Securities Law & Instruments

Headnote

 

Application for a decision, pursuant to section 5.1 of OSC Rule 48-501, exempting the applicants from trading restrictions imposed by section 2.2 of OSC Rule 48-501. Decision granted.

 

Rule Cited

 

Ontario Securities Commission Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions.

 

September 7, 2018

 

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMENDED

(the Act)

 

AND

 

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION RULE 48-501

TRADING DURING DISTRIBUTIONS, FORMAL BIDS AND SHARE EXCHANGE TRANSACTIONS

(the Rule)

 

AND

 

IN THE MATTER OF

PROMETIC LIFE SCIENCES INC.

(the Filer)

 

DECISION

(Section 5.1 of the Rule)

 

(a)           Background

 

The securities regulator in the Jurisdiction (the Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) that the requirement in section 2.2(a) of the Rule – Trading during Distributions, Formal Bids and Share Exchange Transactions and the procedures set forth in OSC Policy 2.1 – Applications to the Ontario Securities Commission for a decision that the requirement in section 2.2(a) of the Rule do not apply to insiders of the Filer in connection with any ATM Distributions made by the Filer under an Equity Distribution Agreement (the Exemptive Relief Sought).

 

The Decision Maker has also received a request from the Filer for a decision that the Application and this decision (together, the Confidential Material), be kept confidential and not made public until the earliest of (i) the date on which the Filer enters into an Equity Distribution Agreement as described below, (ii) the date on which the Filer has informed the Decision Maker that there is no longer any need for the Confidential Material to remain confidential, and (iii) the date that is 90 days after August 29, 2018 (together, the Confidentiality Relief).

 

(b)           Interpretation

 

Terms defined in National Instrument 14-101 Definitions, MI 11-102, Regulation 21-101 respecting Marketplace Operation and Regulation 13-101 respecting the System for Electronic Document Analysis and Retrieval (SEDAR) have the same meaning if used in this decision, unless otherwise defined in this Application.

 

(c)           Representations

 

This decision is based on the following facts represented by the Filer:

 


 

Background

 

Prometic Life Sciences Inc.

 

1.             The Filer is a corporation incorporated under the Canada Business Corporations Act. The head office of the Filer is in Laval, Quebec, Canada.

 

2.             The Common Shares are listed on the Toronto Stock Exchange (TSX) and are also listed on the OTCQX International (OTCQX).

 

3.             The Filer is a reporting issuer in each province of Canada and is not in default of securities legislation in any jurisdiction of Canada.

 

4.             The Common Shares meet the requirements in the Rule to be considered a “highly-liquid security.”

 

Proposed ATM Distribution

 

5.             The Filer has filed a short form base shelf prospectus dated March 14, 2018 (the Shelf Prospectus).

 

6.             Subject to mutual agreement on terms and conditions, and to receipt of the exemptions sought under the Dual Application, the Filer is proposing to enter into the Equity Distribution Agreement with a certain agent (the Agent), providing for the sale from time to time by the Filer through the Agent, as agent, of Common Shares under ATM Distributions under the shelf procedures prescribed by Part 9 of NI 44-102 (an ATM Program), after the filing of a prospectus supplement (together, with the Shelf Prospectus, the Prospectus)

 

7.             The Equity Distribution Agreement will provide that, at the time of each sale of Common Shares pursuant to an ATM Distribution, the Filer will represent to the Agent that the Prospectus contains full, true and plain disclosure of all material facts relating to the Filer and the Common Shares being distributed. It is therefore likely that the bulk of the sales activity under the ATM Program will occur during periods commencing on the second business day after the public announcement of the Filer’s quarterly or annual earnings and continuing for 45 calendar days after that date.

 

Shareholding Guidelines

 

8.             Under the Filer’s shareholding policy (the Shareholding Guidelines), (i) directors of the Filer must hold 200,000 Common Shares, (ii) the chairman of the board of directors of the Filer must hold 300,000 Common Shares, (iii) named executive officers must hold 400,000 Common Shares, and (iv) the president and chief executive office of the Filer must hold 600,000 Common Shares, each having a maximum period of three years to attain such levels once the Shareholding Guidelines apply to them.

 

9.             The Filer believes that the Shareholding Guidelines are in-line with best corporate governance practices and that it is in the Filer’s best interest to avoid imposing any unnecessary restrictions on the ability of insiders to increase their equity stake in the Filer.

 

10.          Under the terms of the Filer's trading policy for employees and insiders (the Trading Policy), directors and officers of the Filer, as well as certain other individuals, are prohibited from trading Common Shares during regularly scheduled “blackout” periods (the Blackout Periods), which will be in place for a minimum of 25 calendar days before the regulatory (SEDAR) filing deadline of the quarterly financial information and for a minimum of 50 calendar days before the regulatory (SEDAR) filing deadline of the year-end financial information (or, in each case, if shorter, the period from the relevant financial period end, up to and including the release date). Blackout Periods end on the second business day following the public announcement of the Filer's quarterly or annual earnings and continue until the following Blackout Period. If the Filer puts in place an ATM Program, ATM Distributions by the Filer will likely occur outside the Blackout Periods.

 

11.          Under section 2.2(a) of the Rule, an insider of a reporting issuer is prohibited from bidding on or purchasing securities of that reporting issuer during the period commencing on the date that is two trading days prior to the day the offering price is determined for a prospectus offering of that reporting issuer, and ending on the date the selling process ends and all stabilization arrangements relating to the restricted security are terminated (the Insider Purchasing Restriction).

 

12.          These restrictions in the Rule were not designed in contemplation of ATM Distributions. Section 1.2(5)(a)(i) of the Rule provides the following interpretative guidance:

 

the selling process shall be considered to end, in the case of a prospectus distribution, if a receipt has been issued for the final prospectus, the dealer has allocated all of its portion of the securities to be distributed under the prospectus and all selling efforts have ceased

 

however this guidance does not apply in the context of an ATM Distribution, where the receipt is obtained before the distribution begins, the dealers do not allocate a position (but rather simply trade on a "marketplace", within the meaning of National Instrument 21-101 – Marketplace Operation) and no selling efforts are made (only ordinary trading activity).

 

13.          Similarly, the exemption in section 3.2(e) of the Rule, in respect of "a subscription for or purchase of an offered security pursuant to a prospectus distribution", is not possible to apply in the context of an ATM Distribution, given that insiders purchasing on a marketplace during an ATM Distribution would have no knowledge as to whether they are purchasing under the ATM Distribution or otherwise from a counterparty unrelated to the Filer.

 

14.          The stated policy rationale for the Rule is to prohibit "purchases of or bids for restricted securities in circumstances where there is heightened concern over the possibility of manipulation by those with an interest in the outcome of the distribution or transaction".[1]

 

15.          In the case of the Filer, given that:

 

A.            the Common Shares constitute a "highly liquid security" and are liquid to such a degree that it would be virtually impossible for an insider to manipulate the trading price of the Common Shares through purchases;

 

B.            most insiders of the Filer will, in any event, be unaware of when each ATM Distribution begins and ends and discrete sales of Common Shares thereunder occur; and

 

C.            any insider of the Filer that is purchasing Common Shares on the market during an ATM Distribution will not know whether it is purchasing under the ATM Distribution or from another counterparty unrelated to the Filer;

 

there is no policy rationale for applying the Insider Purchasing Restriction to insiders of the Filer in the context of an ATM Distribution.

 

16.          In the absence of the Exemption Sought, insiders of the Filer would be restricted from bidding on and purchasing Common Shares during a period of time prior to and during each ATM Distribution by the Filer, which would not likely overlap with the Blackout Periods and unduly and unnecessarily impede directors and officers of the Filer from making purchases of Common Shares, including for the purposes of complying with the Shareholding Guidelines.

 

Confidentiality

 

17.          The Filer submits that the Confidentiality Relief is warranted in the circumstances as there is otherwise a risk of the public being misled into believing, on the basis of the Confidential Material being available to the public before the earliest of the proposed expiration dates, that implementation of the contemplated ATM Distribution arrangement by the Filer is imminent when in fact the parties have not yet come to a definitive agreement and the Filer may decide not to proceed with an ATM Distribution in the near term, or at all, depending on market conditions and other factors outside of the Filer’s control. Such premature disclosure could cause confusion and uncertainty in the market and would be contrary to the public interest.

 

18.          In recognition of the general principles of access under the Act, however, the Filer proposes that the Confidentiality Relief be limited to a maximum duration of 90 days from August 29, 2018. This period is believed to provide the Filer with sufficient time within which to negotiate a definitive Equity Distribution Agreement or otherwise make a final determination on the matter, and strikes an appropriate balance between the Filer's legitimate concerns about premature disclosure and principles of public access to filed materials.

 

19.          Upon a definitive Equity Distribution Agreement being settled between the Filer and the Agents, the Filer's ordinary disclosure obligations will apply and news of the proposed ATM Distribution arrangement would be disseminated in the ordinary course.

 


 

Decision

 

The Decision Maker is satisfied that the decision meets the test set out in the Legislation.

 

The decision of the Decision Maker under the Legislation is that the Exemptive Relief Sought is granted.

 

DATED this 7th day of September, 2018

 

“Susan Greenglass”

Director, Market Regulation Branch

Ontario Securities Commission

 


 



[1]       OSC Request for Comment on Changes to Proposed OSC Rule 48-501 – Trading During Distributions, Formal Bids and Share Exchange Transactions (2nd Publication) and Proposed Companion Policy 48-501CP to OSC Rule 48-501 and Proposed Rescission of OSC Policy 5.1, Paragraph 26 and OSC Policy 62-601 – Securities Exchange Take-Over Bids – Trades in the Offeror’s Securities (September 10, 2004).