CROSS BORDER SECURITIES UPDATE

May 2004

New National Instrument 51-102: Changes to Disclosure Requirements and how they may affect you and your Company
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As with financial statements, delivery to all shareholders is no longer mandatory and there is no need to send in a separate annual request form, as the MD&A request is covered under the form sent out for financial statements. If either the MD&A or the financial statements are requested, but not both, the issuer must send both documents to the shareholder together.

Perhaps one of the most important changes to the MD&A are the change made to the form of the document. These changes include:

• addition of disclosure of “trends”-this used to be disclosed in the AIF but has been removed from the AIF and included in the MD&A;
  
• disclosure of selected financial data-for the 3 most completed financial years; 8 most recently completed interim periods and discussion of factor causing period-period variations;
  
• requirement for VIs with no significant revenue for past 2 most completed years to disclose additional information;
  
• discussion of off-balance sheet arrangements;
  
• analysis of contractual commitments in tabular format;
  
• disclosure of changes made, or expected to be made, to accounting policies;
  
• disclosure of outstanding share data;

• update of forward looking statements; and
  
• dating the MD&A as of the date of preparation.

AIFs-Form 51-102F2

The Instrument obliges all Non-VIs to file AIFs within 90 days of their year-end. VIs who have used a short-form prospectus or a short-form offering under TSX-Venture policies are also required to file AIFs annually. Unlike the MD&A, AIFs do not have to be filed at the same time as the financial statements. Therefore, if the financial statements are filed earlier, your company still has the full 90 days to file its AIF. The AIF changes are effective for financial years beginning after January 1, 2004.

The form of AIFs is still similar to that before. It is important to note that companies registered with the Securities and Exchange Commission (the “SEC”), in the US, can file their annual form 10-KSB, 10-K or 20-Fs with the BCSC instead of an AIF.

Changes made to the AIFs include:

• removal of the discussion of “trends” and “significant dispositions” (significant acquisitions must still be disclosed);
  
• requirement for increased disclosure regarding historical information for asset backed securities- from 2 years to 3 years of historical data;
  
• requirement for disclosure of contracts the company’s business is substantially dependant on;
  
• requirement for disclosure of fundamental social or environmental policies;

• disclosure of penalties and sanctions; in particular for directors and officers-they must make this disclosure if they were a director or officer of a company during the occurrence of an event that caused the penalty or sanction to be placed; and
  
• addition of some prospectus disclosure items; examples include: trading information, risk factors, capital structure, escrowed shares, interest of management and material contracts entered into other than in the ‘ordinary course of business’ after January 1, 2002.

Material Change Reports-Form 51-102F3

As of March 31, 2004, management of companies can choose to file confidential material change reports when the management decides that to disclose the change would be unduly detrimental to the company. This decision must be made reasonably. However, should any trades be made as a result of the undisclosed information, that information must then immediately be publicly disclosed.

Information Circulars-Form 51-102F5

There have been some changes made to the form of information circulars. Proxy solicitation rules remain substantially the same and the new form is effective as of June 1, 2004.

Changes to the form of Information Circulars include:

• the Instrument permits incorporation of information by reference, so long as the document referred to is filed with the circular and provided to the shareholders upon request;

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New National Instrument 51-102: Changes to Disclosure Requirements and how they may affect you and your Company
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• addition of penalties and sanctions disclosure for directors and officer nominees;
  
• disclosure of “Indebtedness of Directors and Officers” changed so that only debts above C$50,000 need be mentioned;
  
• regarding reorganizations, mergers, arrangements and restructurings-now required to provide prospectus-level disclosure for both the issuer and the resulting entity; and
  
• definition of “Named Executive Officer” found in “Statement of Executive Compensation”-Form 51-102F4-has been changed to mean the CEO, CFO and 3 highest paid employees so long as total compensation is above C$150,000 per annum (this term used to mean the CEO and the 4 most highest paid officers with total compensation over C$100,000 per year).

Business Acquisition Reports (BARs)-Form 51-102F4

This is a new disclosure form required to be filed within 75 days of a significant acquisition by all issuers and must be accompanied by the required financial statements of the acquired business/ the company invested in. To determine what is a significant acquisition, the Instrument provides three tests, which can be used:

• the Asset Test
• the Investment Test; and
• the Income Test.

Non-VIs are obliged to make use of all three test, but VIs need not use the Income Test.

 These tests are based on the most recent audited, annual financial statements.

However, the Instrument does allow the option of recalculating significant acquisitions using the most recent interim financial statements.

The thresholds for meeting significant acquisition tests is met if the consolidated assets of/ consolidated investment in the acquired business is greater than or within the following percentage ranges of the issuer’s assets.

It is important to note that if your company files an information circular or a filing statement under TSX-V policies, within 9 months of the acquisition, which includes financial statements of the acquired business, and there have been no material changes regarding the acquisition, you can be exempted from filing a BAR.

The new BAR requirements apply to all significant acquisitions entered into via binding agreements dated after March 31, 2004.

Restricted Security Disclosure

This is another new disclosure requirement imposed on issuers in BC by the adoption of the Instrument. In effect, the BCSC is now requiring issuers to provide disclosure  regarding their restricted securities (all classesof shares, which have less or more restricted voting

rights than other classes) in certain documents required to be filed or sent to shareholders.

Issuers must disclose the following:

• how voting rights are restricted;
  
• rights to participants in take-over bids; and
  
• percentage of voting rights represented by the restricted securities.

Issuers must provide this information in all Information Circulars, all documents delivered to shareholders by request and all AIFs. This type of disclosure is not required in financial statements or the MD&A.

Other Filing Requirements

Effective immediately, the Instrument has put into place other filing requirements. These include:

• reports of outcome of any shareholder votes (this does not apply to VIs);
  
• report of change in status of issuer (i.e. if cease to be a VI or become a VI);
  
• filing copies of news releases regarding results of financial operations;
  
• filing copies of all documents sent to shareholders or filed with the SEC in each province or territory where the issuer is registered as a reporting issuer; and

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New National Instrument 51-102: Changes to Disclosure Requirements and how they may affect you and your Company
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• filing of all "Material Documents" entered into after January 1, 2002-these include constating documents (notice of articles and by-laws/articles), and material contracts (contracts that define or materially change shareholder rights or contracts entered into not in ‘ordinary course of business’).

It is important to note that contracts causing a material change in the business of the issuer must be filed with the Material Change Report; all other contracts must be filed with the AIF or if the company is not required to file an AIF, within 120 days after the company’s financial year end.

Exemptions from complying with NI 51-102 and Insider Reporting Requirements

These exemptions are available as outlined below:

Conclusion

The Instrument puts in place many important changes, most of which have been summarized above. However, it is up to each individual issuer to ensure that they are in full compliance with all of the Instrument’s requirements. Should you have any questions regarding the new continuous disclosure rules, do not hesitate to contact us.

Continuous Disclosure and other Exemptions relating to Foreign Issuers: NI 71-102

The British Columbia Securities Commission recently adopted NI 71-102, Continuous Disclosure and Other Exemptions Relating to Foreign Issuers. This new national instruments provides broad relief from some of the disclosure requirements of NI 51-102, Continuous Disclosure, for two sub-categories of foreign reporting issuers; namely US foreign issuers registered with the Securities and Exchange Commission (the “SEC”) and other designated foreign issuers. This instrument does not apply to investment funds and does not provide exemptions for mineral projects or oil and gas companies. Mining companies and oil and gas companies must still comply with requirements of NI 43-101 and NI 51-101, respectively.

Foreign reporting issuers are those which are incorporated under the laws of a foreign jurisdiction. As defined by NI 71-102, these issuers are not:

• those whose outstanding securities that carry more than 50% of the votes for the election of directors are owned by Canadian residents;
• whose majority of officers and directors are resident in Canada;
• or issuers that have more than 50% of their consolidated assets within Canada; or
• have their business administered principally in Canada.

SEC foreign issuers are those who have a class of securities registered with under the 1934 Act or are required to file reports under the same Act. SEC foreign issuer definition excludes those issuers who are registered or re-registered under the Investment Company Act of 1940.

Designated foreign issuers are those that are not SEC foreign issuers; do not have more than 10% of their equity securities owned, directly or indirectly, by Canadian residents and are subject to foreign disclosure requirements of designated foreign jurisdictions.

The 15 designated foreign jurisdictions are as follows: Australia, France, Germany, Hong Kong, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom and Northern Ireland.

To qualify under NI 71-102 for the exemptions from certain continuous disclosure requirements of NI 51-102, a SEC foreign issuer or a designated foreign issuer must:

• be in compliance with SEC requirements or the disclosure requirements of the designated foreign jurisdiction;
  
• file copies of all documents filed with the SEC or the designated foreign jurisdiction in Canada; and

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