This is our third in a series of posts on the proposed amendments to NI 41-101 to expand the scope of marketing activities that can be conducted in connection with prospectus offerings. Our first considered the new "testing the waters" exemption for IPOs, while our second looked at the use of term sheets during and after the waiting period. In this post, we consider the proposed amendments' new exemption expressly allowing for "road shows" to be conducted in connection with a prospectus offering.
A "road show" is proposed to be defined as a presentation to potential investors regarding a distribution of securities under a prospectus that is conducted by an investment dealer on behalf of an issuer in which one or more executive officers of the issuer participate. These rules apply in respect of road shows conducting during or after the waiting period, with applicable modifications in the case of base shelf prospectus offerings.
Like term sheets, all disclosure made in a road show must be "fair, true and plan" and all information concerning the offered securities must be disclosed in the prospectus (see our related summary on the use of term sheets for details on the meaning of this standard). Investment dealers would also be required to read a prescribed oral warning statement at the beginning of the road show. Any written materials provided during a road show would be considered a "term sheet" and subject to the requirements applicable to term sheets under the proposed amendments.
In order to rely on this exemption, a dealer must be authorized in writing by the issuer to conduct a road show and the road show may be conducted in the local jurisdiction only if a receipt for the prospectus was issued in that jurisdiction. Dealers would also be required to establish and follow reasonable procedures to verify the identity and keep a record of all attendees, ensure that each attendee receives a copy of the prospectus and restrict copying of any written materials. The proposed Companion Policy to NI 41-101 states that for a road show held in person, these procedures may include putting a legend on the first page of the written materials indicating that the materials are only intended for the relevant group of investors and are not to be copied or provided to others. According to the CSA, it is important to know who attended a road show in order to provide any revised materials and for evidentiary reasons in connection with complaints, compliance reviews, litigation or enforcement proceedings.
Use of Comparables for Permitted Institutional Investors
Citing concerns about comparables being "cherry picked" by investment dealers and misunderstood by retail investors, the proposed amendments distinguish between road shows conducted for permitted institutional investors vs. retail investor in that information relating to comparables is only be permitted for road shows conducted for the former group. In this respect, where comparables are included in a road show presentation, information relating to comparables does not need to be derived from the prospectus. If the information is included in a term sheet that is provided to permitted institutional investors it must be redacted prior the term sheet being filed on SEDAR and the version filed on SEDAR must state what has been redacted. Any written materials must also include a statement immediately after the information relating to comparables stating that such information is not disclosed in the prospectus and will not be subject to prospectus liability. Prior to commencing the road show, the dealer must also obtain written confirmation from each attending permitted institutional investor confirming that the investor will keep information regarding the comparables confidential. In order to include comparables in a road show for retail investors the information would have to be included in the prospectus and therefore subject to prospectus liability.
Concurrent U.S. and Canadian Offerings
Since the proposed rules expressly permit road shows to be conducted and will require written materials to be filed on SEDAR (in accordance with conditions that apply to "term sheets"), issuers conducting a concurrent IPO in the United States would no longer need exemptive relief under Canadian securities laws in order to file or provide access to internet road show materials (as required under U.S. securities laws).
The CSA have specifically asked for feedback on the circumstances in which comparables should be permitted to be given to retail investors. In addition, if comparables are included in a prospectus or road show, they have also asked whether the prospectus rules should prescribe a method for choosing them or contain measures to foster the preparation of comparables in a fair and balanced manner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
