New exemption for distributions to existing security holders

Securities regulators across Canada (other than Ontario) adopted Multilateral CSA Notice 45-313, which sets out details of a prospectus exemption that, subject to certain conditions, will allow issuers listed on the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSX-V), and the Canadian Securities Exchange (CSE) to raise money by distributing securities to their existing security holders.

“The exemption permits listed issuers to issue listed securities to their existing security holders, subject to a number of conditions. The key conditions are:

• the issuer must have a class of equity securities listed on the TSXV, TSX or CSE;

• the offering can consist only of a class of equity securities listed on the TSXV, TSX, or CSE, or units consisting of the listed security and a warrant to acquire the listed security;

• the issuer must make the offering available to all existing security holders that hold the same type of listed security;

• unless the investor has obtained suitability advice from a registered investment dealer, the investor can only invest a maximum of $15,000 per issuer under the exemption in a 12-month period;

• the issuer must have filed all timely and periodic disclosure documents as required under applicable securities laws;

• 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, they held the type of listed security offered under the exemption;

• 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, 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.” (Multilateral CSA Notice 45-313)

The record date must be a date that is at least one day prior to the day that the issuer issues the offering news release.

The offering news release must include reasonable detail of the proposed distribution, including the minimum and maximum number of securities an issuer proposes to distribute. Issuers must also describe in the offering news release how they intend to allocate oversubscriptions.

An issuer is only required to make the offer available to security holders who reside in jurisdictions where the exemption or a similar exemption is available.

Securities issued under the exemption will be subject to a four-month hold period like most other capital-raising prospectus exemptions and issuers are required to file a report of exempt distribution within 10 days after each distribution under the exemption.

With respect to Ontario, the Ontario Securities Commission (OSC) announced on December 4, 2013 that it would publish for comment four new capital raising prospectus exemptions in the first quarter of 2014, including a proposed prospectus exemption for distributions to existing security holders. According to Multilateral CSA Notice 45-313, the OSC intends to publish the proposed prospectus exemptions on or around March 20, 2014.

Prior to the adoption of this exemption, retail security holders who wanted to make an additional investment in an issuer they had already invested in usually had to buy the securities on the secondary market at the market price and pay brokerage fees. This meant that issuers did not have access to their existing shareholders as an additional source of capital.

This summary is intended to provide general comment only and should not be relied upon as legal advice. For more information, contact Genesis Law Corporation at 1-604-669-8843 x22 or info @