On January 14, 2016, securities regulators in British Columbia, Alberta, Manitoba, New Brunswick and Saskatchewan announced the adoption of a new prospectus exemption, effective immediately, to allow issuers listed on a Canadian exchange to raise money from non-accredited investors in private placements, provided that the investors have received advice about the suitability of the investment from an investment dealer and certain other conditions are met. This new exemption should make it easier for public companies to raise money in difficult financial markets by expanding the number of potential investors beyond the accredited investor category, without the need for an issuer to incur the additional costs of preparing an offering memorandum.
While there are fewer conditions to be met than required by the "existing security holder" exemption that was adopted in BC and other provinces in 2015, there are still a number of conditions issuers will need to comply with in order to rely on the investment dealer exemption. In particular, issuers must be confident that their current public filings are complete and fully disclose all material information. Investors will have a right of action against the issuer in the event that there are any misrepresentations in the issuer's public disclosure. The list of conditions for reliance on the investment dealer exemption are:
- the issuer must be a reporting issuer in at least one jurisdiction of Canada and it must have a class of securities listed for trading on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.;
- the issuer must have filed all periodic and timely disclosure documents it is required to file in each jurisdiction in which it is a reporting issuer;
- the issuer must disseminate a news release disclosing the number of securities to be offered, expected use of proceeds, any material fact not yet generally disclosed, and a statement that there is no material fact or material change about the issuer that has not been generally disclosed;
- the offering must be of: (i) a listed security, (ii) a unit consisting of a listed security and a warrant, or (iii) a security convertible into a listed security at the security holder's sole discretion;
- the investor must purchase the securities as principal;
- the investor must have obtained advice regarding the suitability of the investment and, if the investor is resident in a jurisdiction of Canada, that advice must be obtained from a person that is registered as an investment dealer in the jurisdiction;
- the subscription agreement must contain certain language that provides for a contractual right of action by the investor against the issuer for rescission or damages if the issuer's public disclosure contains a misrepresentation that was not corrected before the investor acquires a security under the exemption, even if the investor did not rely on the misrepresentation; and
- any offering material provided to an investor must be filed with the applicable securities regulatory authority no later than the day that the material is first provided to the investor.
In BC, Saskatchewan, Manitoba and New Brunswick, the investor's right of action against the issuer will be enforceable: (a) with respect to an action for rescission, within 180 days after the investor signs the subscription agreement, and (b) with respect to an action for damages, before the earlier of (i) 180 days after the investor first has knowledge of the facts giving rise to the cause of action, or (ii) 3 years after the date the investor signs the subscription agreement. In the case of an action for damages, the amount the investor is entitled to recover cannot exceed the price at which the securities were offered, and will not include any part of the damages that the issuer proves do not represent the depreciation in value of the securities resulting from the misrepresentation. In Alberta, investors will have a statutory right of action under Part 17.01 of the Securities Act (Alberta).
A complete copy of Multilateral CSA Notice 45-318 as published by the Canadian Securities Administrators can be found here.
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