A Corporate Finance \ Securities Law Update August 2001
 Virgil Hlus D/L 891-7707 vzh@cwilson.com 
Herb Ono D/L 643-3140 hio@cwilson.com  Bill Macdonald D/L 643-3118 wlm@cwilson.com
 Chris Pollard D/L 891-7717 cjp@cwilson.com  Larry Yen D/L 891-7715 lky@cwilson.com  David Cowan D/L 643-3178 djc@cwilson.com
Ethan Minksy D/L 643-3151 epm@cwilson.com  Bernard Pinsky D/L 643-3153 bip@cwilson.com |
Regulation FD Requires More than News Release for Most Issuers Regulation FD (fair disclosure) promulgated under United States securities laws requires that whenever a company (not including foreign private issuers) or anyone acting on the company’s behalf discloses material, non-public information regarding the company or its securities to any securities market professionals or shareholders who might trade on the basis of such information, the company must make public disclosure of that same information simultaneously for intentional disclosures or promptly for non-intentional disclosures. The Securities and Exchange Commission has stated that in addition to other material events, the following events will most likely be considered material for the purposes of Regulation FD:
Companies can make public disclosure for the purposes of Regulation FD by filing or furnishing a Form 8-K or by disseminating information through another method (or combination of methods) that is reasonably designed to provide broad non-exclusionary distribution of the information to the public. The dissemination of a press release alone may not be sufficient public disclosure in many cases. The only method that the SEC has conclusively stated will meet the public disclosure requirement of Regulation FD is the Edgar filing of a Form 8-K. The SEC amended the Form 8-K to add "Item 9" which allows a company to "furnish" information without subjecting itself to liability under the Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934. All disclosures remain subject to the antifraud provisions of United States federal securities laws. For most smallcap companies whose press releases are routinely not carried by major business wire services, it will not be sufficient for that company to make public disclosure solely by submitting its press release to one of these services (where it may not be carried) or disseminating by news wire services that do not have very broad dissemination capabilities. These companies should take the precaution of filing a Form 8-K at the same time that they are disseminating the press release. The filing of a Form 8-K is a quick and inexpensive method for ensuring that companies comply with the requirements of Regulation FD.
Regulation FD in Canada - Proposed Canadian Selective Disclosure Policy
Much like the United States Securities and Exchange Commission (the "SEC"), the Canadian Securities Administrators are increasingly concerned about the selective disclosure of material corporate information to financial analysts and other market participants at the expense of the broader market. They view the practice of selective disclosure as a potential threat to the integrity of the capital markets. However, the Canadian Securities Administrators do not consider it necessary to adopt a rule similar to the SEC’s Regulation FD. They have has concluded that existing Canadian legislation sets out a comprehensive code which prohibits all selective disclosures other than those made in the necessary course of business. As a result of their concern regarding selective disclosure, the Canadian Securities Administrators released Proposed National Policy 51-201, "Disclosure Standards". The objective of the policy is to:
The policy provides guidance on "best disclosure" practices in difficult areas involving competing business pressures and legislative requirements. Those practices include guidance on establishing a corporate disclosure policy, overseeing and co-ordinating disclosure, conducting analyst conference calls and industry conferences, commenting on draft analyst reports, utilizing electronic communications, and handling rumours. Canadian Securities Administrators are currently considering comments received on the Proposed National Policy 51-201. Stock Option Repricings Get Only Limited Relief From U.S. Tender Offer Rules The U.S. Securities and Exchange Commission ("SEC") takes the position that certain stock option repricing/exchange programs constitute issuer tender offers which are subject to section 13(e) of the Securities Exchange Act of 1934 (the "1934 Act"). Generally, a stock option repricing will be found to constitute a tender offer if the option holders are given a choice of participating in the repricing program, thereby giving rise to an investment decision by the option holders. This is typical in cases where, for example, the repricing is accompanied by changes to other terms of the options, such as revisions to the vesting or exercise provisions, or where the option holders are asked to accept fewer options at the lower price. In effect, the company is offering new options in exchange for the existing options, usually pursuant to the registration exemption contained in section 3(a)(9) of the Securities Act of 1933 (the "1933 Act"). While a unilateral reduction in the exercise price of existing options by a company, without additional changes to the options, will likely not constitute a tender offer, any other changes to the terms may result in a proposed repricing of options being considered an "exchange offer" subject to tender offer rules. The tender offer rules will apply if the company has a class of shares registered under the 1934 Act, or has filed a registration statement which has become effective under the 1933 Act. The tender offer rules essentially require the company to offer the same securities at the same price to all shareholders. On March 21, 2001, in response to a no-action request from the American Bar Association, the SEC issued an exemptive order which exempts certain stock option exchange offers from certain tender offer rules: Rule 13e-4(f)(8)(i) (the "all holders" rule) and Rule 13e-4(f)(8)(ii) (the "best price" rule). In order for an exchange offer to qualify for this relief, the following conditions must be met:
BCSC Publishes Guidelines About Promotional Advertising Effective June 30, 2001, BC Policy 47-601 sets out interim guidelines about advertising intended to promote investor interest in an issuer or its securities. The policy applies to advertising and similar communications made, in any form, by or on behalf of an issuer to promote investor interest in any issuer or its securities. Anyone who is paid for, or benefits from, promoting investor interest may be acting on behalf of the issuer, even if the payment or benefit is indirect. Only those persons who are registered brokers under the BC Securities Act, or exempt from registration, can advertise. No one should advertise over radio or television except during a distribution of the securities under a receipted prospectus. Any advertisement must warn investors that there are risks associated with the investment and should encourage investors to read relevant offering documents. Advertisements must be worded so that a reasonable investor would not draw an incorrect inference. Advertisements should avoid partial disclosure, and make reference to conditions and risks along with any benefits mentioned. Mutual Funds are exempt from the policy. We would like to send you Securities Bulletin via e-mail
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Clark Wilson LLP's Securities Law Bulletin is published periodically by The
Corporate Finance / Securities Practice Group at Clark Wilson LLP. The information
contained in this newsletter should not be treated by readers as legal advice
and ought not be relied on without detailed legal counsel being
sought. Editor: Bernard Pinsky.
© 2001, Clark Wilson LLP. All Rights Reserved. |
