New Prospectus Exemption
On March 13, 2014, the securities regulatory authorities of all of the provinces and territories, other than Ontario and Newfoundland, announced a new prospectus exemption that allows issuers listed on the TSX Venture Exchange (“TSXV”), the Toronto Stock Exchange (“TSX”) or the Canadian Securities Exchange (“CSE”) to raise money by distributing securities to their existing security holders (the “Exemption”).
The Exemption permits listed issuers to issue listed securities to their existing security holders, subject to certain conditions, including:
- the issuer must have a class of equity securities listed on TSXV, TSX or CSE;
- the offering can consist only of a class of equity securities listed on TSXV, TSX or CSE, or units consisting of the listed security and a warrant to acquire the listed security;
- the issuer must make the offering available to all existing security holders that hold the same type of listed security;
- an investor can only invest a maximum of $15,000 per issuer under the Exemption in a 12-month period unless the investor has obtained suitability advice from a registered investment dealer;
- the issuer must have filed all timely and period disclosure documents as required under applicable securities laws;
- the issuer must issue a news release disclosing the proposed offering, including details of the use of proceeds, the minimum and maximum number of securities an issuer proposes to distribute, and how it intends to allocate oversubscriptions;
- each investor must confirm in writing to the issuer that, as at the record date, the investor held the type of listed security offered under the Exemption. The record date is at least one day prior to the day the issuer announces the offering;
- an investor must be provided with certain rights of action in the event of a misrepresentation in the issuer’s continuous disclosure record; and
- although an offering document is not required for the Exemption, if an issuer voluntarily provides one, the issuer must file the offering document with the securities regulatory authority and the investor will have certain rights of action in the event of a misrepresentation in it.
Securities issued under the Exemption will be subject to resale restrictions under National Instrument 45-102 Resale of Securities. As well, issuers must file a report of exempt distribution within 10 days after each distribution under the Exemption.
In British Columbia, the Exemption is being implemented by way of BC Instrument 45-534 Exemption from Prospectus Requirement for Certain Trades to Existing Security Holders, the full text of which is available here.
The full text of CSA Notice 45-313 concerning the Exemption is available here.
On March 20, 2014, the Ontario Securities Commission published for a 90 day comment period four new prospectus exemptions in Ontario. These exemptions are:
- an offering memorandum exemption that would allow issuers to raise capital based on a comprehensive disclosure document being made available to investors;
- a family, friends and business associates exemption to enable issuers to raise capital from their network of family, close personal friends and close business associates;
- an exemption that would allow for distributions to existing security holders; and
- a crowdfunding exemption that would allow issuers to raise capital from investors through an online platform registered under applicable securities laws.
While the proposed Ontario existing security holder exemption is based on the Exemption, there are some key differences. For example, the Ontario exemption requires an issuer to allocate existing security holders a pro rata portion of the offering (subject to rounding to avoid the issuance of fractional securities and odd lots). Any securities that are not taken up by existing security holders can be allocated at the issuer’s discretion to other existing security holders. Secondly, any offering under this exemption cannot result in an increase of more than 100% of the outstanding securities of the same class. In addition, the issuer must have been a reporting issuer for not less than 12 months or became a reporting issuer by filing and obtaining a receipt for a prospectus.
The comment period for the proposed Ontario exemptions ends on June 18, 2014.
For the full text of the proposed Ontario exemptions, please refer here.