CSA / ACVM Canadian Securities Autorités canadiennes Administrators en valeurs mobilières Request for Comment Proposed Multilateral Instrument 45-105 Trades to Employees, Senior Officers, Directors, and Consultants Introduction The securities regulatory authorities (the Commissions) in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut, the Yukon Territory and the Northwest Territories (the Jurisdictions) seek public comment on the making of proposed Multilateral Instrument 45-105 Trades to Employees, Senior Officers, Directors, and Consultants (the Proposed Instrument). The Commissions are publishing the text of the Proposed Instrument together with this Request for Comment. Additional information on the Proposed Instrument, required for publication in Ontario, can be found in the form of notice published in the OSC Bulletin or on its Website at www.osc.gov.on.ca. Substance and Purpose The securities legislation in each Jurisdiction currently contains exemptions from the registration requirement and the prospectus requirement for trades in securities of an issuer’s own issue to the issuer’s employees. Furthermore, certain Jurisdictions have additional instruments which modify and expand the statutory employee exemptions, including: • Ontario Securities Commission Rule 45-503 Trades to Employees, Executives and Consultants (the OSC Rule) • British Columbia Instrument 45-507 Trades to Employees, Executives and Consultants (the BC Instrument) • Alberta Securities Commission Blanket Order 45-506 (the ASC Order) • Nova Scotia Securities Commission Blanket Order No. 45-501 Trades to Employees, Executives and Consultants (the Nova Scotia Order) • Saskatchewan Securities Commission General Ruling/Order 45-907 Trades to Employees, Executives and Consultants (the Saskatchewan Order) The additional instruments listed above provide exemptions from the registration requirement and the prospectus requirement for trades to an issuer’s non-employee directors and certain consultants, as well as other related relief. The Instrument consolidates and, as much as possible, harmonizes the requirements in each of the OSC Rule, the BC Instrument, the ASC Order, the Nova Scotia Order and the Saskatchewan Order.
Summary of the Proposed Instrument The Proposed Instrument has six parts. Part 1 contains the definitions of terms and phrases used in the Proposed Instrument that are not defined in or interpreted under a national definition instrument in force in a Jurisdiction. National Instrument 14-101 Definitions sets out definitions for commonly used terms and should be read together with the Proposed Instrument. Part 2 provides exemptions from the dealer registration requirement and the prospectus requirement in each of the following circumstances: 1. Basic Trades – Section 2.1 contains basic dealer registration and prospectus exemptions for trades by an issuer in securities of the issuer’s own issue to (a) an employee, senior officer, director, or consultant of the issuer or an affiliate of the issuer; (b) a trustee, custodian, or administrator acting on behalf, or for the benefit of, a person or company referred to above; and (c) an RRSP, RRIF, holding entity or spouse of an individual referred to in (a) or the RRSP or RRIF of that individual’s spouse. Section 2.1 also provides dealer registration and prospectus exemptions for trades in securities of the issuer (or options to acquire securities of the issuer) by a control person to any of the parties identified in (a) to (c), above. If an issuer is not a “listed issuer”, the exemptions in section 2.1 may not be available for a trade to certain investor relations persons, senior officers, directors or consultants (or their trustees, custodians, etc) unless prior shareholder approval has been obtained. As British Columbia's statutory exemption for trades to employees, senior officers and directors does not include this restriction, the restriction will not apply in British Columbia. 2. Trades Among Employees, etc. – Section 2.2 provides dealer registration and prospectus exemptions for trades from current or former employees, senior officers, directors, and consultants to current employees, senior officers, directors, and consultants. However, these exemptions are only available where: (a) the issuer of the securities is not a reporting issuer in any jurisdiction, (b) participation in the trade by the employee, senior officer, director, or consultant is voluntary, and 2
(c) the price of the security being traded is established by a generally applicable formula contained in a written agreement among some or all of the shareholders of the issuer to which the transferee is or will become a party. 3. Conversions or Exchanges – Section 2.3 provides dealer registration and prospectus exemptions for trades that are, or are incidental to, the issuance of securities upon the exercise of an exchange or conversion right that was originally distributed under the exemption in section 2.1. 4. Trades Among Permitted Transferees – Section 2.4 provides dealer registration and prospectus exemptions for trades in securities acquired under section 2.1, 2.2 or 2.3 between an employee, senior officer, director, or consultant and a trustee, custodian or administrator acting on their behalf, their holding entity, their RRSP or RRIF, their spouse or an RRSP or RRIF of their spouse. Part 3 of the Proposed Instrument sets out resale restrictions for securities acquired under Part 2 of the Proposed Instrument. 1 Section 3.1 provides that the first trade of a security acquired under Part 2 must comply with section 2.6 of Multilateral Instrument 45-102 Resale of Securities (“MI 45-102”). Section 3.2 provides a dealer registration exemption for the resale of securities of a non-reporting issuer provided the conditions in section 2.14 of MI 45-102 are met. In each case, the resale provisions refer to the first trade of a security acquired under an exemption in Part 2. As a result, Part 3 will apply to the resale of securities by former employees, senior officers, directors, and consultants. Part 4 of the Proposed Instrument provides an exemption from the issuer bid requirements that could otherwise apply to a trade by an employee, director, etc. to an issuer. However, the exemption will only apply if the trade is either to fulfil a withholding tax obligation or to provide payment of an exercise price of a stock option. Part 5 provides for the granting of exemptions from the Proposed Instrument. Part 6 establishes an effective date for the Proposed Instrument. Anticipated Costs and Benefits The Proposed Instrument harmonizes the existing prospectus, registration and issuer bid requirements for trades to employees, senior officers, directors and consultants. The Commissions believe that harmonizing such requirements will ease the regulatory burden of issuers by reducing the sheer number of requirements that would otherwise require consideration. Because the Proposed Instrument does not incorporate the filing or disclosure requirements previously contained in the OSC Rule, the BC Instrument, the ASC Order or the Nova Scotia Order, the Commissions (other than the Manitoba Securities Commission) also believe that the cost of complying with securities legislation will be lowered. There are no filing or disclosure requirements under the securities legislation of Manitoba for the employee exemption. 1 The resale provisions in Part 3 will not apply in Manitoba. 3
Related Amendments Local Amendments Each of the OSC Rule, BC Instrument, ASC Order, Nova Scotia Order and the Saskatchewan Order will be revoked upon the coming into force of the Proposed Instrument. The Ontario Securities Commission (the OSC) is concurrently publishing a notice and request for comment for the making of proposed Commission Rule 45-801 Implementing Multilateral Instrument 45-105 Trades to Employees, Senior Officers, Directors, and Consultants. No Ontario regulations will be revoked or amended in connection with the making of the Proposed Instrument. Request for Comments We welcome your comments on proposed Multilateral Instrument 45-105 Trades to Employees, Senior Officers, Directors, and Consultants. In addition to any general comments you may have, the British Columbia Securities Commission invites you to comment specifically on whether it should impose the restriction in section 2.1 of the Proposed Instrument on non-listed issuers who do not obtain shareholder approval to be consistent with the other Jurisdictions, or if doing so would negatively affect issuers or their business. Please submit your comments in writing on or before January 30, 2003. If you are not sending your comments by email, a diskette containing the submissions (in Windows format, Word) should also be forwarded. Address your submission to all of the CSA member commissions, as follows: British Columbia Securities Commission Alberta Securities Commission Saskatchewan Securities Commission Manitoba Securities Commission Ontario Securities Commission Office of the Administrator, New Brunswick Registrar of Securities, Prince Edward Island Nova Scotia Securities Commission The Securities Commission of Newfoundland and Labrador Registrar of Securities, Northwest Territories Registrar of Securities, Yukon Territory Registrar of Securities, Nunavut 4
Deliver your comments only to the address that follows. Your comments will be forwarded to the remaining CSA member jurisdictions. Blaine Young, Legal Counsel Alberta Securities Commission 4 th Floor, 300 – 5 th Avenue S.W. Calgary, Alberta T2P 3C4 Phone: (403) 297-4220 Fax: (403) 297-6156 e-mail: blaine.young@seccom.ab.ca We cannot keep submissions confidential because securities legislation in certain provinces requires publication of a summary of the written comments received during the comment period. Questions Please refer your questions to any of: Blaine Young, Legal Counsel Alberta Securities Commission Phone: (403) 297-4220 Fax: (403) 297-6156 e-mail: blaine.young@seccom.ab.ca Rosann Youck, Senior Legal Counsel British Columbia Securities Commission Phone: (604) 899-6656 Fax: (604) 899-6814 e-mail: ryouck@bcsc.bc.ca Dean Murrison, Deputy Director, Legal Saskatchewan Securities Commission Phone: (306) 787-5879 Fax: (306) 787-5899 e-mail: dmurrison@ssc.gov.sk.ca Chris Besko, Deputy Director, Legal Counsel Manitoba Securities Commission Phone: (204) 945-2561 Fax: (204) 945-0330 e-mail: cbesko@gov.mb.ca Michael Brown, Legal Counsel Ontario Securities Commission Phone: (416) 593-8266 Fax: (416) 593-8244 email: mbrown@osc.gov.on.ca 5
Shirley Lee, Staff Solicitor Nova Scotia Securities Commission Phone: (902) 424-5441 Fax: (902) 424-4625 e-mail: leesp@gov.ns.ca The text of the Proposed Instrument follows or can be found elsewhere on a CSA member website. November 1, 2002 6
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