New Prospectus Exemption for Distributions to Existing Security Holders

May 26, 2014

On March 14, 2014, the Canadian Securities Administrators published Multilateral CSA Notice 45-313 – Prospectus Exemption for Distributions to Existing Security Holders (“Notice 45-313″), a new capital raising prospectus exemption that would allow Toronto Stock Exchange (“TSX”), TSX Venture Exchange (“TSXV”) and Canadian Securities Exchange (“CSE”) listed issuers (the “Listed Issuer”) to raise money by distributing securities to their existing security holders, subject to certain conditions being met.  The participating jurisdictions are each jurisdiction in Canada, other than Ontario and Newfoundland and Labrador. 

Prior to the adoption of Notice 45-313, retail investors who wanted to make additional investments in the Listed Issuer and did not meet the criteria under other capital raising exemptions were limited to purchasing such securities on the secondary market at market price and paying brokerage fees.  They were not able to benefit from the discounted market price typically associated with private placement financings.  Listed Issuers can now access their existing shareholders as an additional source of capital without the burdensome costs of a prospectus.

As set out in Notice 45-313, for a distribution of securities to existing security holders of a Listed Issuer to qualify under this new prospectus exemption, the following conditions must be met: 

  • the Listed Issuer must have a class of equity securities listed on the TSX, TSXV or CSE;
  • the offering can consist only of the class of equity securities listed on the TSX, TSXV or CSE, or units consisting of the listed security and a warrant to acquire the listed security;
  • the Listed Issuer must make the offering available to all existing security holders that hold the same type of security;
  • 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 a 12 month period under the new exemption is not more than $15,000 per Listed Issuer;
  • the Listed Issuer must have filed all timely and periodic disclosure documents as required under applicable securities laws;
  • the Listed Issuer must issue a news release disclosing the proposed offering, including details of the use of proceeds, the minimum and maximum number of securities the Listed Issuer proposes to distribute and how any over subscriptions would be allocated;
  • each investor must confirm in writing to the Listed Issuer that as at the record date (at least one day prior to the date the Listed Issuer issues its news release announcing the offering) the investor held the type of listed security that the investor is acquiring under the new exemption;
  • an investor must be provided with certain rights of action in the event of a misrepresentation in the Listed Issuer’s continuous disclosure record; and
  • although an offering document is not required, if a Listed 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 this exemption will be subject to the four month resale restriction under section 2.5 of National Instrument 45-102 – Resale of Securities.  Additionally, the Listed Issuer will be required to file a report of exempt distribution within 10 days after each distribution under this exemption.  Please note that this is only an exemption from the prospectus requirement and there is no corresponding exemption from the dealer registration requirement.  The securities regulatory authorities in Alberta and Quebec have adopted the exemption by local rule and the remaining participating jurisdictions have adopted the exemption by way of blanket order. 

For more information, see Multilateral Instrument CSA Notice 45-313.


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