SECURITIES LAW UPDATE: BCSC Adopts New Existing Security Holder Exemption

The British Columbia Securities Commission ("BCSC") has adopted a prospectus exemption that would permit certain TSX Venture Exchange, Toronto Stock Exchange or Canadian Securities Exchange listed issuers to distribute securities to existing security holders without a prospectus.

Securities Law Update

The British Columbia Securities Commission adopted BC Instrument 45-534 on March 13, 2014. Further information is available here. The exemption permits listed issuers to issue listed securities to their existing security holders, subject to a number of conditions.

The key conditions are:

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

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

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

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

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

• the issuer must issue a news release disclosing the proposed offering, including details of the use of proceeds;

• each investor must confirm in writing to the issuer that, as at the record date, they held the type of listed security offered under the exemption;

• an investor must be provided with certain rights of action in the event of a misrepresentation in the issuer’s continuous disclosure record; and

• although an offering document is not required, if an issuer voluntarily provides one, the issuer must file the offering document with the securities regulatory authority and an investor will have certain rights of action in the event of a misrepresentation in it.

The first trade of securities issued under the exemption will be subject to resale restrictions under section 2.5 of National Instrument 45-102 - Resale of Securities, like most other capital-raising prospectus exemptions. In addition, issuers will have to file a report of exempt distribution within 10 days after each distribution under the exemption.

This is only an exemption from the prospectus requirement. There is no corresponding exemption from the dealer registration requirement. In general, issuers with an active non-securities business do not have to register as a dealer because they are not in the business of trading. See the guidance in Companion Policy 31-103CP -Registration Requirements, Exemptions and Ongoing Registrant Obligations (available here).

British Columbia listed issuers considering the use of this new exemption should consult qualified legal counsel before offering any securities or accepting any funds in order to ensure proper application of the new exemption, proper subscription documentation and compliance with regulatory filing and public disclosure requirements.

Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.