On November 21, 2013, the securities regulators of all of the
jurisdictions of Canada (except Ontario and Newfoundland and
Labrador) published for comment Multilateral CSA Notice 45-312
– Proposed Prospectus Exemption for Distributions to
Existing Security Holders. Under the proposed exemption,
issuers listed on the TSX Venture Exchange would be allowed to
distribute securities to their existing security holders without
being subject to the usual obligation to prepare an offering
document (such as a prospectus or rights offering circular), so
long as they meet the requirements of the exemption.
The regulators note that TSXV issuers rarely conduct prospectus
offerings after their initial public offering. Also, due to
the time and cost involved in preparing the mandatory offering
documents, these issuers do not generally make use of the rights
offering exemption or the offering memorandum exemption to raise
capital from retail investors. As a result, retail investors have
limited opportunity to invest directly in TSXV issuers, and TSXV
issuers are denied a potential source of capital.
Given this reality, the only option for retail investors to
invest in TSXV issuers remains the secondary market, which means
that they must pay brokerage commissions and may not benefit from
the discounted pricing and the warrant "sweeteners"
typically available in private placements to accredited
The proposed exemption
The proposed exemption will be available to an issuer whose
equity securities are listed for trading on the TSXV, is a
reporting issuer in at least one jurisdiction of Canada and has
filed all timely and periodic disclosure documents under the
applicable securities laws. In addition, the distribution must
abide by certain key conditions including the following:
The offering must consist of a listed security or a unit
consisting of a listed security and a warrant to acquire a listed
security. The investor must confirm in writing to the issuer that,
on or before the "record date", the investor holds the
same class and series as the listed security to be distributed. The
record date will be a date prior to the date of the announcement of
the offering. The regulators are still considering what would
be the appropriate record date and will use the comments received
during the comment period to make their decision regarding this
The issuer must issue and file a news release, which must
include reasonable details of the proposed distribution and
proposed use of net proceeds.
The aggregate amount invested by the investor in the last 12
months under the exemption may not exceed $15,000, unless the
investor has obtained advice regarding the suitability of the
investment from a registered investment dealer.
The investor must purchase the security as a principal and pay
the acquisition cost in cash at the time of the distribution.
The investor must be provided with certain rights of action in
the event the issuer makes a misrepresentation in its continuous
disclosure record. An offering document is not required, but an
issuer who provides one voluntarily will be subject to certain
rights of action of the investor if the document contains
A report of exempt distribution must be filed with the regulator
no later than 10 days after the distribution.
The first trade of a security acquired under the proposed
exemption will be subject to the four month hold resale
restrictions under section 2.5 of National Instrument 45-102
– Resale of Securities, as is the case in most other
capital raising prospectus exemptions.
The regulators note that the proposed exemption covers only the
prospectus requirement and that no corresponding exemption from the
dealer registration requirement is being proposed.
Interested parties are invited to comment on all aspects of the
proposed exemption including the appropriate record date for the
exemption, whether TSXV issuers would actually be interested in
using the proposed exemption, whether the $15,000 limit is the
appropriate limit, whether it is appropriate that there be no
investment limit if an investor receives suitability advice, and
whether the mere fact of being a current security holder of an
issuer enables an investor to make a more informed investment
decision regarding the issuer. The regulators are also requesting
comment on whether conditions regarding the structure of the
financing (minimum or maximum price, maximum dilution, etc.) would
be appropriate, as such conditions have not currently been proposed
by the regulators.
Comments must be submitted in writing to the regulators before
January 20, 2014.
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.
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