The Canadian Securities Administrators (CSA) recently released a Notice and Request for Comment (Notice) proposing certain amendments to the prospectus rules in Canada affecting the pre-marketing and marketing activities permitted by issuers and investment dealers. Amongst other things, the proposed amendments would allow issuers and investment dealers to "test the waters" for certain initial public offerings (IPOs) prior to filing a preliminary prospectus, allow issuers to upsize bought deals and, subject to specified conditions and restrictions, permit the use of term sheets and road shows for marketing public offerings.
According to the Notice, the proposed amendments will allow for a greater range of pre-marketing and marketing activities with respect to prospectus offerings while still adhering to the policy rationales for the existing rules placing limits on such activities. The CSA are accepting comments on the proposed amendments until February 23, 2012.
Testing the Waters Exemption for IPO Issuers
The proposed amendments contain an exemption which would allow non-reporting issuers to determine interest in a potential IPO by communicating confidentially with permitted institutional investors through an investment dealer. The exemption would be subject to certain conditions to ensure confidentiality and prevent abuse. These conditions would include:
- requiring confirmation in writing from the permitted institutional investor that it will keep the information confidential;
- record keeping by the issuer of the investment dealer authorized to act on its behalf; and
- record keeping by the investment dealer of any permitted institutional investors that were solicited.
This exemption would not be available to companies which are public in a foreign jurisdiction.
Bought Deal Exemption
The proposed amendments also contemplate revising the bought deal exemption as follows:
- An issuer relying on the bought deal exemption would be permitted to amend the bought deal agreement entered into to increase the offering size if certain conditions are met including:
- issuing a news release confirming the amendment;
- increasing the offering size by no more than a specified percentage;
- filing of the preliminary prospectus within four days of the original bought deal agreement; and
- maintaining the original offering price.
In addition, the increase in the offering size cannot be part of a formal or informal plan to offer a larger amount devised before the original agreement.
- Additional underwriters would be permitted to join the bought deal syndicate if such addition was not contemplated prior to the entering into of the original bought deal agreement.
- Allow for investment dealers to provide a term sheet to permitted institutional investors after the bought deal is announced but prior to the filing of the preliminary prospectus on certain conditions, including that:
- the term sheet be fair, true and plain;
- the information concerning the securities in the term sheet be in the bought deal news release or the issuer's continuous disclosure record;
- the term sheet be approved in writing by the issuer and underwriter and filed on SEDAR;
- the term sheet include a prescribed legend directing investors to the issuer's preliminary prospectus and final prospectus; and
- the term sheet be incorporated by reference in the preliminary prospectus and final prospectus, which will result in statutory liability for misrepresentations.
In addition, the CSA is requesting comments regarding whether amendments should be considered to allow for the term sheet to be provided to retail investors prior to filing the preliminary prospectus.
Marketing During the Waiting Period
The proposed amendments contemplate allowing investment dealers to provide a term sheet with the preliminary prospectus provided that the term sheet meets certain prescribed conditions similar to those noted above in respect of pre-marketing.
Additional guidance in the proposed amendments states that investment dealers will be able to continue providing traditional green sheets to their registered representatives but if such green sheets are distributed publicly, they will be considered a term sheet and must comply with requirements with respect to term sheets.
Road shows are often conducted as part of "soliciting expressions of interest" in a public offering. While explicitly recognizing and permitting road shows, the proposed amendments introduce new conditions and requirements for investment dealers and issuers, including content restrictions, keeping records of persons who attend road shows, requirements for written authorization by issuers to conduct a road show and limiting the use of comparables.