Final Rule, Companion Policy and Forms F1 and F2, (effective December 22, 1998): OSC Rule - 45-501 - Ontario Prospectus and Registration Exemptions

OSC Rule

January 8, 1999

NOTICE OF FINAL RULE UNDER
THE SECURITIES ACT
RULE 45-501, COMPANION POLICY 45-501CP,
FORM 45-501F1 AND FORM 45-501F2
EXEMPT DISTRIBUTIONS

On December 7, 1998, the Minister of Finance approved Rule 45-501 Exempt Distributions(the "Rule) and Forms 45-501F1 and 45-501F2 (the "Forms"). The Rule, Companion Policy45-501CP and Forms came into force on December 22, 1998.

The related regulation revoking sections 14, 16-32, 67 and 68 of Regulation 1015 (the"Regulation") of the Revised Regulations of Ontario,1990 made under the Securities Act,subsection 69(3) of the Regulation, clause 151(a) of the Regulation, sections 22 and 25of Schedule 1 to the Regulation, and Forms 20 and 21 of the Regulation was filed as O.Reg. 662/98 on December 16, 1998 and was published in The Ontario Gazette on January2, 1999.

Previously, materials related to the Rule were published in the Bulletin on October 17,1997, April 10, 1998, May 29, 1998, October 16, 1998 and December 18, 1998. For adetailed list of related publications see the 1997 Year End Quarterly Summary ofPublications at (1998), 21 OSCB 5 and the 1998 Year End Summary of Publications inChapter 1 of this Bulletin.

The Rule, Companion Policy and Forms as well as the regulation amendments arepublished in Chapter 5 of this Bulletin.

ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS
TABLE OF CONTENTS

PART TITLE

PART 1 DEFINITIONS

1.1 Definitions

1.2 Interpretation

PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT

2.1 Exemption for a Trade in a Variable Insurance Contract

2.2 Exemption for a Trade Among Control Persons or to the Issuer

2.3 Exemption for a Trade to or by a Promoter

2.4 Exemption for a Trade by a Promoter or Issuer in a Government Incentive Security

2.5 Exemption for a Trade in Seed Capital or Government Incentive Securities

2.6 Exemption for a Trade by a Control Person in a Security Acquired Under a Formal Take-OverBid

2.7 Exemption for a Trade in Connection with a Securities Exchange Issuer Bid

2.8 Exemption for a Trade on an Amalgamation, Arrangement or Specified Statutory Procedure

2.9 Exemption for a Trade Upon Exercise of Conversion Rights in a Convertible Security

2.10 Exemption for a Trade Upon Exercise of Exchange Rights in an Exchangeable Security

2.11 Exemption for a Trade in Units

2.12 Exemption for a Trade in a Security of a Private Company or Private Issuer under theExecution Act

2.13 Exemption for a First Trade in a Multiple Convertible Security, Convertible Security orExchangeable Security Acquired Under Certain Exemptions

2.14 Exemption for a First Trade in a Security Acquired in Connection with a Take-over Bid

2.15 Exemption for a First Trade in a Security Acquired to Facilitate Incorporation

2.16 Exemption for a First Trade in an Underlying Security Where the Right to Purchase, Convertor Exchange is Qualified By Prospectus

2.17 Exemption for a Trade in a Security of a Private Issuer

2.18 Further Exemptions

PART 3 REMOVAL OF CERTAIN REGISTRATION AND PROSPECTUS EXEMPTIONS

3.1 Removal of Private Placement Exemptions If Acquisition Cost Is Less Than $150,000

3.2 Satisfaction of Acquisition Cost

3.3 Removal of Exemptions if Purchaser Primary Purpose Entity

3.4 Removal of Exemptions for Investment Clubs

3.5 Removal of Asset Acquisition Exemption If Fair Value of Assets Is Less Than $150,000

3.6 Removal of Seed Capital Exemption

3.7 Determination of Number of Purchasers Under Seed Capital and Government IncentiveSecurity Exemptions if Purchaser is a Primary Purpose Entity

3.8 Removal of Exemption for Bonds, Debentures and Other Evidences of Indebtedness

3.9 Removal of Exemption for Securities of a Private Mutual Fund With a Promoter or Manager

3.10 Removal of 72(4) Resale Exemption for Control Person Distribution

3.11 Removal of Subsection 72(7) Exemption for Control Person Distribution

3.12 Removal of Registration Exemption for Market Intermediaries

PART 4 OFFERING MEMORANDUM

4.1 Removal of Exemptions Contained in Clause 72(1)(d) of the Act and Section 2.11

4.2 Removal of Exemptions If No Contractual Right of Action Provided and Described inOffering Memorandum

4.3 Delivery of Offering Memorandum to Commission

PART 5 DEALER REGISTRATION

5.1 Removal of Exemption Unless Dealer Registered for Trade Described in the Exemption

PART 6 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER CERTAIN EXEMPTIONS

6.1 First Trade in a Security Acquired By a Promoter Under Section 2.3 or Section 2.15

6.2 First Trade in a Security Acquired Under Section 2.4, 2.5 or 2.11

6.3 First Trade in a Security Acquired Under Clause 72(1)(h) of the Act

6.4 First Trade In an Underlying Security of a Multiple Convertible Security, Convertible Securityor an Exchangeable Security Acquired Under Certain Exemptions

6.5 First Trade in a Security Acquired Under Section 2.9 or 2.10

6.6 First Trade in a Security Acquired Under Section 2.7, 2.8 or 2.17 or Under Subsection 2.18(1)

PART 7 FILING REQUIREMENTS AND FEES

7.1 Form 45-501F1

7.2 Form 45-501F2

7.3 Fees for Form 45-501F1

7.4 Fees for Form 45-501F2

7.5 72(4) Reports

7.6 72(5) Disclosure

7.7 Fees for Trade Made Under Section 2.8

ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS

PART 1 DEFINITIONS

1.1 Definitions - In this Rule

"convertible security" means a security of an issuer that is convertible into or carries the right of theholder to purchase or of the issuer to cause the purchase of, a security of the same issuer;

"entity" means a company, syndicate, partnership, trust or unincorporated organization;

"exchangeable security" means a security of an issuer that is exchangeable for, or carries the rightof the holder to purchase or of the exchange issuer to cause the purchase of a security of anotherissuer that is a reporting issuer;

"exchange issuer" means an issuer that distributes securities of a reporting issuer held by it inaccordance with the terms of an exchangeable security of its own issue;

"formal bid" has the meaning ascribed to that term in subsection 89(1) of the Act;

"government incentive security" means

(a) a security, or unit or interest in a partnership that invests in a security, that is issued by acompany and for which the company has agreed to renounce in favour of the holder of thesecurity, unit or interest, amounts that will constitute Canadian exploration expense, as definedin subsection 66.1(6) of the ITA, or Canadian development expense, as defined in subsection66.2(5) of the ITA, or Canadian oil and gas property expense, as defined in subsection 66.4(5) ofthe ITA;

(b) a unit or interest in a partnership or joint venture that is issued in order to fund Canadianexploration expense as defined in subsection 66.1(6) of the ITA or Canadian developmentexpense as defined in subsection 66.2(5) of the ITA or Canadian oil and gas property expenseas defined in subsection 66.4(5) of the ITA;

(c) a unit or interest in a partnership or joint venture the sole purpose of which is to carry out aprogramme of mineral exploration designated by the Minister of Natural Resources under theOntario Mineral Exploration Program Act; or

(d) a security that entitles the acquiror to a unit of a limited partnership the sole purpose of whichis to carry out scientific research activities as defined by subsection 37(7) of Regulation 2900under the ITA;

"hold period" means that period of either six, 12 or 18 months that would be applicable to a securityif it had been acquired under an exemption referred to in subsection 72(4) of the Act;

"multiple convertible security" means a security of an issuer that is convertible into orexchangeable for, or carries the right of the holder to purchase or of the issuer or exchange issuerto cause the purchase of a convertible security, an exchangeable security or another multipleconvertible security;

"private issuer" means a person that

(a) is not a reporting issuer or a mutual fund;

(b) is an issuer all of whose issued and outstanding shares

(i) are subject to restrictions on transfer contained in the constating documents of the issueror one or more agreements among the issuer and the holders of its securities; and

(ii) are beneficially owned, directly or indirectly, by not more than 50 persons or companies,counting any two or more joint registered holders as one beneficial owner, exclusive ofpersons

(A) that are employed by the issuer or an affiliated entity of the issuer, or

(B) that beneficially owned, directly or indirectly shares of the issuer while employed by itor an affiliated entity of it and at all times since ceasing to be so employed havecontinued to beneficially own, directly or indirectly, at least one share of the issuer; and

"72(4) trade" means a trade in a security under the exemption in clause 72(1)(a), (b), (c), (d), (l), (m),(p) or (q) of the Act or sections 2.4, 2.5 or 2.11 of this Rule;

"72(5) trade" means a trade in a security under the exemption in clause 72(1)(f) (other than a trade toan associated consultant or investor consultant as defined in Rule 45-503 Trades to Employees,Executives and Consultants), (h), (i), (j), (k) or (n) of the Act, or section 2.7 or 2.8 of this Rule; and

"underlying security" means a security issued or transferred, or to be issued or transferred inaccordance with the terms of a convertible security or an exchangeable security or a multipleconvertible security.

1.2 Interpretation

(1) In this Rule a person or company is considered to be an affiliated entity of another person orcompany if one is a subsidiary entity of the other or if both are subsidiary entities of the sameperson or company, or if each of them is controlled by the same person or company.

(2) In this Rule a person or company is considered to be controlled by a person or company if

(a) in the case of a person or company,

(i) voting securities of the first-mentioned person or company carrying more than 50percent of the votes for the election of directors are held otherwise than by way ofsecurity only, by or for the benefit of the other person or company, and

(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of thedirectors of the first-mentioned person or company;

(b) in the case of a partnership that does not have directors, other than a limited partnership,the second-mentioned person or company holds more than 50 percent of the interests inthe partnership; or

(3) In this Rule a person or company is considered to be a subsidiary entity of another person orcompany if

(a) it is controlled by,

(i) that other, or

(ii) that other and one or more persons or companies each of which is controlled by thatother, or

(iii) two or more persons or companies, each of which is controlled by that other; or

(b) it is a subsidiary entity of a person or company that is the other's subsidiary entity.

PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT

2.1 Exemption for a Trade in a Variable Insurance Contract

(1) Sections 25 and 53 of the Act do not apply to a trade by a company licensed under theInsurance Act in a variable insurance contract, that is

(a) a contract of group insurance;

(b) a whole life insurance contract providing for the payment at maturity of an amount not lessthan three quarters of the premiums paid up to age 75 for a benefit payable at maturity;

(c) an arrangement for the investment of policy dividends and policy proceeds in a separateand distinct fund to which contributions are made only from policy dividends and policyproceeds; or

(d) a variable life annuity.

(2) For the purposes of subsection (1), "contract", "group insurance", "life insurance" and "policy"have the respective meanings ascribed to them by sections 1 and 171 of the Insurance Act.

2.2 Exemption for a Trade Among Control Persons or to the Issuer - Sections 25 and 53 of the Act donot apply to a trade in a security of an issuer, if

(a) each of the parties to the trade is a person or company that is, as regards the issuer, aperson or company referred to in clause (c) of the definition of distribution in subsection1(1) of the Act; or

(b) the trade consists of a redemption, purchase or other acquisition by the issuer of a securityof the issuer.

2.3 Exemption for a Trade to or by a Promoter - Sections 25 and 53 of the Act do not apply to

(a) a trade by an issuer in a security of its own issue to a promoter of the issuer;

(b) a trade by a promoter of the issuer in a security of the issuer to another promoter of theissuer; or

(c) a trade in a security of the issuer between a promoter of the issuer and a person orcompany that is, as regards the issuer, a person or company referred to in clause (c) of thedefinition of distribution in subsection 1(1) of the Act.

2.4 Exemption for a Trade by a Promoter or Issuer in a Government Incentive Security - Sections 25 and53 of the Act do not apply to a trade by an issuer or by a promoter of an issuer in a security of theissuer that is a government incentive security, if

(a) in the aggregate in all jurisdictions, not more than 75 prospective purchasers are solicitedresulting in sales to not more than 50 purchasers;

(b) prospective purchasers are given a contractual right of action;

(c) before entering into an agreement of purchase and sale, the prospective purchaser hasbeen supplied with an offering memorandum that includes information

(i) identifying every officer and director of the issuer,

(ii) identifying every promoter of the issuer,

(iii) giving the particulars of the professional qualifications and associations during the fiveyears before the date of the offering memorandum of each officer, director andpromoter of the issuer that are relevant to the offering,

(iv) indicating each of the directors that will be devoting his or her full time to the affairs ofthe issuer,and

(v) describing the contractual right of action in favour of the purchaser;

(d) the prospective purchaser has access to substantially the same information concerning theissuer that a prospectus filed under the Act would provide and

(i) because of net worth and investment experience or because of consultation with oradvice from a person or company that is not a promoter of the issuer and that is anadviser or dealer registered under the Act, is able to evaluate the prospectiveinvestment on the basis of information about the investment presented to theprospective purchaser by the issuer or selling securityholder; or

(ii) is a senior officer or director of the issuer or of an affiliated entity of the issuer or aspouse or child of any director or senior officer of the issuer or of an affiliated entity ofthe issuer,

(e) the offer and sale of the security is not accompanied by an advertisement and no selling orpromotional expenses have been paid or incurred for the offer and sale, except forprofessional services or for services performed by a dealer registered under the Act;

(f) the promoter, if any, has not acted as a promoter of any other issue of securities under thisexemption within the calendar year; and

(g) section 3.7 does not make the exemption unavailable.

2.5 Exemption for a Trade in Seed Capital or Government Incentive Securities - Sections 25 and 53 ofthe Act do not apply to a trade in a security that was previously acquired under the exemption inclause 72(1)(p) of the Act or section 2.4, if

(a) in the case of a security acquired under clause 72(1)(p) of the Act, each of the parties to thetrade is one of the not more than 25 purchasers; or

(b) in the case of a security acquired under section 2.4, each of the parties to the trade is one ofthe not more than 50 purchasers.

2.6 Exemption for a Trade by a Control Person in a Security Acquired Under a Formal Take-Over Bid

(1) Section 53 of the Act does not apply to a trade that is a control person distribution in a securitythat was acquired under a formal bid, if

(a) the offeree issuer had been a reporting issuer for at least 12 months at the date of the bid;

(b) subject to subsection (2), the intention to make the trade was disclosed in the take-over bidcircular for the take-over bid;

(d) a notice of intention and a declaration prepared in accordance with Form 23 to theRegulation are filed by the seller before the trade;

(e) an insider report under Form 55-101F1 is filed by the seller within three days after thecompletion of the trade; and

(f) no unusual effort is made to prepare the market or to create a demand for the securities andno extraordinary commission is paid for the trade.

(2) Paragraph (1)(b) does not apply to a trade to another person or company that made a competingformal bid for securities of the same issuer for a per security price not greater than the persecurity consideration offered by that other person or company in its take-over bid.

2.7 Exemption for a Trade in Connection with a Securities Exchange Issuer Bid - Sections 25 and 53 ofthe Act do not apply to a trade in a security that is exchanged by or for the account of the offerorwith a securityholder of the offeror in connection with an issuer bid as defined in Part XX of the Act,if at the time of the trade, the issuer whose securities are being issued or transferred is a reportingissuer not in default under the Act or the regulations.

2.8 Exemption for a Trade on an Amalgamation, Arrangement or Specified Statutory Procedure -Sections 25 and 53 of the Act do not apply to a trade in a security of an issuer in connection with

(a) a statutory amalgamation or statutory arrangement; or

(b) a statutory procedure under which one issuer takes title to the assets of the other issuerthat in turn loses its existence by operation of law or under which one issuer merges withone or more issuers, whether or not the securities are issued by the merged issuer.

2.9 Exemption for a Trade Upon Exercise of Conversion Rights in a Convertible Security - Sections 25and 53 of the Act do not apply to a trade by an issuer in an underlying security of its own issue to aholder of a convertible security or multiple convertible security of the issuer on the exercise by theissuer of its right under the convertible security or multiple convertible security to cause the holderto convert into or purchase the underlying security or on the automatic conversion of theconvertible security or multiple convertible security, if no commission or other remuneration is paidor given to others for the trade except for ministerial or professional services or for servicesperformed by a registered dealer.

2.10 Exemption for a Trade Upon Exercise of Exchange Rights in an Exchangeable Security - Sections 25and 53 of the Act do not apply to a trade by an exchange issuer in an underlying security to a holderof an exchangeable security or multiple convertible security of the issuer on the exercise by theexchange issuer of its right under the exchangeable security or multiple convertible security tocause the holder to exchange for or purchase the underlying security or on the automatic exchangeof the exchangeable security or multiple convertible security, if the exchange issuer delivers to theCommission a written notice stating the date, amount, nature and conditions of the proposed trade,including the net proceeds to be derived by the exchange issuer if the underlying securities are fullytaken up and either

(a) the Commission has not informed the exchange issuer in writing within 10 days after thedelivery of the notice that it objects to the proposed trade, or

(b) the exchange issuer has delivered to the Commission information relating to the underlyingsecurity that is satisfactory to and accepted by the Commission.

2.11 Exemption for a Trade in Units - Sections 25 and 53 of the Act do not apply to a trade in securities ofone or more issuers, other than issuers that are mutual funds or non-redeemable investment funds,if

(a) the purchaser purchases as principal;

(b) the purchase is made in a single transaction in a block or unit that in the aggregate has anacquisition cost to the purchaser of not less than $150,000, provided that if the securitiesare of more than one issuer, the issuers are affiliated entities and are engaged in the sameor related types of businesses; and

2.12 Exemption for a Trade in a Security of a Private Company or Private Issuer under the Execution Act -Section 53 of the Act does not apply to a trade of securities by a sheriff under the Execution Act, if

(a) the issuer of the securities is a private company or private issuer;

(b) the aggregate acquisition cost to the purchaser is not more than $25,000; and

(c) each written notice to the public soliciting offers for the securities or giving notice of theintended auction of the securities is accompanied by a statement substantially as follows:

"These securities are speculative. No representations are made concerning thesecurities, or the issuer of the securities. No prospectus is available and theprotections, rights and remedies arising out of the prospectus provisions of theSecurities Act, including statutory rights of rescission and damages, will not beavailable to the purchaser of these securities."

2.13 Exemption for a First Trade in a Multiple Convertible Security, Convertible Security or ExchangeableSecurity Acquired Under Certain Exemptions - Section 53 of the Act does not apply to a first trade ina multiple convertible security, convertible security or exchangeable security acquired by a holderunder a 72(4) trade, if

(a) at the time of the trade the issuer of the multiple convertible security, convertible security orexchangeable security is a reporting issuer and is not in default of the Act or theregulations;

(b) either,

(i) the multiple convertible security, convertible security, exchangeable security orunderlying security is listed and posted for trading, or traded on The Toronto StockExchange or The Montreal Exchange and complies with the requirements of clause433(1)(m) or (n) of the Insurance Act, and the multiple convertible security and any oneor more of the underlying securities has or have been held for an aggregate period of atleast six months after the later of the date of the initial exempt trade or the date theissuer became a reporting issuer,

(ii) the multiple convertible security, convertible security, exchangeable security orunderlying security is a bond, debenture, or other evidence of indebtedness issued orguaranteed by an issuer, or is a preferred share of an issuer, and complies with therequirements of clause 433(1)(k) or (m) of the Insurance Act and the multipleconvertible security or any one or more of the underlying securities has or have beenheld for an aggregate period of at least six months after the later of the date of theinitial exempt trade or the date the issuer became a reporting issuer,

(iii) the multiple convertible security, convertible security, exchangeable security orunderlying security is listed and posted for trading, or traded on The Toronto StockExchange or The Montreal Exchange or are bonds, debentures or other evidences ofindebtedness issued or guaranteed by an issuer whose securities are listed and postedfor trading on The Toronto Stock Exchange or The Montreal Exchange and the multipleconvertible security or any one or more of the underlying securities has or have beenheld for an aggregate period of at least one year after the later of the date of the initialexempt trade or the date the issuer became a reporting issuer, or

(iv) the multiple convertible security or any one or more of the underlying securities has orhave been held for an aggregate period of at least 18 months from the later of the dateof the initial exempt trade or the date the issuer became a reporting issuer;

(c) no unusual effort is made to prepare the market or to create a demand for the security andno extraordinary commission or consideration is paid for the trade; and

(d) the trade is not a control person distribution.

2.14 Exemption for a First Trade in a Security Acquired in Connection with a Take-over Bid - Section 53of the Act does not apply to the first trade in a security previously acquired under the exemptioncontained in clause 72(1)(j) of the Act if

(a) when such exemption was relied upon, a securities exchange take-over bid circular for thesecurities was filed by the offeror under the Act;

(b) the trade is not a control person distribution; and

2.15 Exemption for a First Trade in a Security Acquired to Facilitate Incorporation - Section 53 of the Actdoes not apply to the first trade in a security previously acquired under the exemption contained inclause 72(1)(o) of the Act if the purchaser is a promoter of the issuer.

2.16 Exemption for a First Trade in an Underlying Security Where the Right to Purchase, Convert orExchange is Qualified By Prospectus - Section 53 of the Act does not apply to the first trade in anunderlying security issued or transferred in accordance with the terms of a multiple convertiblesecurity, convertible security or exchangeable security if

(a) a receipt was obtained from the Director for a prospectus qualifying the distribution of themultiple convertible security, convertible security or exchangeable security;

(b) the trade is not a control person distribution; and

(c) the issuer of the underlying security issued or transferred in accordance with the terms ofan exchangeable security is a reporting issuer at the time of the first trade.

2.17 Exemption for a Trade in a Security of a Private Issuer - Sections 25 and 53 of the Act do not apply toa trade in a security of a private issuer.

2.18 Further Exemptions

(1) Sections 25 and 53 of the Act do not apply to a trade if the security being traded is a security ofa company that,

(a) is incorporated but not continued under the Companies Act (British Columbia);

(b) is a private issuer within the meaning of section 1 of the Securities Act (British Columbia);and

(2) Sections 25 and 53 of the Act do not apply to a trade if the security being traded is a bond,debenture or other evidence of indebtedness of the Conseil scolaire de l'île de Montréal.

(3) Section 53 of the Act does not apply to the first trade in a security acquired by the seller underan exemption in clause 72(1)(a), (b), (c), (d), (f), (h), (i), (j), (k), (l), (m), (n), (p) or (q) of the Actwhether or not the issuer is in default of any requirement of the Act or regulations if,

(a) the seller is not in a special relationship with the issuer or, if the seller is in a specialrelationship with the issuer, the seller has reasonable grounds to believe that the issuer isnot in default under the Act or the regulations; and

(b) the first trade otherwise qualifies for the applicable exemption in subsection 72(4) or 72(5)of the Act.

PART 3 REMOVAL OF CERTAIN REGISTRATION AND PROSPECTUS EXEMPTIONS

3.1 Removal of Private Placement Exemptions If Acquisition Cost Is Less Than $150,000 - Theregistration and prospectus exemptions contained in paragraph 5 of subsection 35(1) and clause72(1)(d) of the Act are not available for a trade in a security if the security has an aggregateacquisition cost to the purchaser of less than $150,000.

3.2 Satisfaction of Acquisition Cost

(1) The registration and prospectus exemptions contained in paragraph 5 of subsection 35(1) andclause 72(1)(d) of the Act and in section 2.11 are not available for a trade in a security unless theaggregate acquisition cost of the security is satisfied by the purchaser by the payment of cashor other immediately available funds or the incurring or assumption of a liability in accordancewith subsection (2) or any combination thereof.

(2) If the acquisition cost is satisfied in whole or in part by the incurring or assumption of a liabilityby the purchaser, the exemptions referred to in subsection (1) are not available unless

(a) the purchaser is primarily liable for the liability and there is no understanding, arrangementor expectation that the liability or the obligation to pay it will be waived; and

(b) the acquisition cost, including the liability that is incurred or assumed by the purchaser,has a fair value of not less than $150,000.

3.3 Removal of Exemptions if Purchaser Primary Purpose Entity - The registration and prospectusexemptions contained in paragraph 5 of subsection 35(1) and clause 72(1)(d) of the Act and section2.11 are not available for a trade in a security if

(a) the purchasing entity is created or is being used primarily to permit purchases without aprospectus; and

(b) the share or portion of any member or partner of the partnership, syndicate orunincorporated organization, any beneficiary of the trust or any shareholder of the companyof the aggregate acquisition cost to the purchasing entity of the securities being purchasedis less than $150,000.

3.4 Removal of Exemptions for Investment Clubs - The registration and prospectus exemptionscontained in paragraph 5 of subsection 35(1) and clause 72(1)(d) of the Act and section 2.11 are notavailable for a trade in a security if the purchasing entity is an investment club unless the share orportion of each member of the investment club of the aggregate acquisition cost to the investmentclub of the securities being purchased is at least $150,000.

3.5 Removal of Asset Acquisition Exemption If Fair Value of Assets Is Less Than $150,000 - Theregistration and prospectus exemptions contained in paragraph 18 of subsection 35(1) and clause72(1)(l) of the Act are not available for a trade in a security if the fair value of the assets purchased isless than $150,000.

3.6 Removal of Seed Capital Exemption - The registration and prospectus exemptions contained inparagraph 21 of subsection 35(1) and clause 72(1)(p) of the Act are not available for a trade in asecurity if

(a) the solicitations referred to in the clause are made in the aggregate in all jurisdictions tomore than 50 prospective purchasers;

(b) the trade is to a parent, brother or sister of any director or senior officer of the issuer or ofan affiliated entity of the issuer and the parent, brother or sister is not otherwise a personreferred to in subclause 72(1)(p)(ii)(A) or (B) of the Act; or

(c) the promoter is a registered dealer and has acted as a promoter of any other issuer that hastraded in securities of its own issue under the prospectus exemption referred to in thissection in the previous 12 months.

3.7 Determination of Number of Purchasers Under Seed Capital and Government Incentive SecurityExemptions if Purchaser is a Primary Purpose Entity - The exemptions in clause 72(1)(p) of the Actand section 2.4 are not available if an entity has been created or is being used primarily to permit thepurchase of securities without a prospectus, and the number of members or partners of thepartnership, syndicate or unincorporated organization, the number of beneficiaries of the trust, orshareholders of the company, as the case may be, exceeds the number of purchasers referred to inthe clause or section.

3.8 Removal of Exemption for Bonds, Debentures and Other Evidences of Indebtedness - Theregistration and prospectus exemptions contained in paragraph 1(c) of subsection 35(2) and clause73(1)(a) of the Act are not available for a trade in a bond, debenture or other evidence ofindebtedness that is subordinate in right of payment to deposits held by the issuer or guarantor ofthe bond, debenture or other evidence of indebtedness.

3.9 Removal of Exemption for Securities of a Private Mutual Fund With a Promoter or Manager - Theregistration and prospectus exemptions contained in paragraph 3 of subsection 35(2) and clause73(1)(a) of the Act are not available for trades in a security of a mutual fund that comes within thedefinition of "private mutual fund" in subsection 1(1) of the Act if the mutual fund is administered bya trust company and there is a promoter or manager of the mutual fund other than the trustcompany.

3.10 Removal of 72(4) Resale Exemption for Control Person Distribution - The exemption in subsection72(4) of the Act is not available for a trade that is a control person distribution.

3.11 Removal of Subsection 72(7) Exemption for Control Person Distribution

(1) Except as otherwise provided in subsection (2) or (3), the exemption contained in clauses72(7)(b) and (c) of the Act is not available for a trade in a security for six months from the date ofacquisition by the seller of the security or, if the security is an underlying security, six monthsfrom the date the seller acquired the first of the multiple convertible security, convertiblesecurity or exchangeable security.

(2) Subject to subsection (3), if a seller has acquired a security, other than an underlying security,of a class under a 72(4) trade or 72(5) trade or under an exemption contained in section 2.9 or2.10 or in section 2.1 or 3.1 of Rule 45-502 Dividend or Interest Reinvestment and StockDividend Plans or in section 2.2, 3.1 or 3.2 of Rule 45-503 Trades to Employees, Executives andConsultants or in section 1.2 of Rule 32-503 Registration and Prospectus Exemptions for Tradesby Financial Intermediaries in Mutual Fund Securities to Corporate Sponsored Plans, theexemption contained in clauses 72(7)(b) and (c) of the Act is not available for a trade in anysecurity of the same class until all securities of the class owned by the seller have been held bythe seller for

(a) at least six months after the date on which the last security of the class was acquired bythe seller under an exemption referred to in this subsection, if the security, or if the securityacquired under the exemption is a multiple convertible security, convertible security orexchangeable security, the underlying security, is listed and posted for trading or traded onThe Toronto Stock Exchange or The Montreal Exchange and complies with therequirements of clause 433(1)(m) or (n), as applicable, of the Insurance Act;

(b) at least six months after the date on which the last security of the class was acquired by theseller under an exemption referred to in this subsection, if the security or if the securityacquired under the exemption is a multiple convertible security, convertible security or anexchangeable security, the underlying security, is a bond, debenture or other evidence ofindebtedness issued or guaranteed by an issuer or is a preferred share of an issuer, andcomplies with the requirements of clause 433(1)(k) or (m), as applicable, of the InsuranceAct;

(c) at least one year after the date on which the last security of the class was acquired by theseller under an exemption referred to in this subsection, if the security, or if the securityacquired under the exemption is a multiple convertible security, convertible security or anexchangeable security, the underlying security, is listed and posted for trading or traded onThe Toronto Stock Exchange or The Montreal Exchange or is a bond, debenture or otherevidence of indebtedness issued or guaranteed by a reporting issuer whose securities areso listed; or

(d) at least 18 months after the date on which the last security of the class was acquired by theseller under an exemption referred to in this subsection.

(3) Subsection (2) does not apply if the security referred to in that subsection has been acquiredunder the exemption in subclause 72(1)(f)(i) of the Act or section 2.1 or 3.1 of Rule 45-502Dividend or Interest Reinvestment and Stock Dividend Plans if in the financial year of the issuerduring which the trade takes place, the aggregate number of securities of an issuer acquiredunder the exemptions in subclause 72(1)(f)(i) of the Act and sections 2.1 and 3.1 of Rule 45-502does not exceed one percent of the number of the securities of the class of securitiesoutstanding at the commencement of that financial year.

(4) If a seller has acquired a multiple convertible security, a convertible security or anexchangeable security under a 72(4) trade or 72(5) trade or in section 2.1 or 3.1 of Rule 45-502Dividend or Interest Reinvestment and Stock Dividend Plans or in section 2.2, 3.1 or 3.2 of Rule45-503 Trades to Employees, Executives and Consultants or sections 2.9 and 2.10 of this Rule,the exemption contained in clauses 72(7)(b) and (c) is not available for a trade in the underlyingsecurity until all securities of the class of the underlying security owned by the seller have beenheld by the seller for the applicable period set out in clause (a), (b), (c) or (d) of subsection (2)from the date of acquisition of the last multiple convertible security, convertible security orexchangeable security acquired by the seller under one of the exemptions noted above.

(5) In this section, for purposes of calculating the period during which the seller has held asecurity, if the security was acquired by the seller from an affiliated entity, the period of time thatthe security had been held by the affiliated entity before the transfer to the seller shall beincluded.

3.12 Removal of Registration Exemption for Market Intermediaries - The exemptions from registration insubsection 2.1(1) and sections 2.2, 2.4, 2.5, 2.7, 2.8, 2.9, 2.10, 2.11, 2.17 and 2.18 are not available toa market intermediary.

PART 4 OFFERING MEMORANDUM

4.1 Removal of Exemptions Contained in Clause 72(1)(d) of the Act and Section 2.11 - The exemptionscontained in clause 72(1)(d) of the Act and section 2.11 are not available for a trade in a security ifthere has been any advertisement of the securities in printed public media, radio, television ortelecommunications, including electronic display, unless an offering memorandum is delivered tothe purchaser before entering into an agreement of purchase and sale, the purchaser is given acontractual right of action and the contractual right of action is described in the offeringmemorandum.

4.2 Removal of Exemptions If No Contractual Right of Action Provided and Described in OfferingMemorandum - The exemptions in clauses 72(1)(c),(d) and (p) of the Act and section 2.11 are notavailable for a trade, if the seller delivers an offering memorandum to the prospective purchaser,unless the prospective purchaser is given a contractual right of action and the contractual right ofaction is described in the offering memorandum.

4.3 Delivery of Offering Memorandum to Commission - If the inclusion of a contractual right of action inan offering memorandum is required by section 2.4, 4.1 or 4.2 as a condition to the availability of anexemption, the seller shall deliver to the Commission a copy of the offering memorandumconcurrently with or before the date on which a report of the trade referred to in subsection 72(3) ofthe Act or subsection 7.5(1) is filed with the Commission.

PART 5 DEALER REGISTRATION

5.1 Removal of Exemption Unless Dealer Registered for Trade Described in the Exemption - Anexemption contained in the Act or the regulations from the registration or prospectus requirementsof the Act or the regulations that refers to a registered dealer is not available for a trade in a securityunless the dealer is registered in a category that permits it to act as a dealer for the trade describedin the exempting provision.

PART 6 RESTRICTIONS ON FIRST TRADES IN SECURITIES ACQUIRED UNDER CERTAINEXEMPTIONS

6.1 First Trade in a Security Acquired By a Promoter Under Section 2.3 or Section 2.15 - A person orcompany may trade a security acquired under the exemption contained in section 2.3 or section 2.15only

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector;

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct; or

(c) if at the time of the trade, the issuer of the security is a reporting issuer and has been areporting issuer for at least 18 months and is not in default of any requirement of the Act orthe regulations,

(i) the seller, unless exempted by the regulations, files with the Commission and TheToronto Stock Exchange or The Montreal Exchange if the securities are listed on eitherof those exchanges at least seven days and not more than 14 days before the first trademade to carry out the distribution,

(A) a notice of intention to sell prepared in accordance with Form 23 of the Regulationdisclosing particulars of the ownership, the number of securities to be sold and themethod of distribution, and

(B) a declaration signed by each seller as at a date not more than 24 hours before itsfiling and prepared and executed in accordance with the regulations and certifiedas follows:

"The seller for whose account the securities to which this certificate relates are to be soldhereby represents that the seller has no knowledge of any material change which has occurredin the affairs of the issuer of the securities which has not been generally disclosed and reportedto the Commission, nor has the seller any knowledge of any other material adverse informationin regard to the current and prospective operations of the issuer which have not been generallydisclosed",

(ii) the seller, unless exempted by the regulations, files within three days after thecompletion of any trade, an insider report under Form 55-101F1;

provided that the notice required to be filed under clause (i)(A) and the declaration required tobe filed under clause (i)(B) shall be renewed and filed at the end of 60 days after the originaldate of filing and thereafter at the end of each 28 day period so long as any of the securitiesspecified under the original notice have not been sold or until notice has been filed that thesecurities so specified or any part thereof are no longer for sale; and

(iii) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or other consideration is paid in respect of suchtrade.

6.2 First Trade in a Security Acquired Under Section 2.4, 2.5 or 2.11 - A person or company may trade asecurity acquired under an exemption contained in section 2.4, 2.5 or 2.11 only

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector;

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct; or

(i) at the time of the trade, the issuer of the security is a reporting issuer;

(ii) in the case of a person or company that is in a special relationship with the issuer, theperson or company has reasonable grounds to believe that the issuer is not in defaultunder the Act or the regulations;

(iii) the hold period has elapsed from the later of the date of the initial exempt trade and thedate the issuer became a reporting issuer;

(iv) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or consideration is paid for the trade; and

(v) the trade is not a control person distribution.

6.3 First Trade in a Security Acquired Under Clause 72(1)(h) of the Act - A person or company may tradea security acquired under the exemption contained in clause 72(1)(h) of the Act only

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector;

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct; or

(i) at the time of the trade, the issuer of the security is a reporting issuer and has been areporting issuer for at least 12 months;

(iii) disclosure to the Commission has been made of the exempt trade;

(iv) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or consideration is paid for the trade;

(v) the trade is not a control person distribution; and

(vi) section 6.4 does not apply.

6.4 First Trade In an Underlying Security of a Multiple Convertible Security, Convertible Security or anExchangeable Security Acquired Under Certain Exemptions - A person or company may trade anunderlying security issued on conversion or exchange of a multiple convertible security, convertiblesecurity or exchangeable security if any of the multiple convertible security, convertible security orexchangeable security was acquired under a 72(4) trade only,

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector;

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct; or

(i) at the time of the trade, the issuer of the underlying security is a reporting issuer;

(ii) in the case of a person or company that is in a special relationship with the issuer, theperson or company has reasonable grounds to believe the issuer is not in default underthe Act or the regulations;

(iii) the hold period has elapsed from the later of the date of the initial exempt trade and thedate the issuer of the underlying security became a reporting issuer;

(iv) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or consideration is paid for the trade; and

(v) the trade is not a control person distribution.

6.5 First Trade in a Security Acquired Under Section 2.9 or 2.10 -A person or company, other than anassociated consultant or investor consultant as defined in Rule 45-503 Trades to Employees,Executives and Consultants, may trade an underlying security acquired under section 2.9 or 2.10 ona forced conversion or exchange of a multiple convertible security, convertible security orexchangeable security acquired by the holder under a 72(5) trade or under an exemption containedin section 2.2, 3.1, 3.2, 3.3, 5.1 or 8.1 of Rule 45-503 Trades to Employees, Executives andConsultants only

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector,

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct, or

(i) at the time of the trade, the issuer of the security is a reporting issuer and has been areporting issuer for at least twelve months;

(iii) disclosure to the Commission has been made of the exempt trade;

(iv) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or consideration is paid for the trade; and

(v) the trade is not a control person distribution.

6.6 First Trade in a Security Acquired Under Section 2.7, 2.8 or 2.17 or Under Subsection 2.18(1) - Aperson or company may trade a security acquired under section 2.7, 2.8 or 2.17, after the issuer hasceased to be a private issuer or under subsection 2.18(1) after the issuer has ceased to be a privateissuer for purposes of the Securities Act (British Columbia), only

(a) if the first trade is made under a prospectus for which a receipt has been obtained from theDirector;

(b) if the first trade is made under an exemption in Ontario securities law from section 53 of theAct;

(i) at the time of the trade, the issuer of the security is a reporting issuer and has been areporting issuer for at least twelve months or in the case of securities acquired undersection 2.8 one of the amalgamating or merged issuers or one of the continuing issuershas been a reporting issuer for twelve months;

(iii) disclosure to the Commission has been made of the exempt trade;

(iv) no unusual effort is made to prepare the market or to create a demand for the securitiesand no extraordinary commission or consideration is paid for the trade; and

(v) the trade is not a control person distribution; or

(d) in the case of a security acquired under section 2.7, if a securities exchange issuer bidcircular in respect of the securities was filed by the offeror under the Act.

PART 7 FILING REQUIREMENTS AND FEES

7.1 Form 45-501F1 - Every report that is required to be filed under subsection 72(3) of the Act andsubsection 7.5(1) shall be filed in duplicate and prepared in accordance with Form 45-501F1.

7.2 Form 45-501F2 - Every report that is required to be filed under clause 72(4)(c) of the Act andsubsection 7.5(2) shall be filed in duplicate and prepared in accordance with Form 45-501F2.

7.3 Fees for Form 45-501F1

(1) A report filed in Form 45-501F1 shall be accompanied by a fee equal to the greater of

(a) $100; and

(b) subject to subsection (2), the amount calculated using the formula,

A + B

where

"A" is 0.02 percent of the aggregate gross proceeds realized in Ontario from the distribution ofsecurities, other than special warrants, for which the report filed in Form 45-501F1 is filed, and

"B" is 0.04 percent of the aggregate gross proceeds realized in Ontario from the distribution ofspecial warrants for which the report filed in Form 45-501F1 is filed.

(2) The amount calculated under clause (1) is considered to be $100 if the report filed in Form 45-501F1 is filed for,

(a) a trade in securities if there is no change in beneficial ownership of the securities as aresult of the trade; or

(b) a first trade in securities previously acquired under an exemption contained in clause72(1)(a), (b), (c), (d), (l), (p) or (q) of the Act or section 2.4, 2.5 or 2.11.

7.4 Fees for Form 45-501F2 - A report filed in Form 45-501F2 shall be accompanied by a fee of $100.

7.5 72(4) Reports

(1) If a trade has been made under section 2.4, 2.5 or 2.11, the seller shall, within 10 days of thetrade, file a report prepared and executed in accordance with section 7.1.

(2) If a trade has been made under section 2.13, 6.2 or 6.4, the seller shall, within 10 days of thetrade, file a report prepared and executed in accordance with section 7.2.

(3) If a trade is made under section 2.9, the issuer shall file the notice and pay the fees prescribedby section 20 of Schedule 1 to the Regulation, as if the underlying security had been acquired ina distribution exempt from section 53 of the Act by subclause 72(1)(f)(iii) of the Act.

(4) If a trade is made under section 2.10 the exchange issuer shall pay the fees prescribed bysection 21 of Schedule 1 to the Regulation as if the security had been acquired in a distributionexempt from section 53 of the Act by clause 72(1)(h) of the Act.

7.6 72(5) Disclosure - The disclosure contemplated by clause 72(5)(b) of the Act and sections 6.3, 6.5and 6.6 may be made by the issuer by disclosing particulars of the date of the trade, the number ofsecurities purchased and the purchase price paid or to be paid, in

(a) an information circular or take-over bid circular filed in accordance with the regulations; or

(b) a letter filed by a person or company certifying that the person or company has knowledgeof the facts contained in the letter

if in either case the filing is effected before any resale of the securities.

7.7 Fees for Trade Made Under Section 2.8 - If a trade is made under section 2.8 the issuer shall pay thefees prescribed by section 23 of Schedule I of the Regulation as if section 23 referred to section 2.8instead of clause 72(1)(i) of the Act.

COMPANION POLICY 45-501CP TO
ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS
TABLE OF CONTENTS

PART TITLE

PART 1 PURPOSE AND DEFINITIONS

1.1 Purpose

1.2 Definitions

PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT

2.1 Interaction of Private Placement Exemptions

2.2 Trades in Connection with Securities Exchange Take-Over Bids

2.3 Trades on an Amalgamation, Arrangement or Specified Statutory Procedure

2.4 Three-Cornered Amalgamations

2.5 Tacki

PART 3 REMOVAL OF REGISTRATION AND PROSPECTUS EXEMPTIONS

3.1 Use of Primary Purpose Entity

3.2 Satisfaction of Acquisition Cost

3.3 Vendor's Certificate

3.4 Units

3.5 Sales by Pledgees of Securities That Form Part of Control Block

3.6 Removal of Seed Capital Exemption

PART 4 OFFERING MEMORANDA

4.1 Use of Offering Memoranda in Connection with Private Placements

4.2 Contractual Right of Action

PART 5 COMMISSION REVIEW

5.1 Review of Offering Material

5.2 Other Regulatory Approvals

PART 6 FILING REQUIREMENTS AND FEES

COMPANION POLICY 45-501CP TO
ONTARIO SECURITIES COMMISSION RULE 45-501
EXEMPT DISTRIBUTIONS

PART 1 PURPOSE AND DEFINITIONS

1.1 Purpose - This policy statement sets forth the views of the Commission as to the manner in whichcertain provisions of the Act and the rules relating to private placement exemptions are to beinterpreted and applied.

1.2 Definitions - In this Policy, "private placement exemptions" means the prospectus exemptionsavailable for

(a) sales of securities to those persons or companies identified in clause 72(1)(a) of theAct;

(b) sales of securities to exempt purchasers recognized as such by the Commission underclause 72(1)(c) of the Act;

(c) sales of securities to purchasers whose aggregate acquisition cost of securities is notless than $150,000 under clause 72(1)(d) of the Act or section 2.11 of Rule 45-501;

(d) sales of securities under clause 72(1)(p) of the Act; and

(e) sales of government incentive securities under section 2.4 of Rule 45-501.

Corresponding exemptions are provided for the registration requirements and the views set forth inthis Policy apply in respect of the corresponding registration exemptions.

PART 2 EXEMPTIONS FROM THE REGISTRATION AND PROSPECTUS REQUIREMENTS OF THE ACT

2.1 Interaction of Private Placement Exemptions

(1) The Commission recognizes that a vendor of securities can, in connection with any privateplacement, rely concurrently on different private placement exemptions except thatconcurrent reliance on clause 72(1)(p) of the Act and section 2.4 of Rule 45-501 does notappear to be possible.

(2) In this connection, the Commission notes that clause 72(1)(p) of the Act and section 2.4 ofRule 45-501 impose various upper limits on the number of persons to whom securities can beoffered or sold in reliance on these exemptions. A trade made in reliance upon an exemptionother than these two exemptions need not be counted for the purposes of the limitationsrelating to the number of purchasers in clause 72(1)(p) of the Act or section 2.4 of Rule 45-501. However, if prospective purchasers are solicited with respect to a private placement ofsecurities and the securities are ultimately sold to some of the purchasers under clause72(1)(d) or section 2.11 of Rule 45-501 and other purchasers under clause 72(1)(p) or section2.4 of Rule 45-501, all persons solicited with respect to the private placement, including thosewho were sold securities under the exemptions in clause 72(1)(d) or section 2.11, should, inthe Commission's view be counted for the purposes of the "fifty prospective purchaser"solicitation rule in clause 72(1)(p) and the "seventy-five prospective purchaser" solicitationrule in section 2.4.

2.2 Trades in Connection with Securities Exchange Take-Over Bids

(1) Filing a securities exchange take-over bid circular under the Act has several consequences.First, the issuer becomes a "reporting issuer" within the meaning of subsection 1(1) of theAct. Second, reporting issuer status generally confers important benefits under the Act andthe regulations, particularly in connection with the availability of certain prospectusexemptions and the running of hold periods on the resales of particular securities. The basisfor conferring reporting issuer status on an issuer is that under Item 15 of Form 32 of theRegulation, a securities exchange take-over bid circular is required to contain prospectus-type disclosure for the offeror or other issuer whose securities are being offered in exchangefor the securities of the offeree issuer. This presupposes that the securities exchange take-over bid circular complies with the applicable requirements of the Act and regulations,including, without limitation, Item 15 of Form 32 of the Regulation. The onus of ensuring thatthe circular contains the appropriate disclosure rests with the issuer and its advisors.

(2) Issuers are cautioned that the filing of a securities exchange take-over bid circular does notnecessarily result in reporting issuer status under the Act unless the filing is made inconnection with a bona fide securities exchange take-over bid and the securities exchangetake-over bid circular filed complies with the applicable requirements of the Act andregulations including, without limitation, Item 15 of Form 32 of the Regulation.

(3) Issuers should be aware that if the securities exchange take-over bid circular, as filed, doesnot substantially comply with applicable requirements and, if the adequacy of the disclosureis subsequently challenged and found to be substantively deficient, appropriate regulatoryaction will be taken by staff and the Commission, including the possibility of cease trading thesecurities of the issuer. As well, the resale exemption in section 2.14 of Rule 45-501 whichturns on the use of a securities exchange take-over bid circular, would not be available.

(4) The Commission is concerned about the increased number of securities exchange take-overbid circulars being filed by shell as opposed to substantial companies for the purpose ofattaining reporting issuer status in situations where the bid did not proceed and the circulardid not contain prospectus level disclosure. If a securities exchange bid is made by a shellofferor, the Commission may take appropriate regulatory action. In addition, the first traderelief in section 2.14 of Rule 45-501 is conditioned upon the issuer being a reporting issuerbefore the filing of the securities exchange take-over bid circular. The Commissionrecognizes that the requirements of section 2.14 may be unduly onerous in certain situationsand on a case by case basis may consider granting relief.

(5) The Commission is also aware that in certain cases issuers are making take-over bids by wayof circular where an exemption from the circular requirements is otherwise available. Whilethis is permitted under the Act, staff will monitor these transactions to see if they give rise tothe concerns set out in this section.

2.3 Trades on an Amalgamation, Arrangement or Specified Statutory Procedure - Clause 72(1)(i) of theAct provides an exemption for trades in securities in connection with a statutory amalgamation orarrangement or other statutory procedure. The Commission is of the view that the reference tostatute in that clause refers to any statute of a jurisdiction or foreign jurisdiction under which theamalgamating entities have been incorporated or created and exist and under which the transactionis taking place.

2.4 Three-Cornered Amalgamations - Certain corporate statutes permit a so-called "three-corneredmerger or amalgamation" under which two companies will amalgamate or merge andsecurityholders of the amalgamating or merging entities will receive securities of a third partyaffiliate of one amalgamating or merging entity. Section 2.8 of Rule 45-501 exempts these trades asthe exemption applies to any trade made in connection with an amalgamation or merger.

2.5 Tacking - The Commission is aware that conflicting views exist as to whether a subsequent exemptpurchaser can "tack" on the period of time during which shares have been held by a previousexempt purchaser in order to reduce its "hold" period. The Act provides in subsection 72(4) that thehold period commences from the date of the "initial exempt trade". The Commission is of the viewthat the phrase "initial exempt trade" in subsection 72(4) of the Act and sections 2.13, 6.2 and 6.4 ofthe Rule refers to the first trade made in reliance upon an exemption from the prospectusrequirements of the Act and that therefore tacking is permitted.

PART 3 REMOVAL OF REGISTRATION AND PROSPECTUS EXEMPTIONS

3.1 Use of Primary Purpose Entity - The restrictions in sections 3.3 and 3.4 of Rule 45-501 on the use ofthe exemptions contained in clause 72(1)(d) of the Act and section 2.11 of Rule 45-501 relate toentities that have been created, or used, to permit purchases of securities without a prospectus andinvestment clubs, respectively, if the share or portion of the aggregate acquisition cost of thesecurities of each member or partner of the partnership, syndicate or unincorporated organization,each beneficiary of the trust or each shareholder of the company is less than $150,000. Theexemptions contained in clause 72(1)(d) of the Act and section 2.11 of Rule 45-501 are available toan entity that is created, or is used, primarily for the purchase of securities without a prospectus ifeach member, partner, beneficiary or shareholder, of the entity, as the case may be, contributes, atleast $150,000 for the securities purchased under the exemption.

3.2 Satisfaction of Acquisition Cost

(1) The Commission is of the view that the following do not constitute liabilities that satisfy therequirements of paragraph 3.2(2)(a) of Rule 45-501:

1. Commitments assumed under various tax-oriented arrangements if the promoter ordistributor has held out to the purchaser a hope or expectation that payment of theobligation will be waived.

2. Mortgages under which the purchaser does not have a direct and real obligation tomake payments under the mortgage.

(2) In determining the fair value of liabilities assumed or incurred in satisfaction of theacquisition cost for the purposes of paragraph 3.2(2)(b) of Rule 45-501, it is appropriate totake into account the current interest rates, and the maturity date of the liability, including anyrepresentations made by the promoter or distributor as to the probable payment date.

3.3 Vendor's Certificate - The Commission will normally be satisfied that a vendor has exercisedreasonable diligence for the purposes of the certificate required in Form 45-501F1 if the vendorrelies, if appropriate, on statutory declarations or representations from the purchasers, unless thevendor has knowledge that any facts set out in the declarations or representations are incorrect.

3.4 Units

(1) Section 2.11 creates a new exemption for purchases of blocks or units of securities of morethan one issuer if the issuers are engaged in related businesses. One example of relatedtypes of businesses for the purposes of section 2.11 of Rule 45-501 would be the developerand operator, respectively, of a real estate project. The Commission does not consider thatone issuer engaged in mining and another issuer engaged in oil and gas are engaged inrelated types of business for purposes of section 2.11 of Rule 45-501.

(2) If the exemption in section 2.11 of Rule 45-501 is relied upon, varying resale provisions fordifferent securities that comprise the block or unit may result. For example, one of thesecurities may be listed and posted for trading on a recognized stock exchange and meet therequirements of clauses 433(1)(m) or (n) of the Insurance Act and thus have a six month "holdperiod", while another security, while also listed and posted for trading on a recognized stockexchange, may not meet these Insurance Act requirements and thus have a one year "holdperiod".

3.5 Sales by Pledgees of Securities That Form Part of Control Block - Pledgees selling securities thatform part of a control block should refer to National Instrument 62-101 Control Block DistributionIssues which clarifies the application of section 3.11 to sales by a pledgee.

3.6 Removal of Seed Capital Exemption - Section 3.6 provides that the exemption in clause 72(1)(p) ofthe Act is not available in certain circumstances. The section removes the registration andprospectus exemptions for trades to a parent, brother or sister of any director or senior officer ofthe issuer or any affiliated entity of the issuer unless those persons are otherwise permittedpurchasers under clause 72(1)(p). In addition, section 3.6 removes the exemption if the promoter isa registered dealer and has acted as a promoter of any other issuer which has traded in securities ofits own issue under the exemption in clause 72(1)(p) of the Act in the previous 12 months. Therestrictions have been added as the Commission is of the view that clause 72(1)(p) of the Act isoverly broad.

PART 4 OFFERING MEMORANDA

4.1 Use of Offering Memoranda in Connection with Private Placements

(1) Part 4 of Rule 45-501 provides for the use of an offering memorandum in certain privateplacement situations. There is an obligation under section 4.1 of Rule 45-501 to deliver anoffering memorandum describing a contractual right of rescission or damages in respect of aproposed private placement under clause 72(1)(d) of the Act or section 2.11 of Rule 45-501 ifthere has been any advertisement of the securities in printed public media, radio, television ortelecommunications, including electronic display such as the Internet. An offeringmemorandum describing the contractual right of action must also be delivered to purchasersof "government incentive securities" in connection with sales of securities made in relianceon section 2.4 of Rule 45-501. Though the obligation to prepare an offering memorandum isquite limited in its reach, business practice may dictate the preparation of offering material,which constitutes an "offering memorandum" under Rule 45-501, which is deliveredvoluntarily to purchasers in connection with exempt trades under clauses 72(1)(c), (d) and (p)of the Act and section 2.11 of Rule 45-501. The obligation to provide a contractual right ofrescission or damages applies both when the offering memorandum is required to beprovided under section 2.4 or 4.1 and when it is provided voluntarily in connection with thespecified exempt trades under clauses 72(1)(c),(d) or (p) and section 2.11 of Rule 45-501.However, a document delivered in connection with a sale of securities made otherwise than inreliance on the above-noted exemptions does not attract the obligations of Part 4.

(2) The Commission does not prescribe what an offering memorandum should contain apart fromthe contractual right of action and the requirements relating to future oriented financialinformation as contemplated by National Instrument 52-101 Future Oriented FinancialInformation. The use of the exemptions contained in each of clause 72(1)(p) of the Act andsection 2.4 of Rule 45-501 requires that each investor have access to substantially the sameinformation concerning the issuer that a prospectus filed under the Act would provide.

(3) The Commission cautions against the practice of providing preliminary offering material tocertain prospective investors before furnishing a "final" offering memorandum unless thematerial contains a description of the contractual right of action to be made available topurchasers in situations when such a right of action and description is required. The onlymaterial prepared in connection with the private placement other than a "term sheet"(representing a skeletal outline of the features of an issue without dealing extensively with thebusiness and affairs of the issuer) made available to investors should consist of an offeringmemorandum containing the contractual right of action and satisfying in all other respects theAct and the regulation.

4.2 Contractual Right of Action - The definition of contractual right of action stipulates that the right ofaction must reasonably correspond to the rights provided in section 130 of the Act. TheCommission notes that the rights provided in section 130 of the Act include the right of an investorto hold the parties against whom it has a right of action jointly and severally liable for recovery ofdamages.

PART 5 COMMISSION REVIEW

5.1 Review of Offering Material - Though vendors of securities who rely on private placementexemptions are obliged under subsection 72(3) of the Act and subsection 7.5(1) of Rule 45-501 tonotify the Commission, by way of the filing of a Form 45-501F1, of certain details of their trades, theoffering material they use in connection with those trades is not generally reviewed and commentedupon by Commission staff.

5.2 Other Regulatory Approvals - Given the self-policing nature of private placements and the fact thatoffering memoranda are not routinely reviewed by Commission staff, the decision relating to theappropriate disclosure in an offering memorandum rests with the issuer, the selling securityholderand their advisors. If Commission staff becomes aware of an offering memorandum that fails todisclose material information pertaining to parties involved in the transaction, staff may seek tointervene to effect remedial action.

PART 6 FILING REQUIREMENTS AND FEES - Section 7.6 of Rule 45-501 outlines a number of ways in whichthe disclosure contemplated by clause 72(5)(b) of the Act and sections 6.3, 6.5 and 6.6 of the Rulemay be made. The list of possible disclosure is not exhaustive and issuers may choose to make therequired disclosure in other ways.

FORM 45-501F1

Securities Act

Report of a trade under clause 72(1)(a), (b),

(c), (d), (l), (p) or (q) of the Act,

Section 2.4, 2.5 or 2.11 of Rule 45-501

or Subsection 2.1(1) or paragraph 2.2(d) or 2.3(d) of rule 45-504

(Note: Circle or highlight applicable provision)

Note: This report is not required where a bank listed in Schedule I or II to the Bank Act (Canada) or a loan corporation or trustcorporation registered under the Loan and Trust Corporation Act acquires from a customer an evidence of indebtedness of thecustomer or an equity investment in the customer acquired concurrently with an evidence of indebtedness.

1. Full name and address of the Vendor.

2. Name and address of the issuer of the security traded and description of the security.

3. Date of trade(s).

4. Amount or Number of Purchase

Securities Purchased _______________ Price ____________

5. The vendor has prepared and certified a list comprising the name and address of eachpurchaser, the amount or number of securities purchased and the purchase price paid byeach purchaser and such certified list will be provided on request to a duly authorizedrepresentative of the Commission or to securityholders who acquired securities pursuantto the prospectus exemption in clause 72(1)(p) of the Act or section 2.4 of Rule 45-501Exempt Distributions.

6. State the name and address of any person acting as agent in connection with the trade(s)and the compensation paid or to be paid to such agent.

7. Calculation of Fees payable upon filing Form 45-501F1: (See section 7.3 of Rule 45-501Exempt Distributions)

Total Fee payable: $_______.

8. After exercising reasonable diligence in its enquiries, the vendor believes that the vendoris entitled to the use of the exemption which is circled above.

Certificate of Vendor or Agent of Vendor

The undersigned hereby certifies that the statements made in this report are true and correct.

DATED at ______________

this ______________ day of ____________

19____________ ____________

(Name of vendor or agent -

please print)

____________

(Signature)

____________

(Official capacity -

please print)

____________

(Please print here name of individualwhose signature appears above, ifdifferent from name of vendor or agentabove)

Instructions:

1. In answer to question 6 give the name of the person or company who has been or will be paid remuneration directlyrelated to the trade(s), such as commissions, discounts or other fees or payments of a similar nature. It is not necessaryto include payments for services incidental to the trade such as clerical, printing, legal or accounting services.

2. If the space provided for any answer is insufficient, additional sheets may be used and must be cross-referred to therelevant item and properly identified and signed by the person whose signature appears on the report.

3. Fee: Cheque made payable to the Ontario Securities Commission.

4. Please print or type and file two signed copies with:

Ontario Securities Commission
Suite 1800, Box 55,
20 Queen Street West
Toronto, Ontario M5H 3S8.

FORM 45-501F2

Securities Act

Report under subsection 72(4) of the Act

or section 2.13, 6.2 or 6.4 of Rule 45-501 or

paragraph 2.2(c) or 2.3(c) of Rule 45-504 of a first trade

(Note: Circle or highlight applicable provision)

1. Full name and address of the Vendor.

2. Full name and address of reporting issuer whose securities were traded.

3. Description of securities sold in reliance on subsection 72(4) of the Act or section 2.13,6.2 or 6.4 of Rule 45-501.

Amount or Number and

Date of Transaction Description Selling Price

4. State which subclauses or parts of subclauses of clause 72(4)(b) of the Act or section2.13, 6.2 or 6.4 of Rule 45-501 are relied upon by the Vendor.

5. Full name and address of the party from whom the Vendor acquired the securities and thedate of acquisition.

6. Certificate of Vendor.

The undersigned Vendor hereby certifies that the information given in this report relating to theVendor is true and correct and that to the best of the Vendor's information and belief:

(1) the information given in this report relating to any other party is true,

(2) (a) no unusual effort has been made to prepare the market or create a demand forthe securities, and

(b) no extraordinary commission or consideration has been or has been agreed tobe paid in respect of the trade covered by this report, and

(3) the trade to which this report relates is an arm's length transaction made in good faith.

Dated at ........ this ...... day of ......, 19...

(name of Vendor or agent -- please print)

(signature)

(official capacity -- please print)

(please print here name of individual whose signature appears above,if different from name of Vendor or agent printed above)

Instructions:

1. If the space provided for any answer is insufficient, additional sheets may be used and must becross-referred to the relevant item and properly identified and signed by the person whose signatureappears on the report.

2. Please file this report in duplicate. Cheques are payable to the Ontario Securities Commissionin the amount set out in section 7.4 of Rule 45-501 Exempt Distributions.

REGULATION TO AMEND
REGULATION 1015 OF THE REVISEDREGULATIONS OF ONTARIO, 1990
MADE UNDER THE SECURITIES ACT

1. The following provisions of Regulation1015 of the Revised Regulations of Ontario, 1990are revoked:

1. Sections 14, 16, 17, 18, 19, 20,21, 22, 23, 24, 25, 26, 27, 28, 29,30, 31, 32, 67 and 68.

2. Subsection 69 (3).

3. Clause 151 (a).

2. Sections 22 and 25 of Schedule 1 to theRegulation are revoked.

3. Forms 20 and 21 of the Regulation arerevoked.

4. This Regulation comes into force on thesame day as the rule made by the OntarioSecurities Commission on October 6, 1998entitled "Ontario Securities Commission Rule 45-501 Exempt Distributions".

Note: The rule made by the OntarioSecurities Commission on October 6,1998 entitled "Ontario SecuritiesCommission Rule 45-501 ExemptDistributions" comes into force onDecember 22, 1998.