Proposed National Instrument: NI - 62-102 - Disclosure of Outstanding Share Data

NOTICE OF NATIONAL INSTRUMENT 62-102
DISCLOSURE OF OUTSTANDING SHARE DATA

Substance and Purpose of Proposed National Instrument

Introduction

On October 20, 1995, the Ontario Securities Commission (the "Ontario Commission") published aproposed Rule, The Early Warning System and Related Take-Over Bid, Insider Trading andControl Block Distribution Issues⁽¹⁾ (the "Ontario Draft Rule") under the Securities Act (Ontario)(the "Ontario Act"). The Canadian Securities Administrators (the "CSA") have agreed to use theOntario Draft Rule as the basis for three national instruments that will regulate substantially thesame matters as the Ontario Draft Rule.

This Notice relates to proposed National Instrument 62-102 Disclosure of Outstanding ShareData (the "National Instrument"), which, in Ontario, amends and replaces part of the OntarioDraft Rule. This Notice summarizes both the proposed National Instrument and the changesmade from the Ontario Draft Rule. The CSA are publishing, concurrently with the proposedNational Instrument, proposed National Instrument 62-101 Control Block Distribution Issues andproposed National Instrument 62-103 The Early Warning System and Related Take-Over Bid andInsider Reporting Issues. Those proposed National Instruments are also based on the OntarioDraft Rule.

The proposed National Instrument is an initiative of the CSA, and it is expected to be adopted asa rule in each of British Columbia, Alberta, Manitoba, Ontario, and Nova Scotia, as a Commissionregulation in Saskatchewan, and as a policy in all the other jurisdictions represented by the CSA.

The proposed National Instrument implements, in part, the recommendation of the CSA TaskForce on Operational Efficiencies that Canadian securities regulatory authorities increase thecoordination of regulation, including standardization of requirements.

During the comment period for the Ontario Draft Rule, which expired on January 22, 1996, theOntario Commission received submissions on the Ontario Draft Rule from a broad range ofcommenters. These comments were summarized, together with Ontario Commission staffresponses, in the Staff Notice Summary of Comments and Status Report on Proposed Changes tothe Early Warning System and Related Take-Over Bid, Insider Reporting and Control BlockIssues,⁽²⁾ which was published on August 2, 1996 (the "1996 Ontario Staff Notice").

The Ontario Commission considered these comments with the other members of the CSA inconjunction with the development of the proposed National Instrument, which reflects thedecisions of the CSA in this regard. The proposed National Instrument has been reorganized toincrease clarity, and to conform to the style employed in other national instruments implementedby the CSA. In addition, a number of drafting changes to the Ontario Draft Rule have been madethroughout the proposed National Instrument to increase clarity.

Background

The proposed National Instrument concerns matters that the Ontario Commission first consideredin 1993 when it published a proposed refinement of the early warning, insider reporting, and take-over bid regimes on September 10, 1993⁽³⁾. For a complete discussion of the background to theproposed National Instrument, as well as general early warning issues, reference should be madeto the Notice of proposed National Instrument 62-103.

The proposed National Instrument is based on section 1.2 of the Ontario Draft Rule. Commentsreceived on the Ontario Draft Rule, and the related responses of the Ontario Commission staff,were summarized in the 1996 Ontario Staff Notice. The 1996 Ontario Staff Notice recommendedlimiting the requirement to disclose outstanding shares to disclosure in financial statements; it isanticipated that this change will reduce costs to issuers. Commission staff also recommendedseparating out the obligation to provide outstanding share data into the proposed NationalInstrument.

Purpose of the Proposed National Instrument

The primary purpose of the proposed National Instrument is to ensure reliable publicdissemination by reporting issuers of the designation and number or principal amount ofoutstanding securities of the reporting issuer. Reliable disclosure is essential for the purposes ofthe early warning requirements and the alternative monthly reporting system, contained inproposed National Instrument 62-103.

Summary of the Proposed National Instrument

This summary outlines the proposed National Instrument and notes certain changes that have beenmade in the proposed National Instrument from the Ontario Draft Rule.

The proposed National Instrument has been changed from the Ontario Draft Rule to remove allspecific references to the Ontario Act and the Ontario Regulation.

Part 1 INTERPRETATION

Part 1 provides that terms defined or interpreted in National Instrument 62-103 and used in theproposed National Instrument have the respective meanings ascribed to them in NationalInstrument 62-103.

Changes from the Ontario Draft Rule

Part 1 is new.

Part 2 DISCLOSURE OF OUTSTANDING SHARE DATA

Part 2 sets out the outstanding share information required to be disclosed by reporting issuers,and specifies the statements in which this disclosure is required to be included. Part 2 alsoincludes an exemption from these disclosure requirements for certain issuers.

Section 2.1 Disclosure of Outstanding Share Data

Subsection 2.1(1) requires a reporting issuer to include disclosure of outstanding share data ineither its annual and interim financial statements filed under securities legislation, or in asupplement to each of its annual and interim financial statements filed under securities legislation.If the reporting issuer uses the supplement option, the supplement must be filed and sent tosecurityholders with the applicable annual and interim financial statements.

Subsection 2.1(2) requires that the disclosure of outstanding share data must be prepared as of thelatest practicable date, and that disclosure for that date must also be included.

Subsection 2.1(3) sets out the actual disclosure requirements. A reporting issuer must disclosethe designation and number or principal amount of each class and series of its outstanding votingor equity securities. The same disclosure is required for each class and series of securities that areoutstanding and that are convertible into, or exercisable or exchangeable for, voting or equitysecurities. To the extent determinable, the same disclosure is also required for each class andseries of voting or equity securities into which, or for which, any securities of the reporting issuerare convertible, exercisable or exchangeable.

Changes from the Ontario Draft Rule

Section 2.1 of the proposed National Instrument was published as section 1.2 of the Ontario DraftRule. The first part of subsection 1.2(1) of the Ontario Draft Rule, which stated that writtendisclosure was only to be provided upon request of the person or company, has been deleted.Subsection 2.1(2) of the proposed National Instrument was published as the last part ofsubsection 1.2(2) of the Ontario Draft Rule, and it carries forward the requirement that theinformation disclosed be prepared as of the latest practical date, but it now also clarifies thatdisclosure for that date must be included.

The disclosure requirements contained in the proposed National Instrument are substantially thesame as in the Ontario Draft Rule. These provisions have been amended to require disclosure ofsecurities that are exercisable or exchangeable for voting or equity securities in addition tosecurities that are convertible into voting or equity securities.

Section 2.2 Relief

Section 2.2 provides relief for non-Canadian reporting issuers that report in other jurisdictionsfrom the disclosure requirements contained in section 2.1, if the conditions contained in either ofparagraphs 2.2(a) or (b) are satisfied.

Paragraph (a) provides an exemption for issuers with de minimis Canadian shareholdings. Thisexemption is available if the number of voting or equity securities of each class of the reportingissuer held by registered or beneficial securityholders in Canada must be less than 10 percent ofthe outstanding securities of the class, and if the reporting issuer publicly reports outstandingshare information on a periodic basis.

Paragraph (b) exempts reporting issuers that have a class of securities registered under section12(b) or 12(g) of the 1934 Act or that are required to file reports under section 15(d) of the 1934Act. Paragraph (b) requires that the reporting issuer report outstanding share information incompliance with the 1934 Act, and that the reporting issuer file a copy of all filings made underthe 1934 Act promptly after their filing with the SEC.

Changes from the Ontario Draft Rule

Section 2.2 of the Ontario Draft Rule is new.

Part 3 EXEMPTION

Part 3 permits the regulator or the securities regulatory authority, as appropriate, to grant anexemption to the proposed National Instrument.

Authority for Proposed National Instrument

In those jurisdictions in which the proposed National Instrument is to be adopted or made as arule or regulation, the securities legislation in each of those jurisdictions provides the securitiesregulatory authority with rule-making or regulation-making authority in respect to the subjectmatter of the proposed National Instrument.

In Ontario, the following provisions of the Ontario Act provide the Ontario Commission with theauthority to make the proposed National Instrument. Paragraphs 143(1)22 and 24 of the OntarioAct authorize the Ontario Commission to make rules in respect of additional continuousdisclosure obligations. Paragraph 143(1)(25) of the Ontario Act authorizes the OntarioCommission to make rules prescribing requirements in respect of financial accounting, reportingand auditing for purposes of the Ontario Act, the regulations and the rules. Paragraph 143(1)39of the Ontario Act authorizes the Ontario Commission to make rules requiring or respecting themedia, format, preparation, form, content, execution, certification, dissemination and other use,filing and review of all documents required under or governed by the Ontario Act.

Alternatives Considered

In the October 1995 Notice accompanying the publication of the Ontario Draft Rule for comment,the Ontario Commission outlined the alternatives to the Ontario Draft Rule, being the 1993 and1994 Proposals, that it had considered. The available alternatives have not changed.

Unpublished Materials

In proposing the proposed National Instrument, the CSA have not relied on any significantunpublished study, report or other written materials.

Anticipated Costs and Benefits

The CSA anticipate that investors will benefit through enhanced disclosure of outstanding sharedata, and reporting issuers will benefit by the enhanced confidence that investors and prospectiveinvestors may have in reporting issuers as a result of the disclosure.

There may be some relatively minor costs to reporting issuers associated with compliance with theproposed National Instrument, but the CSA have concluded that the benefits of the proposedNational Instrument outweigh any potential costs that may be associated with it.

Amendment of Regulation - Ontario

The adoption of the proposed National Instrument does not require that any regulation berevoked or amended.

Comments

Interested parties are invited to make written submissions with respect to the proposed NationalInstrument. Submissions received by December 7, 1998 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below incare of the Ontario Commission, in duplicate, as indicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Department of Government Services and Lands, Newfoundland and Labrador
Registrar of Securities, Northwest Territories
Registrar of Securities, Government of the Yukon Territory

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec asfollows:

Claude St Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect)should also be submitted. As securities legislation in certain provinces requires that a summary ofwritten comments received during the comment period be published, confidentiality ofsubmissions cannot be maintained.

Questions may be referred to any of:
Brenda Leong
British Columbia Securities Commission
(604) 899-6647

David Sheridan
Alberta Securities Commission
(403) 297-2630

Barbara Shourounis
Saskatchewan Securities Commission
(306) 787-5645

Douglas Brown
Manitoba Securities Commission
(204) 945-0605

Tanis J. MacLaren
Ontario Securities Commission
(416) 593-8259

Fernand Lavigne
Commission des valeurs mobilières du Québec
(514) 873-5326

Bill Slattery
Nova Scotia Securities Commission
(902) 424-7355

Proposed National Instrument

The text of the proposed National Instrument follows, together with footnotes that are not part ofthe National Instrument, but have been included to provide background and explanation.

DATED: September 4, 1998.

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NATIONAL INSTRUMENT 62-102⁽⁴⁾
DISCLOSURE OF OUTSTANDING SHARE DATA

 

PART 1 INTERPRETATION⁽⁵⁾

1.1 Interpretation - Terms defined or interpreted in National Instrument 62-103 The EarlyWarning System and Related Take-over Bid and Insider Reporting Issues and used in thisInstrument have the respective meanings ascribed to them in National Instrument 62-103.

PART 2 DISCLOSURE OF OUTSTANDING SHARE DATA

2.1 Disclosure of Outstanding Share Data

(1) A reporting issuer shall include the disclosure required by this section in

(a) its annual and interim financial statements filed under securities legislation⁽⁶⁾, or

(b) a supplement to each of its annual and interim financial statements filed undersecurities legislation, if the supplement is filed and sent to securityholders with theapplicable annual and interim financial statements.

(2) The disclosure prepared by a reporting issuer under this section shall be prepared as ofthe latest practicable date and shall include disclosure as of that date.

(3) The disclosure prepared by a reporting issuer under this section shall consist of thedesignation and number or principal amount of

(a) each class and series of voting or equity securities of the reporting issuer that areoutstanding;

(b) each class and series of securities of the reporting issuer that are outstanding andthat are convertible into, or exercisable or exchangeable for, voting or equitysecurities of the reporting issuer; and

(c) to the extent determinable, each class and series of voting or equity securities ofthe reporting issuer into which, or for which, any outstanding securities of thereporting issuer are convertible, exercisable or exchangeable.

2.2 Relief - Section 2.1 does not apply to a reporting issuer that is not incorporated,continued or organized under the laws of Canada or a jurisdiction⁽⁷⁾ if

(a) both

(i) the number of voting or equity securities of each class of the reporting issuer heldby registered or beneficial security holders in Canada is less than 10 per cent of theoutstanding securities of the class, and

(ii) the reporting issuer publicly reports outstanding share information periodically; or⁽⁸⁾

(b) the reporting issuer

(i) has a class of securities registered under section 12(b) or 12(g) of the 1934 Act⁽⁹⁾ oris required to file reports under section 15(d) of the 1934 Act,

(ii) reports outstanding share information in compliance with the 1934 Act, and

(iii) files a copy of all filings made under the 1934 Act promptly after their filingwith the SEC.

PART 3 EXEMPTION

3.1 Exemption

(1) The regulator⁽¹⁰⁾ or the securities regulatory authority⁽¹¹⁾ may grant an exemption to thisInstrument, in whole or in part, subject to such conditions or restrictions as may beimposed in the exemption.

(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.

Footnotes

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1. (1995), 18 OSCB 4893.

2. (1996), 19 OSCB 4221.

3. (1993), 16 OSCB 4539.

4. This National Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, asa Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by the Canadian Securities Administrators.

5. A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms usedin more than one national instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined inthe statute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, willhave the meaning given to it in that statute, unless the context otherwise requires. National Instrument 14-101 also provides that aprovision or a reference within a provision of a national instrument that specifically refers by name to a jurisdiction, other than the localjurisdiction, shall not have any effect in the local jurisdiction, unless otherwise stated in the provision.

6. The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning the particular statute and legislativeinstruments of the local jurisdiction set out in an appendix to that instrument and will generally include the statute, regulations and, in somecases, the rules, forms, rulings and orders relating to securities in the local jurisdiction.

The term "local jurisdiction" is defined in National Instrument 14-101 Definitions as meaning "in a national instrument adopted or madeby a Canadian securities regulatory authority, the jurisdiction in which the Canadian securities regulatory authority is situate".

The term "Canadian securities regulatory authorities" is defined in National Instrument 14-101 Definitions as meaning the securitiescommissions or similar regulatory authorities set out in an appendix to that instrument.

7. The term "jurisdiction" is defined in National Instrument 14-101 Definitions as meaning "a province or territory of Canada except whenused in the term foreign jurisdiction".

8. This provision provides an exemption for issuers with de minimis Canadian shareholders.

9. The term "1934 Act" is defined in National Instrument 14-101 Definitions as meaning "the Securities Exchange Act of 1934 of the UnitedStates of America".

10. The term "regulator" is defined in National Instrument 14-101 Definitions as meaning, in the local jurisdiction, the person set out in anappendix to that instrument opposite the name of the local jurisdiction.

11. The term "securities regulatory authority" is defined National Instrument 14-101 Definitions as meaning, for a local jurisdiction, thesecurities commission or similar regulatory authority set out in an appendix to that instrument opposite the name of the local jurisdiction.