Securities Law

LPS 3-21 - Share and Unit Offerings of Unlisted is and Options and Warrants Available to Registrants Participating in Such Offerings [Rescinded]

Published Date: 1987-01-16
Effective Date: 1987-02-01
Rescinded Date: 1999-06-24

1.0       IMPLEMENTATION

1.1          This Local Policy Statement has been revised solely to conform with the Securities Act S.B.C. 1985 c.83 and Regulations thereto. Other than consequential amendments, there have been no changes of a substantive nature to this policy.  It becomes effective with proclamation of the Act on February 1, 1987.

2.0       CONTENTS OF THIS POLICY

2.1          This Local Policy Statement, except where the context clearly indicates otherwise, applies to prospectus offerings of unlisted issuers (including issuers applying for a conditional listing with the Vancouver Stock Exchange under Exchange Rule B.5.01.2). For issuers already listed on a stock exchange, the rules, regulations and policies of such exchange will apply to underwritings, agency offerings, options, warrants, etc.  Issuers planning rights offerings should refer to Local Policy Statement 3-05.  Reference should also be made to Local Policy Statement 3-08 pronouncements on minimum prices for share issuances.

2.2       Table of Contents

                                                                                                                              Comparable
Section 3.0     General Conditions                                                                  V.S.E. Rule

3.1                          minimum prices for share                                                    B.5.12
                                and for unit offerings                                                              B.5.18
3.2                          minimum share or unit                                                          B.5.20
                                offerings                                                                                   B.5.28
                                                                                                                                   B.5.36
3.3                          discounts and commissions                                               B.5.23
                                permitted to underwriters                                                      B.5.30
                                and agents                                                                               B.5.35
3.4                          minimum net proceeds to treasury from an offering        B.5.13
3.5                          distribution lists                                                                        B.5.08.1
3.6                          calls on stock                                                                            B.5.22
                                                                                                                                     B.5.29
                                                                                                                                     B.5.37
3.7                          greenshoe option
3.8                          qualification of shares acquired by a registrant

Section 4.0     Underwritings

4.1                          settlement dates                                                                               B.5.38
4.2                          options                                                                                                B.5.37
4.3                          unit offerings                                                                                      B.5.39

Section 5.0     Agency  offerings - best efforts basis

5.1                          settlement date                                                                                  B.5.31
                                                                                                                                              B.5.24

Section 6.0     Guaranteed agency offerings

6.1                          difference between a firm underwriting and a guaranteed agency offering.
6.2                          incentive available to registrants participating in guaranteed agency offerings
6.3                          settlement date                                                                                  B.5.31
                                                                                                                                              B.5.24 

Section 7.0     Guaranteed agency share offerings

7.1                          agent's entitlement to share  purchase  warrants                      B.5.29

Section 8.0     Guaranteed agency unit offerings

8.1                          share purchase warrants available to the public

8.1.1                       minimum number of warrants                                            B.5.21
8.1.2                       exercise price of warrants
8.1.3                       expiry date of warrants

8.2                          agent's entitlement to share purchase warrants                       B.5.22

3.0       GENERAL CONDITIONS

3.1          Minimum price

3.1.1       on an issuer's first prospectus offering to the public, shares shall be priced to yield not less than 30 cents net to the treasury
3.1.2       a unit comprising one share plus warrant(s) shall not be offered to the public at less than 40 cents.  If a unit comprises more than one share the unit price shall not be less than the product of 40 cents times the number of shares included in the unit.

3.2          Minimum Number of Shares or Units to be Offered

A share or unit offering shall be for not less than 250,000 shares or units as the case may be.  Any unit offering must contain not less than 300,000 warrants.

3.3          Discounts and Comissions permitted to Underwriters and Agents

3.3.1       The discount to the underwriter on sales of an issuer's underwritten shares shall not exceed

3.3.1.1    15% when the price to the public is less than or equal to $3.00 per share

3.3.1.2    10% when the price to the public is greater than $3.00 per share

3.3.2       The maximum commission to the agent participating in the distribution of an issuer's shares or units shall be as follows:

3.3.2.1    15% of the gross proceeds derived from sales where the share or unit price is less than or equal to $3.00 per share or unit

3.3.2.2    10% of the gross proceeds where the share or unit price is greater than $3.00

3.4          Minimum Net Proceeds to Treasury from an Offering

The minimum net proceeds to the issuer's treasury from an offering shall be the greater of:

3.4.1       seventy-five thousand dollars ($75,000), OR

3.4.2       one hundred seventy-five thousand dollars ($175,000) less the net cash proceeds derived from the issuance of shares for cash prior to the initial public offering

3.5          Distribution Lists

Distribution lists must be filed with the Superintendent upon completion of the sale of the offered or underwritten shares or units.

3.6          Calls on Stock

3.6.1       When a registered dealer participating in a securities offering assumes a particular risk through a firm underwriting or a guaranteed agency offering (see Section 6.1 for a discussion on the difference between a firm underwriting and a guaranteed agency offering), consideration in addition to discounts or Commissions normally allowed may be granted to the registrant by the issuer in the form of a "call on stock".

3.6.2       A call on stock has historically been referred to as an "option" in the case of an underwriting, and a "non-transferable warrant" in the case of a guaranteed agency offering.  The terms under which the call may be granted differ for the two types of offering.  (See Section 4.2 for calls granted on underwritings and Sections 7.1 and 8.2 for calls granted on guaranteed agency offerings).  For the sake of consistency it is preferable to refer to a call on stock as an "option" in the case of an underwriting, and a "non-transferable warrant" in the case of a guaranteed agency offering, but compliance with the terms of the call applicable for the offering rather than with nomenclature is the essential feature.

3.6.3       The following concordance between the rules of the Superintendent and the rules of the Vancouver Stock Exchange on registrants' calls on stock may be of assistance.

L.P. #3-21 Section                                               V.S.E. Rule
3.7                                                                            B.5.22.2
                                                                                  B.S.29.2
                                                                                  B.5.38
4.2                                                                            B.5.37
7.1                                                                            B.5.29.1
8.2                                                                            B.5.22.1 

3.7          Greenshoe Option

3.7.1       A greenshoe option is an option which affords an underwriter or agent an option, warrant or conversion right which may be exercised at the conclusion of a distribution to provide additional units of a security to the market where the offering has been over-subscribed.

3.7.2       Where appropriate disclosure is made in the prospectus of an issuer seeking to make a first distribution to the public, a greenshoe option may be granted to the underwriters or agent(s) participating in an underwriting or a fixed price agency offering, subject to the following conditions:

3.7.2.1    the option must be limited to the lesser of 15% of the number of shares involved in the public offering or the actual number of shares subscribed for by way of an over-subscription during the distribution.

3.7.2.2    a determination of the number of shares subject to greenshoe option must be made as of the date of the conclusion of the distribution, save for an initial distribution made under V.S.E. Rule B.5.00 (see also Local Policy Statement 3-19).  In the case of an initial distribution the determination should be made at the conclusion of the Offering Day (as defined in V.S.E. Rule B.5.33).

3.7.2.3    the exercise price on a greenshoe option to an underwriter should be the same as the underwriting price to the underwriters, disclosed in the prospectus, while the exercise price to an agent in the case of a fixed price agency offering, should be the same price as the net price per share to the issuer's treasury disclosed on the prospectus.

3.7.2.4    the maximum exercise period for a greenshoe option should be the lesser of 30 trading days after securing a V.S.E. listing or 60 trading days after the effective date of the prospectus qualifying the offering, save for an initial distribution made under V.S.E. Rule B.5.00 in which case the maximum period should be 30 trading days commencing from the Offering Day.

3.8          Qualification of Shares Acquired by a Registrant Through the Exercise of Options or Warrants

3.8.1       Except as provided for under greenshoe option provisions, on shares acquired by a registrant through the exercise of an option or warrant may be sold unless qualified for sale pursuant to a prospectus or statement of material facts.  The qualification period on the initial prospectus will be 12 months from the date of the prospectus or such lesser period as may be imposed as a condition of receipting the prospectus.

3.8.2       Notwithstanding Section 3.8.1 above, where an agent has held shares acquired through the exercise of warrants for a period of one year, he may seek a determination under Section 59 of the Act to sell all or a portion of the shares through the facilities of the Vancouver Stock Exchange, and the Superintendent may, if satisfied that appropriate notice has been furnished to the Exchange, issue a determination for such number of shares and such trading period as he shall deem fit in the circumstances.

4.0       UNDERWRITINGS

4.1          Settlement Dates

An underwriter shall pay the full amount of his underwriting commitment under an underwriting agreement within ten business days of the Superintendent's receipt for the prospectus.

4.2          Options

As an incentive for agreeing to purchase as principal an offering of and thereby assuming the full risk of an underwriting, an option to purchase additional shares may be granted to a registrant so participating in the underwriting.  Such option shall be granted only when under the terms of the underwriting agreement the underwriter assumes, not later than the date of the Superintendent's receipt for the prospectus, a commitment to acquire the offering.

4.2.1       Number of Shares Subject to Option

The total number of shares subject to an option or options shall not be greater than the number of shares under-written and not more than one option will be accepted for filing where the issuer is a development company as defined by Vancouver Stock Exchange and not more than two options where the issuer is other than a development company as defined by the Vancouver Stock Exchange.  For an issuer not planning a listing on the Vancouver Stock Exchange not more than one option will be accepted.  The number of shares subject to option at any one price shall not exceed 150,000.  Where the issuer grants the underwriter two options prospectus disclosure of such options should clarify that they are issued subject to confirmation by the Vancouver Stock Exchange of the listing.

4.2.2       Minimum Price

The price per share of the first option shall be higher than the price initially paid by the underwriter, and the price of each subsequent option shall increase by, not less than $0.05 per share in the underwriting price range up to and including $0.50 per share, not less than $0.10 per share in the underwriting price range above $0.50 and up to an including $1.00 per share, and not less than $0.25 per share in the underwriting price range above $1.00 per share.

4.2.3       Option Intervals

4.2.3.1    For an issuer, other than a development issuer, that is planning a listing on the Industrial or Resource Section of the Vancouver Stock Exchange, the exercise period of options shall not collectively span a period exceeding nine months from the day on     which the shares of the issuer are listed on the Vancouver Stock Exchange.  The exercise period for an option at one price shall not exceed six months.

4.2.3.2    For a development company that is planning a listing on the Development Section of the Vancouver Stock Exchange, the exercise period for the one option permitted shall not exceed six months from the day on which the sharesof the issuer are listed on the Vancouver Stock Exchange, and shall not in any event exceed nine months from the date of the Superintendent's receipt for the prospectus.

4.2.3.3    For an issuer not planning a listing on the Vancouver Stock Exchange, the exercise period for the one option permitted shall accord with the rules and regulations of the exchange on which the shares are listed, but shall not in any event exceed nine months from the date of the Superintendent's receipt for the prospectus.  This nine months limitation shall also apply to an issuer not planning any listing whatsoever.

4.2.4       Acceleration and Termination

Every underwriting agreement which provides for the granting of an option shall contain the following provisions:

4.2.4.1    Where the issuer's shares trade on an Exchange in excess of the limit price for an outstanding option the underwriter must immediately exercise the entire option on which           the limit price has been exceeded.

4.2.4.2    "limit price" means

4.2.4.2.1                200% of the option price where such option price is less than, or equal to $1.00 per share,

4.2.4.2.2                150% of the option price where such option price is greater than $1.00 per share but less than $3.00 per share,

4.2.4.2.3                140% of the option price where such option price is not less than $3.00 per share but less than $4.00 per share, and

4.2.4.2.4                130% of the option price where such option price is not less than $4. 00 per share.

4.2.4.2.5                In the event than an option is not exercised in full, any subsequent option shall terminate on the expiry of the option which has not been so exercised.

4.3          Units

An underwriting may be in respect of units comprising a share or shares and a share purchase warrant or warrants of the issuer, in which the case the relevant provisions of Section 4.2 and the provisions of Section 8.1 shall apply; ie. warrants are available to subscribers, but an option remains the appropriate incentive for the underwriter.

5.0       AGENCY OFFERINGS - BEST EFFORTS BASIS

In a "best efforts" participation, a registrant contracts with the issuer to give his best efforts to sell the issue.  The registrant expects to be able to distribute the offering successfully, but does not agree to purchase the securities as principal; he therefore incurs no loss in the event of failure to distribute the full offering. The incentive offered to a registrant for such participation should appropriately be restricted to a commission from the issuer.

5.1          Settlement Date

Where the minimum subscription also comprises the total offering, proceeds from the sale of shares or units sold on an agency basis shall be paid to the issuer within five business days following the attainment of such offering.  Where an offering continues after attaining the minimum subscription, then proceeds from the sale of shares or units comprising the minimum subscription shall be paid to the issuer within five business days following the attainment of such minimum subscription and proceeds from subsequent sales shall be paid to the issuer in accordance with the terms of the distribution agreement between issuer and agent, but in no event shall such payment be made later than five business days following the termination of the offering.

6.0       GUARANTEED AGENCY OFFERINGS

6.1          A guaranteed agency offering otherwise known as a "stand-by underwriting" differs from a firm underwriting in that the registrant only becomes obliged to purchase from the issuer those securities which at the conclusion of the offering have not been subscribed for by members of the public.

6.2          As an incentive for agreeing to purchase the unsold balance of securities on an offering, share purchase warrants as outlined in Sections 7.1 and 8.2 may be granted to a registrant.

6.3          Settlement Date

Proceeds shall be paid to the issuer within five business days following the conclusion of a guaranteed agency offering.

7.0       GUARANTEED AGENCY SHARE OFFERINGS

7.1          Agents' Entitlement to Share Purchase Warrants

7.1.1       Where an agent undertakes to purchase all the shares which may be unsubscribed for, he may be granted a non transferable share purchase warrant entitling him to subscribe for a number of shares of the issuer not exceeding 25% of the total number of shares in the offering for a period not exceeding 12 months from the date of the prospectus, but shall expire in any event 180 days from the date of listing on a Stock Exchange.  Where interim warrants have been issued prior to a listing, replacement warrants must be issued disclosing the new expiry date at such time as the issuer obtains a listing.

7.1.2       Exercise Price of Warrants

The exercise price is subject to negotiation between the issuer and agent, provided that it is higher than the per share price at which units are sold.  The share price is to be computed by dividing the number of shares in a unit into the unit price.

8.0       GUARANTEED AGENCY UNIT OFFERINGS

8.1          Share Purchase Warrants Available to the Public - "A" Warrants

8.1.1       Minimum Number of Warrants

There shall be a minimum of 300,000 warrants attached to the units sold to the public.  The number of shares which may be issued pursuant to the exercise of any such warrants shall not exceed the total number of shares issued as part of the unit offering.  Such warrants are usually called "A" warrants.

8.1.2       Exercise Price of Warrants

The exercise price is subject to negotiation between the issuer and the agent, provided that it is higher than the per share price at which the units are sold. The share price is to be computed by dividing the number of shares in a unit into the unit price. All warrants shall be exercisable at the same price.

8.1.3       Expiry Date of Warrants

Warrants shall be outstanding no longer than 12 months from the date of the prospectus, but shall expire in any event 180 days from the date of listing on a Stock Exchange.  Where interim warrants have been issued prior to a listing, replacement warrants must be issued disclosing the new expiry date at such time as the issuer obtains a listing.

8.1.4       Further Entitlement to Warrants

The share purchase warrant comprising part of the unit shall not entitle the holder to acquire a further share purchase warrant upon its exercise.

8.2          Agent's Entitlement to Share Purchase Warrants - "B" Warrants

8.2.1    The agent shall be entitled to a non-transferable     warrant entitling him to subscribe for a number of shares of the issuer not exceeding 25% of the total number of shares in the offering.  Such a warrant is usually called a "B" warrant.

8.2.2    The exercise price and expiry date applicable to   these warrants shall be that which applies also to share purchase warrants made available to the public.

 

DATED at VANCOUVER, B.C., this________day of _______, 19 ___

Jill Bodkin
Chairman
B.C. Securities Commission