On March 13, 2014, Canadian securities regulators in all jurisdictions except Ontario and Newfoundland adopted a prospectus exemption that will allow issuers listed on the Toronto Stock Exchange (TSX), the TSX Venture Exchange (TSXV) and the Canadian Securities Exchange (CSE) to raise money by issuing securities to existing security holders. The proposed exemption was published for comment on November 21, 2013. During the comment period the CSA received overwhelming support for the proposed exemption which was targeted only to TSXV issuers. In response to many of the comments received, the CSA expanded the exemption to include issuers listed on the TSX and CSE. As noted below, on March 20, 2014 the Ontario Securities Commission (OSC) announced a proposal to adopt a similar exemption for Ontario.
Under current Canadian securities legislation, issuers may only distribute securities through a prospectus unless there is an exemption from the prospectus requirement available to the issuer under National Instrument 45-106 Prospectus and Registration Exemptions. The accredited investor exemption under National Instrument 45-106 is one of the exemptions most often relied upon by issuers. Retail investors who do not qualify as accredited investors are often limited to purchasing securities through a prospectus.
The purpose of the exemption is to facilitate capital raising for listed issuers and foster participation of retail investors in private placements. The exemption for existing security holders will be available to an issuer subject to the following conditions:
- the issuer has a class of equity securities listed on the TSXV, TSX or CSE;
- the offering consists of a listed security or units consisting of a listed security and a warrant;
- the issuer makes the offering available to all existing security holders that hold the same type of listed security and the investor confirms in writing to the issuer that they hold the type of listed security offered under the exemption;
- unless the investor has obtained suitability advice from a registered investment dealer, the investor may only invest a maximum of $15,000 per issuer under the exemption in a 12 month period;
- the issuer has filed all timely and periodic disclosure documents;
- the issuer issues a news release disclosing the proposed offering, including details of the use of proceeds;
- an investor is provided with certain rights of action in the event of a misrepresentation in the issuer’s continuous disclosure record; and
- although an offering document is not required, if an issuer voluntarily provides one, the issuer must file the offering document with the securities regulatory authority and an investor will have certain rights of action in the event of a misrepresentation in it.
The first trade of securities issued under the exemption would be subject to resale restrictions under section 2.5 of National Instrument 45-102 Resale of Securities like most other capital raising prospectus exemptions. In addition, issuers will have to file a report of exempt distribution within 10 days of the offering.
The OSC announced on December 4, 2013 that it would propose new capital raising prospectus exemptions in the first quarter of 2014, including a proposed prospectus exemption for distributions to existing security holders. In an effort to achieve substantial harmonization with the existing exemptions of other members of the CSA, the OSC published for comment on March 20, 2014 four proposed prospectus exemptions. One of the exemptions would allow public companies listed on the TSX, TSXV or CSE to raise capital from their existing security holders based on their public disclosure record. The comment period ends June 18, 2014 and the Notice and Request for Comment is available on the OSC website.