BCN 2002/16 - Adoption of Multilateral Instrument 45-103 Capital Raising Exemptions [BCN - Rescinded]

Introduction
The British Columbia Securities Commission’s new Capital Raising Exemptions are effective today.  The BCSC has implemented the new exemptions through the following instruments: 

• Multilateral Instrument 45-103 Capital Raising Exemptions
• Companion Policy 45-103CP
• Form 45-103F1 Offering Memorandum for Non-Qualifying Issuers,
• Form 45-103F2 Offering Memorandum for Qualifying Issuers
• Form 45-103F3 Risk Acknowledgement
• Consequential Amendments to the Securities Rules

Background
The new exemptions are a joint initiative of the BCSC and the Alberta Securities Commission.  They are intended to increase access to capital and investment opportunities in British Columbia and Alberta while providing appropriate investor protection. 

The BCSC and ASC published for comment a draft of MI 45-103 and related documents on September 27, 2001 (BCN 2001/67).  We received 41 written comments.  On February 8, 2002, the ASC published for comment a second draft of MI 45-103 which imposed additional conditions on the use of the offering memorandum exemption in Alberta.  After reviewing the comments on the second draft, the ASC decided to adopt MI 45-103 with the additional conditions. 

The BCSC did not adopt the additional conditions because we considered them unnecessary for the protection of British Columbia investors.  For this reason, MI 45-103 includes two offering memorandum exemptions: one for trades in British Columbia and the other for trades in Alberta.  The two exemptions can be used concurrently because they are identical in all other respects, including the required forms of offering memorandum and risk acknowledgement. 

Consequential amendments to the Securities Rules
Effective today, the BCSC has repealed the existing capital raising exemptions in sections 89(a), (b) and (g) and 128 (a), (b), (c) and (h) of the Securities Rules.  We have also expanded the shares for debt exemption in sections 89(c) and 128(e), the bonus or finder’s fee exemption in sections 89(e) and 128(f) and the management company employee exemption in sections 89(f) and 128(g) so that they are available to all reporting issuers.

However, also effective today, the BCSC has made BCI 45-519 Retention of Current Exemptions for Six Months.  BCI 45-519 allows issuers to continue using the following exemptions for a transition period, until October 2, 2002:
a. the 50 purchaser exemption (formerly sections 89(a) and 128(a) of the Securities Rules),
b. the $25,000 -- sophisticated purchaser exemption (formerly sections 89(b) and 128(b) of the Securities Rules),
c. the $25,000 -- registrant consultation exemption (formerly section 128(c) of the Securities Rules), and
d. the friends and relatives exemption (formerly sections 89(g) and 128(h) of the Securities Rules).

Consequential amendments to the Securities Act
The BCSC is seeking amendments to the Securities Act to repeal the following exemptions:
a. the private issuer exemption in sections 46(j) and 75(a) of the Securities Act,
b. the financial institutions exemption in sections 45(2)(2) and 74(2)(1) of the Securities Act, and
c. the $97,000 exemption in sections 45(2)(5) and 74(2)(4) of the Securities Act.
If and when these amendments to the Securities Act are adopted, the BCSC will provide additional transitional relief to allow use of these exemptions until October 2, 2002, or, for the $97,000 exemption, until at least April 2, 2003.

Consequential amendments to other instruments
The BCSC has revised the following instruments to ensure consistency with MI 45-103:

• BCP 12-602 Exempt Purchaser Status
• BCF 12-602F Exempt Purchaser Application
• BCP 13-601 Required Forms and Index of Forms
• BCP 31-601 Registration Requirements
• BCIN 33-701 Trading By Limited Dealers under Registration and Prospectus Exemptions
• BCP 45-501CP Mortgages Companion Policy
• BCP 45-502CP Cooperative Associations Companion Policy
• BCI 45-504 Trades to Trust Companies, Issuers and Portfolio Managers outside BC
• BCI 45-509 Short Form Offerings of Listed Securities and Units by Qualifying Issuers
• BCI 45-516 Amendments to Multilateral Instrument 45-102 Resale of Securities
• BCF 45-901F Offering Memorandum for Syndicated Mortgages
• BCF 45-902F Report of Exempt Distribution (formerly Form 20)
• BCF 45-903F1 and BCF 45-903F2 Acknowledgement of Purchaser
• BCF 45-904F Offering Memorandum
• BCF 45-905F Offering Memorandum - Immigrant Investor Program
• BCF 45-906F Offering Memorandum - Real Estate Securities

BCF 45-902F Report of Exempt Distribution (formerly Form 20)
The BCSC has amended BCF 45-902F to: 
a. remove references to the existing exemptions in the Securities Rules,
b. require disclosure of whether the issuer is listed or quoted on any stock exchange or trading and quotation system,
c. require disclosure of purchasers’ residential address, telephone number and e-mail address in a separate schedule which will not be available to the public, and
d. require disclosure of the length of any restricted or seasoning period applicable to the securities being distributed.

Issuers should begin using the new BCF 45-902F immediately.  However, an issuer relying on an exemption in BCI 45-519 may file a Report of Exempt Distribution using the former BCF 45-902F until May 2, 2002.

BCIN 33-701 Trading by Limited Dealers under Registration and Prospectus Exemptions
The BCSC has amended BCIN 33-701 to clarify that the conditions applicable to limited dealers when relying on exemptions to trade in securities outside the scope of their limited registration apply to the new offering memorandum exemption in section 4.1 of MI 45-103.  We received comments that some of these conditions unduly restrict the ability of limited dealers to sell securities under exemptions.  We are considering these comments and will decide in the near future whether to make further amendments to BCIN 33-701. 

If you have any questions, please contact:

Leslie Rose
Senior Legal Counsel, Legal & Market Initiatives
British Columbia Securities Commission
Tel: (604) 899-6654
Fax: (604) 899-6814
E-mail:  lrose@bcsc.bc.ca

April 3, 2002

Douglas M. Hyndman
Chair

Ref: BCN 2001/67
 MI 45-103
 Companion Policy 45-103CP
 Form 45-103F1
 Form 45-103F2
 Form 45-103F3
 BCP 12-602
 BCF 12-602F
 BCP 13-601
 BCP 31-601
 BCIN 33-701
 BCP 45-501CP
 BCP 45-502CP
 BCI 45-504
 BCI 45-509
 BCI 45-516
 BCI 45-519
 BCF 45-901F
 BCF 45-902F
 BCF 45-903F1 and F2
 BCF 45-904F
 BCF 45-905F
 BCF 45-906F

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.

Schedule

1 Section 1 (1) of the Securities Rules, B.C. Reg. 194/97, is amended by repealing the definitions of “designated security” and “sophisticated purchaser”.
2 Section 86 is amended

(a) by repealing subsection (1) (b) (ii) and substituting the following:
(ii)  have not been objected to in writing by the commission within 30 days after filing. , and
(b) by repealing subsection (2).

3 Section 87 is repealed the following substituted:
Exemption from underwriter registration

87 A person is exempt from registration under section 34 (1) (b) of the Act as an underwriter unless the person is acting as an underwriter in a distribution of securities made by way of a prospectus or other offering document that the executive director specifies for purposes of this section.

4 Section 89 is amended

(a) by repealing paragraphs (a) and (b),
(b) in paragraph (c) by striking out “an exchange” and substituting “a reporting”.
(c) in paragraph (d) by striking out “and the trade is in accordance with the terms of the escrow agreement” and substituting “and the trade is permitted by the escrow agreement and the transferee agrees to be subject to the terms of the escrow agree-ment;”,
(d) in paragraphs (e) and (f) by striking out “an exchange”, wherever it appears, and substituting “a reporting” , and
(e) by repealing paragraphs (g) and (h).

5 Section 91 is repealed.

6 Section 92 (2) is amended in paragraph (c) by striking out “before the trade is made,” and substituting “before the person makes the trade,”.

7 Section 128 is amended

(a) by repealing paragraphs (a) to (c),
(b) in paragraphs (e), (f) and (g) by striking out “an exchange” wherever it appears and substituting “a reporting”, and
(c) by repealing paragraphs (h) and (i).

8 Section 130 is repealed.

9 Section 131 (2) is amended in paragraph (c) by striking out “before the distribution is made,” and substituting “before the person makes the distribution,”.

10 Sections 133 to 135 and 138 are repealed.

11 Section 139 is amended in subsection (2) by striking out “section 128 (a), (b), (c) or (e) to (h)” and substituting “section 128 (e) to (g)”.