LPS 3-37 - Restricted Shares (Uncommon Equities) Distributions and Disclosure [Rescinded]
1.1 This Local Policy Statement has been revised solely to conform with the Securities Act S.B.C. 1985 c.33 and the Regulations thereto and to conform with Ontario Local Policy 1.3, except for paragraphs V and VI of that Policy. It becomes effective upon proclamation of the Securities Act on February 1, 1987.
2.0 APPLICATIONS AND DEFINITIONS
2.1 This Local Policy Statement applies to securities of issuers that are reporting issuers but does not apply to:
2.1.1 shares offered by mutual funds
2.1.2 shares that carry a right to vote subject to some limit or restriction on the number or percentage of shares that may be voted or owned by persons or companies that are not Canadian citizens or residents, or
2.1.3 shares of financial institutions subject to statutory restrictions an the level of ownership by a person or issuer but only to the extent of such ownership restrictions.
2.2 In this Local Policy Statement:
2.2.1 "common shares"
means equity securities to which are attached voting rights exercisable in all circumstances, irrespective of the number of shares owned, which voting rights are not less, on a per share basis, than the voting rights attaching to any other shares of an outstanding class of security of the issuer;
2.2.2. "non-voting shares"
means restricted shares that do not carry the right to vote except for a right to vote in certain limited circumstances, e.g. to elect less than 50% of the Board of Directors or to vote in circumstances where to vote the governing corporate law provides the right for shares that are otherwise non-voting;
2.2.3 "preference shares"
means shares to which there is attached a preference or right over any class of securities of the issuer, but does not include equity securities;
2.2.4. "restricted share term"
refers to the terms "non-voting shares", "subordinate voting shares", "restricted voting shares" and such other terms as the Superintendent may determine for restricted shares that are not appropriately described by, the foregoing terms;
2.2.5 "restricted shares"
means equity securities that are not common shares;
2.2.6 "restricted voting shares"
means restricted shares that carry a right to vote subject to some limit or restriction on the number or percentage of shares that may be voted by a person or issuer or group of persons or issuers (except where the restriction or limit is applicable to persons or issuers that are not Canadian citizens or residents); and
2.2 "subordinate voting shares"
means restricted shares that carry a there is another class of security outstanding that carries a greater right to vote, an a per share basis
2.3 The Commission, in its discretion, may determine that, for the purposes of this Local Statement, a particular class of security shall be deemed to be common preference or restricted shares, as the case may be, notwithstanding that a literal application of the above definitions would produce a different result. The Commission may determine the restricted share term that is appropriate for a class of restricted shares. exercising its discretion, the Commission will be guided by the principles underlying this Local Policy Statement.
2.4 As a general rule, equity securities will be considered to be restricted shares where the allocation of voting rights does not relate reasonably to the equity interests of the various classes of securities. Shares will generally be considered to be restricted shares where they have provisions that tend to nullify or restricted their voting rights or where there is another class of securities that have provisions producing similar effect. For example, shares that carry a right to vote will be considered restricted shares where:
2.4.1 there is a class of preferred shares that carry a disproportionate vote per share, or
2.4.2 there is a class of preferred shares that carry one vote per share but that were issued for a disproportionately low consideration per share (and hence, per vote) in relation to the other outstanding shares of the issuer, or
2.4.3 there is another class of equity shares that carry one vote per share but that are entitled to only a fraction of a right to participate in earnings or assets to which the first class of equity securities is entitled.
2.5 In the case of issuers listed on the Vancouver Stock Exchange (the "VSE"), where that body would normally exercise its discretion as to Listings, the VSE will determine whether a particular class of shares shall be deemed to b common, preference or restricted shares. The staffs of the Commission and the VSE will cooperate in making such determination where both are involved.
3.0 DESCRIPTION OF SHARES
3.1 Description and Legal Designation
3.1.1 Publicly traded shares should not be described as "common" or "preference" (or "preferred") unless such shares are common shares or preference shares, respectively. Publicly traded restricted shares should be described with the appropriate share term.
3.1.2 For all shares that are to be offered pursuant to a prospectus filed with the Commission, a receipt will not be issued therefore if the legal designation of the shares:
22.214.171.124 includes the word "common" and such shares are not common shares,
126.96.36.199 includes the word "preference" or "preferred" and such shares are not preference shares, or
188.8.131.52 in the case of restricted shares, does not include the appropriate restricted share term, in each such case, notwithstanding permissive but subject to mandatory, provisions of applicable legislation relating to the legal designation of such shares. The foregoing applies to all shares issuable upon the conversion or exchange of securities, or the exercise of rights of warrants, offered pursuant to a prospectus.
3.1.3 Where an issuer that has not yet complied with Section 3.2 of this Local Policy Statement proposes to issue restricted shares pursuant to the rights offering exemption contained in the Act the Superintendent will require appropriate undertakings in respect of changing the legal designation of such shares at the issuer's next shareholders Meeting.
3.1.4 The VSE require similar legal designations for the listing of new classes of securities and may require listed issuers with such existing classes of securities to amend the legal designation. The Commission will require issuers of VSE listed restricted shares to comply with the foregoing VSE requirements.
3.1.5 In all reporting issuer disclosure and offering documents, each defined term used to refer to restricted shares shall include the applicable restricted share term.
3.2 Stock Quotations
The Commission is of the view that readers of stock quotations should be aware that certain shares are restricted shares. Therefore, in all stock quotations, such as those listed in newspapers, there should be employed a symbol to identify restricted shares. A legend should explain the meaning of the symbol.
3.3 Dealer Confirmation
3.3.1 Under Section 80 of the Regulations, a registered dealer who has acted in connection with a trade in a security shall promptly send or deliver to the client a written confirmation of the transaction setting forth, among other things, the description of the security. The Commission is of the view that the description of restricted shares should include the appropriate restricted share term. The Commission recognizes that compliance with this requirement could be difficult especially for securities that are not normally traded in British Columbia. The VSE publishes a daily record trading in shares listed on the VSE which record includes, for restricted shares, a code that identifies such shares by the appropriate restricted share symbol. The obligation of registrants to comply with Section 2.3 will be limited to securities set out in the foregoing record and those identified on similar documents prepared by such other stock exchanges or self-regulatory organizations as are recognized by the Commission for the purpose of this Local Policy Statement. The Montreal Exchange, Alberta Stock Exchange, Toronto Stock Exchange, Winnipeg Stock Exchange and the Investment Dealers Association are hereby, so recognized.
3.3.2 Where due to data processing restrictions the foregoing requirement cannot be satisfied, the registrant may use an abbreviation for the restricted share term provided that an explanation of the abbreviation is given on the confirmation.
3.3.3 The same disclosure of the description of the security shall be included in all statements of transactions or security positions sent to the client.
3.4 Dealer or Advisor Literature
In all recommendations, selling documents and other literature prepared by or for a dealer or adviser, any restricted shares referred to therein shall be described using the appropriate restricted share term. This requirement shall be limited to those shares that appear on the documents referred to Section 3.3.1
3.5 Reporting Issuer Disclosure Documentation
3.5.1 All documents that a reporting issuer sends to its shareholders pursuant to its obligations under the Act (e.g. information circulars and directors' circulars) and any annual information form, statement describing:
184.108.40.206 the restrictions on the voting rights of restricted shares, and
220.127.116.11 the rights of holders such shares where a take-over bid is made for the securities of the reporting issuer having voting rights or superior voting rights, as the case may be provided that:
18.104.22.168 interim financial statements, annual financial statements (to which Section 3.5.3 below applies) and any accompanying discussion by management of such financial statements, need not include such a statement.
3.5.2 In press releases, material change reports and documents that the issuer sends to its shareholders otherwise than pursuant to its obligations under the shall include Act, any reference to restricted shares shall include the appropriate restricted share term.
3.5.3 The CICA Handbook requires that in audited financial statements, there be a "brief description" of each class of securities either on the balance sheet or in the notes to the financial statements. The Commission has concluded that, other than where there is a one line reference to "capital", "shareholder's capital", share capital", "equity capital" or like term restricted shares shall be broken out as a separate category on the balance sheet. The Commission is of the view that where capitalization is set out in unaudited financial statements these statements should contain similar disclosure.
3.6 Minimum Disclosure in Offering Documents and Information Circulars
3.6.1 This section sets out the minimum disclosure that will be required in all documents describing the issue of restricted shares filed with the Commission by a reporting issuer or by an issuer that will become a reporting issuer upon the acceptance for filing of such document by the Commission, including any prospectus, short form prospectus, exchange offering prospectus, statement of material facts, rights offering circular, securities exchange take-over bid circular, offering memorandum or information circular concerning a proposed corporate reorganization or amalgamation that would have the effect of converting or subdividing in whole or in part, existing shares into restricted shares or creating new restricted shares.
3.6.2 The minimum disclosure that is detailed below as required in a prospectus is applicable to all other documents referred to in the preceding paragraph to the extent that the form of the document permits. Offering documents other than prospectus usually do not include summaries and may, depending on the nature of the document, not include financial statements.
22.214.171.124 Designation - The legal designation of the shares being offered or described shall be as set out in Section 3.1.2.
126.96.36.199 Face Page - The heading showing the number and class of securities offered shall include the restricted share term in the same type face as the rest of the heading. Any defined term used to refer to restricted shares shall include the applicable restricted share term.
188.8.131.52 Summary - The summary shall include:
184.108.40.206.1 a summary of the voting rights attached to the shares being offered (or a statement that there are no voting share rights) and to voting rights, if any possessed by any other class of securities of the issuer that are greater on a per share basis than those attached to the shares being offered, and
220.127.116.11.2 a summary of any significant rights in applicable corporate or securities law that are not available to the holders of the shares being offered (e.g. rights under take-over bid legislation) and the extent of any rights provided in the constating documents for the protection of holders of the shares ( e.g. provisions designed to ensure that the holders have an equal opportunity to participate in a take-over bid), with a cross reference to a full explanation in the body of the prospectus.
18.104.22.168 Body - The body of the prospectus shall include full descriptions and explanations where applicable of the statements referred to in Section 22.214.171.124.1 and 126.96.36.199.2 above.
188.8.131.52 Financial Statements - The financial statements shall be in accordance with Section 3.5.
4.0 DISSEMINATION OF INFORMATION
All information documents that are required by the governing corporate or securities law to be sent to the holders of voting securities shall also be sent at the same time to the holders of restricted shares. Such documents would include, but not be limited to, information circular, notices or meetings and financial statements.
4.2 Forwarding of Information by Registrants
Section 165 of the Regulations requires a registrant or custodian under the circumstances described in that section, to certain material to the beneficial owners of securities registered in its name. Registrants shall forward the information referred to in Section 4.1 to the beneficial owners of restricted shares registered in their name.
4.3 Sending of Financial Statements
Reporting issuers shall send financial statements to holders of Restricted Shares as required by Section 141 of the Regulations.
5.0 MEETING OF THE SHAREHOLDERS
Every reporting issuer shall give notice of shareholders' meetings to holders of restricted shares and permit the holders of such shares to attend, in person or by proxy, had to speak at all shareholders' meetings to the extent that a holder of voting securities of that issue would be entitled to attend and to speak at shareholders' meetings. For all new issues of restricted shares the constating documents must provide that the holders of such Shares shall be given notice of and be invited to attend meetings of the voting shareholders of the reporting issuer.
6.0 CONSULTATION WITH THE SUPERINTENDENT
6.1 Issuers are invited to consult with the Superintendent where there is doubt that the application of this Local Policy Statement is appropriate. Where he deems that it is not prejudicial to the public interest to do so, the Superintendent may exempt an issuer or a class of issuers from compliance with this Local Policy Statement or any requirement thereof subject to such terms and conditions as he may impose.
6.2 The Superintendent will give consideration to exempting an issuer from compliance with this Local Policy Statement where:
6.2.1. It is not a Canadian based issuer and less than 2% of any class of the issuer is held in British Columbia, or
6.2.2 The voting rights attaching to a class of shares carrying superior voting rights are not sufficient to materially affect control of the issuer
DATED at Vancouver, B.C. this lst day of February, 1987.
B.C. Securities Commission