Issuers listed on the TSX, TSX-V, CSE or Aequitas NEO (once the
latter is operational in March 2015) will soon be able to raise
capital in Ontario from their existing securityholders without a
prospectus. The Ontario Securities Commission (OSC) has adopted a
prospectus exemption, expected to come into force on February 11,
2015, that is substantially similar to the existing securityholder
exemption adopted by the other Canadian Securities Administrators
(CSA) earlier this year.
Key Features of the Exemption for Sales to Existing
The key features of the new exemption are as follows:
only the class of listed securities,
or units consisting of the listed security plus a warrant to
acquire the listed security, may be offered;
the maximum amount of dilution is
100% (the other CSA jurisdictions did not impose a dilution
unless an investor obtains
suitability advice from a registered dealer, the investor's
maximum investment in an issuer under the exemption must not exceed
$15,000 in the prior 12-month period;
the issuer must announce the offering
by news release, providing reasonable detail about the offering,
including the minimum and maximum number of securities offered and
gross proceeds, the intended use of proceeds and details about how
securities will be allocated;
the offering must be made available
to all persons that hold securities as of a record date at least
one day before announcement of the offering;
there is no requirement that
securities be allocated pro rata among existing
securityholders (consistent with the other CSA jurisdictions);
however, in order to support the fair treatment of all
securityholders, issuers are expected to implement policies and
procedures to provide reasonable assurance that investment
opportunities will be fairly allocated among securityholders; while
there is little guidance provided on the expected scope of such
policies and procedures, the OSC noted that the exemption should
not be used in a manner that results in securityholders suffering
the securities will be subject to a
four-month hold period, as is customary for exempt market
the exemption is not available to
investment funds (the other CSA jurisdictions do permit investment
funds to use the exemption).
The new exemption for sales to existing securityholders is one
of several reforms to the exempt market that securities regulators
in both Canada and the United States have been considering over the
past couple of years. The overall objectives are improving access
to capital by small- and medium-sized businesses and increasing
investment opportunities for retail investors. Related developments
benefitting this significant segment of the capital markets include
the potential adoption of crowdfunding regimes in both countries;
the TSX's recent launch of a capital raising and secondary
trading platform for the exempt market that could become an
incubator for pre-IPO companies; the OSC's proposal to
introduce additional prospectus exemptions for distributions under
an offering memorandum and distributions to family, friends and
business associates; and the liberalization under the JOBS Act of
the private placement marketing rules in the United States.
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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