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Securities Law

NIN 98/52 - Revised Shorter Hold Period with AIF and New Exemption for Certain Distributions Outside British Columbia [NIN - Rescinded]

Published Date: 1998-08-28
Effective Date: 1998-08-27
On November 27, 1997 the Commission published for comment Interim BOR#97/12 (the "SHAIF BOR") and Interim Local Policy Statement 3-27 (the "Interim Policy") under NIN#97/47, which together established a system for a shorter hold period for issuers meeting certain requirements, including filing an AIF (the "SHAIF System"). At the same time, we also published NIN#97/48, which deals with the application of the Securities Act where an issuer distributes securities to a person outside the province, and BOR#97/11, which provides registration and prospectus exemptions for Eurobond offerings.

In January the Commission published NIN#98/1, answering questions relating to the SHAIF System. The notice also advised that the Alberta Securities Commission had published for comment a proposed rule that would implement a largely equivalent system to the SHAIF System and provide a prospectus exemption for distributions of securities to purchasers outside Alberta. In the notice the Commission stated that it would consider whether to introduce a similar exemption and, if so, on what conditions.

The comment period expired February 16, 1998. In response to questions and comments received since the implementation of the SHAIF System, the Commission has adopted Local Policy Statement 3-27 (the "Local Policy"), which will replace the Interim Policy, and BOR#98/7 (the "Revised SHAIF BOR"), which will replace BOR#97/12. The Commission has also adopted BOR#98/8 dealing with distributions outside British Columbia (the "Distribution BOR"). The Local Policy explains the Revised SHAIF BOR and Distribution BOR and provides further guidance and clarification on certain provisions of the SHAIF System. The Revised SHAIF BOR revises the conditions on which the hold period for qualifying issuers is reduced form 12 months to 4 months, and the Distribution BOR provides a registration and prospectus exemption for certain distributions to purchasers outside British Columbia. The Local Policy, Revised SHAIF BOR and Distribution BOR will be effective on October 1, 1998.

The Alberta Securities Commission will be concurrently adopting Rules that will implement a system substantially similar to the SHAIF System, as revised, and provide a registration and prospectus exemption for certain distributions to purchasers outside Alberta. This is an important initiative resulting from the Letter of Accord between the Commission and the Alberta Securities Commission (see NR #96/32).

Changes to the SHAIF System

The changes to the SHAIF System are mostly of a technical nature and are intended to clarify certain aspects of the system, such as filing and review procedures for AIFs and determining and maintaining eligibility under the system. The most significant changes are discussed below.

Definition of Qualifying Issuer

The SHAIF BOR established certain revenue and expenditure thresholds for the purposes of meeting the definition of "qualified issuer". The Revised SHAIF BOR clarifies the expenditure tests based on the issuer’s consolidated financial statements for the most recent year end. In addition an issuer’s financial statements for an interim period subsequent to its most recent year end that are (i) included in a prospectus, or JCP or VCP information circular, or (ii) subject to a review engagement report, may also be taken into account to determine whether the issuer has met these thresholds.

Alternative Form of AIF

The Local Policy expands the range of documents that can be used as an AIF and clarifies that an AIF filed under Ontario Securities Commission Policy Statement No. 5.10 will be accepted as an AIF (see NIN#98/1). The Local Policy also allows a prospectus, other than a prospectus filed with the Vancouver Stock Exchange under the Exchange’s Policy 30 - "Venture Capital Pool Companies" (the "VCP Policy"), to be used as a Renewal AIF as well as an Initial AIF. In addition, an issuer may elect to use (i) a prospectus filed and receipted in another Canadian jurisdiction, other than a prospectus filed with the Alberta Stock Exchange under the Alberta Junior Capital Pool Rule (the "JCP Rule"), and (ii) an information circular filed and accepted by the Vancouver Stock Exchange in connection with a Qualifying Transaction under the VCP Policy or by the Alberta Stock Exchange in connection with a Major Transaction under the JCP Rule, as an alternative form of AIF.

Issuers electing to file these alternative forms of AIFs in order to be eligible to use the SHAIF System must be reporting issuers under the Securities Act and satisfy the other eligibility requirements of the SHAIF BOR, including the requirement that the issuer be a qualifying issuer.

Substantial Transaction

Under the Interim Policy if an issuer makes a substantial transaction between the date of its most recent AIF and the date of a distribution of securities, it is required to file an amended AIF. The Interim Policy discusses what the Commission considers a substantial transaction. The Local Policy continues the concept of substantial transaction but, instead of requiring an issuer to file an amended AIF, it requires an issuer to disclose the substantial transaction and its effect on the business of the issuer in the material change report that would be filed by an issuer in these circumstances. The Securities Act also requires issuers to file material change reports in other circumstances that are not substantial transactions.

Registration and Prospectus Exemption for Distributions Outside British Columbia

The Distribution BOR provides a registration and prospectus exemption for certain distributions of securities to purchasers outside British Columbia. The exemption is primarily intended to facilitate private placements by British Columbia issuers made solely in another jurisdiction.

This exemption is only available to issuers whose securities are listed on a recognized exchange as defined in the Local Policy. Issuers who wish to rely on the exemption must also be able to satisfy the other conditions in the Distribution BOR, including the requirement to legend the certificates representing the securities.

Future Initiatives

Staff of the Commission have also been working with staff of the other Canadian jurisdictions to develop a national approach to offshore distributions and harmonization of hold periods in order to address some of the inconsistencies between provinces in these areas.

As indicated in news releases issued by the Canadian Securities Administrators in April, June and September 1997 and January 1998 (see NR #97/12, #97/17, #97/29 and #98/3), the Canadian Securities Administrators are studying the feasibility of an integrated disclosure system. The SHAIF System is an important step towards a proposal for an integrated disclosure system, which would simplify the process of distributing securities and give issuers the option of qualifying private placements to eliminate hold periods.

DATED at Vancouver, British Columbia, on August 27, 1998

Douglas M. Hyndman

References: BOR#97/12
Interim LPS 3-27
LPS 3-27