The Alberta Securities Commission (ASC) has proposed replacing the current ASC Rule 72-501 with a new ASC Rule 72-501 (Proposed Rule). The Proposed Rule is intended to reduce regulatory impediments and facilitate offerings by Alberta issuers to investors outside of Alberta by removing the potentially duplicative application of Alberta prospectus requirements where an offering materially complies with the securities laws of the foreign jurisdiction. The ASC has historically taken the position that a distribution by an issuer with a fundamental or, in certain cases, significant connection to Alberta is a distribution from Alberta and subject to Alberta securities laws. The approach in the Proposed Rule follows new rules recently released by the Ontario Securities Commission under OSC Rule 72-503 Distributions Outside Canada (OSC Rule 72-503) regarding distributions of securities outside of Canada. The Proposed Rule should primarily benefit issuers with a fundamental connection to Alberta that are distributing securities to persons located outside Canada.
The Proposed Rule generally requires compliance by issuers with applicable extra-territorial securities laws and assumes that investors are sufficiently protected under the securities laws of the jurisdiction where the purchaser is located. Under the Proposed Rule, new prospectus exemptions would be available for the following types of distributions:
- Foreign distributions by reporting issuers: A prospectus exemption would be available for the distribution to a person or company outside Canada where the issuer has materially complied with applicable foreign securities laws and the issuer is a reporting issuer in a jurisdiction of Canada immediately preceding the distribution.
- Foreign public offering under prospectus or registration statement: A prospectus exemption would be available for the distribution to a person or company outside Canada where the issuer, including a non-reporting issuer, has filed a U.S. registration statement or an offering document in a specified foreign jurisdiction under applicable foreign securities laws.
- Foreign public offering with concurrent final prospectus: A prospectus exemption would be available for the distribution to a person or company outside Canada where the issuer or selling securityholder has materially complied with applicable foreign securities laws and concurrent with the distribution, the issuer has filed a prospectus and a receipt has been issued for a final prospectus in accordance with Alberta securities laws.
- Foreign distributions by non-reporting issuers: A prospectus exemption would be available for the distribution to a person or company outside Canada by an issuer that is not a reporting issuer in a jurisdiction of Canada where the issuer has materially complied with applicable foreign securities laws.
The current Eurobond distribution exemption remains intact under the Proposed Rules.
Under the Proposed Rule, there would be no resale restrictions for foreign distributions by Canadian reporting issuers, foreign public offerings under a prospectus or registration statement in a foreign jurisdiction or a foreign public offering with a concurrent final prospectus in Alberta. However, resales of securities issued under the Canadian non-reporting issuer exemption would be subject to a "hold period" as is standard with other Canadian private placements by non-reporting issuers. The Proposed Rule provides exemptions for resales of securities issued by non-reporting issuers that have a limited connection to Canada. A first trade exemption, substantially similar to existing Section 2.14 of National Instrument 45-102 – Resale of Securities (NI 45-102), would be available for the resale of securities (and underlying securities) on an exchange, or a 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 provided that residents of Canada own not more than 10% of the outstanding securities of the issuer and represent not more than 10% of the total number of securityholders. Additionally, the Proposed Rule will contain a prospectus exemption, substantially similar to the new Section 2.15 of NI 45-102 which will be effective on June 12, 2018, for the resale of securities (and underlying securities) on an exchange or market outside of Canada or to a person or company outside of Canada where the issuer is a foreign issuer.
The Proposed Rule will replace ASC Blanket Order 45-519 – Prospectus Exemptions for Resale Outside of Canada.
Recognizing varying provincial treatment of the offering memorandum exemption, the Proposed Rule contains a new prospectus exemption to facilitate distributions outside Alberta into other jurisdictions of Canada under the offering memorandum exemption. This exemption is available provided the purchaser complies with the offering memorandum exemption in the jurisdiction where the purchaser resides. The Proposed Rule will also contain a prospectus exemption for facilitating pre-marketing activities outside of Canada in furtherance of a distribution by an issuer under a foreign prospectus.
Similar to the exemption in OSC Rule 72-503, the Proposed Rule will contain an exemption from the dealer registration requirement under Alberta securities laws for certain foreign dealers with respect to distributions to investors outside Canada under a prospectus filed in Canada (or in reliance on a prospectus exemption). This registration exemption may be relied on by an entity that has its head office in Canada, the United States or a specified foreign jurisdiction, is not registered as a dealer in Canada but is registered as a dealer (or exempt from registration) in the U.S. or a specified foreign jurisdiction.
The Proposed Rule will include an anti-avoidance provision that provides that the prospectus exemptions are intended only for distributions being made in good faith outside Canada and, in respect of the OM exemption, for distributions being made in good faith outside Alberta, and not as part of a plan or scheme to conduct an indirect distribution to a person or company in Canada. The sales and resales must be 'bona fide' and market participants should not structure transactions to deliberately avoid compliance with Alberta securities laws.
The Proposed Rule requires that issuers relying on exemptions for foreign distributions by reporting issuers, foreign distributions by non-reporting issuers and Eurobond offerings file a simplified version of the report of exempt distribution. Issuers relying on the offering memorandum exemption must file a complete report of exempt distribution.
The comment period on the Proposed Rule 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.