Highlights
-
"Standard term sheets" and "marketing
materials" may be used by investment dealers to market public
offerings
-
"Marketing materials" must be filed on SEDAR before use
and incorporated in the prospectus
- Doubling
the size of bought deals permitted
- New
requirements for investor road shows
- New
exemption permitting issuers and investment dealers to "test
the waters" for certain IPOs
The Canadian Securities Administrators (CSA) are implementing
amendments to the Canadian prospectus rules relating to permitted
marketing activities for public offerings. The new rules will
regulate the use of term sheets, marketing materials and road shows
in marketing public offerings; permit bought deals to be increased
by up to 100%; and permit issuers and investment dealers to
"test the waters" for certain initial public offerings
(IPOs) before filing a preliminary prospectus. The new rules
come into force on August 13, 2013.
Standard Term Sheets and Marketing
Materials
The new rules distinguish between "standard term sheets"
and "marketing materials" used to market public
offerings. A "standard term sheet" is defined to
mean a written communication intended for potential investors
regarding a distribution of securities under a prospectus that only
contains limited, prescribed information (excluding a simple notice
stating the security to be offered, its price and the person from
whom purchases can be made and a prospectus can be obtained).
"Marketing materials" are defined as a written
communication intended for potential investors regarding a
distribution of securities under a prospectus that contains
material facts relating to an issuer, securities or an offering
(excluding a prospectus or any amendment, a standard term sheet and
the simple notice referred to above).
Standard Term Sheets
The new rules will permit investment dealers to provide standard
term sheets to potential investors after a bought deal is announced
but before the preliminary prospectus is receipted; during the
"waiting period" between the issuance of a receipt for a
preliminary prospectus and the issuance of a receipt for a final
prospectus; and after a receipt has been issued for a final
prospectus (including a shelf prospectus and a final base PREP
prospectus). The requirements for a standard term sheet
include:
- other
than contact information for the investment dealer or underwriters,
all information concerning the issuer, securities or an offering in
the standard term sheet must be disclosed in, or derived from the
relevant prospectus. If the offering is a bought deal, the
information must be disclosed in, or derived from, the bought deal
news release or the issuer's continuous disclosure record, or
information included in the subsequent preliminary prospectus;
- the term
sheet must contain prescribed cautionary language referring
investors to the preliminary prospectus and/or final prospectus and
stating that the standard term sheet does not contain full
disclosure of all material facts; and
- a
standard term sheet does not have to be filed on SEDAR or
incorporated by reference in the relevant prospectus.
Standard term sheets are not subject to prospectus liability, but
are subject to the existing statutory prohibitions on misleading or
untrue statements.
The limited information permitted in standard term sheets includes
the issuer name, a brief description of the business of the issuer
and the securities offered, the total number or dollar amount of
the securities, the underwriters' names, the proposed closing
date, a brief description of the use of proceeds, the maturity date
of debt securities and a brief description of interest payable,
whether the securities are redeemable or retractable and, in the
case of convertible or exchangeable securities, a brief description
of the underlying securities. A "brief description"
is defined as no more than 3 lines of text. Among other
things, credit rating disclosure is not permitted. Many kinds
of summary term sheets currently used, including those for more
complex offerings (such as convertible debentures or rate reset
preferred shares), will not qualify as "standard term
sheets" because they contain disclosure beyond the prescribed
limited content. These materials are "marketing
materials" subject to additional requirements (including
filing on SEDAR and incorporation into the prospectus – see
below).
Marketing Materials
Under the new rules, "marketing materials" may be
provided to potential investors after a bought deal is announced
but before the preliminary prospectus has been receipted;
during the "waiting period"; and after a receipt
has been issued for a final prospectus. The term
"marketing materials" includes written or electronic
marketing presentations (other than "standard term
sheets") that are provided to investors or made available as
part of or in connection with a road show, or otherwise.
The conditions for use of permitted marketing materials
include:
- all
information, other than contact information for the investment
dealers and comparables, must be disclosed in, or derived from, the
related prospectus or, for a bought deal, the bought deal news
release, the issuer's continuous disclosure record or the
subsequently-filed preliminary prospectus;
- specified
cautionary language (different than that for a standard term sheet)
must be included;
- a
template version of the marketing materials must be approved in
writing by the issuer and lead underwriters before use;
and
- the
template version of the marketing materials must be filed on SEDAR
on or before the date they are first provided to an investor, and
must be included or incorporated by reference in the prospectus for
the offering.
If the marketing materials include comparables (information that
compares an issuer to other issuers), they must contain prescribed
cautionary language explaining the basis on which other issuers
were chosen and why they are considered to be appropriate
comparisons and the risks relating to the
comparables. Comparables may be removed from the
"template" marketing materials that are filed on SEDAR,
but in that case a separate, complete version of the template
marketing materials, including comparables, must be delivered
(confidentially) to the applicable Canadian securities
regulators. Marketing materials are subject to the prohibition
on misleading or untrue statements.
These significant changes will require issuers, underwriters and
their counsel to review term sheets and marketing materials to
determine in advance whether they are "standard term
sheets" or "marketing materials". For a
prospectus offering in Quebec, marketing materials will need to be
translated into French since they will be included or incorporated
in the prospectus.
Bought Deals
The new rules make changes to bought deal offerings. The
existing limited exemption from the general prohibition on
marketing before a prospectus is filed that permits an investment
dealer to solicit expressions of interest before the filing of a
preliminary short form prospectus if the issuer has entered into an
enforceable agreement with an underwriter who has agreed to
purchase the full amount of an offering, the issuer issues a news
release announcing the agreement, and the agreement requires the
issuer to file and obtain a receipt for the preliminary prospectus
within four business days of the agreement is generally
maintained. However, the new rules provide specificity on the
following bought deal arrangements: bought deals may not
include market-out clauses (provisions that allow an underwriter
not to purchase securities if they cannot be marketed profitably
due to market conditions); the only permitted option is an
over-allotment option; bought deals may be conditional on the lead
underwriter confirming on the next business day that other
underwriters have agreed to purchase certain of the securities
being offered (a confirmation clause); underwriters may be added to
a bought deal; the size of a bought deal may be increased by up to
100% of the initial offer size; bought deals may be reduced in size
only four business days after the original agreement; and bought
deals may be terminated if the parties decide not to proceed with
an offering.
Road Shows
Road shows are often conducted as part of "soliciting
expressions of interest" in a public offering. The new
rules define a road show as "a presentation to potential
investors, regarding a distribution of securities under a
prospectus, conducted by one or more investment dealers on behalf
of an issuer in which one or more executive officers, or other
representatives, of the issuer participate."
The new rules regulate certain aspects of the content and
conduct of road shows by any means, including in-person, by
telephone, over the internet or by other electronic
means. While explicitly recognizing and permitting road shows,
the new rules introduce specific process requirements requiring
investment dealers to collect and maintain records of, and provide
prospectuses to, road show attendees. In addition, the new
requirements relating to "marketing materials" apply to
marketing materials used in connection with a road show which will
generally be required to be filed on SEDAR and included or
incorporated by reference into the prospectus for the offering.
Oral Statements at a Road Show
Amendments to the Companion Policy to the prospectus rules clarify
and provide guidance on oral statements made at road shows
including cautioning against selective disclosure of undisclosed
material information and that oral statements are subject to the
provisions of securities legislation against making misleading or
untrue statements.
Certain U.S. Cross Border Prospectus
Offerings
The new rules provide limited exceptions for issuers in U.S.
cross-border offerings with respect to records of investor
attendance, and filing and incorporation by reference of road show
marketing materials. A U.S. cross-border offering is an
offering undertaken contemporaneously in both the United States and
Canada under a prospectus in each jurisdiction.
U.S. Cross-Border IPOs
When conducting a road show for a cross-border initial public
offering, an investment dealer will not be required to comply with
the general record keeping requirements if:
- the
issuer is relying on the exemption from United States filing
requirements in Rule 433(d)(8)(ii) under the U.S. Securities Act of
1933 in respect of the road show; and
- the
investment dealer establishes and follows reasonable procedures to
ask any investor attending the road show in person, by telephone
conference call, on the internet or by other electronic means to
voluntarily provide their name and contact information; and keeps a
record of any information voluntarily provided by the
investor.
All U.S. Cross-Border
Offerings
Under the new rules, there is a limited exemption for U.S.
cross-border offerings (including IPOs) from the requirement to
file the marketing materials for a road show on SEDAR, and the
requirement to include or incorporate the marketing materials in
the final prospectus. The exemption is subject to the
following conditions:
- the
underwriters have a reasonable expectation that the securities
offered under the U.S. cross-border offering will be sold primarily
in the United States;
- the
issuer and the underwriters who sign the Canadian prospectus
provide a contractual right of action to investors for any
misrepresentation in the road show marketing materials; and
- the
template version of the marketing materials relating to the road
show is delivered (confidentially) to the Canadian securities
regulatory authorities.
These exemptions only relate to marketing materials provided in
connection with a road show, and not to any other marketing
materials.
The CSA noted that the filing and other requirements for road
show marketing materials only apply if the underwriters provide the
materials to Canadians (including, presumably, if the road show
materials are made available on an unrestricted basis over the
internet). Road show materials that are made available to
U.S. investors only in a U.S. cross-border offering would not be
subject to the new rules.
Testing of Waters Exemption for IPOs
The new rules contain an exemption from the general prohibition
against pre-marketing of an IPO that permits investment dealers to
solicit expressions of interest in a potential IPO from accredited
investors before filing a preliminary prospectus, if certain
conditions are satisfied. This exemption is not available for
issuers that are public companies in foreign jurisdictions,
notwithstanding the fact they may be doing an IPO in Canada, nor to
issuers whose securities are held by a control person that is a
public issuer (i.e., a spin-off of a subsidiary or division by a
public company). Issuers using this exemption may not file a
preliminary prospectus until at least 15 days after the last
investor solicitation was made. All information provided to
accredited investors must be approved in writing by the issuer, be
marked confidential and contain prescribed legends. In
addition, the investment dealer must obtain confirmation in writing
from each accredited investor that it will keep information
confidential until either a prospectus is filed or the issuer
confirms in writing that it will not pursue the potential
offering.
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