NIN 93/18 - Fiscal Agency Agreements Restrictions on Exemption Orders [NIN - Rescinded]

Background

In July 1992, the Superintendent of Brokers issued a notice (NIN#92/22) requesting comment on a number of issues relating to fiscal agency agreements. The Superintendent has considered the comments received, and has also considered the practical experience gained by staff in the past year in reviewing applications for exemption orders concerning fiscal agency agreements. Several of the fiscal agency issues warrant further review and will be considered in greater detail by staff over the coming months. However, some concerns have been identified respecting compensation arrangements that require more immediate attention.

The Superintendent has concluded that significant concerns arise from the manner in which compensation is paid under some forms of fiscal agency agreements. The Superintendent's view is that compensation for fiscal agency services should be based on the value of the services provided, whether the actual compensation takes the form of cash or securities. If fiscal agent compensation takes the form of share purchase warrants, the remuneration to the agent is dependant on an increase in share price rather than on the value of the services provided. Therefore, the Superintendent will no longer issue orders authorizing the issuance of warrants as compensation under fiscal agency agreements.

Restrictions

Pending further assessment of the issues and the comments received, the Superintendent will favourably consider applications for orders under sections 33 and 59 of the Securities Act permitting the issuance of securities under a fiscal agency agreement only if the agreement:

(a) provides that the securities to be issued are shares, not warrants;

(b) details the services to be provided and specifies the value (price per hour) to be paid by the issuer for those services;

(c) requires the fiscal agent to submit to the issuer a detailed invoice, on a pre-determined monthly or quarterly basis, specifying the services provided and the fees earned during that period;

(d) provides that the shares are to be issued at the market price on the date of the invoice, and

(e) provides, where the issuer is not an exchange issuer, that the total number of shares issued pursuant to the agreement will not exceed 2% of the issuer's issued share capital and that the shares will be subject to a 12 month hold period from the date of issue.

Further review of the issues surrounding fiscal agency agreements will be conducted over the next few months. Additional public and industry comment may be sought during that process. The conclusions reached by staff as a result of the review will be publicized in future notices.


Dated at Vancouver, British Columbia, on September 9, 1993.

Dean E. Holley
Superintendent of Brokers

Ref: NIN#92/22