Proposed Rule: OSC Rule - 45-503 - Trades to Employees, Executives and Consultants
Proposed Rule: OSC Rule - 45-503 - Trades to Employees, Executives and Consultants
RULE 45-503
TRADES TO EMPLOYEES, EXECUTIVES AND CONSULTANTS
TABLE OF CONTENTS
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions1.2 Interpretation
PART 2 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEMPLOYEES, CONSULTANTS AND ADMINISTRATORS
2.1 Removal of Exemption for Trades under Paragraph 19 of Subsection 35(1) and Clause 72(1)(n) of the Act
2.2 Exemption for Trades by an Issuer or Administrator of Securities of the Issuer's Own Issue to Employees, Consultants and Administrators
2.3 Registration Exemption for Trades by an Affiliated Entity of Securities of the Issuer's Own Issue to Employees, Consultants and Employee Administrators inFurtherance of an Exempt Trade
2.4 De Minimis Registration Exemption for Trades by Employees, Consultants and Employee Administrators
PART 3 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEXECUTIVES AND EXECUTIVE ADMINISTRATORS
3.1 Exemption for Trades by a Listed Issuer or Administrator of Securities of the Issuer's Own Issue to Executives and Executive Administrators
3.2 Exemption for Trades by a Non-Listed Issuer or Administrator of Securities of the Issuer's Own Issue to Executives and Executive Administrators
3.3 Exemption for Securities of Foreign-Listed Issuers and De Minimis Exemption for Trades by an Issuer or Administrator of Securities of the Issuer's OwnIssue to Executives and Executive Administrators
3.4 Registration Exemption for Trades by an Affiliated Entity of Securities of the Issuer's Own Issue to Executives and Executive Administrators in Furtheranceof an Exempt Trade
3.5 De Minimis Registration Exemption for Trades by Executives and Executive Administrators
PART 4 REQUIRED INFORMATION FOR SHAREHOLDER APPROVAL
4.1 Required Information for Shareholder Approval
PART 5 CONTROL PERSON DISTRIBUTIONS TO EMPLOYEES, EXECUTIVES, CONSULTANTS AND ADMINISTRATORS
5.1 Exemption for Control Person Distributions to Employees, Executives, Consultants and Administrators
5.2 Exemption for Trades by an Issuer, an Affiliated Entity or Administrator of Securities of the Issuer in Furtherance of a Control Person Distribution
PART 6 PERSONAL TRANSFERS
6.1 Personal Transfers
PART 7 REMOVAL OF CERTAIN EXEMPTIONS FOR TRADES OF SECURITIES OF CERTAIN COMPANIES
7.1 Removal of Certain Exemptions for Trades of Securities of Certain Companies
PART 8 TRADES MADE BY CURRENT OR FORMER EMPLOYEES, EXECUTIVES OR CONSULTANTS, OR ADMINISTRATORS OF SECURITIESOF CERTAIN NON-REPORTING ISSUERS
8.1 Exemption for Trades Made by Current or Former Employees, Executives or Consultants, or Administrators of Securities of Certain Non-Reporting Issuers
8.2 Registration Exemption for Trades by an Issuer or an Affiliated Entity of Securities of the Issuer in Furtherance of Exempt Trades made by Current orFormer Employees, Executives or Consultants of Certain Non-Reporting Issuers
PART 9 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER EXEMPTIONS IN RULE
9.1 Restrictions on First Trades in Securities Acquired Under Exemptions in Rule
PART 10 DISCLOSURE OF EXEMPT TRADES
10.1 Disclosure
10.2 Disclosure Before Resale
10.3 Annual Disclosure
10.4 Monthly Disclosure
10.5 Exception From Annual Disclosure
10.6 Form of Disclosure
PART 11 FEES
11.1 Fees
PART 12 EXEMPTION
12.1 Exemption
ONTARIO SECURITIES COMMISSION RULE
RULE 45-503
TRADES TO EMPLOYEES, EXECUTIVES AND CONSULTANTS(1)
PART 1 DEFINITIONS AND INTERPRETATION(2)
1.1 Definitions - In this Rule
"administrator" means an employee administrator or an executive administrator(3);
"associated consultant" means, for an issuer, a consultant of the issuer or an affiliated entity of the issuer if (a) the consultant is an associate of the issuer or anaffiliated entity of the issuer or (b) the issuer or an affiliated entity of the issuer is an associate of the consultant;
"consultant"(4) means, for an issuer, an individual, other than an employee or an executive of the issuer, that
(a) provides ongoing consulting, technical, management or other services to the issuer or to an affiliated entity of the issuer under a contract between the issueror the affiliated entity, and the individual or a consultant company or consultant partnership of the individual,
(b) possesses technical, business, management or other expertise of value to the issuer or an affiliated entity of the issuer,
(c) spends a significant amount of time and attention on the affairs and business of the issuer or an affiliated entity of the issuer, and
(d) has a relationship with the issuer or an affiliated entity of the issuer that enables the individual to be knowledgeable concerning the business and affairs of theissuer;
"consultant company" means, for an individual consultant, a company of which the individual consultant is an employee or shareholder;
"consultant partnership" means, for an individual consultant, a partnership of which the individual consultant is an employee or partner;
"employee" means, for an issuer, an employee of the issuer or of an affiliated entity of the issuer, other than an executive of the issuer;
"employee administrator" means, for an issuer, a trustee, custodian or administrator acting on behalf or for the benefit of employees, consultants, employees andexecutives, employees and consultants, executives and consultants, or employees, executives and consultants, of the issuer(5);
"executive" means, for an issuer, an officer or director of the issuer(6);
"executive administrator" means, for an issuer, a trustee, custodian or administrator acting on behalf or for the benefit of executives, employees and executives,executives and consultants, or employees, executives and consultants, of the issuer;
"foreign-listed issuer" means an issuer any of the securities of which are listed and posted for trading, or traded, on the American Stock Exchange, the New YorkStock Exchange or the London Stock Exchange Limited or quoted on the Nasdaq Stock Market(7);
"hold period" means that period of either six, 12 or 18 months that would be applicable to a security, or an underlying security, if the security or underlyingsecurity had been acquired under an exemption referred to in subsection 72(4) of the Act;
"incentive" means a compensation or incentive arrangement for an executive;
"incentive plan" means a plan providing for incentives;
"investor consultant" is, for an issuer, a consultant that provides to the issuer or an affiliated entity of the issuer services provided by a registrant or servicesconsisting of investor relations activities(8);
"investor relations activities8" means any activities that promote or reasonably could be expected to promote the purchase or sale of securities of the issuer, otherthan
(a) the dissemination of information provided, or records prepared, in the ordinary course of the business of the issuer
(i) to promote the sale of products or services of the issuer, or
(ii) to raise public awareness of the issuer; or
(b) activities or communications necessary to comply with the requirements of
(i) Ontario securities law(9), or
(ii) the bylaws, rules or other regulatory instruments of a SRO(10);
"listed issuer"(11) means an issuer any of the securities of which are listed and posted for trading, or traded, on The Toronto Stock Exchange, The MontrealExchange, the Alberta Stock Exchange or the Vancouver Stock Exchange;
"non-transferable option"(12) means an option the terms of which prohibit transfer except in the case of
(a) the death of the individual option holder,
(b) a transaction described in section 6.1 whether the transaction is a trade, or
(c) a transfer to
(i) a spouse of the option holder,
(ii) a child of the option holder,
(iii) a grandchild of the option holder, or
(iv) a trust, of which at least one of the trustees is the option holder and the beneficiaries of which are one or more of the option holder and a person referred toin subparagraph (i), (ii) and (iii);
"outstanding issue" means
(a) for the purposes of subparagraphs 3.2(a)(ii) and (iv), the number of shares of the applicable class outstanding immediately before the share issuance for whichthe determination is to be made, excluding shares issued as or under incentives during the preceding 12 month period, or
(b) otherwise, the number of shares of the applicable class outstanding;
"related person"(13), for an issuer, means
(a) an executive of the issuer, or
(b) an associate of an executive of the issuer;
"service provider option"(14) means an option(15) granted to an employee, an executive or a consultant;
"service provider plan" means a plan providing for the grant or issue of securities to employees, executives or consultants;
"shareholder approval" means, for an incentive, incentive plan, or amendment to an incentive or incentive plan of an issuer, approval given by a majority of thevotes cast at a meeting(16) of the shareholders of the issuer other than votes attaching to securities beneficially owned by
(a) related persons to whom securities may be issued under the incentive or incentive plan, and
(b) associates of the persons referred in paragraph (a);
"support agreement" includes an agreement to provide assistance in the maintenance or servicing of indebtedness of the borrower and an agreement to providecompensation for the purpose of maintaining or servicing indebtedness of the borrower(17); and
"underlying security" means
(a) a security that is issued or transferred in accordance with the terms of a convertible security(18), or
(b) any other security issued or transferred as a result of the conversion or exchange, directly or indirectly, of the first security referred to in paragraph (a) or asecurity referred to in this clause.
1.2 Interpretation
(1) In this Rule, trades in a security of an issuer to or by
(a) a consultant, include trades made to or by the consultant's consultant company, the consultant's consultant partnership, or a RRSP or a RRIF(19) established byor for the consultant or under which the consultant is the beneficiary;
(b) an employee, includes trades made to or by a subsidiary entity of the employee or a RRSP or a RRIF19 established by or for the employee or under which theemployee is the beneficiary; and
(c) an executive, includes trades made to or by a subsidiary entity of the executive or a RRSP or a RRIF19 established by or for the executive or under which theexecutive is the beneficiary.
(2)(20) In this Rule, a person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other or if bothare subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.
(3) 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(21) are held, otherwise thanby way of security only, by or for the benefit of the other person or company, and
(ii) the votes carried by the 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 directors21, 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.
(4) 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
(iii) two 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 that other's subsidiary entity.
(5) In this Rule, 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.(22)
(6) In this Rule, the participation of an employee, executive or consultant in a trade is considered voluntary if the employee, executive or consultant is notinduced to purchase the security
(a) in the case of an employee, by expectation of the individual employee's employment or continued employment by the issuer or an affiliated entity of the issuer;
(b) in the case of a consultant, by expectation of the individual consultant, the consultant's consultant company or the consultant's consultant partnership beingengaged or continuing to be engaged by the issuer or an affiliated entity of the issuer as a consultant;
(c) in the case of an executive, if the individual executive is a director, by expectation of the director's appointment, election or re-election as a director of theissuer; and
(d) in the case of an executive, if the individual executive is an officer of the issuer, by expectation of the officer's appointment or employment or continuedappointment or employment as an officer of the issuer.(23)
(7) In this Rule, an issuer is considered to have a de minimis Ontario market if, at the relevant time
(a) 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
(i) did not hold more than 10 percent of the outstanding securities of the class of securities, and
(ii) did not represent in number more than 10 percent of the total number of holders of securities of the class of securities; or
(b) persons or companies who are in Ontario and who beneficially own securities of the class of securities
(i) did not beneficially own more than 10 percent of the outstanding securities of the class of securities, and
(ii) did not represent in number more than 10 percent of the total number of holders of securities of the class of securities.(24)
PART 2 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEMPLOYEES, CONSULTANTS AND ADMINISTRATORS
2.1 Removal of Exemption for Trades under Paragraph 19 of Subsection 35(1) and Clause 72(1)(n) of the Act - The exemptions contained in paragraph19 of subsection 35(1) and clause 72(1)(n) of the Act are not available for a trade.(25)
2.2 Exemption for Trades by an Issuer or Administrator of Securities of the Issuer's Own Issue to Employees, Consultants and Administrators(26)
(1) Sections 25 and 53 of the Act do not apply to a trade by an issuer(27) or an employee administrator of an issuer(28) in a security of the issuer's own issue(29) toan employee of the issuer, a consultant of the issuer or an employee administrator of the issuer(30), if the participation of the employee or the consultant in thetrade is voluntary.(31)
(2) The exemptions in subsection (1) are not available for a trade to a registrant in connection with a distribution.
2.3 Registration Exemption for Trades by an Affiliated Entity of Securities of the Issuer's Own Issue to Employees, Consultants and EmployeeAdministrators in Furtherance of an Exempt Trade(32) - Section 25 of the Act does not apply to a trade by an affiliated entity of the issuer in furtherance of atrade under section 2.2.
2.4 De Minimis Registration Exemption for Trades by Employees, Consultants and Employee Administrators(33) - Section 25 of the Act does not apply toa trade by an employee of an issuer, a consultant of an issuer, or an employee administrator of an issuer on behalf of an employee or a consultant of an issuer, in asecurity of the issuer's own issue, if
(a) at the time of the acquisition of the security, or in the case of a security acquired on the exercise of an option at the time of the acquisition of the option, theissuer has a de minimis Ontario market; and
(b) the trade is executed
(i) through the facilities of a stock exchange outside Ontario;
(ii) on the Nasdaq Stock Market; or
(iii) on the Stock Exchange Automated Quotation System of the London Stock Exchange Limited.
PART 3 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEXECUTIVES AND EXECUTIVE ADMINISTRATORS
3.1 Exemption for Trades by a Listed Issuer or Administrator of Securities of the Issuer's Own Issue to Executives and Executive Administrators(34) -Sections 25 and 53 of the Act do not apply to a trade by an issuer(35) or an executive administrator of an issuer(36) in a security of the issuer's own issue(37) to anexecutive of the issuer or an executive administrator of the issuer(38), if
(a) the issuer is a listed issuer; and
(b) the participation of the executive in the trade is voluntary.
3.2 Exemption for Trades by a Non-Listed Issuer or Administrator of Securities of the Issuer's Own Issue to Executives and ExecutiveAdministrators(39) - Sections 25 and 53 of the Act do not apply to a trade by an issuer(40) or an executive administrator of an issuer in a security of the issuer'sown issue(41) that is not a security of a listed issuer to an executive of the issuer or an executive administrator of the issuer(42), if
(a) in the case of the issue of a security as an incentive, prior shareholder approval has been obtained for the incentive, incentive plan if the issue of the incentiveis under an incentive plan, or any amendments to the incentive or incentive plan, if the incentive, incentive plan, or incentive or incentive plan as amended,together with all of the issuer's other previously established or proposed incentives or incentive plans, could result, at any time, in(43)
(i) the number of shares reserved for issuance under stock options granted to related persons exceeding 10 percent of the outstanding issue,
(ii) the issuance to related persons, within a 12 month period, of a number of shares exceeding 10 percent of the outstanding issue,
(iii) the number of shares reserved for issuance under stock options granted to any one related person and the related person's associates exceeding five percentof the outstanding issue, or
(iv) the issuance to any one related person and the related person's associates, within a 12 month period, of a number of shares exceeding five percent of theoutstanding issue;
(b) in the case of the issue of a security as an incentive, the incentive or incentive plan specifies a maximum number of securities, or in the case of options, ofunderlying securities, issuable under it, and any approval obtained under paragraph (a) is for that maximum number;
(c) for a trade of a security that consists of the grant of an option, the option is a non-transferable option(44) to purchase securities of the issuer; and
(d) the participation of the executive in the trade is voluntary.
3.3 Exemption for Securities of Foreign-Listed Issuers and De Minimis Exemption for Trades by an Issuer or Administrator of Securities of theIssuer's Own Issue to Executives and Executive Administrators(45) - Sections 25 and 53 of the Act do not apply to a trade by an issuer or an executiveadministrator of an issuer in a security of the issuer's own issue that is not a security of a listed issuer to an executive of the issuer or an executive administratorof the issuer
(a) if
(i) the issuer is a foreign-listed issuer, or
(ii) at the time of the trade, the issuer has a de minimis Ontario market; and
(b) if the participation of the executive in the trade is voluntary.
3.4 Registration Exemption for Trades by an Affiliated Entity of Securities of the Issuer's Own Issue to Executives and Executive Administrators inFurtherance of an Exempt Trade(46) - Section 25 of the Act does not apply to a trade by an affiliated entity of the issuer in furtherance of a trade under section3.1, section 3.2 or section 3.3.
3.5 De Minimis Registration Exemption for Trades by Executives and Executive Administrators(47) - Section 25 of the Act does not apply to a trade by anexecutive of an issuer, or an executive administrator of an issuer on behalf of an executive of the issuer, in a security of the issuer's own issue, if
(a) at the time of the acquisition of the security, or in the case of a security acquired on the exercise of an option at the time of the acquisition of the option, theissuer has a de minimis Ontario market; and
(b) the trade is executed
(i) through the facilities of a stock exchange outside Ontario,
(ii) on the Nasdaq Stock Market, or
(iii) on the Stock Exchange Automated Quotation System of the London Stock Exchange Limited.
PART 4 REQUIRED INFORMATION FOR SHAREHOLDER APPROVAL
4.1 Required Information for Shareholder Approval(48) - In addition to any other requirements under Ontario securities law(49), if an issuer presents to theshareholders an incentive, incentive plan or amendment to an incentive or incentive plan for approval as contemplated by section 3.2, the issuer shall disclose inthe information circular for the meeting adequate information respecting the incentive, incentive plan or the amendment to an incentive or incentive plan,including
(a) the maximum number of securities, or in the case of options, of underlying securities, issuable under the incentive or incentive plan;
(b) particulars relating to any financial assistance or support agreement to be provided to participants by the issuer or any affiliated entity of the issuer to facilitatethe purchase of shares under the incentive or incentive plan, including whether the assistance or support is to be provided on a full-, part- or non-recourse basis;
(c) particulars relating to the options or other entitlements to be granted(50) under the incentive or incentive plan; and
(d) the number of votes attaching to securities that, to the issuer's knowledge at the time the information is provided, will not be included for the purposes ofdetermining whether shareholder approval has been obtained.
PART 5 CONTROL PERSON DISTRIBUTIONS TO EMPLOYEES, EXECUTIVES, CONSULTANTS AND ADMINISTRATORS
5.1 Exemption for Control Person Distributions to Employees, Executives, Consultants and Administrators(51)
(1) Sections 25 and 53 of the Act do not apply to a control person distribution(52) of a security of an issuer or an option of which the underlying security is asecurity of an issuer(53) to an employee of the issuer, an executive of the issuer, a consultant of the issuer or an administrator of the issuer or by the administratorof that security to an employee of the issuer, an executive of the issuer or a consultant of the issuer, if
(a) for a trade that consists of the grant of an option, the option is a non-transferable option(54) to purchase securities of the issuer; and
(b) the participation of the employee, the executive or the consultant in the trade is voluntary.
(2) The exemptions in subsection (1) are not available for a trade to a registrant in connection with a distribution.
5.2 Exemption for Trades by an Issuer, an Affiliated Entity or Administrator of Securities of the Issuer in Furtherance of a Control PersonDistribution(55) - Section 25 of the Act does not apply to a trade by an issuer or an affiliated entity of the issuer in furtherance of a trade under section 5.1.
PART 6 PERSONAL TRANSFERS
6.1 Personal Transfers(56) - Section 25 of the Act does not apply to a trade in a security of an issuer
(a) between any of an individual who is an employee of the issuer, a subsidiary entity of the individual employee, a RRSP established by or for the individualemployee or under which the individual employee is the beneficiary and a RRIF established by or for the individual employee or under which the individualemployee is the beneficiary;
(b) between any of an individual who is an executive of the issuer, a subsidiary entity of the individual executive, a RRSP established by or for the individualexecutive or under which the individual executive is the beneficiary and a RRIF established by or for the individual executive or under which the individualexecutive is the beneficiary; or
(c) between any of an individual who is a consultant of the issuer, the consultant company of the individual consultant, the consultant partnership of theindividual consultant, a RRSP established by or for the individual consultant or under which the individual consultant is the beneficiary and a RRIF established byor for the individual consultant or under which the individual consultant is the beneficiary.
PART 7 REMOVAL OF CERTAIN EXEMPTIONS FOR TRADES OF SECURITIES OF CERTAIN COMPANIES(57)
7.1 Removal of Certain Exemptions for Trades of Securities of Certain Companies - The exemptions contained in paragraph 10 of subsection 35(2) andclause 73(1)(a) of the Act are not available for a trade of a security of a subsidiary company of an employee or an executive, or a consultant company, if thecompany has acquired securities under an exemption contained in this Rule and at the time of the trade holds the securities, unless a trade of the securitiesacquired by the company to the purchaser would have been permitted under section 9.1.
PART 8 TRADES MADE BY CURRENT OR FORMER EMPLOYEES, EXECUTIVES OR CONSULTANTS, OR ADMINISTRATORS OFSECURITIES OF CERTAIN NON-REPORTING ISSUERS(58)
8.1 Exemption for Trades Made by Current or Former Employees, Executives or Consultants, or Administrators of Securities of CertainNon-Reporting Issuers
(1) Sections 25 and 53 of the Act do not apply to a trade by a current or former employee of an issuer, a current or former executive of an issuer, a current orformer consultant of an issuer or an administrator of an issuer in a security of the issuer to an employee of the issuer, an executive of the issuer, a consultant ofthe issuer or an administrator of the issuer, if
(a) the participation in the trade of the employee, the executive or consultant to whom the trade is made is voluntary;
(b) the issuer is not a reporting issuer; and
(c) the price of the security being traded is established by a generally applicable formula or similar provisions contained in a written agreement among employees,executives, consultants, employees and executives, consultants and employees, consultants and executives, or employees, executives and consultants, of theissuer who are shareholders of the issuer.
(2) In this section, the references to "current" and "former" refer to the status at the relevant time of the individual employee, the individual executive and, in thecase of a consultant, the status of the individual consultant or the consultant's consultant company or consultant partnership.
8.2 Registration Exemption for Trades by an Issuer or an Affiliated Entity of Securities of the Issuer in Furtherance of Exempt Trades made byCurrent or Former Employees, Executives or Consultants of Certain Non-Reporting Issuers(59) - Section 25 of the Act does not apply to a trade by anissuer or an affiliated entity of the issuer in furtherance of a trade under section 8.1.
PART 9 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER EXEMPTIONS IN RULE
9.1 Restrictions on First Trades in Securities Acquired Under Exemptions in Rule(60)
(1) A person or company, other than an associated consultant or an investor consultant of the issuer of the security, may trade a security acquired under theexemption from the requirements of section 53 of the Act contained in section 2.2, section 3.1, section 3.2, section 3.3, section 5.1 or section 8.1 or in thecircumstances described in paragraph (d) 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(61) 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 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) in the case of a security acquired under the exemption contained in section 2.2, section 3.1, section 3.2, section 3.3 or section 5.1, disclosure to theCommission has been made of the trade under section 2.2, section 3.1, section 3.2, section 3.3 or section 5.1 in accordance with Part 10,
(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(62); or
(d) if the trade is a trade referred to in section 6.1 or section 8.1.
(2) An associated consultant or an investor consultant of an issuer may trade a security of the issuer acquired, or an underlying security of the issuer acquireddirectly or indirectly as a result of acquiring a security, under the exemption from the requirements of section 53 of the Act contained in section 2.2 or section 5.1or in the circumstances described in paragraph (d) 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,
(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 reportingissuer is not in default under the Act or the regulations,
(iii) in the case of a security acquired under the exemption in section 2.2 or section 5.1, disclosure to the Commission has been made of the trade under section2.2 or section 5.1 in accordance with Part 10,
(iv) the hold period has elapsed from the later of the date of the acquisition by the seller of the security acquired under the exemption in section 2.2 or section 5.1and the date the issuer of the security became a reporting issuer,
(v) 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
(vi) the trade is not a control person distribution; or
(d) if the trade is a trade referred to in section 6.1 or 8.1.
PART 10 DISCLOSURE OF EXEMPT TRADES(63)
10.1 Disclosure - The disclosure contemplated by section 9.1 for securities acquired under the exemptions contained in sections 2.2, 3.1, 3.2, 3.3 and 5.1 shall,and the disclosure contemplated by clause 72(5)(b) of the Act for securities acquired on the exercise of service provider options under the exemption containedin subclause 72(1)(f)(iii) of the Act may(64), be made in accordance with this Part.
10.2 Disclosure Before Resale(65) - The disclosure contemplated by section 10.1 may be made by the issuer or, for securities acquired under the exemptioncontained in section 5.1, by the issuer or the person or company making the distribution, by disclosing the date of the trade, the number of securities purchasedand 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(66) 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(67).
10.3 Annual Disclosure(68) - The disclosure contemplated by section 10.1 may also be made by the issuer, for a service provider plan, when the service providerplan is first commenced and, for securities issued or traded other than under a service provider plan, when the initial security is issued or traded, and not lessfrequently than annually after the first disclosure, if the volume of trading in securities issued or sold in any calendar month in reliance on the exemptionsdescribed in section 10.1 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 or sold.
10.4 Monthly Disclosure
(1) If the volume of trading in securities issued or sold in any calendar month in reliance on the exemptions does exceed one percent of the securities of that classthat were outstanding at the beginning of the calendar month in which the securities were issued or sold, the disclosure contemplated by section 10.1 may bemade 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 10.3 for the other calendar months in the annual period excluding such month or months forwhich disclosure has been made under subsection (1).
10.5 Exception From Annual Disclosure(69)- Despite sections 10.2, 10.3 and 10.4, separate disclosure of a trade and resale shall be made in accordance withclause 72(5)(b) and subsection 72(7) of the Act, if
(a) the trade is made with an employee, an executive or a consultant in reliance on the exemption in section 2.2, section 3.1, section 3.2, section 3.3 or section5.1 and, in the case of securities acquired on the exercise of service provider options, in reliance on the exemption contained in subclause 72(1)(f)(iii) of the Act;
(b) the employee, executive or consultant immediately resells the security; and
(c) the resale is a control person distribution(70).
10.6 Form of Disclosure(71)- For the purposes of sections 10.3, 10.4 and 10.5, the disclosure may be made in the form of a letter filed(72) disclosing the date ofthe 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 of the factscontained in the letter.
PART 11 FEES(73)
11.1 Fees
(1) The issuer shall pay a fee of $100.00 for the securities issued under the exemptions contained in sections 2.2, 3.1, 3.2 and 3.3 and securities acquired on theexercise of service provider options in reliance on the exemption contained in subclause 72(1)(f)(iii) of the Act and, subject to subsection (3), the person orcompany making the distribution shall pay a fee of $100.00 for the securities distributed under the exemption contained in section 5.1
(a) for all securities distributed under a service provider plan
(i) on the date the service provider plan is commenced, and
(ii) on each anniversary of the date of commencement of the service provider plan, if securities were issued or distributed in Ontario under the service providerplan during the twelve-month period preceding the date of the anniversary; and
(b) if securities are issued or distributed under these exemptions other than under a service provider plan
(i) when the initial security is issued or distributed, and
(ii) on each anniversary of the date of the issue or distribution of the initial security, if additional securities were issued or distributed in Ontario by that person orcompany during the 12 month period before the date of the anniversary.
(2) Despite subsection (1), no fee shall be payable for securities acquired under the exemptions contained in this Rule for a trade by an employee administrator orexecutive administrator to an employee, an executive or a consultant.
(3) The issuer may pay the fee for securities distributed under the exemption contained in section 5.1 referred to in subsection (1) and in this case the person orcompany making the distribution shall not be required to make that payment.
PART 12 EXEMPTION
12.1 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.(74)
Footnotes
1. This proposed Rule is derived from the Rule In The Matter of Trades By An Issuer In Securities Of Its Own Issue To Senior Officers, Directors, PersonalHolding Companies And Registered Retirement Savings Plans and a Controlling Shareholder In Securities Of An Issuer to Employees, Senior Officers,Directors, Personal Holding Companies And Registered Retirement Savings Plans March 7 (1997), 20 OSCB 1218 which came into force on March 1, 1997and of which Notice was provided in (1996), 19 OSCB 6944. That Rule incorporated by reference the Blanket Ruling of the same name, (1994), 17 OSCB 5518("the Blanket Ruling"). The Blanket Ruling provided exemptions from prospectus and registration requirements for certain trades to non-employee directors andnon-employee senior officers subject to a condition, inter alia, that the issuance and terms of the securities complied with the rules of The Toronto StockExchange governing stock options and stock purchase plans (the "TSE Rules") whether or not such securities and the issuance of the securities were otherwisesubject to these requirements. In reformulating the Rule, this condition has been simplified. For issuers whose securities are listed on specified stock exchanges,this status alone will satisfy the applicable condition. For issuers whose securities are not so listed, certain of the requirements in the TSE Rules relating to themaximum number of securities issuable or reserved for issuance to an insider and the insider's associates as incentives and issuable or reserved for issuance toinsiders in the aggregate as incentives, without shareholder approval being obtained, and the non-transferability of options, have been revised and formulated asconditions of the exemptions. In reformulating the Rule, the Commission determined that the same conditions should be imposed on the use of the exemptionscontained in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Securities Act (the "Act") for trades by issuers to employees who are officers ordirectors and on the use of new exemptions for trades to non-employee officers, other than for issuers who have a de minimis market in Ontario. In addition, inreformulating the Rule, the Commission determined to provide registration and prospectus exemptions in situations where the Commission has previouslygranted specific exemptive relief, such as trades of securities to consultants, trades to and by employee share plan trustees, custodians and administrators, tradesby affiliated entities in furtherance of exempt trades, and trades to and by employees where there is a de minimis market in Ontario.
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. That rule 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 have the respectivemeaning given to them in the Securities Act or regulation, as appropriate. Rule 14-501 also incorporates terms defined in National Instrument 14-101 Definitions.National Instrument 14-101 contains, among other things, definitions for terms used in more than one national instrument.
3. See footnote 5 relating to the definitions of "employee administrator" and "executive administrator".
4. The definition of "consultant" is used in this Rule to provide exemptions from the registration and prospectus requirements for trades made by an issuer or anaffiliated entity of the issuer in securities of the issuer's own issue, or by a controlling shareholder, to a consultant as so defined. These exemptions are based onthe exemptions contained in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act and the Blanket Ruling and are designed to obviate the necessity forobtaining specific exemption orders from the Commission relating to consultants.
5. The terms "employee administrator" and "executive administrator" are used in the Rule to clarify and expand the application of the amendments to paragraph19 of subsection 35(1) and clause 72(1)(n) of the Act contained in the Red Tape Reduction Act (Ministry of Finance), 1997. The amendments provide that theexemptions in paragraph 19 of subsection 35(1) and clause 72(1)(n) apply if the trade takes place through trustees or administrators of share purchase plansestablished for the benefit of employees of the issuer or its affiliates.
6. The definition of "executive" has been broadened from that contained in the Blanket Ruling to include all officers or directors of the issuer. The BlanketRuling defined "executives" as non-employee senior officers and non-employee directors of the issuer or affiliated entities of the issuer. The definition has beenbroadened so that the restrictions on the use of exemptions will apply to all employees who are officers or directors of the issuer and to non-employee officers ofthe issuer, in addition to non-employee senior officers and non-employee directors as was the case under the Blanket Ruling. However, the definition of"executive" has also been narrowed from that contained in the Blanket Ruling to exclude senior officers or directors of affiliates of the issuer, as the TSE Rulesexclude directors or senior officers of subsidiaries of the issuer from the cognate definition. See the definition of "related person" and the related footnote.
7. The term "foreign-listed issuer" is used in the Rule to identify foreign stock exchanges or markets whose requirements relating to employee stock option andstock purchase plans are regarded by the Commission as an adequate substitute for the conditions provided in the exemptions in this Rule for the issue ofsecurities to executives by issuers whose securities are not so listed.
8. The term "investor consultant" is used to identify certain consultants trades to whom under the exemptions in the Rule will be subject to a hold period. Theterm "investor relations activities" is used in the definition of "investor consultant" for this purpose. The definition of "investor relations activities" is derivedfrom the Securities Act (British Columbia).
9. 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 the Director to which the person or company is subject."
10. The term "SRO" is defined in National Instrument 14-101. The definition is "a self-regulatory organization, self-regulatory body or an exchange".
11. The term "listed issuer" is used in the Rule to identify stock exchanges whose requirements relating to employee stock option and stock purchase plans areregarded by the Commission as an adequate substitute for the conditions provided in the exemptions in this Rule for the issue of securities to executives byissuers whose securities are not so listed.
12. The definition of "non-transferable option" permits transfers to a spouse, child or grandchild of the option holder, or a trust of which one of the trustees isthe option holder and the beneficiaries of which are one or more of the option holder and a spouse, child or grandchild of the option holder. This expands thecategories of transfers which are permitted from those contained in the "non-assignability" provisions of the TSE Rules (and thus the Blanket Ruling whichincorporated those Rules), although the Commission understands that TSE has permitted such transfers in the past. If consideration is paid for such a transfer,however, the transfer would constitute a "trade", which would, absent a exemption, be subject to the registration requirements.
13. All officers are included in the definition of "executive", which in turn is used in the definition of "related person". Accordingly, the definition of "relatedperson" in the Rule differs from the definition of "insider" in the TSE Rules which is used for the same purpose, as the definition in the TSE Rules refers to"senior officers". The term "related person" is used, rather than "insider" as is the case under the TSE Rules, as it has a different meaning than the term "insider"under the Act.
14. The definition of "service provider option", which refers to an option granted to an employee, an executive or a consultant, has been developed todistinguish these from other forms of options. See for example the use of this term in Parts 10 and 11.
15. The term "option" is defined in Rule 14-501. The definition is "an agreement that provides the holder with the right, but not the obligation, to do one ormore of the following on terms or at price established by or determinable by reference to the agreement at or by a time established by the agreement:
1. Receive an amount of cash determinable by reference to a specified quantity of the underlying interest of the option.
2. Purchase a specified quantity of the underlying interest of the option.
3. Sell a specified quantity of the underlying interest of the option."
16. The flexibility provided by the TSE Rules for subsequent ratification or confirmation of the incentive or incentive plan at the next meeting of shareholdersfollowing the establishment of the incentive plan or grant of incentives is not appropriate for the Rule, as this would constitute a subsequent condition to the useof the exemption.
17. The definition of "support agreement" is derived from the definition of "support agreement" included in Item 7(h) of Form 30 to the Regulation.
18. The term "convertible security" is defined in Rule 14-501. The definition is a "security that, by its terms, is convertible into, or exercisable or exchangeablefor, or that carries the right to purchase or cause the purchase of, another security". The definition is not restricted to a security of the same issuer.
19. The term "RRSP" is defined in Rule 14-501 as having the meaning ascribed to "registered retirement savings plan" in the ITA. The term "RRIF" is defined inRule 14-501 as having the meaning ascribed to "registered retirement income fund" in the ITA. The term "ITA" is defined in National Instrument 14-101Definitions as "the Income Tax Act (Canada)".
20. Subsections 1.2(2), (3) and (4) contain provisions to assist in interpreting the term "affiliated entity", which is used in the Rule, inter alia, to provideexemptions from the registration requirements for an "affiliated entity" of an issuer for trades of the issuer's securities. These provisions are based on subsections1(2), (3) and (4) of the Act.
21. The Act defines "director" as "where used in relation to a person, includes a person acting in a capacity similar to that of a director of a company".
22. The term "special relationship" is used in connection with first trade relief provided in the Rule for exempt trades under the Rule.
23. The phrase " ... if the participation of the (employee) (executive) (consultant) in the trade is voluntary" is used in a condition for exemptions in the Rule, andreflects the condition in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act that those exemptions are available only if the employees are not"induced to purchase by expectation of employment or continued employment". The condition that, in the case of an executive that is a director, the individualdirector is not induced to purchase the security by expectation of the director's appointment, election or re-election as a director of the issuer, is a change fromthe Blanket Ruling, which did not contain this condition for the use of the exemption for trades to directors.
24. The term "de minimis Ontario market" is used in a condition for certain exemptions in the Rule.
25. The Commission has determined to impose, except for issuers who have a de minimis market in Ontario, the same conditions on trades to employees andconsultants who are officers or directors as are proposed for the exemptions for non-employee officers or directors, i.e., that the issuer is an issuer securities ofwhich are listed on one of the specified stock exchanges, or that the conditions as to the number of shares which can be reserved for issuance or issued to anyone related person and the related person's associates as incentives and in the aggregate to related persons as incentives without shareholder approval andnon-transferability of options, be met. Accordingly, section 2.1 removes the exemptions in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act andsection 2.2 provides these exemptions for employees and consultants who are not officers or directors. Part 3 of the proposed Rule provides the exemptions forofficers and directors.
26. Section 2.2 provides the exemption previously provided by paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act, for trades by issuers toemployees who are not officers or directors. As indicated above in footnote 25, the Commission has determined to impose the same conditions on the use of theexemptions from registration and prospectus requirements for trades to employees (and consultants) who are officers or directors as are proposed for theexemptions for trades to non-employee directors or officers.
Section 2.2 also provides the exemptions previously provided by the Blanket Ruling for trades to employee companies and employee RRSPs and (by virtue of theinterpretation under subsection 1.2(1) of the Rule that trades to or by an employee include trades to or by employee subsidiary entities and employee RRSPs andRRIFs) extends the exemption to trades to employee RRIFs, other employee subsidiary entities and consultants (other than consultants who are officers ordirectors), consultant companies, consultant partnerships, consultant RRSPs and consultant RRIFs.
Section 2.2 also extends the exemptions to trades to and by trustees, custodians or administrators acting on behalf or for the benefit of employees or consultants(defined in the Rule as "employee administrators").
27. The exemptions contained in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act are not expressly restricted to issues of securities fromtreasury. The Blanket Ruling suggested that the exemptions contained in it may be restricted to issues of securities from treasury. This restriction has beenremoved to conform this exemption with the statutory exemptions.
28. The addition of "employee administrator" in this part of the provision confirms that the exemption from registration requirements is provided to trustees,custodians or administrators of employee share plans who acquire shares of the issuer in the market. See also footnote 30.
29. The exemptions contained in the Blanket Ruling applied to trades in securities "issued as incentives or compensation mechanisms" and excluded "securitiesissued or distributed for the purposes of repayment or payment of debt". As these restrictions are not contained in the exemption for trades to employeescontained in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act, for consistency they have been removed from the exemption for trades toemployees and their subsidiary entities, RRSPs and RRIFs and consultants and their companies, partnerships, RRSPs and RRIFs.
30. The definition and use of the term "employee administrator" clarifies and expands the application of the amendments to paragraph 19 of subsection 35(1)and clause 72(1)(n) of the Act contained in the Red Tape Reduction Act (Ministry of Finance), 1997. These amendments provide that these exemptions apply ifthe trade takes place through trustees or administrators of share purchase plans established for the benefit of employees of the issuer or its affiliates.
31. The expression "if the participation of the employee or the consultant in the trade is voluntary" reflects the condition in paragraph 19 of subsection 35(1) andclause 72(1)(n) of the Act that those exemptions are available only if the employees are not "induced to purchase by expectation of employment or continuedemployment". See subsection 1.2(6) and the related footnote.
32. Section 2.3 extends the registration exemptions for trades of securities of the issuer to employees and consultants to acts taken by affiliated entities of theissuer in furtherance of such trades. Under the Act, a "trade" includes "any act, advertisement, solicitation, conduct or negotiation directly or indirectly infurtherance of ... any sale or disposition of a security for valuable consideration". Accordingly, section 2.3 would, for example, exempt actions taken by aCanadian subsidiary in furtherance of implementing an employee share plan of a U.S. parent company issuer, obviating the necessity for obtaining exemptionorders for the activities of the Canadian subsidiary. The Commission is considering, as an alternative to providing this specific exemption in the Rule, whether itis appropriate to include in a policy a statement to the effect that acts by an affiliated entity in furtherance of a trade under an exemption are considered by theCommission to be exempt as well.
33. Section 2.4 provides a new registration exemption for trades by employees, employee subsidiary entities, employee RRSPs and employee RRIFs,consultants, their companies, partnerships, RRSPs and RRIFs, and employee administrators on behalf of employees or consultants, if the issuer has a de minimismarket in Ontario at the time of the initial acquisition of the security. The de minimis tests, utilizing in the alternative a registered holder and a beneficial holdertest, are identical to the tests used in proposed Rule 45-502 Dividend or Interest Reinvestment and Stock Dividend Plans, of which Notice was providedSeptember 19 (1997), 20 OSCB 4775. The tests reflect the Commission's determination that the appropriate percentage for the purposes of defining a deminimis market in Ontario in the circumstances is 10%. See subsection 1.2(7) and the related footnote.
34. Section 3.1 provides the exemption previously provided by the Blanket Ruling for trades to non-employee senior officers and directors and (by virtue of theinterpretation under the Rule that trades to or by executives include trades to or by executive subsidiary entities and executive RRSPs and RRIFs), to theircompanies and RRSPs, for listed issuers (being issuers any of the securities of which are listed on specified Canadian stock exchanges) and extends theexemption to trades to other executive subsidiary entities and executive RRIFs. As the Rule expands the definition of "executive" from that contained in theBlanket Ruling to include officers and directors who are employees, section 3.1 provides the exemption provided by paragraph 19 of subsection 35(1) and clause72(1)(n) of the Act for such individuals and also (again by virtue of the interpretation under the Rule in subsection 1.2(1)) provides the exemption provided bythe Blanket Ruling for their companies and RRSPs and extends it to RRIFs. Section 3.1 extends the exemption to non-employee officers who are not seniorofficers. Section 3.1 also extends the exemption to trustees, custodians and administrators acting on behalf or for the benefit of executives (defined in the Rule as"executive administrators"), subject to the other conditions which apply to the exemptions contained in paragraph 19 of subsection 35(1) and clause 72(1)(n) ofthe Act.
The exemptions contained in the Blanket Ruling for trades to non-employee senior officers and directors and their companies and RRSPs required that theissuance and terms of the securities complied with the TSE Rules governing stock options and stock purchase plans and that if the securities were listed andposted for trading on a stock exchange, the issuer had received, where required by the by-laws, rules or policies of such exchange, the consent of such exchangeto the issuance of the securities. The provisions of the Rule have been simplified so that, for issuers whose securities are listed on the specified exchanges, thiswill meet the required condition. These specified exchanges have requirements relating to employee stock options and stock purchase plans which theCommission believes are an adequate substitute for the conditions imposed by the Commission for non-listed issuers set out in section 3.2. It will not benecessary for the purposes of determining whether the exemptions in section 3.1 are available to ascertain whether in fact all of the by-laws, rules and policies ofthe stock exchanges or markets have been complied with. Such a requirement, if imposed, would introduce unnecessary uncertainty as to the availability of theexemptions. It is assumed that, in the case of issuers listed on the specified stock exchanges or markets, the exchanges or markets will administer, and ifappropriate, enforce, their requirements.
35. See footnote 27 relating to section 2.2.
36. The addition of "executive administrator" in this part of the provision provides an exemption from registration requirements to trustees, custodians oradministrators of executive share plans who acquire shares of the issuer in the market. See footnote 28 relating to section 2.2 and footnote 38.
37. The exemptions contained in the Blanket Ruling applied to trades in securities issued as "incentives or compensation mechanisms" and excluded "securitiesissued or distributed for the purposes of repayment or partial payment of debt". As these restrictions are not contained in the exemption for trades to employeescontained in paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act, for consistency they have been removed from the exemption for trades toexecutives and their subsidiary entities, RRSPs and RRIFs. See footnote 29 relating to section 2.2.
38. The definition and use of the term "executive administrator" clarifies and expands the application of the amendments to paragraph 19 of subsection 35(1)and clause 72(1)(n) of the Act contained in the Red Tape Reduction Act (Ministry of Finance), 1997. The amendments provide that these exemptions apply if thetrade takes place through trustees or administrators of share purchase plans established for the benefit of employees of the issuer or its affiliates. Section 3.1extends the application of such amendments to share plans established for the benefit or administered on behalf of executives of the issuer. See also footnote 30relating to section 2.2.
39. Section 3.2 provides the exemption previously provided by the Blanket Ruling for trades to non-employee senior officers and directors and their companiesand RRSPs, for issuers who are not listed issuers where such issuers comply with the conditions set forth in section 3.2, and extends the exemption to trades toother executive subsidiary entities. As the Rule expands the definition of "executive" from that contained in the Blanket Ruling to include officers and directorswho are employees, section 3.2 provides the exemption provided by paragraph 19 of subsection 35(1) and clause 72(1)(n) of the Act for such individuals andalso (again by virtue of the interpretation under the Rule in subsection 1.2(1)) provides the exemption provided by the Blanket Ruling for their companies andRRSPs, and extends the exemption to trades to other executive subsidiary entities and executive RRIFs. Section 3.2 extends the exemption to non-employeeofficers who are not senior officers. Section 3.2 also extends the exemption to executive administrators.
These conditions include requirements derived from certain of the TSE Rules relating to the maximum number of securities reserved for issuance or issued asincentives to an insider and the insider's associates and in the aggregate to insiders, without prior shareholder approval being obtained, and the non-transferabilityof options. Conditions contained in the TSE Rules as to price and term of options have not been included in the Rule as conditions to the availability of theexemptions. The requirement for certain approvals to be obtained from the Executive Director of the Commission contained in the Blanket Ruling has beendeleted.
40. See footnote 27 relating to section 2.2.
41. See footnote 29 relating to section 2.2.
42. See footnote 36 relating to section 3.1.
43. See the second paragraph of footnote 39 as to the conditions imposed on the use of the exemptions.
44. See the definition of "non-transferable option" and related footnote.
45. Section 3.3 provides registration and prospectus exemptions for trades of securities of foreign-listed issuers or issuers who have a de minimis market inOntario. The provision provides an exemption for trades by issuers or executive administrators to executives of the issuer and their subsidiary entities, RRSPsand RRIFs and executive administrators, for issuers who are not listed issuers and that do not meet the requirements set out in section 3.2, if such issuers areforeign-listed issuers or have a de minimis market in Ontario.
46. Section 3.4 extends the registration exemptions for trades of securities of the issuer to executives to acts taken by affiliated entities of the issuer infurtherance of such trades. See footnote 32 relating to section 2.3.
47. Section 3.5 provides a new registration exemption for trades by executives, executive subsidiary entities, executive RRSPs and executive RRIFs, andexecutive administrators on behalf of executives, if the issuer has a de minimis market in Ontario at the time of the initial acquisition of the security. See footnote33 relating to section 2.4.
48. The requirements relating to "adequate information" are not formulated as a condition of the exemptions, as it may not be possible to objectively confirmcompliance with this condition. These requirements are set forth in this Rule as "stand-alone" requirements to provide appropriate disclosure. The information tobe disclosed is derived from similar requirements in the TSE Rules.
49. 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".
50. See footnote 16.
51. Section 5.1 provides the exemption previously provided by the Blanket Ruling for distributions of securities by a controlling shareholder to an employee,employee company, employee RRSP, executive, executive company, or executive RRSP and extends it to trades to non-employee officers, other employeesubsidiary and executive subsidiary entities, employee and executive RRIFs, consultants, consultant companies, consultant RRSPs and RRIFs and employeeadministrators and executive administrators.
52. The term "control person distribution" is defined in Rule 14-501 to be a trade described in clause (c) of the definition of "distribution" in subsection 1(1) ofthe Act. The Blanket Ruling refers to trades made by a shareholder owning directly or indirectly in excess of 20% of the issued and outstanding voting securities.
53. See footnote 29.
54. See the definition of "non-transferable option" and related footnote.
55. Section 5.2 provides exemptive relief for acts taken by an issuer or an affiliated entity of the issuer in furtherance of a trade under a control persondistribution. See footnote 32 relating to section 2.3.
56. This section provides an exemption from the registration requirements for trades among an employee, his or her subsidiary entity, his or her RRSP and his orher RRIF, among an executive, his or her subsidiary entity, his or her RRSP and his or her RRIF and among a consultant and his or her company, his or herpartnership, his or her RRSP and his or her RRIF, and, by virtue of the cross-reference to this section in the first trade provisions of the Rule (section 9.1), thissection also provides first trade relief for such trades in the event that the other provisions in this Rule providing for first trade relief are not available, forexample, by reason of the fact the issuer of the security has not been a reporting issuer for at least 12 months. Transfers to or from a RRSP or a RRIF areincluded as an exempt trade under section 6.1 for greater certainty, although in certain circumstances such a transfer would not be a trade, and accordingly, noexemption would be required.
57. This Part has been included to prevent a company from being used as a mechanism to avoid the registration and prospectus requirements through thetransfer of the ownership of a company that has previously acquired securities under an exemption contained in this Rule.
58. This Part creates new registration and prospectus exemptions that will allow securities previously acquired by employees and executives and their subsidiaryentities, RRSPs and RRIFs, consultants, their companies, partnerships, RRSPs and RRIFs to be traded by current or former employees and executives and theirsubsidiary entities, RRSPs and RRIFs, consultants and their companies, partnerships, RRSPs and RRIFs and employee and executive administrators to currentemployees and executives and their subsidiary entities, RRSPs and RRIFs, consultants, their companies, partnerships, RRSPs and RRIFs, and employee andexecutive administrators, exempt from the registration and prospectus requirements subject to certain conditions, including the condition that the issuer is not areporting issuer.
59. See footnote 32 relating to section 2.3.
60. Subsection 9.1(1) incorporates the first trade relief contained in subsection 72(5) of the Act and the Blanket Ruling for trades made under the exemptions inthe Rule, other than trades of securities acquired under these exemptions by associated consultants or investor consultants. Because of concerns relating to"back-door" underwritings and conflicts of interest, the Commission has determined to impose upon trades to associated consultants and investor consultants thehold periods contained in subsection 72(4) of the Act, in subsection 9.1(2) of the Rule.
61. 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". Rule 72-501 Prospectus Exemption for First Trade Over A Market Outside Ontarioprovides relief for the first trade in securities of issuers that are not reporting issuers in Ontario that is carried out through the facilities of a stock exchangeoutside Ontario or on certain regulated markets outside Ontario.
62. The term "control person distribution" is defined in Rule 14-501 to be a trade described in clause (c) of the definition of "distribution" in subsection 1(1) ofthe Act.
63. Part 10 incorporates and replaces subsections 69(3), (4) and (5) of the Regulation which provide for methods of disclosure of exempt trades under clause72(5)(b) of the Act for trades to employees and extends these to the related exemptions contained in this Rule.
64. Clause 72(5)(b) of the Act requires, as a condition of first trade relief, the disclosure of the previous exempt trade. Subsections 69(3) and (4) of theRegulation provide for optional methods of disclosure of exempt trades under clause 72(5)(b) of the Act. For the exemptions contained in the Rule, the methodsof disclosure of exempt trades are now an exhaustive list of such methods. The word "may" is used in the case of securities acquired on the exercise of serviceprovider options under the exemption contained in subclause 72(1)(f)(iii) because under the Act the method of making disclosure is in the issuer's discretion.
65. This section amends and restates the method of making disclosure of exempt trades for the purposes of clause 72(5)(b) of the Act which is contained insubsection 69(3) of the Regulation for exempt trades made under the exemption contained in clause 72(1)(n) of the Act.
66. Section 140 of the Act provides that where Ontario securities law requires that material be filed, the filing shall be effected by depositing the material, orcausing it to be deposited, with the Commission. Accordingly, the words "with the Commission" have been deleted following "filed".
67. The words "that would be a distribution but for the exemption in subsection 72(5) of the Act" have been deleted.
In addition, the words "except that this (subsection (3)) shall not make unavailable that exemption if disclosure of the exempt trade is made to the Commission insome other way" have also been deleted, so as to clarify that Part 10 contains all of the various methods by which such reporting may be satisfied.
68. Clause 72(5)(b) of the Act requires, as a condition of first trade relief, the disclosure of the previous exempt trade. Sections 10.3 and 10.4 incorporate andreplace subsections 69(4) and (5) of the Regulation which provide for simplified annual, and in certain circumstances, monthly, disclosure of exempt trades underclause 72(5)(b) of the Act for trades to employees and extends these to exempt trades made under the exemptions contained in this Rule. The simplifieddisclosure methods are not available for securities acquired on the exercise of options under subclause 72(1)(f)(iii) other than service provider options, beingoptions granted to employees, executives and consultants.
69. This section incorporates the requirements of subsection 69(5) of the Regulation and extends these requirements to securities acquired under the exemptionscontained in this Rule.
70. The term "control person distribution" is defined in the general definition rule to mean a trade described in clause (c) of the definition of "distribution" insubsection 1(1) of the Act.
71. This section clarifies the manner in which disclosure may be made. The wording of the provision has been conformed so far as possible to the wording ofsection 10.2.
72. See footnote 66 as to the implications of "filed".
73. Section 24 of Schedule 1 to the Regulation currently provides for a fee of $100.00 payable where a purchase plan or arrangement is operated without aprospectus in reliance on the exemption in clause 72(1)(n) of the Act, on the date that the plan or arrangement is commenced and on each anniversary of the dateof commencement of the plan or arrangement if securities were distributed in Ontario under the plan or arrangement during the 12-month period preceding thedate of such anniversary. The Blanket Ruling extends this fee requirement to securities acquired under the exemptions contained in the Blanket Ruling. Part 11incorporates and restates section 24 of Schedule 1 to the Regulation and extends the requirement to pay fees to securities issued other than under a plan, tosecurities issued under the new exemptions contained in the proposed Rule and to securities acquired on the exercise of service provider options in reliance onthe exemption contained in subclause 72(1)(f)(iii) of the Act. Section 20 of Schedule 1 to the Regulation will be amended to exclude from that provisionsecurities acquired on the exercise of service provider options. Note that section 20 of Schedule 1 to the Regulation, with respect to the distribution of securitiesby an issuer of its own issue through the exercise of a right to purchase, convert or exchange previously granted by the issuer, will continue to apply to optionsother than service provider options.
74. Generally speaking, this Rule provides exemptive relief from the registration and prospectus requirements of the Act and accordingly a provision that theDirector may grant an exemption to the Rule would for the most part be unnecessary, as persons whose circumstances did not come within the exemptions in theRule could apply under the Act to obtain an exemption from the registration and prospectus requirements of the Act. However, it is possible that an exemptionmight be made to the Director under the Rule for exemptions from the fee requirements and certain of the reporting requirements.