New prospectus exemption when dealing with an investment dealer

British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick are each adopting a prospectus exemption that, subject to certain conditions, allows issuers listed on a Canadian exchange to raise money by distributing securities to investors who have obtained advice about the suitability of the investment from an investment dealer.

The exemption permits listed issuers to issue listed securities to an investor that has obtained advice about the suitability of the investment from an investment dealer, subject to a number of conditions. The key conditions are:

  • the issuer must be a reporting issuer in at least one jurisdiction of Canada and have a class of equity securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.;
  • the issuer must have filed all timely and periodic disclosure documents as required under the continuous disclosure requirements in our securities legislation;
  • the offering can consist only of a listed security, a unit consisting of a listed security and a warrant to acquire another listed security, or another security convertible into a listed security at the security holder’s sole discretion;
  • the news release announcing the offering must:
    • disclose, in reasonable detail, the distribution, including use of proceeds, and any material fact not yet generally disclosed, and
    • include a statement that there is no material fact or material change about the issuer that has not been generally disclosed;
  • the investor must obtain advice regarding the suitability of the investment from an investment dealer;
  • in British Columbia, Saskatchewan, Manitoba and New Brunswick, the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer’s continuous disclosure record regardless of whether the investor relied on the misrepresentation. In Alberta, purchasers are already afforded a statutory right of action; 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 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 exemption.

The foregoing is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, please contact the author who would be pleased to discuss the issues above with you, in the context of your particular circumstances.

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