The Ontario Securities Commission yesterday announced the adoption of a new prospectus exemption that will allow companies listed on the TSX, TSX-V, Canadian Securities Exchange or Aequitas NEO Exchange to raise capital from existing security holders based on the issuer's existing continuous disclosure.
Offerings under this exemption would be limited to 100% of the issuer’s outstanding securities of the same class and investors would be limited to investments of no more than $15,000 every 12 months unless they obtain suitability advice in respect of the investment (from a registered investment dealer in the case of Canadian securityholders). The exemption will not, however, be available to investment funds. As we've previously discussed, the OSC first proposed such an exemption in March 2014, while the other CSA jurisdictions (other than Newfoundland and Labrador) adopted a similar exemption in final form earlier this year.
A number of changes to the proposed amendments have been made in responses to comments received and aimed at harmonization with the similar exemption newly adopted in other Canadian jurisdictions, including removal of the seasoning requirement for issuers and of the requirement that issuers allocate a pro rata portion of the offering to existing security holders. However, additional guidance has been added to the Companion Policy to 45-501 regarding the fair and equal treatment of existing security holders intended to clarify that a issuer should fairly allocate investment opportunities among all of its security holders.
While no specific form of offering document is prescribed, any offering materials used must be filed on SEDAR on the same day they are provided to purchasers. Further, the rule also prescribes that secondary market disclosure liability applies to securities purchased under the exemption providing purchasers with rights of action for damages under the Securities Act (Ontario) relating to misrepresentations, both oral and written, and timely disclosure failures.
The changes to the original proposal are not considered material and, assuming Ministerial approval, the exemption will come into effect on February 11, 2015. The OSC also stated that the remaining prospectus exemptions proposed earlier this year, namely in respect of (i) crowdfunding; (ii) family, friends and business associates; and (iii) offering memoranda, remain under consideration.