U.S. OTC ISSUERS WITH CONNECTION TO BC BECOME SUBJECT TO BC REGULATORY REQUIREMENTS

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On September 15, 2008, the new BC Instrument 51-509 – Issuers Quoted in the U.S. Over-the-Counter Markets (“51-509”) will come into force. According to the British Columbia Securities Commission (the “BCSC”), 51-509 was adopted primarily to improve disclosure and compliance by United States Over-the-Counter (“OTC”) issuers with significant connections to British Columbia (“BC OTC Issuers”), discourage the manufacture and sale of OTC shell companies for abusive purposes, disrupt abusive promotions and hold dealers responsible for their trading activities in the OTC market.

Issuers subject to the new rules will be required to comply with British Columbia’s continuous disclosure requirements for reporting issuers, including timely disclosure of material changes and many other requirements. Directors and officers of these issuers will be required to file personal information forms disclosing their qualifications and backgrounds and file insider reports.

BC OTC Issuers that report under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) will be able to use the documents they file with the U.S. Securities and Exchange Commission (the “SEC”) to satisfy most of the 51-509 continuous disclosure requirements. BC OTC Issuers whose securities are quoted on the Pink Sheets LLC that do not report under the Exchange Act will be required to comply with applicable financial statement, disclosure and other reporting requirements or will be in breach of British Columbia law.

Once the new filing requirements are in force, the BCSC has stated that it intends to carry out continuous disclosure reviews of BC OTC Issuers. Significant non-compliance will likely result in, among other things, a cease trade order of the issuer’s securities in British Columbia, and possibly other sanctions. Further, the BCSC has gone to lengths to show that they are co-operating with the SEC in this new endeavor, and we expect that sanctions imposed by the BCSC on a BC OTC Issuer will likely result in increased SEC scrutiny of the company and its insiders.

For the rest of the article please go to:

http://www.cwilson.com/newsletters/securities/slb-aug08.htm

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PART 3 – RESALE OF PRIVATE PLACEMENT SECURITIES

Resale of Seed Stock

10 (1) The exemptions in securities legislation from the registration requirement or the prospectus requirement does not apply to a trade of a security of an OTC reporting issuer on or after the ticker-symbol date, if the security was acquired on or after September 15, 2008 and before the ticker-symbol date, except for the exemption in section 2.16 of National Instrument 45-106 Prospectus and Registration Exemptions.

(2) A person must not trade a security of an OTC reporting issuer that the person acquired on or after September 15, 2008 and before the ticker-symbol date unless:

(a) the certificate representing the security carries the legend, or the ownership statement issued under a direct registration system or other electronic book entry system relating to the security bears the legend restriction notation, set out in subsection 11(2),

(b) the person trades the security through an investment dealer from an account at that investment dealer in the name of that person, and

(c) the investment dealer executes the trade through the OTC Bulletin Board or Pink Sheets.

If you would like to review all of the possible rule changes please go to:

http://www.bcsc.bc.ca/policy.aspx?id=6544

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Effect of the Revised Rule on the OTCBB Markets

When the revised 51-509 rule change takes place on September 15, 2008 a domino effect will begin. SEC attorneys will start rejecting any shell that has ties to Canada. Shell owners who control those shells will either have to take a major haircut on the price of the shell or wait the minimum of one year until the legend can be removed from the stock certificates. The effect on the OTCBB marketplace will be three fold:

1. Canadian shell prices will be sharply reduced until all shells with Canadian shareholders are sold.

2. Canadian promoters will no longer be able to produce manufactured shells (100% deliver shells) so inventory will start to diminish

3. With the reduction of inventory pricing of US based OTCBB shells will slowly start rising in the third quarter of 2008 and contine through 2009.

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It is this writers opinion that counsel for the Buyer will not be able to clearly distinguish the new rules and will paint all shells with Canadian shareholders with the same brush. The result being they (US based SEC attorneys) will err on the side of safety and simply reject any shell with Canadian shareholders regardless of where they reside. This will decimate the pricing of Canadian shells by the end of 2008 and we will start seeing a substantial reduction of OTCBB shells coming out of all provinces of Canada starting in 2009.

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It appears that the British Columbia Securities Commission (BCSC) only has jurisdiction over Canadian shareholders that reside in British Columbia or BC as it is commonly referred to. The BCSC does not have jurisdiction over other parts of Canada. Canada, as you may or may not know, has 13 provinces, Nunavut, Quebec, Northwest Territories, Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Yukon, Newfoundland and Labrador, New Brunswick, Nova Scotia and prince Edward Island. British Columbia represents 9.5% of the land mass and about 15% of the population of Canada.

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1. Can a company that has 100% Canadian shareholders get approved for trading by FINRA after the revised rule goes effective?

2. If a company has a shell previously approved for trading prior to the rule change are those Canadian shareholders subject to the new “legend” rule on their already freely tradable securities.

3. If your company gains trading approval from FINRA after September 15, 2008 would not the entire float of a company that is composed of Canadian shareholders require (i) all of those shares to have a legend placed upon the stock certificate and (ii) the shares to be placed with a licensed NASD Broker Dealer to become freely tradable electronically and (iii) shareholders not to sell their shares in a private transaction for over a year?

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Buyers will now have to make sure that they do not purchase a shell that has Canadian shareholders. The BCSC has, in effect, deemed that all securities issued to Canadian shareholders in US OTC issuers will have a restricted legend even if those securities were registered in an SEC registration statement to become freely tradable. The rule also includes companies that are incorporated in the US.

Canadian shells will disappear from the landscape. With the passing of this new rule all shells originating out of Canada or that have Canadian shareholders will be suspect. Once the news is disseminated to law community the SEC attorneys will err on the side of safety and reject any shells that have a taint of a Canadian connection.

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• the Canadian Trading and Quotation System Inc. (CNQ) was added to the list of exchanges that exclude issuers from the proposed instrument

• changes were made to the significant connections requirement that will result in an OTC issuer being designated as a reporting issuer

• an OTC issuer that becomes a reporting issuer must remain a reporting issuer for at least one year after it no longer has a substantial connection to B.C.

• most foreign issuer and multi-jurisdictional disclosure system (MJDS) exemptions will apply, with the exception of the exemption regarding material change reporting

• there will be a legend requirement for securities that OTC reporting issuers distribute under exemptions

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