NIN 98/01 - Clarification of Interim Local Policy Statement 3-27 System for Shorter Hold Periods With An AIF and Publication of Proposed Alberta Rule and Policy [NIN - Rescinded]

Published Date:	1998-01-15
Effective Date:	1998-01-15

On November 27, 1997, the Commission published NIN#97/47, which introduced a number of documents dealing with offshore distributions and establishing a shorter hold period for certain qualified issuers that have filed a comprehensive disclosure document (the "SHAIF System")

• Interim Blanket Order BOR#97/12 provides exemptions for an issuer that is qualified to use the SHAIF System and files an annual information form ("AIF") (the "Interim SHAIF BOR"); 
•  Blanket Order BOR#97/11 provides exemptions for non-convertible debt offerings in the Eurobond market (the "Eurobond BOR");
• Interim Local Policy Statement 3-27 (the "Interim Policy") discusses the SHAIF System in general and provides guidance on the use of the Interim SHAIF BOR and Eurobond BOR; and 
•  Interpretation Note NIN#97/48 sets out the Commission’s views on when a distribution to persons outside British Columbia is a distribution in British Columbia (the "Distribution NIN").

These documents were effective on December 1, 1997 but the Commission is also requesting comment on them. The comment period is open until February 1, 1998 (subject to the extension set out below).

The Interim SHAIF BOR and Interim Policy together provide for the SHAIF System. Under the SHAIF System, securities distributed under prospectus and registration exemptions by qualified issuers, to either domestic or foreign purchasers, are eligible for a 4 month hold period, in place of the current 12 month hold period. The Interim Policy sets out what the Commission considers to be a recognized market for the purposes of the SHAIF System and provides guidance on the definition of Qualifying Issuer in the Interim SHAIF BOR.

Further Information Respecting the SHAIF System

Since publication for comment, a number of questions have arisen about the operation of the SHAIF System. A "Questions and Answers" section clarifying certain aspects of the SHAIF System is attached as a schedule to this Notice.

Status in Alberta

On December 12, 1997, the Alberta Securities Commission published for comment proposed Rule 45-501 (the "proposed Alberta Rule") - Trades and Distributions Outside and In Alberta, and Companion Policy 45-501CP. These two documents together are comparable to the B.C. SHAIF System and Eurobond BOR. In addition, the proposed Alberta Rule also contains a new exemption from the prospectus requirements of the Alberta Securities Act. The prospectus requirement would not apply to transactions involving purchasers that are only outside Alberta, where the distribution is made in compliance with both the requirements of the laws of the jurisdiction in which the purchaser is resident and the steps set out in the proposed Alberta Rule. The exemption would also extend to the first trade in the securities acquired pursuant to the above exemption, provided the securities are kept out of Alberta for 12 months or 4 months, depending on the status of the issuer.

The Commission is considering whether to introduce a similar exemption. However, the Commission has concerns about potential abuse if the exemption is not further restricted in some way. As a result, the Commission is considering whether to place some or all of the following restrictions on the exemption:

(1) restrict the exemption to issuers with securities trading on a recognized market (as defined in the Interim Policy);

(2) restrict the exemption to issuers subject to equivalent regulation (SEC or other Canadian regulation); and

(3) restrict the exemption to reporting issuers.

The proposed Alberta Rule has only been published for comment and is not yet in effect. The comment period in Alberta expires on February 16, 1998.

Extension of Comment Period

As a result of the expiry date of the comment period in Alberta and the further issues raised by the proposed Alberta Rule, the Commission is extending the comment period on the Interim SHAIF BOR and Interim Policy to February 16, 1998. The Commission continues to seek comment on the SHAIF System as published on November 27, 1997, and invites comments on the proposed additional exemption discussed in this Notice. The Commission encourages all interested parties to submit their comments.

DATED at Vancouver, British Columbia, on January 15, 1998

Douglas M. Hyndman
Chair

References: BOR#97/11
BOR#97/12
NIN#97/47
NIN#97/48
Interim LPS 3-27

Hold Period

Q: My company issued debentures convertible into common shares by way of a private placement under the SHAIF System. Does the hold period start to run from the date of issue of the debentures or the date of issue of the common shares issued on the conversion of the debentures?

A: The 4 month hold period under the SHAIF System starts from the date of issue of the debentures. This start date results from the reference to section 143(e) in the operative part of the Interim SHAIF BOR.

Q: Can my company use the SHAIF System if it has previously done a special warrant transaction?

A: Yes. Your company may use the SHAIF System if it has complied with the Interim SHAIF BOR and Interim Policy prior to the date of conversion. The hold period would start from the date of issue of the special warrant. Note, however, that the Executive Director may exercise the discretionary power described in section 4.5 of the Interim Policy where the issuer was not a "qualifying issuer" at the time of issuing the special warrants.

Alternative Forms of AIF

Q: Is an AIF filed under OSC Policy 5.10 an acceptable form of AIF?

A: Yes. An AIF filed under OSC Policy 5.10 is the same as an AIF prepared in accordance with Appendix A of NPS 47.

Q: My company wants to give notice under section 4.8 of the Interim Policy that it is using a previously filed prospectus as an Initial AIF. What form should the notice take?

A: The notice can be in letter form identifying the date of the prospectus, the date of the receipt for the prospectus, the date of the most recent year-end and the date of the financial statements included in the prospectus. The notice should be directed to the Director, Corporate Finance.

Q: When does my company have to file a notice under section 4.8 of the Interim Policy that it is using a previously filed prospectus as an AIF?

A: Prior to the distribution under the SHAIF BOR. When the Interim Policy refers to filing the notice no later than the date of distribution, the distribution referred to is the one under the Interim SHAIF BOR and not the prior distribution under the prospectus.

Q: Does my company have to file a notice with the Commission if it uses a Form 10-K, Form 20-F or a 5.10 AIF as an alternative form of AIF?

A: Your company is not required to file a notice in those circumstances, but is encouraged to do so. The Interim Policy does not currently indicate that issuers using one of these documents should file a notice that it is being used under the SHAIF System. However, the Commission encourages issuers to provide a notice in these circumstances to ensure that the Commission is aware of the filing and so that it can provide the issuer with a confirmation of filing.

Q: My company has recently completed a substantial transaction. Will the Commission issue a confirmation of filing for our amended AIF under the Interim Policy?

A: The Interim Policy does not currently indicate that the Executive Director will issue a confirmation of filing where the issuer amends its AIF as a result of making a substantial transaction. However, the Executive Director is prepared to issue a confirmation of filing on request provided that the issuer confirms that it continues to meet the definition of a Qualifying Issuer after the substantial transaction is completed.

Current AIFs

Q: When does my company have to file its initial AIF?

A: Your initial AIF may be filed at any time.

Q: My company has a September 30 year end. On December 15, 1997, it filed an initial AIF. The annual financial statements for the year ended September 30, 1997 have not yet been completed. How long will the initial AIF our company has filed under the SHAIF System remain a Current AIF?

A: The length of time that an AIF will remain current will vary, depending on the date the AIF, including any alternative form of AIF or notice to use a prospectus as an Initial AIF, was filed and the date of the issuer’s most recently completed financial year. In your example, your company’s initial AIF would relate to its year ending September 30, 1996 and would be current only until February 17, 1998 (140 days after the end of its previous financial year). In order to remain eligible to use the system, your company would have to file a renewal AIF prior to February 17, 1998. The renewal AIF would relate to your company’s year ending September 30, 1997 and would remain current until February 17, 1999.

Filing through SEDAR

Q: What procedure should my company follow for filing documents under the SHAIF System through SEDAR?

A: National Instrument 13-101 relating to SEDAR requires a non-POP AIF to be filed through SEDAR. The AIF would be filed under "Securities Offerings - Other Filings". The issuer should name the filing: "LPS 3-27 AIF".

Q. Is my company required to file the notices required by section 4.8 and those that may be filed under section 4.9 of the Interim Policy through SEDAR?

A: Although these notices are not required to be filed through SEDAR, the Commission encourages issuers to do so under "Securities Offerings - Other Filings". The issuer should name the filing: "LPS 3-27 Notice".

Fees

Q: What fees are required to file an AIF under the SHAIF System?

A: Pursuant to Item 18 of section 22 of the Securities Regulation, it will cost your company $1,000 to file an initial AIF, a renewal AIF or any notice to use an alternative form of AIF. Your company must pay the filing fee through SEDAR by an electronic payment authorized at the same time that it files any of these documents.

Commission Review of AIF

Q: My company wants to issue securities that are subject to the reduced hold period under the Interim SHAIF BOR. Does it have to receive a notice of acceptance from the Commission for its AIF before it can proceed?

A: Yes. The issuer must have a Current AIF in order to issue securities under the Interim SHAIF BOR. The Interim Policy defines a Current AIF as one that has been confirmed as filed. The Interim Policy also provides that the Executive Director will forward this confirmation to your company within 10 business days of the date that the Commission receives your company’s AIF.

Q: Will the Commission review my company’s AIF before it issues a notice of acceptance?

A: Generally not. The Commission will not generally review AIFs before accepting them but may do so if circumstances warrant. However, the Commission may decide to review your AIF at any time, whether before or after a distribution.

Q: What could happen if the Commission reviews my company’s AIF after the company has made a distribution and the Commission finds a problem?

A: The Interim SHAIF BOR requires a current AIF. The AIF must be in accordance with Appendix A to NPS 47 or one of the alternative forms of AIF. There are a number of possible consequences that would follow if the Commission determines that your company’s AIF is deficient. The consequences would depend on the extent to which your company failed to comply with the provisions of Appendix A to NPS 47 or other alternative form. The consequences could include the issuance of a cease trade order, a notice of hearing or other enforcement action against the issuer or associated individuals. The Commission might also require the issuance of a clarification press release. The impact on your distribution is a matter of law and is similar to the legal ramifications for a distribution under an offering memorandum where the offering memorandum is deficient.

Previously Issued Securities

Q: My company issued securities with a 12 month hold period prior to publication of the Interim Policy. Can it now use the SHAIF System to reduce the hold period?

A: No. You cannot use the SHAIF System to reduce the hold period on securities issued with a 12 month hold period prior to the publication of the Interim Policy (except in the case of a special warrant or convertible security discussed above.)

Q: My company is a Qualifying Issuer as defined in the Interim SHAIF BOR. My company filed a prospectus before the Interim Policy was published. Securities were distributed on a private placement basis shortly after the Interim Policy was published. Would you consider granting a discretionary exemption order to allow purchasers under that private placement to have a 4 month rather than a 12 month hold?

A: The Commission may consider granting your company a discretionary exemption order in these circumstances. However, the Commission does not anticipate issuing a discretionary order if your company did not have a current comprehensive disclosure document at the time of the distribution.

Distributions Inside and Outside British Columbia

Q: If my company distributes securities from B.C. to a purchaser outside the province, can the non-B.C. resident purchaser resell its securities during the hold period?

A: As indicated in the Distribution NIN, the non-B.C. resident purchaser may resell securities acquired after the SHAIF System during the hold period, provided the securities are not sold into B.C. Your company must take steps to ensure that the securities are not sold to B.C. residents during the hold period (as discussed in the Distribution NIN.)

Q: What resale restrictions would apply if my company distributes securities from B.C. to a purchaser within B.C. under the SHAIF System?

A: B.C. residents, like foreign residents, would be subject to a 4 month hold period. However, they would be subject to the resale restrictions regardless of where or to whom they wish to sell their securities. B.C. residents may not resell their securities during the hold period because such a sale would be deemed to be a distribution.

VSE Hold Period

Q: My company is listed on the VSE, which requires investors to sign an undertaking to hold securities for 12 months. Can it still use the reduced hold period under the SHAIF System?

A: Yes. On January 8, 1998, the Vancouver Stock Exchange issued an Update Notice to its Corporate Finance Services Policy and Procedures Manual which addresses this issue.