On November 21, 2013, the Canadian Securities Administrators (the “CSA”) published Multilateral CSA Notice 45-312 Proposed Prospectus Exemption for Distributions to Existing Security Holders, which provides notice of a proposed new prospectus exemption in all jurisdictions in Canada, except Ontario and Newfoundland and Labrador.
According to the notice, market participants report that issuers listed on the TSX Venture Exchange (the “TSXV”) are not conducting prospectus offerings or using prospectus exemptions to sell to retail investors because of the time and cost involved in preparing the required offering document. This means that retail investors that want to invest in these issuers must generally buy their securities on the secondary market. This prejudices the retail investors by not allowing them to partake in the private placement, with such benefits as pricing at a discount to market or warrants, and the issuer by not having access to a potential source of capital.
As such, the CSA proposed a new exemption with the following criteria:
- the issuer must have a class of equity securities listed on the TSXV;
- the issuer must have filed all timely and periodic disclosure documents as required under applicable securities laws;
- the offering can consist only of the class of equity securities listed on the TSXV or units consisting of the listed security and a warrant to acquire the listed security;
- the issuer must issue a news release disclosing the proposed offering, including details of the use of proceeds;
- each investor must confirm in writing to the issuer that as at the “record date” the investor held the type of listed security that the investor is acquiring under the proposed exemption;
- unless the investor has obtained advice regarding the suitability of the investment from a registered investment dealer, the aggregate amount invested by the investor in the last 12 months under the proposed exemption is not more than $15,000;
- 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, if an issuer voluntarily provides one, an investor will have certain rights of action in the event of a misrepresentation in it.
The CSA is still unsure of how to determine the record date but it would be sometime before the announcement of the financing (i.e. an investor could not qualify for the offering by purchasing shares of the issuer on the TSXV after the private placement is announced).
The notice concludes by inviting comments from market participants in general and it poses some specific questions, including whether the proposed exemption should be available to issuers listed on other Canadian markets, such as the CNSX. The CSA is inviting comments until January 20, 2014, so the notice will not assist issuers who immediately need capital. Also, the CSA may decide to alter or abandon the proposed exemption based on the feedback it receives.
If you have questions about prospectus exemptions, contact Clark Wilson’s Corporate Finance & Securities Group.