Notice and Rule: OSC Rule - 62-501 - Prohibited Stock Market Purchases of the Offeree's Securities by the Offerer During a Take-Over Bid

Introduction

The Commission has, under section 143 of the Securities Act (Ontario) (the "Act"),made Rule 62-501 Prohibited Stock Market Purchases of the Offeree's Securities by theOfferor During a Take-over Bid (the "Rule") and an amendment (the "Amendment")to Commission Policy 62-601.

The Rule and the Amendment were delivered to the Minister of Finance on May 29, 2002.If the Minister does not approve or reject the Rule or return the Rule for further consideration,the Rule will come into force on August 12, 2002. If the Minister approves the Rule, the Rulewill come into force 15 days after it is approved.

The Amendment will become effective on the day that the Rule comes into force.

Substance and Purpose of Rule

The Rule will restrict the circumstances under which an offeror making a take-over bid is permitted,during the course of the bid, to acquire securities of the class for which the bid is made,otherwise than pursuant to the bid itself. The Rule will vary the current conditions underwhich purchases during the course of the bid, under subsection 94(3) of the Act, are permittedso as to make them similar to the conditions applicable under subsection 94(7) to permittedpre-bid and post-bid purchases.

By allowing only unsolicited, normal course purchases, the Rule is intended to ensure thatthe principle that offeree security holders should be treated equally in a take-over bidis not violated by purchases made by the bidder under subsection 94(3) of the Act.

Substance and Purpose of Amendment

The Amendment will revoke Parts A and B of Commission Policy 62-601 as a housekeeping matter.Part A deals with subject matter that is covered by subsections 94(2) and 94(3) of the Actwhile the subject matter of Part B is covered by subsections 94(5) and 94(7) of the Act.

Summary of Comments Received and Commission’s Response

The Rule and Amendment were published for comment on December 14, 2001, at (2001), 24 OSCB 7564.

The Commission received a submission on the Rule from one commenter, Osler, Hoskin &Harcourt LLP ("Osler"). The Commission thanks Osler for providing its comments.

The commenter fully supported the Rule. The commenter was of the view that allowing purchasesby way of private agreement can lead to unequal treatment of offeree shareholders, a result whichis contrary to one of the principal tenets of Part XX of the Act. The commenter believed thatprotections for offeree shareholders during a bid should be aligned with the protectionsalready in place for the pre-bid and post-bid periods. The commenter noted that enforcement ofthe protections set out in the Rule will also be important.

The Commission agrees with the commenter.

The Commission received no comments on the Amendment.

Changes to Rule and Amendment

The Commission has made some minor drafting changes to the Rule as it was previously published.However, as these changes are not material, the Rule is not being published for a further commentperiod. No changes have been made to the Amendment.

Text of Rule and Amendment

The text of the Rule and Amendment follow.

May 31, 2002.

ONTARIO SECURITIES COMMISSION RULE 62-501

PROHIBITED STOCK MARKET PURCHASES OF THE OFFEREE'S SECURITIES BY THE OFFEROR DURING A TAKE-OVER BID

In this Rule, "offeror" has the meaning ascribed to that term in subsection 94(1) of the Act.

Despite subsection 94(3) of the Act, an offeror may not make purchases allowed under that subsection unless

1. the purchases are made in the normal course on a stock exchange described in subsection 94(3) of the Act;
   
2. any broker acting for the offeror does not, in regard to the purchases, perform services beyond the customary broker's functions and does not receive more than the usual fees or commissions charged for comparable services performed by the broker in the normal course;
   
3. neither the offeror nor any person or company acting for the offeror solicits or arranges for the solicitation of offers to sell securities of the class subject to the bid, except for the solicitation by the offeror or members of the soliciting dealer group under the take-over bid; and
   
4. the seller or any person or company acting for the seller does not, to the knowledge of the offeror, solicit or arrange for the solicitation of offers to buy securities of the class subject to the bid.
   

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 the exemption.