Final Rule: OSC Rule - 45-503 - Trades to Employees, Executives and Consultants
Final Rule: OSC Rule - 45-503 - Trades to Employees, Executives and Consultants
NOTICE OF RULE 45-503 UNDER
THE SECURITIES ACT
TRADES TO EMPLOYEES, EXECUTIVES
AND CONSULTANTS
Notice of Rule
The Commission has, under Section 143 of the Securities Act (the "Act"), made Rule 45-503 Trades to Employees, Executives and Consultants (the "Rule").
The Rule and the material required by the Act to be delivered to the Minister of Financewere delivered on October 8, 1998. If the Minister does not approve the Rule, reject theRule or return it to the Commission for further consideration, the Rule will come into forceon December 22, 1998. If the Minister approves the Rule, the Rule will come into force 15days after it is approved.
Concurrently with making Rule 45-503, the Commission revoked subsections 69(4) and(5) of the Regulation and section 24 of Schedule 1 to the Regulation and has amendedsection 20 of Schedule 1 to the Regulation. See "Regulations Revoked or Amended"below.
Substance and Purpose of Rule
The substance and purpose of the Rule is to provide exemptions from the registration andprospectus requirements of the Securities Act (the "Act") for trades by issuers of theirsecurities to employees of the issuer and affiliated entities of the issuer and officers anddirectors of the issuer and affiliated entities of the issuer ("executives") and the subsidiaryentities, Registered Retirement Savings Plans ("RRSPs") and Registered RetirementIncome Funds ("RRIFs") of such persons, consultants of the issuer and their companies,partnerships, RRSPs and RRIFs and to and by trustees, custodians and administratorsacting on behalf or for the benefit of employees, executives and consultants("administrators"). The Rule also provides an exemption from the registration andprospectus requirements for distributions by controlling shareholders of issuers ofsecurities to these persons and entities. The Rule provides exemptions from theregistration requirements for trades by affiliated entities of issuers and, in the case ofcontrol person distributions, issuers as well, in furtherance of trades under the exemptionsin the Rule. The Rule also provides registration exemptions for trades by employees andexecutives of an issuer and their subsidiary entities, RRSPs and RRIFs and consultantsof an issuer and their companies, partnerships, RRSPs and RRIFs, and administrators, ifthe issuer has a de minimis market in Ontario.
These exemptions incorporate and extend the existing exemptions in paragraph 19 ofsubsection 35(1) and clause 72(1)(n) of the Act, as amended by the Red Tape ReductionAct (Ministry of Finance), 1997, which provide exemptions from the registration andprospectus requirements for trades made by an issuer in securities of its own issue withits employees or the employees of an affiliate who are not induced to purchase byexpectation of employment or continued employment, whether these trades take placedirectly between the issuer and the employee or through a trustee or an administrator ofa share purchase plan established for the benefit of employees of the issuer or itsaffiliates.
The Rule also incorporates and replaces the Rule In the Matter of Trades by an Issuer inSecurities of its Own Issue to Senior Officers, Directors, Personal Holding Companies andRegistered Retirement Savings Plans and a Controlling Shareholder in Securities of anIssuer to Employees, Senior Officers, Directors, Personal Holding Companies andRegistered Retirement Savings Plans (1997), 20 OSCB 1218, which came into force onMarch 1, 1997, which in turn incorporated the Blanket Ruling of the same name (1994),17 OSCB 5518 (the "Blanket Ruling"). That Rule expires on the earlier of the date onwhich this Rule comes into force and December 31, 1998.
Summary of Written Comments Received by the Commission
A proposed version of the Rule was published by the Commission for comment onFebruary 20, 1998 (1998), 21 OSCB 1122 (the "February 1998 Version"). TheCommission received three comment letters on the February 1998 Version. As a resultof staff's consideration of those comment letters, recommendations and deliberations ofthe Commission, the Commission published an amended version of the Rule on August21, 1998 (1998), 21 OSCB 5269 (the "August 1998 Version") for comment in accordancewith the requirements of subsection 143.2(7) of the Act. The changes made to the August1998 Version from the February 1998 Version, together with a summary of the commentsmade on the August 1998 Version, were described in a Commission Notice published withthe August 1998 Version.
The Commission received one comment letter on the August 1998 Version from PhilippeTardif, a member of the Securities Law Sub-Committee of the Business Law Section of theCanadian Bar Association. The commentator referred to the comment of the Sub-committee which was provided in connection with the February 1998 Version that theshareholder approval requirements of clause 3.2(a) of the Rule should parallel therequirements of section 632 of the TSE Company Manual, which provides that shareholderapproval of a share compensation arrangement may be given by way of confirmation atthe next meeting of shareholders following the establishment of the arrangement, providedthat no shares are issued pursuant to the arrangement prior thereto. The commentatornoted the response of the Commission which was contained in the Notice accompanyingthe February 1998 Version that this change would create a condition subsequent to theexemption which was not appropriate for a rule. The commentator was of the view thatwhere the incentive consists of an option, it would be appropriate for the shareholderapproval requirement in clause 3.2(a) of the Rule to be structured as a condition precedentto the exercise (but not the grant) of the option.
Although the Commission recognises that it would be desirable to provide issuers theflexibility to issue options where shareholder approval has not been obtained prior to thedate of issue if shareholder approval is obtained prior to the exercise of such options, thecommentator's proposal would impose an unenforceable condition on the option exercisesubsequent to the option grant. The Commission considered providing for separateprovisions which would make such a subsequent condition enforceable, either by removingthe exemptions contained in the Rule and subclause 72(1)(f)(iii) in such circumstances,or by imposing separate requirements relating to the exercise of options a breach of whichwould subject the issuer to the enforcement provisions of the Act. The Commission hasdeclined to adopt either of these approaches, as the Commission is of the view that suchprovisions would be inappropriate in a rule providing for exemptions from registration andprospectus requirements and would unduly complicate the provisions of the Rule.
Regulations Revoked or Amended
The Commission has, by regulation, revoked subsections 69(4) and (5) of the Regulationand section 24 of Schedule 1 to the Regulation and amended section 20 of Schedule 1 tothe Regulation to exclude from that provision fees relating to securities acquired on theexercise of service provider options.
The Notice accompanying the February 1998 Version indicated that the Commissionproposed to revoke subsection 69(3) of the Regulation. As noted in the Noticeaccompanying the August 1998 Version, as it is the Commission's intention that otherproposed rules will contain provisions similar to subsection 69(3) and that subsection 69(3)will be revoked at the time of the adoption of such rules, the Commission has made Rule45-503 without revoking subsection 69(3) at this time. In this regard, the Commissionnotes that Rule 45-503 does not conflict with subsection 69(3) of the Regulation.
The regulation is subject to the approval of the Minister of Finance and will not be effectivebefore the Rule comes into force.
Text of Rule
The text of the Rule follows. Apart from minor changes in wording in section 1.1 relatingto the definition of "consultant", and subsections 2.2(2) and 5.1(2), the Rule is unchangedfrom the August 1998 Version.
DATED: October 16, 1998
RULE 45-503TRADES TO EMPLOYEES, EXECUTIVES AND CONSULTANTS
TABLE OF CONTENTS
PART TITLE
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions 1
1.2 Interpretation 5
PART 2 TRADES BY AN ISSUER, AN AFFILIATED ENTITY ORADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEMPLOYEES, CONSULTANTS AND ADMINISTRATORS
2.1 Removal of Exemption for Trades under Paragraph 19 ofSubsection 35(1) and Clause 72(1)(n) of the Act 8
2.2 Exemption for Trades by an Issuer or Administrator of Securities ofthe Issuer's Own Issue to Employees, Consultants andAdministrators 8
2.3 Registration Exemption for Trades by an Affiliated Entity ofSecurities of the Issuer's Own Issue to Employees, Consultantsand Administrators in Furtherance of an Exempt Trade 8
2.4 De Minimis Registration Exemption for Trades by Employees,Consultants and Administrators 8
PART 3 TRADES BY AN ISSUER, AN AFFILIATED ENTITY ORADMINISTRATOR OF SECURITIES OF THE ISSUER'S OWN ISSUE TOEXECUTIVES AND ADMINISTRATORS
3.1 Exemption for Trades by a Listed Issuer or Administrator ofSecurities of the Issuer's Own Issue to Executives andAdministrators 9
3.2 Exemption for Trades by a Non-Listed Issuer or Administrator ofSecurities of the Issuer's Own Issue to Executives andAdministrators 9
3.3 Exemption for Securities of Foreign-Listed Issuers and De MinimisExemption for Trades by an Issuer or Administrator of Securities ofthe Issuer's Own Issue to Executives and Administrators 11
3.4 Registration Exemption for Trades by an Affiliated Entity ofSecurities of the Issuer's Own Issue to Executives andAdministrators in Furtherance of an Exempt Trade 11
3.5 De Minimis Registration Exemption for Trades by Executives andAdministrators 11
PART 4 REQUIRED INFORMATION FOR SHAREHOLDER APPROVAL
4.1 Required Information for Shareholder Approval 12
PART 5 CONTROL PERSON DISTRIBUTIONS TO EMPLOYEES, EXECUTIVES,CONSULTANTS AND ADMINISTRATORS
5.1 Exemption for Control Person Distributions to Employees,Executives, Consultants and Administrators 13
5.2 Exemption for Trades by an Issuer, an Affiliated Entity orAdministrator of Securities of the Issuer in Furtherance of a ControlPerson Distribution 13
PART 6 PERSONAL TRANSFERS
6.1 Personal Transfers 13
PART 7 REMOVAL OF CERTAIN EXEMPTIONS FOR TRADES OF SECURITIESOF CERTAIN COMPANIES
7.1 Removal of Certain Exemptions for Trades of Securities of CertainCompanies 14
PART 8 TRADES MADE BY CURRENT OR FORMER EMPLOYEES,EXECUTIVES OR CONSULTANTS, OR ADMINISTRATORS OFSECURITIES OF CERTAIN NON-REPORTING ISSUERS
8.1 Exemption for Trades Made by Current or Former Employees,Executives or Consultants, or Administrators of Securities ofCertain Non-Reporting Issuers 14
8.2 Registration Exemption for Trades by an Issuer or an AffiliatedEntity of Securities of the Issuer in Furtherance of Exempt Tradesmade by Current or Former Employees, Executives or Consultantsof Certain Non-Reporting Issuers 15
PART 9 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIREDUNDER EXEMPTIONS IN RULE
9.1 Restrictions on First Trades in Securities Acquired UnderExemptions in Rule 16
PART 10 DISCLOSURE OF EXEMPT TRADES 18
10.1 Disclosure 18
10.2 Disclosure Before Resale 18
10.3 Annual Disclosure 18
10.4 Monthly Disclosure 19
10.5 Form of Disclosure 19
PART 11 FEES
11.1 Fees 19
PART 12 EXEMPTION
12.1 Exemption 20
TRADES TO EMPLOYEES, EXECUTIVES AND CONSULTANTS
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions - In this Rule
"administrator" means an employee administrator or an executiveadministrator;
"associated consultant" means, for an issuer, a consultant of the issuer orof an affiliated entity of the issuer if
(a) the consultant is an associate of the issuer or of an affiliated entity ofthe issuer, or
(b) the issuer or an affiliated entity of the issuer is an associate of theconsultant;
"consultant" means, for an issuer, an individual, other than an employee oran executive of the issuer, that
(a) is engaged to provide on a bona fide basis consulting, technical,management or other services to the issuer or to an affiliated entityof the issuer under a written contract between the issuer or theaffiliated entity and the individual or a consultant company orconsultant partnership of the individual, and
(b) in the reasonable opinion of the issuer, spends or will spend asignificant amount of time and attention on the affairs and businessof the issuer or an affiliated entity of the issuer;
"consultant company" means, for an individual consultant, a company ofwhich the individual consultant is an employee or shareholder;
"consultant partnership" means, for an individual consultant, a partnershipof which the individual consultant is an employee or partner;
"employee" means, for an issuer, an employee of the issuer or of anaffiliated entity of the issuer, other than an executive of the issuer;
"employee administrator" means, for an issuer, a trustee, custodian oradministrator acting on behalf or for the benefit of employees, consultants,employees and executives, employees and consultants, executives andconsultants, or employees, executives and consultants, of the issuer;
"executive" means, for an issuer, an issuer-officer or an issuer-director;
"executive administrator" means, for an issuer, a trustee, custodian oradministrator acting on behalf or for the benefit of executives, employeesand executives, executives and consultants, or employees, executives andconsultants, of the issuer;
"foreign-listed issuer" means an issuer any of the securities of which arelisted and posted for trading, or traded, on the American Stock Exchange,the New York Stock Exchange or the London Stock Exchange Limited orquoted on the Nasdaq Stock Market;
"hold period" means that period of either six, 12 or 18 months that would beapplicable to a security, or an underlying security, if the security orunderlying security had been acquired under an exemption referred to insubsection 72(4) of the Act;
"incentive" means a compensation or incentive arrangement for anexecutive;
"incentive plan" means a plan providing for incentives;
"investor consultant" means, for an issuer, a consultant that is a registrantor provides to the issuer or an affiliated entity of the issuer services providedby a registrant or services consisting of investor relations activities;
"investor relations activities" means any activities that promote or reasonablycould be expected to promote the purchase or sale of securities of the issueror an affiliated entity of the issuer, other than
(a) the dissemination of information provided, or records prepared, in theordinary 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 therequirements of
(i) Ontario securities law, or
(ii) the by-laws, rules or other regulatory instruments of a SRO;
"issuer-director" means, for an issuer, a director of the issuer or of anaffiliated entity of the issuer;
"issuer-officer" means, for an issuer, an officer of the issuer or of an affiliatedentity of the issuer4;
"listed issuer" means an issuer any of the securities of which are listed andposted for trading, or traded, on The Toronto Stock Exchange, The MontrealExchange, the Alberta Stock Exchange or the Vancouver Stock Exchange;
"non-transferable option" means an option the terms of which prohibittransfer 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 atrade, or
(c) a transfer to
(i) a spouse of the option holder,
(ii) a minor child of the option holder,
(iii) a minor grandchild6 of the option holder, or
(iv) a trust, of which at least one of the trustees is the optionholderand the beneficiaries of which are one or more of theoption holder and a person referred to in subparagraph (i), (ii)and (iii);
"outstanding issue" means
(a) for the purposes of subparagraphs 3.2(a)(ii) and (iv), the number ofshares of the applicable class outstanding immediately before theshare issuance for which the determination is to be made, excludingshares issued as or under incentives during the preceding 12 monthperiod, or
(b) otherwise, the number of shares of the applicable class outstanding;
"related person", for an issuer, means
(a) a director or senior officer of the issuer, or
(b) an associate of a director or senior officer of the issuer;
"service provider option" means an option granted to an employee, anexecutive or a consultant;
"service provider plan" means a plan providing for the grant or issue ofsecurities to employees, executives, consultants or any combination ofemployees, executives and consultants;
"shareholder approval" means, for an incentive, incentive plan, oramendment to an incentive or incentive plan, of an issuer, approval given bya majority of the votes cast at a meeting of the shareholders of the issuerother than votes attaching to securities beneficially owned by
(a) related persons to whom securities may be issued under the incentiveor incentive plan, and
(b) associates of the persons referred in paragraph (a);
"support agreement" includes an agreement to provide assistance in themaintenance or servicing of indebtedness of the borrower and an agreementto provide compensation for the purpose of maintaining or servicingindebtedness of the borrower; and
"underlying security" means
(a) a security that is issued or transferred in accordance with the termsof a convertible security, or
(b) any other security issued or transferred as a result of the conversionor exchange, directly or indirectly, of the first security referred to inparagraph (a) or a security 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'sconsultant company, the consultant's consultant partnership,or a RRSP or a RRIF established by or for the consultant orunder which the consultant is the beneficiary;
(b) an employee, includes trades made to or by a subsidiary entityof the employee or a RRSP or a RRIF established by or for theemployee or under which the employee is the beneficiary; and
(c) an executive, includes trades made to or by a subsidiary entityof the executive or a RRSP or a RRIF established by or for theexecutive or under which the executive is the beneficiary.
(2) In this Rule, a person or company is considered to be an affiliatedentity of another person or company if one is a subsidiary entity of theother or if both are subsidiary entities of the same person orcompany, or if each of them is controlled by the same person orcompany.
(3) In this Rule, a person or company is considered to be controlled bya person or company if
(a) in the case of a person or company
(i) voting securities of the first-mentioned person orcompany carrying more than 50 percent of the votes forthe election of directors are held, otherwise than by wayof security only, by or for the benefit of the other personor company, and
(ii) the votes carried by the securities are entitled, ifexercised, 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, otherthan a limited partnership, the second-mentioned person orcompany holds more than 50 percent of the interests in thepartnership; or
(c) in the case of a limited partnership, the general partner is thesecond-mentioned person or company.
(4) In this Rule, a person or company is considered to be a subsidiaryentity 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, eachof which is controlled by that other, or
(iii) two or more persons or companies, each of which iscontrolled by that other; or
(b) it is a subsidiary entity of a person or company that is thatother's subsidiary entity.
(5) In this Rule, the term "special relationship", when used in referenceto a person or company in a special relationship with a reportingissuer, shall be interpreted in accordance with subsection 76(5) of theAct.
(6) In this Rule, the participation of an employee, issuer-officer orconsultant in a trade is considered voluntary if the employee, officeror consultant is not induced to purchase the security
(a) in the case of an employee, by expectation of the employee'semployment or continued employment by the issuer or anaffiliated entity of the issuer;
(b) in the case of an issuer-officer of the issuer or an affiliatedentity of the issuer, by expectation of the issuer-officer'sappointment or employment or continued appointment oremployment as an issuer-officer of the issuer; and
(c) in the case of a consultant, by expectation of the individualconsultant, the consultant's consultant company or theconsultant's consultant partnership being engaged orcontinuing to be engaged by the issuer or an affiliated entity ofthe issuer as a consultant;
(7) In this Rule, an issuer is considered to have a de minimis Ontariomarket if, at the relevant time, in the case of securities of each classof the issuer
(a) persons or companies whose last address as shown on thebooks of the issuer is in Ontario and who held securities of theclass of securities
(i) did not hold more than 10 percent of the outstandingsecurities of the class of securities, and
(ii) did not represent in number more than 10 percent ofthe total number of holders of securities of the class ofsecurities; or
(b) persons or companies who are in Ontario and who beneficiallyown securities of the class of securities
(i) did not beneficially own more than 10 percent of theoutstanding securities of the class of securities, and
(ii) did not represent in number more than 10 percent ofthe total number of holders of securities of the class ofsecurities.
PART 2 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOROF SECURITIES OF THE ISSUER'S OWN ISSUE TO EMPLOYEES,CONSULTANTS AND ADMINISTRATORS
2.1 Removal of Exemption for Trades under Paragraph 19 of Subsection35(1) and Clause 72(1)(n) of the Act - The exemptions contained inparagraph 19 of subsection 35(1) and clause 72(1)(n) of the Act are notavailable for a trade.
2.2 Exemption for Trades by an Issuer or Administrator of Securities of theIssuer's Own Issue to Employees, Consultants and Administrators
(1) Sections 25 and 53 of the Act do not apply to a trade by an issuer oran employee administrator of an issuer in a security of the issuer'sown issue to an employee of the issuer, a consultant of the issuer oran employee administrator of the issuer, if the participation of theemployee or the consultant in the trade is voluntary.
(2) The exemptions in subsection (1) are not available for a trade to aregistrant that is a consultant in connection with services provided bythe registrant relating to a distribution.
2.3 Registration Exemption for Trades by an Affiliated Entity of Securitiesof the Issuer's Own Issue to Employees, Consultants andAdministrators in Furtherance of an Exempt Trade - Section 25 of the Actdoes not apply to a trade by an affiliated entity of the issuer in furtheranceof a trade under section 2.2.
2.4 De Minimis Registration Exemption for Trades by Employees,Consultants and Administrators - Section 25 of the Act does not apply toa trade by an employee of an issuer, a consultant of an issuer, or anemployee administrator of an issuer on behalf of an employee or aconsultant of an issuer, in a security of the issuer's own issue, if
(a) the issuer is not a reporting issuer;
(b) at the time of the acquisition of the security, or in the case of asecurity acquired on the exercise of a convertible security at the timeof the acquisition of the convertible security, the issuer has a deminimis Ontario market; and
(c) 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 theLondon Stock Exchange Limited.
PART 3 TRADES BY AN ISSUER, AN AFFILIATED ENTITY OR ADMINISTRATOROF SECURITIES OF THE ISSUER'S OWN ISSUE TO EXECUTIVES ANDADMINISTRATORS
3.1 Exemption for Trades by a Listed Issuer or Administrator of Securitiesof the Issuer's Own Issue to Executives and Administrators - Sections25 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 to anexecutive of the issuer or an executive administrator of the issuer, if
(a) the issuer is a listed issuer; and
(b) in the case of an executive that is an officer, the participationof the issuer-officer in the trade is voluntary.
3.2 Exemption for Trades by a Non-Listed Issuer or Administrator ofSecurities of the Issuer's Own Issue to Executives and Administrators -Sections 25 and 53 of the Act do not apply to a trade by an issuer which isnot a listed issuer or an executive administrator of the issuer in a security ofthe issuer's own issue to an executive of the issuer or an executiveadministrator of the issuer, if
(a) in the case of the issue of a security as an incentive, priorshareholder approval has been obtained for the incentive orthe incentive plan under which the incentive is issued if theissue of the incentive is under an incentive plan, and anyamendments to the incentive or incentive plan, if the incentiveor incentive plan, if amended, as amended, together with all ofthe issuer's other previously established or proposedincentives or incentive plans, could result, at any time, in
(i) the number of shares reserved for issuance under stockoptions granted to related persons exceeding 10percent of the outstanding issue,
(ii) the issuance to related persons, within a 12 monthperiod, of a number of shares exceeding 10 percent ofthe outstanding issue,
(iii) the number of shares reserved for issuance under stockoptions granted to any one related person and therelated person's associates exceeding five percent ofthe outstanding issue, or
(iv) the issuance to any one related person and the relatedperson's associates, within a 12 month period, of anumber of shares exceeding five percent of theoutstanding issue;
(b) in the case of the issue of a security as an incentive, theincentive or incentive plan specifies a maximum number ofsecurities, or in the case of options, of underlying 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 to purchase securitiesof the issuer; and
(d) in the case of an executive that is an issuer-officer, theparticipation of the issuer-officer in the trade is voluntary.
3.3 Exemption for Securities of Foreign-Listed Issuers and De MinimisExemption for Trades by an Issuer or Administrator of Securities of theIssuer's Own Issue to Executives and Administrators - Sections 25 and53 of the Act do not apply to a trade by an issuer that is not a listed issueror an executive administrator of the issuer in a security of the issuer's ownissue to an executive of the issuer or an executive administrator of the issuer
(a) if the issuer is not a reporting issuer;
(b) if
(i) the issuer is a foreign-listed issuer, or
(ii) at the time of the trade, the issuer has a de minimisOntario market; and
(c) in the case of an executive that is an issuer-officer, if theparticipation of the issuer-officer in the trade is voluntary.
3.4 Registration Exemption for Trades by an Affiliated Entity of Securitiesof the Issuer's Own Issue to Executives and Administrators inFurtherance of an Exempt Trade - Section 25 of the Act does not apply toa trade by an affiliated entity of the issuer in furtherance of a trade undersection 3.1, section 3.2 or section 3.3.
3.5 De Minimis Registration Exemption for Trades by Executives andAdministrators - Section 25 of the Act does not apply to a trade by anexecutive of an issuer, or an executive administrator of an issuer on behalfof an executive of the issuer, in a security of the issuer's own issue, if
(a) the issuer is not a reporting issuer;
(b) at the time of the acquisition of the security, or in the case of asecurity acquired on the exercise of a convertible security at the timeof the acquisition of the convertible security, the issuer has a deminimis Ontario market; and
(c) 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 theLondon Stock Exchange Limited.
PART 4 REQUIRED INFORMATION FOR SHAREHOLDER APPROVAL
4.1 Required Information for Shareholder Approval - In addition to any otherrequirements of Ontario securities law, if an issuer presents to itsshareholders an incentive, incentive plan, or amendment to an incentive orincentive plan, for approval as contemplated by section 3.2, the issuer shalldisclose in the information circular for the meeting information respecting theincentive, incentive plan or the amendment to the incentive or incentive planin sufficient detail to permit shareholders to form a reasoned judgmentconcerning the matter, including
(a) the eligibility of employees, issuer-officers, issuer-directorsand consultants to be issued securities under the incentive orincentive plan or amendments18;
(b) the maximum number of securities, or in the case of options,of underlying securities, issuable under the incentive orincentive plan;
(c) particulars relating to any financial assistance or supportagreement to be provided to participants by the issuer or anyaffiliated entity of the issuer to facilitate the purchase of sharesunder the incentive or incentive plan, including whether theassistance or support is to be provided on a full-, part- or non-recourse basis;
(d) in the case of options, the maximum term and the basis for thedetermination of the exercise price18;
(e) particulars relating to the options or other entitlements to begranted under the incentive or incentive plan; and
(f) the number of votes attaching to securities that, to the issuer'sknowledge at the time the information is provided, will not beincluded for the purposes of determining whether shareholderapproval 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
(1) Sections 25 and 53 of the Act do not apply to a control persondistribution of a security of an issuer or an option of which theunderlying security is a security of an issuer to an employee of theissuer, an executive of the issuer, a consultant of the issuer or anadministrator of the issuer or by the administrator of that security toan employee of the issuer, an executive of the issuer or a consultantof the issuer, if
(a) for a trade that consists of the grant of an option, the option isa non-transferable option to purchase securities of the issuer;and
(b) the participation of the employee, the consultant, or in the caseof an executive that is an issuer-officer, the issuer-officer, inthe trade is voluntary.
(2) The exemptions in subsection (1) are not available for a trade to aregistrant that is a consultant in connection with services provided bythe registrant relating to a distribution.
5.2 Exemption for Trades by an Issuer, an Affiliated Entity or Administratorof Securities of the Issuer in Furtherance of a Control PersonDistribution - Section 25 of the Act does not apply to a trade by an issueror an affiliated entity of the issuer in furtherance of a trade under section 5.1.
PART 6 PERSONAL TRANSFERS
6.1 Personal Transfers - Section 25 of the Act does not apply to a trade in asecurity of an issuer
(a) between any of an employee of the issuer, a subsidiary entity of thatemployee, a RRSP established by or for that employee or underwhich that employee is the beneficiary and a RRIF established by orfor that employee or under which that employee is the beneficiary;
(b) between any of an executive of the issuer, a subsidiary entity of thatexecutive, a RRSP established by or for that executive or under whichthat executive is the beneficiary and a RRIF established by or for thatexecutive or under which that executive is the beneficiary; or
(c) between any of an individual who is a consultant of the issuer, thatindividual's consultant company, that individual's consultantpartnership, a RRSP established by or for that individual or underwhich that individual is the beneficiary and a RRIF established by orfor that individual or under which that individual is the beneficiary.
PART 7 REMOVAL OF CERTAIN EXEMPTIONS FOR TRADES OF SECURITIESOF CERTAIN COMPANIES
7.1 Removal of Certain Exemptions for Trades of Securities of CertainCompanies - The exemptions contained in paragraph 10 of subsection35(2) and clause 73(1)(a) of the Act are not available for a trade of a securityof a subsidiary company of an employee or an executive, or a consultantcompany, if the company has acquired securities under an exemptioncontained in this Rule and at the time of the trade holds the securities,unless a trade of the securities acquired by the company to the purchaserwould have been permitted under section 9.1.
PART 8 TRADES MADE BY CURRENT OR FORMER EMPLOYEES, EXECUTIVESOR CONSULTANTS, OR ADMINISTRATORS OF SECURITIES OFCERTAIN NON-REPORTING ISSUERS
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 orformer employee of an issuer, a current or former executive of anissuer, a current or former consultant of an issuer or an administratorof an issuer in a security of the issuer to an employee of the issuer,an executive of the issuer, a consultant of the issuer or anadministrator of the issuer, if
(a) the participation in the trade of the employee, the consultant,or in the case of an executive that is an issuer-officer, theissuer-officer, 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 agenerally applicable formula or similar provisions contained ina written agreement among some or all of the shareholders ofthe issuer to which the transferee is, or upon becoming atransferee, will be required to be, a party.
(2) In this section, the references to "current" and "former" refer to thestatus at the relevant time of the individual employee, the individualexecutive and, in the case of a consultant, the status of the individualconsultant or the consultant's consultant company or consultantpartnership.
8.2 Registration Exemption for Trades by an Issuer or an Affiliated Entityof Securities of the Issuer in Furtherance of Exempt Trades made byCurrent or Former Employees, Executives or Consultants of CertainNon-Reporting Issuers - Section 25 of the Act does not apply to a trade byan issuer or an affiliated entity of the issuer in furtherance of a trade undersection 8.1.
PART 9 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDEREXEMPTIONS IN RULE
9.1 Restrictions on First Trades in Securities Acquired Under Exemptionsin Rule
(1) A person or company, other than an associated consultant or aninvestor consultant of the issuer of the security, may trade a securityacquired under the exemption from the requirements of section 53 ofthe Act contained in section 2.2, section 3.1, section 3.2, section 3.3,section 5.1 or section 8.1 or in the circumstances described inparagraph (d) only
(a) if the first trade is made under a prospectus for which a receipthas been obtained from the Director;
(b) if the first trade is made under an exemption in Ontariosecurities law from section 53 of the Act;
(c) if
(i) at the time of the trade, the issuer of the security is areporting issuer and has been a reporting issuer for atleast 12 months,
(ii) in the case of a person or company that is in a specialrelationship with the issuer, the person or company hasreasonable grounds to believe that the issuer is not indefault under the Act or the regulations,
(iii) in the case of a security acquired under the exemptioncontained in section 2.2, section 3.1, section 3.2 orsection 5.1, disclosure to the Commission has beenmade of the trade under section 2.2, section 3.1,section 3.2 or section 5.1 in accordance with Part 10,
(iv) no unusual effort is made to prepare the market or tocreate a demand for the security and no extraordinarycommission or consideration is paid for the trade, and
(v) the trade is not a control person distribution; 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 maytrade a security of the issuer acquired, or an underlying security ofthe issuer acquired directly or indirectly as a result of acquiring asecurity, under the exemption from the requirements of section 53 ofthe Act contained in section 2.2 or section 5.1 or in the circumstancesdescribed in paragraph (d) only
(a) if the first trade is made under a prospectus for which a receipthas been obtained from the Director;
(b) if the first trade is made under an exemption in Ontariosecurities law from section 53 of the Act;
(c) if
(i) at the time of the trade, the issuer of the security is areporting issuer,
(ii) in the case of a person or company that is in a specialrelationship with the issuer, the person or company hasreasonable grounds to believe that the reporting issueris not in default under the Act or the regulations,
(iii) in the case of a security acquired under the exemptionin section 2.2 or section 5.1, disclosure to theCommission 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 ofthe acquisition of the security acquired under theexemption in section 2.2 or section 5.1 and the date theissuer of the security became a reporting issuer,
(v) no unusual effort is made to prepare the market or tocreate a demand for the security and no extraordinarycommission 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
10.1 Disclosure - The disclosure contemplated by section 9.1 for securitiesacquired under the exemptions contained in sections 2.2, 3.1, 3.2 and 5.1shall, and the disclosure contemplated by clause 72(5)(b) of the Act forsecurities acquired on the exercise of service provider options under theexemption contained in subclause 72(1)(f)(iii) of the Act may, be made inaccordance with this Part.
10.2 Disclosure Before Resale - The disclosure referred to in section 10.1 maybe made by the issuer or, for securities acquired under the exemptioncontained in section 5.1, by the issuer or the person or company making thedistribution, by disclosing the date of the trade, the number of securitiespurchased and the purchase price paid or to be paid, in
(a) an information circular or take-over bid circular filed inaccordance with the regulations; or
(b) a letter filed by a person or company certifying that the personor the company has knowledge of the facts contained in theletter
if in either case the filing is effected before any resale of the securities.
10.3 Annual Disclosure - The disclosure referred to in section 10.1 may also bemade by the issuer, for a service provider plan, when the service providerplan is commenced and, for securities issued or traded other than under aservice provider plan, when the initial security is issued or traded, and notless frequently than annually after the first disclosure, if the number ofsecurities of the class of securities issued or sold in any calendar month inreliance on the exemptions described in section 10.1 does not exceed onepercent of the securities of that class that were outstanding at the beginningof the calendar month in which the securities were issued or sold.
10.4 Monthly Disclosure
(1) If the number of securities of the class of securities issued or sold inany calendar month in reliance on the exemptions described insection 10.1 does exceed one percent of the securities of that classthat were outstanding at the beginning of the calendar month in whichthe securities were issued or sold, the disclosure referred to insection 10.1 may be made by the issuer for that calendar month,within 10 days after the end of the month.
(2) The issuer may make disclosure in accordance with section 10.3 forthe other calendar months in the annual period excluding such monthor months for which disclosure has been made under subsection (1).
10.5 Form of Disclosure - For the purposes of sections 10.3 and 10.4, thedisclosure may be made in the form of a letter filed disclosing the date of thetrade, the number of securities purchased and the purchase price paid or tobe paid, and certifying that the person or the company has knowledge of thefacts contained in the letter.
PART 11 FEES
11.1 Fees
(1) The issuer shall pay a fee of $100.00 for the securities issued underthe exemptions contained in sections 2.2, 3.1, 3.2 and 3.3 andsecurities acquired on the exercise of service provider options inreliance on the exemption contained in subclause 72(1)(f)(iii) of theAct and, subject to subsection (3), the person or company making thedistribution shall pay a fee of $100.00 for the securities distributedunder 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 ofthe service provider plan, if securities were issued ordistributed in Ontario under the service provider planduring the twelve-month period preceding the date ofthe anniversary; and
(b) if securities are issued or distributed under these exemptionsother 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 ordistribution of the initial security, if additional securitieswere issued or distributed in Ontario by that person orcompany during the 12 month period before the date ofthe anniversary.
(2) Despite subsection (1), no fee shall be payable for securitiesacquired under the exemptions contained in this Rule for a trade byan employee administrator or executive administrator to an employee,an executive or a consultant.
(3) The issuer may pay the fee for securities distributed under theexemption contained in section 5.1 referred to in subsection (1) andin this case the person or company making the distribution shall notbe required to make that payment.
PART 12 EXEMPTION
12.1 Exemption - The Director may grant an exemption to this Rule, in whole orin part, subject to such conditions or restrictions as may be imposed in theexemption.