NIN 95/06 - Draft Amendments to Form 30 and Additional Draft Amendments to Section 146 of the Securities Regulation [NIN - Rescinded]
| Published Date: | 1995-01-13 |
|---|---|
| Effective Date: | 1995-01-12 |
Background
The draft amendments to Form 30 are published in response to the findings of the Matkin Report on reverse takeover transactions. A reverse takeover ("RTO") is a transaction or series of transactions through which a private company is acquired by a listed company in a way that results in the shareholders of the private company controlling the listed company.
The Matkin Report concluded that RTOs are "back-door" listings which are particularly vulnerable to abuse in a junior venture market and should, therefore, be subject to the same standards of public disclosure and review that are applied to initial public offerings.
In response to the Report, the Commission announced that it would require the Vancouver Stock Exchange ("VSE") to impose prospectus level disclosure and review on RTOs and that it would amend Form 30 to ensure that prospectus level disclosure is provided where shareholders are asked to approve an RTO.
The VSE is currently finalizing its revised policy on RTO transactions. The policy will ensure that there is prospectus level disclosure in the Statement of Material Facts ("SMF") relating to an RTO and, when an SMF is not being filed, will require prospectus level disclosure in the Filing Statement relating to the RTO. The Filing Statement is a disclosure document filed with the VSE disclosing material changes in the affairs of the issuer. Under the Policy, the Filing Statement on SMF must provide full, true and plain disclosure of all material facts relating to the RTO, the listed issuer and the non-reporting issuer or the business to be acquired.
In addition, the VSE policy will require the listed issuer to issue a news release disclosing that a Filing Statement or SMF concerning the RTO has been filed with the VSE and placed in the public file of the issuer. The news release will also summarize the information contained in the Filing Statement or the SMF, and advise that the issuer will provide interested parties with a copy of the relevant document free of charge upon request.
Draft Amendments to Form 30
Several concerns have been identified with extending prospectus level disclosure requirements to information circulars. The information circular must be finalized earlier in the RTO process than the Filing Statement or SMF to satisfy corporate and securities law requirements relating to meetings of shareholders, including the requirements relating to shareholder communication. As a result, the information circular may contain information about the RTO that is ultimately incomplete or inaccurate. The solution to this problem would be to require the listed issuer to wait until the terms of the RTO are finalized before completing the information circular. This, however, would cause additional delays in the transaction. As well, the information circular is prepared for the benefit of the existing shareholders of the listed issuer, arguably a group of shareholders that is less in need of the protection of the Securities Act than the shareholders who will acquire securities of the listed issuer in the secondary market on the basis of the proposed RTO.
In light of these concerns and of the VSE's revised policy on RTOs, which will result in prospectus level disclosure being provided in the Filing Statement or SMF, the Commission concluded that it may not be necessary or appropriate to impose the same requirement in the information circular prepared in connection with a meeting of shareholders called to approve the RTO. The Commission is instead proposing to amend item 11 of Form 30 to require disclosure of certain specific information required by the form of prospectus applicable to the non-reporting issuer (private company) or business to be acquired through the RTO (Form 12A, if a junior industrial issuer and Form 14A, if a junior natural resource issuer). The Commission believes that this disclosure will provide sufficient information for shareholders to form a reasoned judgement on the proposed RTO.
In addition, the Commission is proposing to amend item 11 of Form 30 to require the listed issuer to disclose in its information circular that a Filing Statement or a SMF with respect to the RTO will be filed with the VSE. The information circular will also have to disclose that a news release will be issued
- advising that a copy of the Filing Statement or SMF may be obtained free of charge from the listed issuer.
The Commission believes that this additional disclosure in the information circular and the actual issuance of the news release and availability of the Filing Statement or SMF will give existing as well as prospective shareholders of the listed issuer access to prospectus level disclosure about the proposed RTO.
Draft Amendments to Section 146
To ensure that the Commission's continuous disclosure record is complete, and to ensure that representations to the public are subject to the full range of enforcement provisions of the Act, the Commission proposes to seek a further amendment to section 146 of the Regulation to require the filing of the final version of any disclosure record not already filed with the Commission but filed with an exchange under the bylaws, rules or regulations of that exchange.
Other Proposed Amendments to Form 30
The Commission is also proposing to update the disclosure required under item 11 of Form 30 where shareholder approval is required for an amalgamation, merger, arrangement or reorganization. This proposed change would bring British Columbia's disclosure requirements in this area in line with those of the Ontario Securities Commission.
Request for Comment
The Commission is requesting written comment on the draft amendments to item 11 of Form 30 and to section 146 of the Regulation.
Comment letters should be submitted by February 28, 1995 to:
Brenda J. Benham
A/Director, Policy & Legislation
British Columbia Securities Commission
100-865 Hornby Street
Vancouver, B.C.
V6Z 2H4
Comment letters submitted in response to Requests for Comment are placed in the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation may require the Commission to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.
DATED at Vancouver, British Columbia, on January 12, 1995.
Douglas M. Hyndman
Chair
Attachments
References: NIN#94/13
NIN#94/15
Draft Amendments to Form 30
Item 11 - Particulars of Matters to be Acted Upon
If action is to be taken on any matter to be submitted to the meeting of security holders, other than the approval of financial statements, the substance of the matter or related groups of matters should be described, except to the extent described pursuant to the foregoing items, in sufficient detail to permit security holders to form a reasoned judgment concerning the matter.
Without limiting the generality of the foregoing, such matters include alterations of share capital, charter amendments, property acquisitions or dispositions, amalgamations, mergers, arrangements, reorganizations or reverse takeovers.
Amalgamation, Merger, Arrangement or Reorganization
Where an information circular is prepared in connection with a meeting of security holders at which action is to be taken in respect of an amalgamation, merger, arrangement or reorganization, pursuant to which securities are to be issued, offered in exchange or otherwise distributed, the information circular shall include the information prescribed by the form of prospectus appropriate for each issuer whose securities are being issued, offered in exchange or otherwise distributed in connection with the amalgamation, merger, arrangement or reorganization with appropriate modifications; this requirement does not apply to a reorganization where the number of outstanding securities of an issuer is changed into a different number of securities of the same class and series.
In addition, where an amalgamation, arrangement, merger or reorganization would result in the acquisition of a business by an issuer and that acquisition is material to the issuer, the information circular of that issuer shall include the financial information about the business to be acquired that would be included in a prospectus if the proceeds of the offering under the prospectus were to be applied, in whole or in part, directly or indirectly, to finance the acquisition of a business by a purchase of assets or shares.
Reverse Takeover
The requirements set out under the caption "Amalgamation, Merger, Arrangement or Reorganization" do not apply to an
information circular prepared in connection with a meeting of security holders at which action is to be taken in respect of one or more transactions resulting in a reverse takeover ("RTO") as contemplated by the Vancouver Stock Exchange ("VSE") policy on RTO transactions.
In the case of a RTO, reference should be made to the prospectus form applicable to the non-reporting issuer or business to be acquired for the applicable disclosure requirements. The information included in the information circular must permit security holders to form a reasoned judgment concerning the transaction. The relevant prospectus form is
(a) Form 12A, where the non-reporting issuer is a junior industrial issuer or the business to be acquired would create a junior industrial issuer; or
(b) Form 14A, where the non-reporting issuer is a junior natural resource issuer or the business to be acquired would create a junior natural resource issuer.
For greater certainty, and without limiting the generality of the foregoing, where the relevant form of prospectus is Form 12A, the information circular must contain, with appropriate modifications, the information relating to the non-reporting issuer or business to be acquired called for by the following items of Form 12A:
(a) item 4.1 (name and incorporation);
(b) items 5.1 (description and general development), 5.3 (stated business objectives), 5.4 (milestones), 5.5 (acquisitions and dispositions), 5.6 (management) and 5.14 (administration);
(c) item 7(a) (risks related to the nature of the business);
(d) item 8 (directors, officers and promoters);
(e) items 10.1 (executive compensation), 10.2 (a) to (c) and (d)(i) (related party transactions), and 10.3 (proposed compensation);
(f) item 11.2(b) (securities subject to options);
(g) item 18 (legal proceedings); and
(h) item 22 (other material facts).
Similarly, where the relevant form of prospectus is Form 14A, the information circular must contain, with appropriate modifications, the information relating to the non-reporting issuer or the business to be acquired called for by the following items of Form 14A:
(a) item 4.1 (name and incorporation);
(b) item 5.1 (description and general development);
(c) for mineral properties, items 6.1(location, description and acquisition), 6.2 (exploration and development history), 6.4 (proposed exploration and development program) and 6.5 (other properties);
(d) for oil and gas properties, items 6.7 (location, description and acquisition), 6.8 (production history), 6.9 (drilling activity), 6.11 (proposed exploration and development program) and 6.12 (other properties);(e) item 7 (administration);
(f) item 9 (a) (risks related to the nature of the business);
(g) item 10 (directors, officers , promoters and other management);
(h) items 12.1 (executive compensation), 12.2(a) to (c) and (d) (i) (related party transactions), and 12.3 (proposed compensation);
(i) item 13.2(b) (securities subject to options);
(j) item 20 (legal proceedings); and
(k) item 24 (other material facts).
In addition to the information required above under either Form 12A or Form 14A, the information circular must contain separate financial statements for the non-reporting issuer or for the business to be acquired prepared in accordance with Canadian generally accepted accounting principles and Local Policy Statement 3-02 except that financial statements need not be audited or reviewed. Interim financial statements are not required to be included where the date of the information circular is not more than 120 days from the date of the most recent annual financial statements included in the information circular.
The information circular must disclose that a Filing Statement or a Statement of Material Facts with respect to the RTO containing full, true and plain disclosure of all material facts relating to the RTO, the listed issuer and the non-reporting issuer or the business to be acquired will be filed with the VSE.
The information circular must also disclose that a news release will be issued
(a) confirming that a Filing Statement or a Statement of Material Facts has been filed with the VSE with respect to the RTO and placed in the public file of the listed issuer,
(b) summarizing the information contained in the Filing Statement or Statement of Material Facts, and
(c) giving the name, address and telephone number of an officer of the listed issuer from whom a copy of the Filing Statement or Statement of Material Facts may be obtained free of charge.
Draft Amendments to Section 146 of the Securities Regulation
Filing of material sent to security holders or filed with a comparable body in another jurisdiction or with any exchange
146. (1) Subject to subsections (3) and (4), every reporting issuer shall file a copy of
(a) all records the reporting issuer sends to its security holders, and
(b) all final versions of disclosure records that the issuer has not already filed with the commission but has filed with a body comparable to the commission or with an exchange in compliance with the requirements of the applicable securities or corporate statute or regulation of that comparable body or of the applicable bylaws, rules or regulations of that exchange.
(2) A reporting issuer shall file the records under subsection (1) within 7 days after the issuer
(a) sends the records referred to in subsection (1)(a) to its security holders, or
(b) files the records referred to in subsection (1)(b) with the comparable body or exchange.
(3) A reporting issuer shall file the records under subsection (1) in duplicate if the records concern a takeover bid.
(4) If a record is filed electronically under subsection (1) it may, with the approval of the executive director, contain a fair and accurate description of any graphs and photographs contained in the record instead of the actual graphs and photographs.