The Alberta Securities Commission (ASC) has proposed the repeal and replacement of ASC Rule 72-501 Distributions to Purchasers Outside Alberta (ASC Rule 72-501) in an effort to facilitate offerings by Alberta issuers to investors outside the province.
Distributions to Purchasers Outside Alberta
Currently, ASC Rule 72-501 provides a prospectus exemption in respect of certain listed issuers' private placements to purchasers outside Alberta provided, among other things, that such purchasers acknowledge the risks, resale restrictions and lack of securities regulatory oversight of the offering.
Under the proposed rule, two new exemptions would expand and simplify this existing prospectus exemption to apply both to reporting issuers and non-reporting issuers provided that the issuer has materially complied with the disclosure requirements (if any) of the foreign jurisdiction in which the distribution is occurring. The current certification and acknowledgement requirements, as well as the requirement that the issuer's securities be listed or quoted on a recognized market, would no longer apply.
The proposed rule would also create new prospectus exemptions for foreign public offerings in the following contexts:
- Foreign public offering under
prospectus or registration statement in a foreign
jurisdiction. The issuer has filed:
- a U.S. registration statement that is effective; or
- an offering document (and, if applicable, obtained any necessary approvals or receipts) under the securities laws of a "specified foreign jurisdiction" – defined to include most of the larger global capital markets, including European Union members, the UK and former Commonwealth countries. Notably absent are many Asian countries, including China.
- Foreign public offering with a concurrent final prospectus in Alberta. The issuer or selling security holder has materially complied with (or is exempt from) the disclosure requirements applicable to the distribution under the foreign securities laws and has filed with and obtained a receipt from the ASC for a final prospectus in accordance with Alberta securities laws.
- Each of the above four proposed prospectus exemptions corresponds with the same prospectus exemptions recently adopted in Ontario pursuant to Ontario Securities Commission Rule 72-503 – Distributions Outside Canada (OSC Rule 72-503), as previously discussed here.
Distributions under the Offering Memorandum Exemption of another Jurisdiction
Recognizing provincial variations in the local application of the offering memorandum exemption in Section 2.9 of National Instrument 45-106 Prospectus Exemptions, the ASC has also proposed a new prospectus exemption that would permit distributions outside of Alberta to purchasers in other Canadian jurisdictions in reliance on such jurisdictions' offering memorandum exemption.
The ASC's proposal preserves the existing Eurobond distribution exemption that permits the distribution of non-convertible debt securities to a person or company outside of Canada, provided that it is listed or quoted on a Eurobond market outside of Canada.
Pre-Marketing Activities Outside of Canada
The ASC has proposed a new prospectus exemption to permit an issuer to solicit, advertise or act in furtherance of a distribution under a foreign prospectus that occurs prior to securities being issued where no solicitation or advertisement is made to a prospective purchaser resident in a jurisdiction of Canada except pursuant to a prospectus exemption and the issuer has materially complied with (or is exempt from) disclosure requirements under the securities laws of the jurisdiction outside Canada.
FIRST TRADE IMPLICATIONS
The new ASC Rule 72-501 would include a first trade prospectus exemption for trades in securities of a non-reporting issuer made through an exchange or market outside of Canada or to a person or company outside of Canada where the issuer is not a reporting issuer in any jurisdiction of Canada and residents of Canada do not own more than 10% of the outstanding securities of the issuer and do not represent more than 10% of the total number of security holders. This exemption is substantially the same as Section 2.14 of National Instrument 45-102 Resale of Securities (NI 45-102).
In addition, the new ASC Rule 72-501 would create a second first trade exemption substantially in the form that will come into force on June 12, 2018 under section 2.15 of NI 45-102 and ASC Blanket Order 45-419 Prospectus Exemptions for Resale Outside Canada. This exemption would permit the trade of securities (and underlying securities) of a non-reporting foreign issuer made through an exchange or market outside of Canada or to a person or company outside of Canada.
Following OSC Rule 72-503, the proposed ASC rule provides an exemption from the dealer registration requirements in Alberta for certain dealers with respect to distributions to investors outside Canada that are made under (or are exempt from) a prospectus filed in Alberta where the dealer has its principal place of business or head office in the United States, Canada or a "specified foreign jurisdiction" and is not registered as a dealer in Canada but is registered (or exempt therefrom) in the United States or a "specified foreign jurisdiction".
A further exemption would be available for an issuer who distributes securities to a person outside Canada qualified by a prospectus filed in Canada (or in reliance on a prospectus exemption) where the trade is made through or to a person relying on an exemption from dealer registration or the trade is made in accordance with the dealer and underwriter registration requirements of the investor's jurisdiction and the issuer is not otherwise registered in Canada as a dealer.
Each of the proposed Registration Exemptions corresponds with the same registration exemptions recently adopted in Ontario pursuant to OSC Rule 72-503.
Along with the replacement of ASC Rule 72-501, the ASC has proposed to replace ASC Policy 45-601 Distributions Outside Alberta and Companion Policy 72-501 Distributions to Purchasers Outside Alberta with a new Companion Policy 72-501 Distributions to Purchasers Outside Alberta (CP 72-501) would replace. CP 72-501 would provide guidance on the ASC's interpretation and application of the proposed rule. This policy states that the requirement to sell to "a person or company outside Canada" will generally be met if the issuer or selling security holder has no knowledge and reason to believe that the purchaser is a person or company in Canada. A distribution will qualify as a distribution outside of Canada if the distribution is made through an exchange or market outside of Canada and the selling security holder does not have a reason to believe that the distribution has been pre-arranged with a buyer in Canada. Furthermore, an issuer or selling security holder will generally be considered to have "materially complied with the disclosure requirements applicable to the distribution under the security laws of the jurisdiction" if reasonable steps are taken to ensure the distribution is effected in compliance with the securities laws of the foreign jurisdiction.
The policy further states that registration (or an exemption therefrom) is generally required in Alberta where registerable services are provided to investors in Alberta or where registerable activities are otherwise conducted within Alberta, regardless of the location of the investors.
The comment period on the proposed repeal and replacement of ASC Rule 72-501 is open until June 18, 2018.
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.