The CSA announced yesterday that the securities regulatory authorities in all Canadian jurisdictions, other than Ontario and Newfoundland and Labrador, have adopted a prospectus exemption that, subject to certain conditions, allows issuers listed on the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSX-V), and the Canadian Securities Exchange (CSE) to raise money by issuing securities to their existing security holders.
This new exemption has a significantly broader scope than initially suggested last November in Multilateral CSA Notice 45-312 Proposed Prospectus Exemption for Distributions to Existing Security Holders, which proposed an exemption for TSX-V-listed issuers only. In keeping with several comments received during the consultation period, the final exemption was modified to be available to issuers with equity securities listed on the TSX and the CSE, in addition to those listed on the TSX-V.
The exemption for existing security holders will be available to an issuer on the following conditions:
- All periodic and timely disclosure filing obligations are met;
- An offering news release is issued and filed. The news release must contain reasonable detail of the offering and proposed use of proceeds, including a description of how any oversubscriptions would be allocated;
- The offering consists of a listed security or a unit consisting of a listed security and a warrant;
- The offering is made available to all persons who, as of the record date (which must be at least one day prior to the day the issuer issues its offering news release), held a listed security of the issuer of the same type as the listed security being offered; it needs to be available, however, only to security holders who reside in jurisdictions where the exemption or a similar exemption is available; and
- The subscription agreement provides an investor with certain rights of action in the event of a misrepresentation in the issuer's continuous disclosure record.
In order to acquire securities under the exemption, an investor must also be purchasing as principal and confirm in writing to the issuer that, on or before the record date, the investor held a listed security of the same type as the listed security that the investor is acquiring under the exemption. An investor is limited to investing no more than $15,000 per year under the exemption unless suitability advice from a registered investment dealer is obtained.
The exemption is also subject to other conditions, including the requirement to file a report of exempt distribution within 10 days of the offering, and resale restrictions will also apply to the first trade of a security acquired under the exemption.
Though harmonized across the participating jurisdictions, the exemption has been, or is expected to be, implemented by way of rules in Alberta and Quebec, and by way of blanket orders in the other jurisdictions. While the exemption has not been adopted in Ontario, the Ontario Securities Commission indicated in December that it would be releasing proposals for four new capital raising prospectus exemptions in the first quarter of 2014, including an exemption for distributions to existing security holders.
For more information, see Multilateral CSA Notice 45-313.
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