Post by Sapphire Capital on Oct 17, 2018 2:47:16 GMT 4
INTRODUCTION1
This Short Form Prospectus Guide is intended to serve as a reference tool in the context of prospectus offerings involving short form prospectuses, including Bought Deals. Although practices with respect to short form prospectus offerings may vary in different Canadian markets and although such practices may evolve over time, this Guide is intended to serve as a general overview applicable in all Canadian markets and should provide some helpful precedents that can be a starting point for drafting the applicable documents in a particular transaction.
1.1 Statutory Instruments
Included in this Guide for ease of reference are copies of the following documents:
National Instrument 44-101 – Short Form Prospectus Distributions ("NI 44-101");
Form 44-101F1 – Short Form Prospectus; and
Companion Policy 44-101CP – To NI 44-101 Short Form Prospectus Distributions ("NI 44-101CP").
These documents are the basis upon which Short Form Prospectus Offerings are carried out and apply in each province and territory of Canada.
In addition, we have also included the following excerpts:
National Instrument 41-101 – General Prospectus Requirements ("NI 41-101"), Part 11 with respect to Over-Allocation and Underwriters;
NI 41-101, Part 13 with respect to Advertising and Marketing in Connection with Prospectus Offerings of Issuers other than Investment Funds; and
Companion Policy 41-101CP – To NI 41-101 General Prospectus Requirements ("NI 41-101CP"), section 2.4 and Part 6.
The general provisions of NI 41-101 apply to all forms of prospectuses, including short form prospectuses. Part 11 and Part 13 of NI 41-101 have been included for convenience.
1.2 Helpful Precedents
In a Short Form Prospectus Offering, the key offering document is a short form prospectus prepared in accordance with NI 44-101 which allows for the incorporation by reference of an issuer's continuous disclosure documents. The purpose of NI 44-101 is to shorten the time that it takes an issuer to access the Canadian capital markets and to streamline the procedures by which such access is obtained.
Even though an issuer seeks to raise capital through a Short Form Prospectus Offering and abridge the time it takes to raise capital, the process can still incorporate a marketing period that varies in length from overnight to a period of days or even weeks. Included in this Guide are the following precedents which may be helpful in preparing for and commencing a Short Form Prospectus Offering with a marketing period:
Sample transaction checklist for Short Form Prospectus Offering; and
Sample detailed timetable for Short Form Prospectus Offering.
In the context of a Bought Deal, the underwriters agree to purchase a certain number of securities from the issuer on agreed terms and conditions, thereby assuming the risks associated with the transaction from the moment they enter into the agreement with the issuer, typically in the form of a short letter agreement that is a binding obligation often referred to as a bid letter, before doing any marketing. Included in this Guide are the following precedents which may be helpful in preparing for and commencing a Short Form Prospectus Offering on a Bought Deal basis:
Sample transaction checklist for Short Form Prospectus Offering – Bought Deal;
Sample detailed timetable for Short Form Prospectus Offering – Bought Deal; and
Sample Bought Deal Bid Letter.
In addition to the statutory instruments and precedents highlighted above, there are several overriding concepts with respect to Short Form Prospectus Offerings which are useful to note, each of which are discussed in this Guide. These are:
Over Allocations and Underwriters;
Advertising and Marketing in connection with Prospectus Offerings;
Out Clauses and Several Liability of Underwriters; and
Concurrent private placements in the United States.
OVER-ALLOCATION AND UNDERWRITERS
2.1 Over-Allocation Position
Section 11.1 of NI 41-101 provides that securities that are sold to create the over-allocation position in connection with a distribution under a prospectus must be distributed under the prospectus. "Over-allocation position" is defined in NI 41-101 as "the amount, determined as at the closing of a distribution, by which the aggregate number or principal amount of securities that are sold by one or more underwriters of the distribution exceeds the base offering".
Further, section 11.2 of NI 41-101 prohibits the distribution of securities under a prospectus to any person or company acting as an underwriter in connection with the distribution of securities under the prospectus, other than pursuant to an over-allotment option granted to the underwriter(s) in connection with the distribution or any security issuable or transferable on the exercise of such over-allotment option or limited compensation securities.
2.2 Over-Allotment Option
NI 41-101 defines "over-allotment option" as "a right granted to one or more underwriters by an issuer or a selling securityholder of the issuer in connection with the distribution of securities under a prospectus to acquire, for the purposes of covering the underwriter's over-allocation position, a security of an issuer that has the same designation and attributes as a security that is distributed under such prospectus, and which (a) expires not later than the 60th day after the date of the closing of the distribution, and (b) is exercisable for a number or principal amount of securities that is limited to the lesser of (i) the over-allocation position, and (ii) 15% of the base offering".
2.3 Over-Allotment to Facilitate Over-Allocations
The position of the Canadian Securities Administrators ("CSA") with respect to over-allocation is set out in section 2.4 of NI 41-101CP and states that "Over-allotment options are permitted solely to facilitate the over-allocation of the distribution and consequent market stabilization. Accordingly, an over-allotment option may only be exercised for the purpose of filling the underwriters' over-allocation position. The exercise of an over-allotment option for any other purpose would raise public policy concerns."
ADVERTISING AND MARKETING IN CONNECTION WITH PROSPECTUS OFFERINGS
3.1 Restrictions During The Waiting Period
The Prospectus Requirement and the Waiting Period
Pursuant to applicable securities legislation, no person or company shall trade in a security if the trade would be a distribution of the security unless a preliminary and final prospectus have been filed and receipts have been issued. This is generally referred to as the "prospectus requirement". The period between the issuance of a receipt for a preliminary prospectus and a receipt for a final prospectus is generally known as the "waiting period".
The analysis of whether any particular activity is prohibited by virtue of the prospectus requirement turns largely on whether the activity constitutes a trade and, if so, whether such a trade would constitute a distribution. Securities legislation in Canada defines a "trade" in a non- exhaustive manner to include, among other things: (i) any sale or disposition of a security (e.g. a common share) for valuable consideration; (ii) any receipt by a registrant (such as a broker dealer) of an order to buy or sell a security; and (iii) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the foregoing. The definition of a "distribution" includes a "trade" in securities that have not been previously issued and would include the Offering.
Pre-Marketing and Marketing
"Pre-marketing" occurs when a party communicates with potential investors before a public offering and includes other promotional activity that occurs before a preliminary prospectus is filed. Unless the issuer is relying on the bought deal exemption in Part 7 of NI 44-101, pre- marketing is generally prohibited in Canada (see discussion below). Specifically:
securities legislation generally prohibits any form of marketing for a public offering unless a preliminary prospectus has been filed and receipted, subject to very limited exceptions; and
investment dealers are not permitted to solicit expressions of interest from investors until a preliminary prospectus has been filed and receipted.
"Marketing" includes oral or written communications after the filing of a preliminary prospectus. During the "waiting period", certain limited marketing activities are permissible under securities legislation.
Advertising and Marketing Activities
Subject to certain limited exceptions, advertising or marketing activities prior to and during the waiting period are generally prohibited by virtue of the prospectus requirement. Any advertising or marketing activities that can reasonably be regarded as intended to promote a distribution of securities would be conduct directly or indirectly in furtherance of a distribution of a security and would fall within the definition of a trade. Accordingly, advertising or marketing activities intended to promote the distribution of securities, in any form, would be prohibited by virtue of the prospectus requirement. Advertising or marketing activities subject to the prospectus requirement may be oral, written or electronic and include the following:
television or radio advertisements or commentaries;
published materials, correspondence and records;
videotapes or other similar material;
market letters and research reports;
circulars, promotional seminar text and telemarketing scripts; and
reprints or excerpts of any other sales literature.
Permitted Advertising and Marketing Activities
Advertising or marketing activities that are not in furtherance of a distribution of securities would not generally fall within the definition of a "distribution" and therefore, would not be prohibited. The following activities are not generally considered by the CSA to be subject to the prospectus requirement:
advertising and publicity campaigns that are aimed at either selling products or services of the issuer or raising public awareness of the issuer;
communication of factual information concerning the business of the issuer that is released in a manner, timing and form that is consistent with the regular past communications practices of the issuer if that communication does not refer to or suggest the distribution of securities; and
the release or filing of information that is required to be released or filed pursuant to securities legislation.
The CSA has noted that it is aware that a practice has developed for "non-deal road shows" where issuers and dealers will meet with institutional investors to discuss the business and affairs of the issuer. If such a non-deal road show was undertaken in anticipation of a prospectus offering, it would generally be prohibited under securities legislation by virtue of the prospectus requirement. The CSA has also noted there may be selective disclosure concerns if the issuer provided the institutional investors with material information that has not been publicly disclosed.
Exceptions to the Prospectus Requirement
Securities legislation provides for certain exceptions to the prospectus requirement for limited advertising or marketing activities during the waiting period. During the waiting period, it is permissible to:
distribute a preliminary prospectus notice that:
"identifies" the securities proposed to be issued;
states the price of such securities, if then determined;
states the name and address of a person or company from whom purchases of securities may be made;
provided that any such notice states the name and address of a person or company from whom a preliminary prospectus may be obtained and contains the legend required set forth below, and
includes any further information as may be permitted or required by securities regulations;
distribute the preliminary prospectus;
provide standard term sheets if the conditions in section 13.5 of NI 41-101 are complied with;
provide marketing materials if the conditions in section 13.7 of NI 41-101 are complied with; and
solicit expressions of interest from a prospective purchaser, if prior to such solicitation or forthwith after the prospective purchaser indicates an interest in purchasing the securities, a copy of the preliminary prospectus is forwarded to the prospective purchaser.
The use of any other marketing information or materials during the waiting period would result in the violation of the prospectus requirement.
Although certain forms of communications are permitted as stated above, an issuer and its officers, directors and employees should only communicate with prospective investors through the intermediary of the underwriters. As discussed in further detail below, certain materials and activities are permissible during the waiting period provided such materials are distributed by and such activities are undertaken by investment dealers who are duly registered under applicable securities laws.
Preliminary Prospectus Notice
A preliminary prospectus notice is a communication relating to a preliminary prospectus that sets out some basic information regarding the securities as described above (i.e. the notice identifies the securities, states the price and states the name and address of a person from whom purchases may be made). The "identification" of a security in a preliminary prospectus notice does not permit an issuer or dealer to include a summary of the commercial features of the proposed issuance. Rather, these details are to be included in the preliminary prospectus, which is intended to be the main disclosure vehicle pending the issuance of the final receipt. The purpose of permitted advertising or marketing activities during the waiting period is to alert the public as to the availability of the preliminary prospectus. For the purpose of identifying a security, the advertising or marketing material may only:
indicate whether the security represents a debt or a share in a company;
name the issuer;
indicate, without providing details, whether the security qualifies the holder for special tax treatment; and
indicate how many securities will be made available.
Any preliminary prospectus notice or other communication used in connection with a prospectus offering during the waiting period must contain the following legend or words to the same effect:
A preliminary prospectus containing important information relating to these securities has been filed with securities commissions or similar authorities in certain jurisdictions of Canada. The preliminary prospectus is still subject to completion or amendment. Copies of the preliminary prospectus may be obtained from [insert name and contact information for dealer or other relevant person or entity]. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
Standard Term Sheets during the Waiting Period
Note: the requirements provided below are subject to the "bought deal" exemption. For a summary of the current rules applicable in the context of bought deal offerings, see Section 3.3 below ("Bought Deal Offerings").
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide a standard term sheet (a written communication intended for potential investors regarding a distribution of securities under a prospectus relating to an issuer, securities or an offering) to a potential investor during the waiting period if: (i) the standard term sheet contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriter, all information in the standard term sheet concerning the issuer, the securities or the offering is disclosed in, or derived from, the preliminary prospectus; and (iii) a receipt for the preliminary prospectus has been issued. Accordingly, a standard term sheet can only be provided by investment dealers and only after a receipt for the preliminary prospectus has been issued.
The information that a standard term sheet is allowed to contain is quite restrictive and includes, among other things, the name of the issuer, the jurisdiction where the issuer's head office is located, a "brief" description of the business and the securities, the price of the securities, the names of any underwriters and a "brief" description of the use of proceeds. A "brief" description means a description consisting of no more than 3 lines of text in type that is at least as large as that used generally in the body. A standard term sheet must be dated and include the following legend (or words to the same effect) on the first page:
A preliminary prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
The preliminary prospectus is still subject to completion. Copies of the preliminary prospectus may be obtained from [insert contact information for the investment dealer or underwriters]. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Standard term sheets are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, if the standard term sheet is found to contain a misrepresentation, an issuer could be found guilty of an offence under applicable securities legislation.
Marketing Materials during the Waiting Period
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide "marketing materials" (a written communication intended for potential investors regarding a distribution of securities under a prospectus that contains material facts relating to an issuer, securities or an offering) to a potential investor during the waiting period if: (i) the marketing materials contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriters and any comparables, all information in the marketing materials concerning the issuer, the securities or the offering is disclosed in, or derived from, the preliminary prospectus; (iii) other than prescribed language, the marketing materials contain the same cautionary language in bold type as contained on the cover page, and in the summary, of the preliminary prospectus; (iv) a template version of the marketing materials is approved in writing by the issuer and the lead underwriter before the marketing materials are provided; (v) a template version of the marketing materials is filed on SEDAR on or before the day that the marketing materials are first provided; (vi) a receipt for the preliminary prospectus has been issued; and (vii) the investment dealer provides a copy of the preliminary prospectus with the marketing materials. Similar to standard term sheets, marketing materials can only be provided by investment dealers and only after a receipt for the preliminary prospectus has been issued.
If the marketing materials include "comparables" (i.e., information that compares a reporting issuer to other reporting issuers), the issuer may remove such comparables and any disclosure relating to those comparables from the template version of the marketing materials before filing it on SEDAR if certain conditions are met. As a result, such comparables and related information would not form part of the marketing materials incorporated by reference in the final prospectus.
Marketing materials often take the form of presentations and term sheets that contain information beyond that allowed for standard term sheets under NI 44-101. Marketing materials must be dated and include the following legend, or words to the same effect, on the first page:
A preliminary prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
The preliminary prospectus is still subject to completion. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
If marketing materials are provided during the waiting period, the issuer must include the template version of the marketing materials in its final prospectus or incorporate by reference the template version of the marketing materials previously filed on SEDAR into its final prospectus.
If the final prospectus modifies a statement of a material fact that appeared in the marketing materials provided during the waiting period, the issuer must prepare and file, at the time the issuer files the final prospectus, a revised template version of the marketing materials that is blacklined to show the modified statement and include in the final prospectus, details of how the statement in the marketing materials has been modified, that the issuer has prepared a revised template version of the marketing materials which has been blacklined to show the modified statement and the revised template version of the material scan be viewed under the issuer's provide on SEDAR.
Similar to standard term sheets, marketing materials are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, the issuer and investment dealers involved in preparing such materials should have a reasonable, factual basis for any statement contained in marketing materials. As stated above, a "template" version of the marketing materials is required to be filed on SEDAR and is required to be included in or incorporated by reference into the final prospectus. As a document included or incorporated by reference in the prospectus, this means that an investor who purchases a security distributed under the final prospectus may have remedies under the civil liability provisions of applicable securities legislation if the marketing materials contain a misrepresentation. Furthermore, an investor who purchases a security of the issuer on the secondary market may have remedies under the civil liability for secondary market disclosure provisions of applicable securities legislation if the template version of the marketing materials contains a misrepresentation.
Road Shows during the Waiting Period
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to conduct a road show for potential advisors during the waiting period if a receipt for the preliminary prospectus has been issued and the road show complies with the requirements of NI 41-101. Any marketing materials provided to an investor attending a road show must comply with the provisions outlined above under the heading "Marketing Materials during the Waiting Period". In addition, the investment dealer must establish and follow reasonable procedures to:
ask any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information;
keep a record of any information provided to the investor; and
provide the investor with a copy of the preliminary prospectus.
If an investment dealer permits an investor, other than an accredited investor, to attend a road show, the investment dealer must commence the road show with the oral reading of the following statement or a statement to the same effect:
This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Although members of the media may attend a road show, they should not be specifically invited to the road show by the issuer or by an investment dealer. The CSA notes that road shows are intended to be presentations for potential investors and not press conferences for members of the media. Furthermore, issuers and investment dealers should not market a prospectus offering in the media.
The following should be noted with respect to oral statements made at a road show:
in giving oral presentations at a road show, issuers should generally only discuss information that is contained in, or derived from, the prospectus;
in responding to questions from investors, issuers should avoid making selective disclosure; in particular, issuers should take measures to ensure compliance with applicable securities laws relating to selective disclosure, insider trading and trading by "tippees" when participating in a road show;
if an issuer discloses material facts at a road show that are not in a preliminary prospectus, the final prospectus should contain that information in order to comply with the statutory requirement that the final prospectus contain full, true and plain disclosure of all material facts;
depending on the context, oral statements of a "responsible issuer", as defined in securities legislation, at a road show may be "public oral statements", as defined in securities legislation, and subject to statutory provisions for secondary market civil liability; and
oral statements made during a road show are subject to the provisions of securities legislation against making misleading or untrue statements.
Media Reports and Coverage
Although the CSA recognizes that an issuer does not have control over media coverage, it believes that an issuer should take appropriate precautions to ensure that media coverage which can reasonably be considered to be in furtherance of a distribution does not occur after a decision has been made to file a preliminary prospectus or during the waiting period. The CSA may investigate the circumstances surrounding media coverage of an issuer which appears immediately prior to or during the waiting period and which can reasonably be considered as being in furtherance of a distribution of securities.
Nevertheless, the CSA recognizes that reporting issuers need to consider whether the decision to pursue a potential offering is a material change under applicable securities legislation. If the decision is a material change, the news release and material change report requirements under securities legislation apply. However, in order to avoid contravening the pre-marketing restrictions under applicable securities legislation, any news release and material change report filed before the filing of a preliminary prospectus or the announcement of a bought deal should be carefully drafted so that it could not be reasonably regarded as intended to promote a distribution of securities or condition the market. The information in the news release and material change report should be limited to identifying the securities proposed to be issued without a summary of the commercial features of the issue (those details should instead be dealt with in the preliminary prospectus which is intended to be the main disclosure vehicle).
Furthermore, after the filing of the news release:
the issuer should not grant media interviews on the proposed offering; and
an investment dealer would not be able to solicit expressions of interest until a receipt has been issued for a preliminary prospectus or a bought deal was announced in compliance with NI 44-101.
Misleading or Untrue Statements
Securities legislation generally prohibits any person or company from making any misleading or untrue statements that would reasonably be expected to have a significant effect on the market price or value of securities. In addition to ensuring that advertising and marketing activities are carried out in compliance with the prospectus requirement, issuers, dealers and their advisors must ensure that any statements made in the course of advertising or marketing activities are not untrue or misleading and otherwise comply with securities legislation.
Sanctions and Enforcement
Any contravention of the prospectus requirement through advertising or marketing activities could result in a cease trade order in respect of the preliminary prospectus to which such activities relate. In addition, a receipt for a final prospectus may be refused and, in appropriate circumstances, enforcement proceedings may be initiated.
Good Practices
An issuer should maintain the following practices prior to and during the waiting period:
Interviews. Prior to and during the waiting period, the directors and officers of an issuer should not give interviews to the media. Directors and officers should limit themselves to responding to unsolicited inquiries of a factual nature made by shareholders, securities analysts, financial analysts and the media. All directors and officers of an issuer should review their scheduled activities to confirm that there are no activities which might be considered in breach of the waiting period requirements (e.g. newspaper interviews or industry meetings).
Statements. Directors and officers of an issuer should not make any promotional public statements regarding the issuer prior to and during the waiting period until after the closing of a pending offering, other than factual statements that would normally be publicly disclosed in the ordinary course of business. An issuer should avoid providing information during a prospectus distribution that goes beyond what is disclosed in the prospectus. The directors and officers should not make statements which constitute a forecast, projection or prediction with respect to future financial performance (unless such statement is also contained in the prospectus).
Marketing Materials. An issuer should review its website to ensure that any materials that may be viewed as promotion of the issuer's securities (e.g. analyst reports, investor presentations) be removed.
Consistent Information. All communications should be consistent with the information contained in the prospectus.
Permitted Activities. An issuer should:
continue to file and deliver in accordance with applicable law, financial statements and related management's discussion and analysis;
continue to make public announcements with respect to factual business and financial developments with respect to the issuer; and
answer unsolicited inquiries from shareholders, analysts and the press concerning factual matters.
If a director or officer of an issuer (or any other party involved with a pending offering) makes a statement to the media after a decision has been made to file a preliminary prospectus or during the waiting period, regulatory concerns include circumvention of the pre-marketing and marketing restrictions, selective disclosure and unequal access to information, conditioning of the market and the lack of prospectus liability. In addition to the sanctions and enforcement proceedings discussed above, securities regulatory authorities may require the issuer to take other remedial action, such as:
explaining why the issuer's disclosure procedures failed to prevent the party from making the statement to the media and how those procedures will be improved;
instituting a "cooling-off period" before the filing of the final prospectus;
including the statement in the prospectus so that it will be subject to statutory civil liability; or
issuing a news release refuting the statement if it cannot be included in the prospectus (e.g., because the statement is incorrect or unduly promotional) and disclosing the reasons for the news release in the prospectus.
3.2 Restrictions After The Waiting Period
Application of the Waiting Period Rules after a Final Prospectus
In 2013, the CSA introduced rules with respect to the conduct of marketing activities after the receipt of a final prospectus. For the most part, the rules relating to the use of standard term sheets and marketing materials during the waiting period also apply to the use of such documents after the issuance of a final prospectus and until the distribution thereunder has been terminated, which is a matter of fact that requires confirmation from the underwriters after closing of an offering. As such, the information under the heading "Restrictions During the Waiting Period" is generally applicable to post-final prospectus receipt advertising and marketing activities.
Final Prospectus Notice
A final prospectus notice is a communication relating to a final prospectus that sets out some basic information regarding the securities as described above (i.e. the notice identifies the securities, states the price and states the name and address of a person from whom purchases may be made). The "identification" of a security in a final prospectus notice does not permit an issuer or dealer to include a summary of the commercial features of the proposed issuance. Rather, these details are to be included in the final prospectus.
A final prospectus notice or other communication used in connection with a prospectus offering following the issuance of a receipt for the final prospectus must contain the following legend or words to the same effect:
This offering is only made by prospectus. The prospectus contains important detailed information about the securities being offered. Copies of the prospectus may be obtained from [insert name and contact information for dealer or other relevant person or entity.] Investors should read the prospectus before making an investment decision.
Standard Term Sheets after a Receipt of a Final Prospectus
Securities legislation permits an investment dealer to provide a standard term sheet (a written communication intended for potential investors regarding a distribution of securities under a prospectus relating to an issuer, securities or an offering) to a potential investor after a receipt for a final prospectus if: (i) the standard term sheet contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriter, all information in the standard term sheet concerning the issuer, the securities or the offering is disclosed in, or derived from, the final prospectus; and (iii) a receipt for the final prospectus has been issued. Accordingly, a standard term sheet distributed in connection with a final prospectus can only be provided by investment dealers and only after a receipt for the final prospectus has been issued.
The information that a standard term sheet distributed in connection with a final prospectus may only contain the information that is set out under the heading "Restrictions During the Waiting Period – Standard Term Sheets during the Waiting Period", along with the following legend (or words to the same effect) on the first page:
A final prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
Copies of the final prospectus may be obtained from [insert contact information for the investment dealer or underwriters].
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus, and any amendment, for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Standard term sheets are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, if the standard term sheet is found to contain a misrepresentation, an issuer could be found guilty of an offence under applicable securities legislation.
Marketing Materials after Receipt of the Final Prospectus
Securities legislation permits an investment dealer to provide marketing materials to a potential investor after the receipt for a final prospectus if: (i) the marketing materials contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriters and any comparables, all information in the marketing materials concerning the issuer, the securities or the offering is disclosed in, or derived from, the final prospectus; (iii) other than prescribed language, the marketing materials contain the same cautionary language in bold type as contained on the cover page, and in the summary, of the final prospectus; (iv) a template version of the marketing materials is approved in writing by the issuer and the lead underwriter before the marketing materials are provided; (v) a template version of the marketing materials is filed on SEDAR on or before the day that the marketing materials are first provided; (vi) a receipt for the final prospectus has been issued; and (vii) the investment dealer provides a copy of the final prospectus with the marketing materials. Marketing materials distributed in connection with a final prospectus can only be provided by investment dealers and only after a receipt for the final prospectus has been issued.
If the marketing materials include "comparables" (i.e., information that compares a reporting issuer to other reporting issuers), the issuer may remove such comparables and any disclosure relating to those comparables from the template version of the marketing materials before filing it on SEDAR if certain conditions are met. As a result, such comparables and related information would not form part of the marketing materials incorporated by reference in the final prospectus.
Marketing materials distributed in connection with a final prospectus must be dated and include the following legend, or words to the same effect, on the first page:
A final prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada]. A copy of the final prospectus, and any amendment, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus, and any amendment, for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
An investment dealer must not provide marketing materials in connection with a final prospectus unless the issuer has included the template version of the marketing materials in its final prospectus or incorporated by reference the template version of the marketing materials previously filed on SEDAR into its final prospectus. The issuer must also state that any template version of the marketing materials filed after the date of the final prospectus and before the termination of the distribution are deemed to be incorporated into the final prospectus.
In order to determine that the restrictions on advertising and marketing activities as noted in this section are no longer applicable, an issuer should confirm with the underwriters that the distribution period has been terminated as soon as practicable following closing of the pending offering. The issuer should not engage in any advertising or marketing activities after the issuance of a final prospectus and until the distribution thereunder has been terminated without first consulting legal counsel to the issuer.
Road Shows After a Receipt for a Final Prospectus
Securities legislation permits an investment dealer to conduct a road show for potential investors in connection with a final prospectus if a receipt for the final prospectus has been issued and the road show complies with the requirements of NI 41-101. Any marketing materials provided to an investor attending a road show must comply with the provisions outlined above under the heading "Marketing Materials after Receipt of the Final Prospectus". In addition, the investment dealer must establish and follow reasonable procedures to:
ask any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information;
keep a record of any information provided to the investor; and
provide the investor with a copy of the final prospectus.
If an investment dealer permits an investor, other than an accredited investor, to attend a road show, the investment dealer must commence the road show with the oral reading of the following statement or a statement to the same effect:
This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
3.3 Bought Deal Offerings
Solicitation of Expressions of Interest
Securities legislation provides an exception to the prospectus requirement to a solicitation of an expression of interest made before the issuance of a receipt for a preliminary prospectus or for securities to be issued or transferred pursuant to an over-allotment option that are qualified for distribution under a short form prospectus if:
before the solicitation:
the issuer has entered into a bought deal agreement2 ;
the bought deal agreement has fixed the terms of the distribution, including, for greater certainty, the number and type of securities and the price per security, and requires that the issuer file a preliminary short form prospectus for the securities not more than four business days after: (A) the date that the bought deal agreement was entered into; or (B) in the case of a confirmation clause that complies with Section 7.4 of NI 44-101, the date that the lead underwriter provides notice in writing to the issuer that the lead underwriter the has confirmed the terms of the bought deal agreement; and
immediately upon entering into the bought deal agreement, the issuer issued and filed a news release announcing the agreement,
the issuer files a preliminary short form prospectus for the securities pursuant to NI 44-101 within four business days after the date that: (a) the bought deal agreement was entered into; or (b) in the case of a confirmation clause that complies with Section 7.4 of NI 44-101, the date that the lead underwriter provides notice in writing to the issuer that the lead underwriter the has confirmed the terms of the bought deal agreement; and
upon issuance of a receipt for the preliminary short form prospectus, a copy of the preliminary short form prospectus is sent to each person or company that, in response to the solicitation, expressed an interest in acquiring the securities, and
except for a bought deal agreement under paragraph (i) above or a more extended form of underwriting agreement referred to in subsection 7.3(6) of NI 44-101, no agreement of purchase and sale for the securities is entered into until the short form prospectus has been filed and a receipt has been issued.
Confirmation Clause
A confirmation clause means a provision in a bought deal agreement that provides that the agreement is conditional on the lead underwriter confirming that one or more additional underwriters has agreed to purchase certain of the securities offered.
A bought deal agreement must not contain a confirmation clause unless:
under the bought deal agreement, the lead underwriter must provide the issuer with a copy of the agreement that has been signed by the lead underwriter;
the issuer signs the bought deal agreement on the same day that the lead underwriter provides the agreement in accordance with (i) above;
the lead underwriter has discussions with other investment dealers regarding their participation in the distribution as additional underwriters; and
on the business day after the day that the lead underwriter provides the agreement in accordance with (i) above, the lead underwriter provides notice in writing to the issuer that: (a) the lead underwriter has confirmed the terms of the bought deal agreement; or (b) the lead underwriter will not be confirming the terms of the bought deal agreement and the agreement has been terminated.
Pre-Marketing in the Context of a Bought Deal
In addition, securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide a standard term sheet, marketing materials to a potential investor, or conduct a road show to potential investors, before the issuance of a receipt for a preliminary prospectus, if the respective conditions noted above are met. The requirements provided above for standard term sheets, marketing materials and road shows during the waiting period are similar to the requirements for standard term sheets, marketing materials and road shows after the announcement of a bought deal but before a receipt for a preliminary short form prospectus.
The CSA considers that a distribution of securities commences at the time when: (a) a dealer has had discussions with an issuer or a selling securityholder, or with another dealer that has had discussions with an issuer or a selling securityholder about the distribution; and (b) those distribution discussions are of sufficient specificity that it is reasonable to expect that the dealer (alone or together with other dealers) will propose to the issuer or the selling securityholder an underwriting of the securities. CSA staff do not agree with interpretations that a distribution of securities does not commence until a later time (e.g., when a proposed engagement letter or a proposal for an underwriting of securities with indicative terms is provided by a dealer to an issuer or a selling securityholder).
The CSA has also noted that it understands that many dealers communicate on a regular basis with clients and prospective clients concerning their interest in purchasing various securities of various issuers. The CSA will not generally consider such ordinary course communications as being made in furtherance of a distribution. However, from the commencement of a distribution, communications by the dealer, with a person or company designed to have the effect of determining the interest that it, or any person or company that it represents, may have in purchasing securities of the type that are the subject of distribution discussions, that are undertaken by any director, officer, employee or agent of the dealer: (a) who participated in or had actual knowledge of the distribution discussions; or (b) whose communications were directed, suggested or induced by a person referred to in (a), or another person acting directly or indirectly at or upon the direction, suggestion or inducement of a person referred to in (a), are considered to be in furtherance of the distribution and contrary to securities legislation.
From the commencement of the distribution no communications, market making, or other principal trading activities in securities of the type that are the subject of distribution discussions may be undertaken by a person referred to in (a) in the paragraph above, or at or upon the direction, suggestion or inducement of a person or persons referred to in (a) or (b) in the paragraph above until the earliest of: (i) the issuance of a receipt for a preliminary prospectus in respect of the distribution; (ii) the time at which a news release that announces the entering into of a bought deal agreement is issued and filed in accordance with Part 7 of NI 44-101; and (iii) the time at which the dealer determines not to pursue the distribution.
Footnotes
1 Current as of September 1, 2018.
2 A "bought deal agreement" means a written agreement: (a) under which one or more underwriters has agreed to purchase all securities of an issuer that are to be offered in a distribution under a short form prospectus on a firm commitment basis, other than securities issuable on the exercise of an over-allotment option; (b) that does not have a market-out clause (meaning a provision in an agreement which permits an underwriter(s) to terminate its or their commitment to purchase securities in the event that the securities cannot be marketed profitably due to market conditions); (c) that other than an over-allotment option, does not provide an option for any party to increase the number of securities to be purchased; and (d) that, other than what is agreed to under a confirmation clause that complies with section 7.4 of NI 44-101, is not conditional on one or more additional underwriters agreeing to purchase any of the securities offered.
This Short Form Prospectus Guide is intended to serve as a reference tool in the context of prospectus offerings involving short form prospectuses, including Bought Deals. Although practices with respect to short form prospectus offerings may vary in different Canadian markets and although such practices may evolve over time, this Guide is intended to serve as a general overview applicable in all Canadian markets and should provide some helpful precedents that can be a starting point for drafting the applicable documents in a particular transaction.
1.1 Statutory Instruments
Included in this Guide for ease of reference are copies of the following documents:
National Instrument 44-101 – Short Form Prospectus Distributions ("NI 44-101");
Form 44-101F1 – Short Form Prospectus; and
Companion Policy 44-101CP – To NI 44-101 Short Form Prospectus Distributions ("NI 44-101CP").
These documents are the basis upon which Short Form Prospectus Offerings are carried out and apply in each province and territory of Canada.
In addition, we have also included the following excerpts:
National Instrument 41-101 – General Prospectus Requirements ("NI 41-101"), Part 11 with respect to Over-Allocation and Underwriters;
NI 41-101, Part 13 with respect to Advertising and Marketing in Connection with Prospectus Offerings of Issuers other than Investment Funds; and
Companion Policy 41-101CP – To NI 41-101 General Prospectus Requirements ("NI 41-101CP"), section 2.4 and Part 6.
The general provisions of NI 41-101 apply to all forms of prospectuses, including short form prospectuses. Part 11 and Part 13 of NI 41-101 have been included for convenience.
1.2 Helpful Precedents
In a Short Form Prospectus Offering, the key offering document is a short form prospectus prepared in accordance with NI 44-101 which allows for the incorporation by reference of an issuer's continuous disclosure documents. The purpose of NI 44-101 is to shorten the time that it takes an issuer to access the Canadian capital markets and to streamline the procedures by which such access is obtained.
Even though an issuer seeks to raise capital through a Short Form Prospectus Offering and abridge the time it takes to raise capital, the process can still incorporate a marketing period that varies in length from overnight to a period of days or even weeks. Included in this Guide are the following precedents which may be helpful in preparing for and commencing a Short Form Prospectus Offering with a marketing period:
Sample transaction checklist for Short Form Prospectus Offering; and
Sample detailed timetable for Short Form Prospectus Offering.
In the context of a Bought Deal, the underwriters agree to purchase a certain number of securities from the issuer on agreed terms and conditions, thereby assuming the risks associated with the transaction from the moment they enter into the agreement with the issuer, typically in the form of a short letter agreement that is a binding obligation often referred to as a bid letter, before doing any marketing. Included in this Guide are the following precedents which may be helpful in preparing for and commencing a Short Form Prospectus Offering on a Bought Deal basis:
Sample transaction checklist for Short Form Prospectus Offering – Bought Deal;
Sample detailed timetable for Short Form Prospectus Offering – Bought Deal; and
Sample Bought Deal Bid Letter.
In addition to the statutory instruments and precedents highlighted above, there are several overriding concepts with respect to Short Form Prospectus Offerings which are useful to note, each of which are discussed in this Guide. These are:
Over Allocations and Underwriters;
Advertising and Marketing in connection with Prospectus Offerings;
Out Clauses and Several Liability of Underwriters; and
Concurrent private placements in the United States.
OVER-ALLOCATION AND UNDERWRITERS
2.1 Over-Allocation Position
Section 11.1 of NI 41-101 provides that securities that are sold to create the over-allocation position in connection with a distribution under a prospectus must be distributed under the prospectus. "Over-allocation position" is defined in NI 41-101 as "the amount, determined as at the closing of a distribution, by which the aggregate number or principal amount of securities that are sold by one or more underwriters of the distribution exceeds the base offering".
Further, section 11.2 of NI 41-101 prohibits the distribution of securities under a prospectus to any person or company acting as an underwriter in connection with the distribution of securities under the prospectus, other than pursuant to an over-allotment option granted to the underwriter(s) in connection with the distribution or any security issuable or transferable on the exercise of such over-allotment option or limited compensation securities.
2.2 Over-Allotment Option
NI 41-101 defines "over-allotment option" as "a right granted to one or more underwriters by an issuer or a selling securityholder of the issuer in connection with the distribution of securities under a prospectus to acquire, for the purposes of covering the underwriter's over-allocation position, a security of an issuer that has the same designation and attributes as a security that is distributed under such prospectus, and which (a) expires not later than the 60th day after the date of the closing of the distribution, and (b) is exercisable for a number or principal amount of securities that is limited to the lesser of (i) the over-allocation position, and (ii) 15% of the base offering".
2.3 Over-Allotment to Facilitate Over-Allocations
The position of the Canadian Securities Administrators ("CSA") with respect to over-allocation is set out in section 2.4 of NI 41-101CP and states that "Over-allotment options are permitted solely to facilitate the over-allocation of the distribution and consequent market stabilization. Accordingly, an over-allotment option may only be exercised for the purpose of filling the underwriters' over-allocation position. The exercise of an over-allotment option for any other purpose would raise public policy concerns."
ADVERTISING AND MARKETING IN CONNECTION WITH PROSPECTUS OFFERINGS
3.1 Restrictions During The Waiting Period
The Prospectus Requirement and the Waiting Period
Pursuant to applicable securities legislation, no person or company shall trade in a security if the trade would be a distribution of the security unless a preliminary and final prospectus have been filed and receipts have been issued. This is generally referred to as the "prospectus requirement". The period between the issuance of a receipt for a preliminary prospectus and a receipt for a final prospectus is generally known as the "waiting period".
The analysis of whether any particular activity is prohibited by virtue of the prospectus requirement turns largely on whether the activity constitutes a trade and, if so, whether such a trade would constitute a distribution. Securities legislation in Canada defines a "trade" in a non- exhaustive manner to include, among other things: (i) any sale or disposition of a security (e.g. a common share) for valuable consideration; (ii) any receipt by a registrant (such as a broker dealer) of an order to buy or sell a security; and (iii) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the foregoing. The definition of a "distribution" includes a "trade" in securities that have not been previously issued and would include the Offering.
Pre-Marketing and Marketing
"Pre-marketing" occurs when a party communicates with potential investors before a public offering and includes other promotional activity that occurs before a preliminary prospectus is filed. Unless the issuer is relying on the bought deal exemption in Part 7 of NI 44-101, pre- marketing is generally prohibited in Canada (see discussion below). Specifically:
securities legislation generally prohibits any form of marketing for a public offering unless a preliminary prospectus has been filed and receipted, subject to very limited exceptions; and
investment dealers are not permitted to solicit expressions of interest from investors until a preliminary prospectus has been filed and receipted.
"Marketing" includes oral or written communications after the filing of a preliminary prospectus. During the "waiting period", certain limited marketing activities are permissible under securities legislation.
Advertising and Marketing Activities
Subject to certain limited exceptions, advertising or marketing activities prior to and during the waiting period are generally prohibited by virtue of the prospectus requirement. Any advertising or marketing activities that can reasonably be regarded as intended to promote a distribution of securities would be conduct directly or indirectly in furtherance of a distribution of a security and would fall within the definition of a trade. Accordingly, advertising or marketing activities intended to promote the distribution of securities, in any form, would be prohibited by virtue of the prospectus requirement. Advertising or marketing activities subject to the prospectus requirement may be oral, written or electronic and include the following:
television or radio advertisements or commentaries;
published materials, correspondence and records;
videotapes or other similar material;
market letters and research reports;
circulars, promotional seminar text and telemarketing scripts; and
reprints or excerpts of any other sales literature.
Permitted Advertising and Marketing Activities
Advertising or marketing activities that are not in furtherance of a distribution of securities would not generally fall within the definition of a "distribution" and therefore, would not be prohibited. The following activities are not generally considered by the CSA to be subject to the prospectus requirement:
advertising and publicity campaigns that are aimed at either selling products or services of the issuer or raising public awareness of the issuer;
communication of factual information concerning the business of the issuer that is released in a manner, timing and form that is consistent with the regular past communications practices of the issuer if that communication does not refer to or suggest the distribution of securities; and
the release or filing of information that is required to be released or filed pursuant to securities legislation.
The CSA has noted that it is aware that a practice has developed for "non-deal road shows" where issuers and dealers will meet with institutional investors to discuss the business and affairs of the issuer. If such a non-deal road show was undertaken in anticipation of a prospectus offering, it would generally be prohibited under securities legislation by virtue of the prospectus requirement. The CSA has also noted there may be selective disclosure concerns if the issuer provided the institutional investors with material information that has not been publicly disclosed.
Exceptions to the Prospectus Requirement
Securities legislation provides for certain exceptions to the prospectus requirement for limited advertising or marketing activities during the waiting period. During the waiting period, it is permissible to:
distribute a preliminary prospectus notice that:
"identifies" the securities proposed to be issued;
states the price of such securities, if then determined;
states the name and address of a person or company from whom purchases of securities may be made;
provided that any such notice states the name and address of a person or company from whom a preliminary prospectus may be obtained and contains the legend required set forth below, and
includes any further information as may be permitted or required by securities regulations;
distribute the preliminary prospectus;
provide standard term sheets if the conditions in section 13.5 of NI 41-101 are complied with;
provide marketing materials if the conditions in section 13.7 of NI 41-101 are complied with; and
solicit expressions of interest from a prospective purchaser, if prior to such solicitation or forthwith after the prospective purchaser indicates an interest in purchasing the securities, a copy of the preliminary prospectus is forwarded to the prospective purchaser.
The use of any other marketing information or materials during the waiting period would result in the violation of the prospectus requirement.
Although certain forms of communications are permitted as stated above, an issuer and its officers, directors and employees should only communicate with prospective investors through the intermediary of the underwriters. As discussed in further detail below, certain materials and activities are permissible during the waiting period provided such materials are distributed by and such activities are undertaken by investment dealers who are duly registered under applicable securities laws.
Preliminary Prospectus Notice
A preliminary prospectus notice is a communication relating to a preliminary prospectus that sets out some basic information regarding the securities as described above (i.e. the notice identifies the securities, states the price and states the name and address of a person from whom purchases may be made). The "identification" of a security in a preliminary prospectus notice does not permit an issuer or dealer to include a summary of the commercial features of the proposed issuance. Rather, these details are to be included in the preliminary prospectus, which is intended to be the main disclosure vehicle pending the issuance of the final receipt. The purpose of permitted advertising or marketing activities during the waiting period is to alert the public as to the availability of the preliminary prospectus. For the purpose of identifying a security, the advertising or marketing material may only:
indicate whether the security represents a debt or a share in a company;
name the issuer;
indicate, without providing details, whether the security qualifies the holder for special tax treatment; and
indicate how many securities will be made available.
Any preliminary prospectus notice or other communication used in connection with a prospectus offering during the waiting period must contain the following legend or words to the same effect:
A preliminary prospectus containing important information relating to these securities has been filed with securities commissions or similar authorities in certain jurisdictions of Canada. The preliminary prospectus is still subject to completion or amendment. Copies of the preliminary prospectus may be obtained from [insert name and contact information for dealer or other relevant person or entity]. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
Standard Term Sheets during the Waiting Period
Note: the requirements provided below are subject to the "bought deal" exemption. For a summary of the current rules applicable in the context of bought deal offerings, see Section 3.3 below ("Bought Deal Offerings").
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide a standard term sheet (a written communication intended for potential investors regarding a distribution of securities under a prospectus relating to an issuer, securities or an offering) to a potential investor during the waiting period if: (i) the standard term sheet contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriter, all information in the standard term sheet concerning the issuer, the securities or the offering is disclosed in, or derived from, the preliminary prospectus; and (iii) a receipt for the preliminary prospectus has been issued. Accordingly, a standard term sheet can only be provided by investment dealers and only after a receipt for the preliminary prospectus has been issued.
The information that a standard term sheet is allowed to contain is quite restrictive and includes, among other things, the name of the issuer, the jurisdiction where the issuer's head office is located, a "brief" description of the business and the securities, the price of the securities, the names of any underwriters and a "brief" description of the use of proceeds. A "brief" description means a description consisting of no more than 3 lines of text in type that is at least as large as that used generally in the body. A standard term sheet must be dated and include the following legend (or words to the same effect) on the first page:
A preliminary prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
The preliminary prospectus is still subject to completion. Copies of the preliminary prospectus may be obtained from [insert contact information for the investment dealer or underwriters]. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Standard term sheets are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, if the standard term sheet is found to contain a misrepresentation, an issuer could be found guilty of an offence under applicable securities legislation.
Marketing Materials during the Waiting Period
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide "marketing materials" (a written communication intended for potential investors regarding a distribution of securities under a prospectus that contains material facts relating to an issuer, securities or an offering) to a potential investor during the waiting period if: (i) the marketing materials contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriters and any comparables, all information in the marketing materials concerning the issuer, the securities or the offering is disclosed in, or derived from, the preliminary prospectus; (iii) other than prescribed language, the marketing materials contain the same cautionary language in bold type as contained on the cover page, and in the summary, of the preliminary prospectus; (iv) a template version of the marketing materials is approved in writing by the issuer and the lead underwriter before the marketing materials are provided; (v) a template version of the marketing materials is filed on SEDAR on or before the day that the marketing materials are first provided; (vi) a receipt for the preliminary prospectus has been issued; and (vii) the investment dealer provides a copy of the preliminary prospectus with the marketing materials. Similar to standard term sheets, marketing materials can only be provided by investment dealers and only after a receipt for the preliminary prospectus has been issued.
If the marketing materials include "comparables" (i.e., information that compares a reporting issuer to other reporting issuers), the issuer may remove such comparables and any disclosure relating to those comparables from the template version of the marketing materials before filing it on SEDAR if certain conditions are met. As a result, such comparables and related information would not form part of the marketing materials incorporated by reference in the final prospectus.
Marketing materials often take the form of presentations and term sheets that contain information beyond that allowed for standard term sheets under NI 44-101. Marketing materials must be dated and include the following legend, or words to the same effect, on the first page:
A preliminary prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
The preliminary prospectus is still subject to completion. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
If marketing materials are provided during the waiting period, the issuer must include the template version of the marketing materials in its final prospectus or incorporate by reference the template version of the marketing materials previously filed on SEDAR into its final prospectus.
If the final prospectus modifies a statement of a material fact that appeared in the marketing materials provided during the waiting period, the issuer must prepare and file, at the time the issuer files the final prospectus, a revised template version of the marketing materials that is blacklined to show the modified statement and include in the final prospectus, details of how the statement in the marketing materials has been modified, that the issuer has prepared a revised template version of the marketing materials which has been blacklined to show the modified statement and the revised template version of the material scan be viewed under the issuer's provide on SEDAR.
Similar to standard term sheets, marketing materials are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, the issuer and investment dealers involved in preparing such materials should have a reasonable, factual basis for any statement contained in marketing materials. As stated above, a "template" version of the marketing materials is required to be filed on SEDAR and is required to be included in or incorporated by reference into the final prospectus. As a document included or incorporated by reference in the prospectus, this means that an investor who purchases a security distributed under the final prospectus may have remedies under the civil liability provisions of applicable securities legislation if the marketing materials contain a misrepresentation. Furthermore, an investor who purchases a security of the issuer on the secondary market may have remedies under the civil liability for secondary market disclosure provisions of applicable securities legislation if the template version of the marketing materials contains a misrepresentation.
Road Shows during the Waiting Period
Securities legislation provides an exception to the prospectus requirement to allow an investment dealer to conduct a road show for potential advisors during the waiting period if a receipt for the preliminary prospectus has been issued and the road show complies with the requirements of NI 41-101. Any marketing materials provided to an investor attending a road show must comply with the provisions outlined above under the heading "Marketing Materials during the Waiting Period". In addition, the investment dealer must establish and follow reasonable procedures to:
ask any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information;
keep a record of any information provided to the investor; and
provide the investor with a copy of the preliminary prospectus.
If an investment dealer permits an investor, other than an accredited investor, to attend a road show, the investment dealer must commence the road show with the oral reading of the following statement or a statement to the same effect:
This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Although members of the media may attend a road show, they should not be specifically invited to the road show by the issuer or by an investment dealer. The CSA notes that road shows are intended to be presentations for potential investors and not press conferences for members of the media. Furthermore, issuers and investment dealers should not market a prospectus offering in the media.
The following should be noted with respect to oral statements made at a road show:
in giving oral presentations at a road show, issuers should generally only discuss information that is contained in, or derived from, the prospectus;
in responding to questions from investors, issuers should avoid making selective disclosure; in particular, issuers should take measures to ensure compliance with applicable securities laws relating to selective disclosure, insider trading and trading by "tippees" when participating in a road show;
if an issuer discloses material facts at a road show that are not in a preliminary prospectus, the final prospectus should contain that information in order to comply with the statutory requirement that the final prospectus contain full, true and plain disclosure of all material facts;
depending on the context, oral statements of a "responsible issuer", as defined in securities legislation, at a road show may be "public oral statements", as defined in securities legislation, and subject to statutory provisions for secondary market civil liability; and
oral statements made during a road show are subject to the provisions of securities legislation against making misleading or untrue statements.
Media Reports and Coverage
Although the CSA recognizes that an issuer does not have control over media coverage, it believes that an issuer should take appropriate precautions to ensure that media coverage which can reasonably be considered to be in furtherance of a distribution does not occur after a decision has been made to file a preliminary prospectus or during the waiting period. The CSA may investigate the circumstances surrounding media coverage of an issuer which appears immediately prior to or during the waiting period and which can reasonably be considered as being in furtherance of a distribution of securities.
Nevertheless, the CSA recognizes that reporting issuers need to consider whether the decision to pursue a potential offering is a material change under applicable securities legislation. If the decision is a material change, the news release and material change report requirements under securities legislation apply. However, in order to avoid contravening the pre-marketing restrictions under applicable securities legislation, any news release and material change report filed before the filing of a preliminary prospectus or the announcement of a bought deal should be carefully drafted so that it could not be reasonably regarded as intended to promote a distribution of securities or condition the market. The information in the news release and material change report should be limited to identifying the securities proposed to be issued without a summary of the commercial features of the issue (those details should instead be dealt with in the preliminary prospectus which is intended to be the main disclosure vehicle).
Furthermore, after the filing of the news release:
the issuer should not grant media interviews on the proposed offering; and
an investment dealer would not be able to solicit expressions of interest until a receipt has been issued for a preliminary prospectus or a bought deal was announced in compliance with NI 44-101.
Misleading or Untrue Statements
Securities legislation generally prohibits any person or company from making any misleading or untrue statements that would reasonably be expected to have a significant effect on the market price or value of securities. In addition to ensuring that advertising and marketing activities are carried out in compliance with the prospectus requirement, issuers, dealers and their advisors must ensure that any statements made in the course of advertising or marketing activities are not untrue or misleading and otherwise comply with securities legislation.
Sanctions and Enforcement
Any contravention of the prospectus requirement through advertising or marketing activities could result in a cease trade order in respect of the preliminary prospectus to which such activities relate. In addition, a receipt for a final prospectus may be refused and, in appropriate circumstances, enforcement proceedings may be initiated.
Good Practices
An issuer should maintain the following practices prior to and during the waiting period:
Interviews. Prior to and during the waiting period, the directors and officers of an issuer should not give interviews to the media. Directors and officers should limit themselves to responding to unsolicited inquiries of a factual nature made by shareholders, securities analysts, financial analysts and the media. All directors and officers of an issuer should review their scheduled activities to confirm that there are no activities which might be considered in breach of the waiting period requirements (e.g. newspaper interviews or industry meetings).
Statements. Directors and officers of an issuer should not make any promotional public statements regarding the issuer prior to and during the waiting period until after the closing of a pending offering, other than factual statements that would normally be publicly disclosed in the ordinary course of business. An issuer should avoid providing information during a prospectus distribution that goes beyond what is disclosed in the prospectus. The directors and officers should not make statements which constitute a forecast, projection or prediction with respect to future financial performance (unless such statement is also contained in the prospectus).
Marketing Materials. An issuer should review its website to ensure that any materials that may be viewed as promotion of the issuer's securities (e.g. analyst reports, investor presentations) be removed.
Consistent Information. All communications should be consistent with the information contained in the prospectus.
Permitted Activities. An issuer should:
continue to file and deliver in accordance with applicable law, financial statements and related management's discussion and analysis;
continue to make public announcements with respect to factual business and financial developments with respect to the issuer; and
answer unsolicited inquiries from shareholders, analysts and the press concerning factual matters.
If a director or officer of an issuer (or any other party involved with a pending offering) makes a statement to the media after a decision has been made to file a preliminary prospectus or during the waiting period, regulatory concerns include circumvention of the pre-marketing and marketing restrictions, selective disclosure and unequal access to information, conditioning of the market and the lack of prospectus liability. In addition to the sanctions and enforcement proceedings discussed above, securities regulatory authorities may require the issuer to take other remedial action, such as:
explaining why the issuer's disclosure procedures failed to prevent the party from making the statement to the media and how those procedures will be improved;
instituting a "cooling-off period" before the filing of the final prospectus;
including the statement in the prospectus so that it will be subject to statutory civil liability; or
issuing a news release refuting the statement if it cannot be included in the prospectus (e.g., because the statement is incorrect or unduly promotional) and disclosing the reasons for the news release in the prospectus.
3.2 Restrictions After The Waiting Period
Application of the Waiting Period Rules after a Final Prospectus
In 2013, the CSA introduced rules with respect to the conduct of marketing activities after the receipt of a final prospectus. For the most part, the rules relating to the use of standard term sheets and marketing materials during the waiting period also apply to the use of such documents after the issuance of a final prospectus and until the distribution thereunder has been terminated, which is a matter of fact that requires confirmation from the underwriters after closing of an offering. As such, the information under the heading "Restrictions During the Waiting Period" is generally applicable to post-final prospectus receipt advertising and marketing activities.
Final Prospectus Notice
A final prospectus notice is a communication relating to a final prospectus that sets out some basic information regarding the securities as described above (i.e. the notice identifies the securities, states the price and states the name and address of a person from whom purchases may be made). The "identification" of a security in a final prospectus notice does not permit an issuer or dealer to include a summary of the commercial features of the proposed issuance. Rather, these details are to be included in the final prospectus.
A final prospectus notice or other communication used in connection with a prospectus offering following the issuance of a receipt for the final prospectus must contain the following legend or words to the same effect:
This offering is only made by prospectus. The prospectus contains important detailed information about the securities being offered. Copies of the prospectus may be obtained from [insert name and contact information for dealer or other relevant person or entity.] Investors should read the prospectus before making an investment decision.
Standard Term Sheets after a Receipt of a Final Prospectus
Securities legislation permits an investment dealer to provide a standard term sheet (a written communication intended for potential investors regarding a distribution of securities under a prospectus relating to an issuer, securities or an offering) to a potential investor after a receipt for a final prospectus if: (i) the standard term sheet contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriter, all information in the standard term sheet concerning the issuer, the securities or the offering is disclosed in, or derived from, the final prospectus; and (iii) a receipt for the final prospectus has been issued. Accordingly, a standard term sheet distributed in connection with a final prospectus can only be provided by investment dealers and only after a receipt for the final prospectus has been issued.
The information that a standard term sheet distributed in connection with a final prospectus may only contain the information that is set out under the heading "Restrictions During the Waiting Period – Standard Term Sheets during the Waiting Period", along with the following legend (or words to the same effect) on the first page:
A final prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada].
Copies of the final prospectus may be obtained from [insert contact information for the investment dealer or underwriters].
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus, and any amendment, for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
Standard term sheets are subject to provisions in applicable securities legislation which prohibit misleading or untrue statements. Accordingly, if the standard term sheet is found to contain a misrepresentation, an issuer could be found guilty of an offence under applicable securities legislation.
Marketing Materials after Receipt of the Final Prospectus
Securities legislation permits an investment dealer to provide marketing materials to a potential investor after the receipt for a final prospectus if: (i) the marketing materials contains the information as prescribed by NI 41-101; (ii) other than contact information for the investment dealer or underwriters and any comparables, all information in the marketing materials concerning the issuer, the securities or the offering is disclosed in, or derived from, the final prospectus; (iii) other than prescribed language, the marketing materials contain the same cautionary language in bold type as contained on the cover page, and in the summary, of the final prospectus; (iv) a template version of the marketing materials is approved in writing by the issuer and the lead underwriter before the marketing materials are provided; (v) a template version of the marketing materials is filed on SEDAR on or before the day that the marketing materials are first provided; (vi) a receipt for the final prospectus has been issued; and (vii) the investment dealer provides a copy of the final prospectus with the marketing materials. Marketing materials distributed in connection with a final prospectus can only be provided by investment dealers and only after a receipt for the final prospectus has been issued.
If the marketing materials include "comparables" (i.e., information that compares a reporting issuer to other reporting issuers), the issuer may remove such comparables and any disclosure relating to those comparables from the template version of the marketing materials before filing it on SEDAR if certain conditions are met. As a result, such comparables and related information would not form part of the marketing materials incorporated by reference in the final prospectus.
Marketing materials distributed in connection with a final prospectus must be dated and include the following legend, or words to the same effect, on the first page:
A final prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorit[y/ies] in [each of/certain of the provinces/provinces and territories of Canada]. A copy of the final prospectus, and any amendment, is required to be delivered with this document.
This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus, and any amendment, for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
An investment dealer must not provide marketing materials in connection with a final prospectus unless the issuer has included the template version of the marketing materials in its final prospectus or incorporated by reference the template version of the marketing materials previously filed on SEDAR into its final prospectus. The issuer must also state that any template version of the marketing materials filed after the date of the final prospectus and before the termination of the distribution are deemed to be incorporated into the final prospectus.
In order to determine that the restrictions on advertising and marketing activities as noted in this section are no longer applicable, an issuer should confirm with the underwriters that the distribution period has been terminated as soon as practicable following closing of the pending offering. The issuer should not engage in any advertising or marketing activities after the issuance of a final prospectus and until the distribution thereunder has been terminated without first consulting legal counsel to the issuer.
Road Shows After a Receipt for a Final Prospectus
Securities legislation permits an investment dealer to conduct a road show for potential investors in connection with a final prospectus if a receipt for the final prospectus has been issued and the road show complies with the requirements of NI 41-101. Any marketing materials provided to an investor attending a road show must comply with the provisions outlined above under the heading "Marketing Materials after Receipt of the Final Prospectus". In addition, the investment dealer must establish and follow reasonable procedures to:
ask any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information;
keep a record of any information provided to the investor; and
provide the investor with a copy of the final prospectus.
If an investment dealer permits an investor, other than an accredited investor, to attend a road show, the investment dealer must commence the road show with the oral reading of the following statement or a statement to the same effect:
This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.
3.3 Bought Deal Offerings
Solicitation of Expressions of Interest
Securities legislation provides an exception to the prospectus requirement to a solicitation of an expression of interest made before the issuance of a receipt for a preliminary prospectus or for securities to be issued or transferred pursuant to an over-allotment option that are qualified for distribution under a short form prospectus if:
before the solicitation:
the issuer has entered into a bought deal agreement2 ;
the bought deal agreement has fixed the terms of the distribution, including, for greater certainty, the number and type of securities and the price per security, and requires that the issuer file a preliminary short form prospectus for the securities not more than four business days after: (A) the date that the bought deal agreement was entered into; or (B) in the case of a confirmation clause that complies with Section 7.4 of NI 44-101, the date that the lead underwriter provides notice in writing to the issuer that the lead underwriter the has confirmed the terms of the bought deal agreement; and
immediately upon entering into the bought deal agreement, the issuer issued and filed a news release announcing the agreement,
the issuer files a preliminary short form prospectus for the securities pursuant to NI 44-101 within four business days after the date that: (a) the bought deal agreement was entered into; or (b) in the case of a confirmation clause that complies with Section 7.4 of NI 44-101, the date that the lead underwriter provides notice in writing to the issuer that the lead underwriter the has confirmed the terms of the bought deal agreement; and
upon issuance of a receipt for the preliminary short form prospectus, a copy of the preliminary short form prospectus is sent to each person or company that, in response to the solicitation, expressed an interest in acquiring the securities, and
except for a bought deal agreement under paragraph (i) above or a more extended form of underwriting agreement referred to in subsection 7.3(6) of NI 44-101, no agreement of purchase and sale for the securities is entered into until the short form prospectus has been filed and a receipt has been issued.
Confirmation Clause
A confirmation clause means a provision in a bought deal agreement that provides that the agreement is conditional on the lead underwriter confirming that one or more additional underwriters has agreed to purchase certain of the securities offered.
A bought deal agreement must not contain a confirmation clause unless:
under the bought deal agreement, the lead underwriter must provide the issuer with a copy of the agreement that has been signed by the lead underwriter;
the issuer signs the bought deal agreement on the same day that the lead underwriter provides the agreement in accordance with (i) above;
the lead underwriter has discussions with other investment dealers regarding their participation in the distribution as additional underwriters; and
on the business day after the day that the lead underwriter provides the agreement in accordance with (i) above, the lead underwriter provides notice in writing to the issuer that: (a) the lead underwriter has confirmed the terms of the bought deal agreement; or (b) the lead underwriter will not be confirming the terms of the bought deal agreement and the agreement has been terminated.
Pre-Marketing in the Context of a Bought Deal
In addition, securities legislation provides an exception to the prospectus requirement to allow an investment dealer to provide a standard term sheet, marketing materials to a potential investor, or conduct a road show to potential investors, before the issuance of a receipt for a preliminary prospectus, if the respective conditions noted above are met. The requirements provided above for standard term sheets, marketing materials and road shows during the waiting period are similar to the requirements for standard term sheets, marketing materials and road shows after the announcement of a bought deal but before a receipt for a preliminary short form prospectus.
The CSA considers that a distribution of securities commences at the time when: (a) a dealer has had discussions with an issuer or a selling securityholder, or with another dealer that has had discussions with an issuer or a selling securityholder about the distribution; and (b) those distribution discussions are of sufficient specificity that it is reasonable to expect that the dealer (alone or together with other dealers) will propose to the issuer or the selling securityholder an underwriting of the securities. CSA staff do not agree with interpretations that a distribution of securities does not commence until a later time (e.g., when a proposed engagement letter or a proposal for an underwriting of securities with indicative terms is provided by a dealer to an issuer or a selling securityholder).
The CSA has also noted that it understands that many dealers communicate on a regular basis with clients and prospective clients concerning their interest in purchasing various securities of various issuers. The CSA will not generally consider such ordinary course communications as being made in furtherance of a distribution. However, from the commencement of a distribution, communications by the dealer, with a person or company designed to have the effect of determining the interest that it, or any person or company that it represents, may have in purchasing securities of the type that are the subject of distribution discussions, that are undertaken by any director, officer, employee or agent of the dealer: (a) who participated in or had actual knowledge of the distribution discussions; or (b) whose communications were directed, suggested or induced by a person referred to in (a), or another person acting directly or indirectly at or upon the direction, suggestion or inducement of a person referred to in (a), are considered to be in furtherance of the distribution and contrary to securities legislation.
From the commencement of the distribution no communications, market making, or other principal trading activities in securities of the type that are the subject of distribution discussions may be undertaken by a person referred to in (a) in the paragraph above, or at or upon the direction, suggestion or inducement of a person or persons referred to in (a) or (b) in the paragraph above until the earliest of: (i) the issuance of a receipt for a preliminary prospectus in respect of the distribution; (ii) the time at which a news release that announces the entering into of a bought deal agreement is issued and filed in accordance with Part 7 of NI 44-101; and (iii) the time at which the dealer determines not to pursue the distribution.
Footnotes
1 Current as of September 1, 2018.
2 A "bought deal agreement" means a written agreement: (a) under which one or more underwriters has agreed to purchase all securities of an issuer that are to be offered in a distribution under a short form prospectus on a firm commitment basis, other than securities issuable on the exercise of an over-allotment option; (b) that does not have a market-out clause (meaning a provision in an agreement which permits an underwriter(s) to terminate its or their commitment to purchase securities in the event that the securities cannot be marketed profitably due to market conditions); (c) that other than an over-allotment option, does not provide an option for any party to increase the number of securities to be purchased; and (d) that, other than what is agreed to under a confirmation clause that complies with section 7.4 of NI 44-101, is not conditional on one or more additional underwriters agreeing to purchase any of the securities offered.