MI 45-312 Prospectus Exemption for Distributions to Existing Security Holders (“Proposed MI 45-312”)
The securities commissions in all of the Canadian provinces except Ontario and Newfoundland published Proposed MI 45-312 for comment on November 21, 2013 which would, subject to certain conditions, allow issuers listed on the TSX Venture Exchange (“TSXV”) to raise money by sellingshares to their existing shareholders (holding securities as of a specific record date).
Proposed MI 45-312 would be in addition to the most common prospectus exemptions currently being used in Canada: accredited investor exemption; offering memorandum; rights offering; and TSXV short form offering document. TSXV data indicates that TSX V issuers do not generally use any of these exemptions to raise capital from retail investors and that, after the initial public offering, TSXV issuers rarely conduct prospectus offerings. The TSX V reports that TSXV issuers are not using prospectus exemptions to sell to retail investors because of the time and cost involved in preparing the required prospectus documents.
The proposed exemption has the following key conditions:
• the issuer must have a class of equity securities listed on the TSXV;
• the issuer must have filed all timely and periodic disclosure documents as required under applicable securities laws;
• the offering can consist only of the class of equity securities listed on the TSXV or units consisting of the listed security and a warrant to acquire the listed security;
• the issuer must issue a news release disclosing the proposed offering, including details of the use of proceeds;
• each investor must confirm in writing to the issuer that as at the “record date” the investor held the type of listed security that the investor is acquiring under the proposed exemption;
• unless the investor has obtained advice regarding the suitability of the investment from a registered investment dealer, the aggregate amount invested by the investor in the last 12 months under the proposed exemption is not more than $15,000;
• an investor must be 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, an investor will have certain rights of action in the event of a misrepresentation in it.
The first trade of securities issued under the proposed exemption will 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 after each distribution under the proposed exemption.
There is no corresponding exemption from the dealer registration requirement.
Under Proposed MI 45-312, aTSXV issuer is not required to provide prospective investors with a disclosure document, other than an offering news release.
Issuers will be required to represent to prospective purchasers in the subscription agreement that there are no material facts or material changes relating to the issuer that have not been generally disclosed.
Existing security holders will only be able to invest up to $15,000 unless they receive suitability advice from a registered investment dealer.
Under the Proposed MI 45-312 either statutory or contractual secondary market civil liability provisions will apply. The comment period is open until January 20, 2014.
