Recently, the British Columbia Securities Commission (“BCSC”) revoked and replaced BC Instrument 72-503 – Distribution of Securities outside British Columbia with a new instrument bearing the same number and name (“BCI 72-503”).
BCI 72-503 provides exemptions from the prospectus requirement to allow distributions by issuers located in BC to purchasers outside of BC. Under the old instrument, an exemption from the prospectus and registration requirements was only available if the subscriber made certain certifications and acknowledgements in a subscription agreement and only if the securities of the issuer were listed on a qualified market (The Toronto Stock Exchange Inc., Tier 1 or Tier 2 of the TSX Venture Exchange Inc., Bourse de Montréal Inc., NYSE Amex Equities, Nasdaq National Market, Nasdaq Capital Market, the New York Stock Exchange, the London Stock Exchange Limited, Aequitas NEO Exchange Inc., and any predecessor or successor to any of the entities referred to above). The new instrument has done away with these requirements and now provides three prospectus exemptions: a private placement exemption, a public offering exemption, and a testing of the waters exemption.
1. The key conditions of the private placement exemption are:
- the distribution must be made to a person not resident in BC;
- the purchaser purchases the security as principal;
- the issuer must comply with the securities law requirements in the jurisdiction where the purchaser is resident;
- the first trade is subject to resale restrictions;
- the issuer cannot rely on the crowdfunding exemption in the jurisdiction where the purchaser is resident; and
- the issuer must file a report of the distribution in Form 45-106F1 on or before the 10th day after the distribution.
2. The key conditions of the public offering exemption are:
- the distribution must be made either to a purchaser that is not resident in Canada, or on or through the facilities of an exchange or market outside Canada (provided the issuer or selling security holder have no reason to believe that the purchaser is resident in Canada);
- in connection with the distribution, the issuer must have an effective registration statement under U.S. federal securities laws, or a document similar to a final prospectus that has been receipted or otherwise approved in accordance with the securities laws of a foreign jurisdiction; and
- the issuer must provide the BCSC with notice of the transaction either by filing the foreign prospectus on SEDAR if the issuer is a reporting issuer or by filing an exempt distribution report if the issuer is not a reporting issuer in British Columbia and filing the document referred to above.
3. The testing of the waters exemption allows BC-based issuers to use the U.S. testing the waters provisions in order to ascertain interest in a U.S. public offering. The exemption is subject to the following key conditions:
- the oral and written communications are made with a person that is not resident in Canada;
- the communications are permitted under the U.S. testing of the waters provisions in section 5(d) of the U.S. Securities Act of 1933; and
- the issuer complies with the securities law requirements in the jurisdiction where the purchaser is resident.
A new Companion Policy 72-503CP – Distribution of Securities outside British Columbia provides guidance on using BCI 72-503.