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Canada

The Ontario Securities Commission (OSC) has republished proposed Rule 45-501 (the "proposed rule") on exempt distributions. The proposed rule has been revised as a result of comments received on the version of the proposed rule originally published for comment in September 2000 (the "original version").

The original version contemplated that the existing private placement exemptions in the Securities Act would be replaced by three new exemptions, a closely-held issuer exemption, an accredited investor exemption and a family member exemption. In the proposed rule, the family member exemption has been deleted; however, the same list of family members has been added to the definition of "accredited investor" so that the net result is substantially the same.

Most of the comments received by the OSC, aside from those asserting technical defects, involved attempts either to widen further the two new exemptions or to achieve greater certainty in interpretation. With relatively few exceptions these attempts were unsuccessful. There were changes made to the accredited investor exemption (the most significant being to clarify that, in the case of individuals having financial assets exceeding C$1 million ($652,000), the calculation is before tax but net of related liabilities) and the closely-held issuer exemption (by deleting the prohibition against advertising, while retaining the prohibition against incurring selling and promotional expenses). However, the OSC made it clear in its responses to the comments that it is comfortable with the fundamental structure of the new regime as proposed. This is made particularly clear with respect to so called pooled funds (mutual funds sold on a private placement basis) where the loss of the existing C$150,000 exemption will allow non-accredited investors to keep their existing investments but will not permit new purchases. The proposed rule will be more in line with US exempt distributions and will likely become effective by year end.

Leslie Gord and Nicholas Dietrich

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