terms defined in National Instrument 14-101Definitions. National Instrument 14-101 contains, among other things, definitions for terms used in more than one national instrument.
3. This definition is based on the definition in Trades By Issuers on Certain Conversions or Exchanges.
4. This definition is based on the definition in Trades By Issuers on Certain Conversions or Exchanges.
5. The term "government incentive security" is defined in subsection 16(2) of the Regulation with reference to those securities designated by the OntarioSecurities Commission. The government incentive securities are currently designated by the Commission under Part D of Policy 6.1. Those designated securitiesfrom Part D of Policy 6.1, in respect of which incentives are still available under the relevant legislation, have been included in the definition rather than create aseparate designation instrument. The following government incentive securities contained in Policy 6.1, Part D have been deleted as they are no longer availableunder the applicable legislation:
1. Units or interests in a project or in a partnership the sole purpose of which is to invest in a project or projects which, as of December 31, 1981, qualified as amultiple-unit residential building under the ITA.
2. Units or interests in a motion picture film or a video tape, or in a partnership the sole purpose of which is to invest in one or more motion picture films orvideo tapes, which is eligible for certification as a certified feature production or a certified short production under the regulations made under the ITA.
3. Securities issued by a company registered as a small business development corporation under the Small Business Development Corporations Act (Ontario).
4. Securities which entitle the acquiror thereof to a scientific research tax credit pursuant to the ITA; provided that the amount designated by the issuer undersubsection 194(4) of the ITA in respect of such securities is 100% of the aggregate acquisition cost of such securities to the first registered holder.
No additional incentive securities have been added in this definition other than clause (b).
6. This government incentive security has been added to the definition so as to include units or interests in a partnership or joint venture that fund the types ofexpenses referred to in paragraph (a), consistent with the rationale underlying the existing designated government incentive security in paragraph (a).
7. Only units or interests in a partnership or joint venture enable the holder of a security to receive a grant or monetary benefit under the Ontario MineralExploration Program Act, not units or interests in any type of person or company.
8. The existing designation of this government incentive security listed as (e) in Policy 6.1, Part D has been amended to include the condition that the solepurpose of the partnership or joint venture is to carry out the required programme, to conform to the condition in paragraph (d).
9. This is a new definition.
10. This definition is based on a similar provision in the Securities Act (British Columbia) and is included here for use in a new exemption for distributions byunincorporated private entities for which there is not currently an exemption in Ontario. This definition is more restricted than the definition in the Securities Act(British Columbia) as it brings into the definition of "private issuer" only those entities which have not distributed any securities to the public and which haverestricted the distribution of all shares. The Securities Act (British Columbia) deals only with the distribution or restriction on the distribution of "equitysecurities".
11. This definition is based on the definition in Hold Periods and First Trades for Convertible Securities and Underlying Securities and has been amended toinclude securities issuable in accordance with the terms of an exchangeable security or a multiple convertible security.
12. Subsections 1.2(1), (2) and (3) contain provisions to assist in interpreting the term "affiliated entity" which is used in the Rule. These provisions are basedon subsections 1(2), (3) and (4) of the Act but are broader as they extend to unincorporated entities.
13. This section restates the existing exemptions in clauses 14(a) and 151(a) of the Regulation as part of the Rule.
14. This section restates subsection 16(1) of the Regulation as part of the Rule.
15. This section restates the existing exemptions in clauses 14(b) and 151(a) of the Regulation as part of the Rule. The existing exemptions have beenexpanded to exempt trades between promoters and control persons.
16. This section restates the existing exemptions in clause 14(c) and 151(a) of the Regulation as part of the Rule and also creates a new exemption for tradesbetween promoters and control persons.
17. This section restates the existing exemptions in clauses 14(f) and 151(a) of the Regulation as part of the Rule. The existing exemptions have been amendedto impose a requirement parallel to that imposed for an exempt trade under paragraph (iv) of clause 72(1)(p) of the Act and also under clause 72(1)(p) of the Actas currently set out under section 31 of the Regulation, which has been restated as section 3.6 of the Rule. In addition, it has been amended such that the filing ofForm 45-501FI is not a condition of relying on the exemption. Finally, it has been amended to delete a portion of subparagraph 14(f)(ii)B of the Regulationpermitting sales to a parent, brother or sister of a senior officer or director of the issuer or an affiliate of the issuer. The same revision has been made with regardto the use of the exemption in clause 72(1)(p) of the Act, imposed under section 3.6 of the Rule.
18. The term "contractual right of action" has been defined in the proposed amendment to Rule 14-501 Definitions to mean "a right of action, that
(a) is against an issuer if it is selling securities,
(b) is against a selling securityholder,
(c) is against an issuer and selling securityholder if they are both selling securities,
(d) is available to an investor to whom an offering memorandum containing a misrepresentation is delivered by or on behalf of the seller of securities,
(e) is exercisable on notice against the person or company that granted the right of action not later than 180 days after payment is made for the securities or afterthe initial payment, if a payment subsequent to the initial payment is made under a contractual commitment assumed before, or at the same time as, the initialpayment,
(f) reasonably corresponds to the rights provided in section 130 of the Act applicable to a prospectus and may be subject to defences available under subsection(2) of that section, and
(g) includes a provision stating that the right is in addition to any other right or remedy available at law to the investor."
This definition is based on subsection 32(1) of the Regulation. It has been amended to include the right of action against the seller of the security. It has also beenchanged to extend to the period within which notice can be given after the payment for the securities from 90 days to 180 days.
19. Subparagraph 14(f)(i) of the Regulation provides that each investor to whom securities are sold must receive an offering memorandum. The wording hasbeen revised to clarify that the offering memorandum must be provided before the purchaser enters into an agreement of purchase and sale.
20. The term "offering memorandum" has been defined in amended Rule 14-501 Definitions to mean "a document purporting to describe the business andaffairs of an issuer that has been prepared primarily for delivery to and review by a prospective purchaser so as to assist the prospective purchaser to make aninvestment decision for a security being sold in a distribution to which section 53 of the Act would apply but for the availability of one or more of the exemptionscontained in Ontario securities law, but does not include a document setting out current information about an issuer for the benefit of a prospective purchaserfamiliar with the issuer through prior investment or business contacts."
21. This section restates and modifies the existing exemptions in clauses 14(d) and 151(a) of the Regulation as part of the Rule. As redrafted this exemption isbroader than the exemption in clause 14(d) of the Regulation as the exemption is no longer only available for securities acquired from the issuer. Commissionstaff have concluded that there was no policy rationale for the restriction. In addition, the wording contained in clauses 14(d) and 151(a) of the Regulation, andin Form 45-501F1 (formerly Form 20), has been amended such that the filing of Form 45-501F1 is not a condition of relying on the exemption.
22. This section restates the provisions of section 18 of the Regulation as part of the Rule. Clause 18(1)(e) has been changed to specify that the report requiredto be filed is an insider report. This requirement, as changed, corresponds to the requirement in subclause 72(7)(b)(ii) of the Act and now, in conformity withsubclause 72(7)(b)(ii) of the Act, this report must be filed within three days.
23. This section and section 2.8 incorporate the prospectus and registration exemptions provided in Trades on Securities Exchange Issuer Bids andAmalgamations. The provisions of section 2.7 have been amended from those contained in the Blanket Ruling so that compliance with the issuer bid provisionsof the Act is not a condition to the exemption.
24. This section creates a new broader exemption for trades made in connection with an amalgamation and extends the prospectus and registration exemptionscurrently available under clause 72(1)(i) and paragraph 35(1)15 of the Act and in the rule Trades on Securities Exchange Issuer Bids and Amalgamations.
25. This section and section 2.10 restate the prospectus and registration exemptions for trades by an issuer on forced conversion or exchange contained inTrades by Issuers on Certain Conversions or Exchanges and extends those provisions to cover multiple convertible securities.
26. This language is contained in Trades by Issuers on Certain Conversions or Exchanges and parallels the language in clause 72(1)(f)(iii) of the Act. Thefiling of the notice and payment of the fee, that are conditions subsequent stipulated in Trades by Issuers on Certain Conversions or Exchanges, have beenmoved to subsection 7.5(3) as these are no longer to be conditions of relying on the exemption.
27. These conditions parallel the conditions set out in subclause 72(1)(h)(ii) of the Act.
28. This section creates a new exemption, based on item 3 of paragraph B of Policy 6.1 and the exemptions in paragraph 5 of subsection 35(1) and clause72(1)(d) of the Act, for trades of blocks or units of more than one type of security of one issuer, or more than one issuer if the issuers are affiliated entities andengaged in the same or related businesses, if the acquisition cost test is met. The requirement to file a report in respect of this trade arises under subsection 7.5(1)and parallels the existing reporting requirement in subsection 72(3) of the Act in respect of the exemption contained in clause 72(1)(d) of the Act.
29. Issuers that are mutual funds or non-redeemable investment funds have been excluded from the exemption in section 2.11 as it was not contemplated thatthis exemption would permit pooled fund investments. The term "non-redeemable investment fund" has been defined in amended Rule 14-501 Definitions tomean "an issuer
(a) whose primary purpose is to invest money provided by its securityholders;
(b) that does not invest for the purpose of exercising effective control, seeking to exercise effective control, or being actively involved in the management of theissuers in which it invests, other than other mutual funds or non-redeemable investment funds; and
(c) that is not a mutual fund."
30. The Companion Policy provides guidance as to the Commission's interpretation of "related types of businesses".
31. This section restates and replaces the rule of the Commission In the Matter of Trades in Securities of a Private Company under the Execution Act. SeeNote 1. The exemption also provides relief for trades in securities of a private issuer by a sheriff.
32. This section restates the prospectus exemption contained in Hold Periods and First Trades for Convertible Securities and Underlying Securities. This rulestipulates that the relevant hold period for a convertible security acquired under certain exemptions gets the benefit of the status of the underlying security. It isnow clear from the wording of this provision that the relevant hold period runs from the date of acquisition of the security in the initial exempt trade so that aseller can tack on the amount of time the securities have been held by someone else in a previous exempt trade. Included in the definition of 72(4) trade are thesection references from section 23 of the Regulation (correcting the incorrect reference in section 23 of the Regulation to clause 14(g) or (h) of the Act whichshould have referred to clauses 14(d) and (f) of the Regulation (now sections 2.4 and 2.5 of the Rule)). This also refers to section 2.11, as the exemption insection 2.11 is an expansion of the exemption contained in clause 72(1)(d) of the Act. This exemption has been expanded to include first trades in exchangeablesecurities acquired under an exemption which has a subsection 72(4) or equivalent resale restriction and first trades in double convertible securities. The filing ofa report is no longer a condition to relying on this exemption.
33. The term "control person distribution" is defined in Rule 14-501 Definitions to mean a trade described in clause (c) of the definition of "distribution" insubsection 1(1) of the Act.
34. This section incorporates the provisions of clause 17(a) of the Regulation as part of the Rule and restricts the use of the exemption to an issuer who was,prior to the take-over bid, a reporting issuer.
35. This section restates the provisions of clause 17(b) of the Regulation as part of the Rule.
36. This exemption restates the second paragraph of the third ruling in Trades by Issuers on Certain Conversions or Exchanges and has been amended tocontemplate multiple convertible securities and to delete the provisos that at the time of the trade no unusual effort is made to prepare the market or to create ademand for the securities and no extraordinary commission is paid. The requirement that the issuer of the underlying security be a reporting issuer at the time ofthe first trade has been retained for exchangeable securities only.
37. This is a new exemption which provides an exemption for non-corporate private issuers parallel to the private company exemptions in paragraph 35(2)10and clause 73(1)(a) of the Act.
38. This section restates sections 20 and 21 of the Regulation as part of the Rule.
39. The term "special relationship" has been defined in the proposed amendment to Rule 14-501 Definitions such that when used in reference to a person orcompany in a special relationship with a reporting issuer, it shall be interpreted in accordance with subsection 76(5) of the Act.
40. This section restates subsection 27(1) of the Regulation as part of the Rule. Subsection 27(2) of the Regulation has not been carried forward as it related totrades made before 1989.
41. This section imposes requirements on the use of the exemption in paragraph 5 of subsection 35(1) and clause 72(1)(d) and the exemption created bysection 2.11 of this Rule to ensure that the acquisition cost, whether satisfied by the payment of cash or other immediately available funds or the incurring orassumption of liabilities, reflects an actual commitment by the purchaser of the required amount. This section restates the provisions of paragraphs II.B.1 and 2of Policy 6.1.
42. This section imposes restrictions on the use of the exemption in paragraph 5 of subsection 35(1) and clause 72(1)(d) of the Act and section 2.11 of theRule if the purchasing entity is created or is used primarily to rely on the exemption if individual investors have contributed less than the required minimumacquisition cost. This requirement is based on paragraph II.B.4 of Policy 6.1.
43. This is a new provision based on the provisions of Policy 6.1.
44. This section restates section 28 of the Regulation as part of the Rule, amended so as to replace the term "value" with "fair value" to conform with clause72(1)(l) of the Act.
45. This section restates section 31 of the Regulation as part of the Rule and also removes the registration exemption. Paragraphs (b) and (c) are newprovisions that further restrict the use of the exemptions in clause 72(1)(p).
46. This section is based upon the provisions of paragraph II.B.8 of Policy 6.1.
47. This section restates the provisions of section 22(1) of the Regulation as part of the Rule.
48. This provision restates the provisions of subsection 22(2) of the Regulation as part of the Rule.
49. This section restates the provisions of section 24 of the Regulation as part of the Rule.
50. This section restates section 25 of the Regulation as part of the Rule and has been amended to include clause 72(1)(f) trades. The provisions of subsection25(2) have been amended to include the further exemptions provided in sections 2.9 and 2.10 of this Rule and in Rule 45-502 Dividend or Interest Reinvestmentand Stock Dividend Plans, Rule 45-503 Trades to Employees, Executives and Consultants and Rule 32-503 Registration and Prospectus Exemptions for Tradesby Financial Intermediaries in Mutual Fund Securities to Corporate Sponsored Plans and to provide the tacking relief and restrictions similar to those provided insections 2.13 and 6.4 in respect of convertible instruments held by control persons so that the relevant hold period commences upon the date of acquisition of theconvertible or double convertible or exchangeable security.
51. This section restates and replaces the provisions of Dividend Reinvestment Plans which is a rule concerning the availability of the exemptions in clause72(7)(b) and (c) of the Act to control block securityholders who participate in dividend reinvestment plans.
52. This is a new provision which reflects relief granted by the Commission in the past to allow tacking among control group affiliates.
53. This provision is consistent with subsection 206(1) of the Regulation.
54. This Part incorporates and amends the provisions of section 32 of the Regulation and extends the provisions to cover the exemption under section 2.11 ofthe Rule. See footnotes 18 and 20.
55. This has been amended to contemplate internet advertisements.
56. The reference in the corresponding provision of subsection 32(3) of the Regulation to clause 14(f) has been deleted as clause 14(f) (reformulated in thisRule as section 2.4) already includes the contractual right requirement.
57. This section restates section 30 of the Regulation as part of the Rule.
58. This section restates the provisions of subsections 19(1) and 19(3) of the Regulation as part of the Rule.
59. The term "Ontario securities law" is defined in subsection 1(1) of the Act as "(a) this Act, (b) the regulations and (c) in respect of a person or company, adecision of the Commission or Director to which the person or company is subject. The term "regulations" is defined in the Act to mean the regulations madeunder this Act and, unless the context otherwise requires, includes the rules.
60. This provision restates the provisions of subsections 19(2) and 19(6) of the Regulation as part of the Rule and imposes first trade restrictions.
61. This section restates the provisions of subsection 19(4) of the Regulation as part of the Rule with minor changes to the wording.
62. This section restates section 23 of the Regulation as part of the Rule modified to include trades in securities acquired under subclause 72(1)(h)(ii) of theAct and to reflect the provisions of Hold Periods and First Trades for Convertible Securities and Underlying Securities. This section also restates the resaleprovisions of Trades by Issuers on Certain Conversions or Exchanges that stipulates that the first trade in securities acquired by the vendor under subclauses72(1)(f)(iii) or 72(1)(h)(ii) of the Act on a forced conversion or exchange by an issuer is a distribution exempt under certain conditions to address a situationwhere the convertible, multiple convertible or exchangeable security was acquired in a 72(4) trade.
63. This section restates the first trade requirements of Trades by Issuers on Certain Conversions or Exchanges.
64. This section restates the first trade provisions of Trades on Securities Exchange Issuer Bids and Amalgamations and establishes first trade requirementsfor securities of a private issuer after it has ceased to be a private issuer.
65. Form 45-501F1 will replace the existing Form 20. This provision replaces section 67 of the Regulation.
66. Form 45-501F2 will replace the existing Form 21. This provision replaces section 68 of the Regulation.
67. This section is required because the existing Regulation (section 22 of Schedule 1) refers to a fee payable on filing of the Form 20, which is being replacedby Form 45-501F1.
68. This section is required because the existing Regulation (section 25 of Schedule 1) refers to a fee payable on filing of the Form 21, which is being replacedby Form 45-501F2.
69. The reporting requirement in respect of the exemption contained in section 2.11 parallels the existing reporting requirement in subsection 72(3) of the Actin respect of the exemption contained in clause 72(1)(d) of the Act.
70. This section amends and restates subsection 69(3) of the Regulation.