Under Canadian securities laws, in order to conduct a
distribution of its securities, an issuer must file and receive a
receipt for a prospectus or utilize a prospectus exemption. In
Notice 45-312, the Canadian Securities Administrators express their
belief that most TSXV issuers rarely conduct prospectus offerings
due to the prohibitive time and cost involved in preparing the
offering document and the additional risk of potentially wasted
up-front costs in a failed offering.
The regulators also believe that while TSXV issuers commonly use
the accredited investor exemption, which permits individual
investors who meet certain minimum financial asset thresholds,
among other things, to purchase securities without a prospectus,
and that these issuers have other prospectus exemptions available
to them to distribute their securities, most retail investors are
not able to participate in such offerings.
As a result, retail investors are limited to purchasing
securities in the secondary market, typically through the
facilities of a stock exchange. Retail investors are disadvantaged
in that they must pay market price instead of the discounted price
typically available in private placements to accredited investors;
must pay brokerage commissions; and are unable to acquire the
warrant "sweeteners" which are often issued with shares
in private placements to accredited investors. This also results in
TSXV issuers being denied access to retail investors as a source of
UNDERLYING CONDITIONS OF NEW PROPOSED EXEMPTION
The new proposed prospectus exemption, if implemented, may be
relied on if the TSXV issuer has a class of equity securities
listed on the TSXV and has filed all timely and periodic disclosure
documents as required under applicable securities laws. If so, then
the TSXV issuer may offer securities to current securityholders as
of a record date set prior to the offering, so long as the offering
of securities consists only of a class of equity securities listed
on the TSXV or units consisting of the listed security and a
warrant to acquire the listed security. The offering must also be
disclosed by way of a news release which includes details of the
use of proceeds. Unless an investor has obtained advice regarding
the suitability of the investment from a registered investment
dealer, there will be a limit of C$15,000 that may be raised from
that particular investor within the preceding 12-month period. The
investor must also be provided with certain rights of action
against the issuer for any potential misrepresentation in the
issuer's continuous disclosure record.
The participating securities regulatory authorities differ in
their proposed method of adopting the exemption, leading to certain
In Alberta, Quebec and New Brunswick, statutory rights against
the issuer for secondary market civil liability will be available
to an investor purchasing under the exemption, and the rule –
if implemented – is intended to be permanent. The British
Columbia, Saskatchewan, Manitoba, Nova Scotia, Prince Edward
Island, Yukon, Northwest Territories and Nunavut regulators propose
to enact the exemption by blanket order, and would require that an
issuer give investors a contractual right of action for rescission
or damages in the event of a misrepresentation in the issuer's
disclosure record. In these blanket order jurisdictions, the
proposed exemption would automatically expire on Dec. 31, 2015
(subject to extension).
The new proposed prospectus exemptions will permit TSXV issuers
to access capital from current shareholders in most Canadian
provinces and territories.
There are potential benefits for both TSXV issuers, who could
gain access to a new potential pool of capital, as well as retail
investors, who would be able to purchase securities at a discount
to the market price and possibly with warrants included as a
"sweetener." The proposed exemption includes protections
put in place with respect to maximum investment amount without
suitability advice and statutory or contractual rights of action
for misrepresentations. It should be noted that TSXV issuers will
not be able to rely on this exemption in Ontario or Newfoundland
and Labrador and this exemption will not extend to existing dealer
The regulators are seeking comments on the new prospectus
exemption, specifically with respect to the threshold for
suitability advice, whether issuers listed on other exchanges
should be able to rely on the new exemption, the appropriate timing
of the record date and whether any structural requirements should
be imposed with respect to pricing. Submissions must be received by
Jan. 20, 2014, and those submissions will be made public.
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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