New Canadian Rules for Marketing Prospectus Offerings

New Canadian Rules for Marketing Prospectus Offerings

- Marketing Materials and Road Shows

Presented by: Bill GillilandToby AllanTim HaneyDan Shea

June 20, 2013

Dentons Canada LLP

Testing the Waters for an IPO

2June 20, 2013 Dentons Canada LLP

Presented by: Bill Gilliland

Introduction

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• Exemption from pre-marketing prohibition

• Expressly allow non-reporting issuers, through an investment dealer, to determine interest in a potential IPO by communicating with “accredited investors”

• Intended to facilitate an IPO by allowing a determination of interest before incurring at least some costs relating to preparation of a preliminary prospectus, due diligence and experts/advisors

• Assumption it can provide more certainty than can be provided by general feedback investment dealers may get from accounts on types of issuers, industries, geographies etc, that are of interest

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Issues to Consider

• Use involves compliance issues

• Not available for all potential IPOs

• Requires getting specific written confirmations from accounts on various matters –relationship issues

• Not intended as a “pre-sell” mechanism

• 15 day cooling off period - Issuer cannot file a preliminary prospectus in respect of an IPO until a date that is at least 15 days after the date on which the last solicitation occurs

• Need to ensure “material facts” disclosed can and will go into preliminary prospectus

• Engagement letter should be modified if you might want to use the procedure

June 20, 2013 4Dentons Canada LLP

Requirements

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• Testing the water provisions are an exemption from the prohibition on doing any act in furtherance of a trade unless a preliminary prospectus and final prospectus are filed and receipts obtained for them

• As an exemption, need careful compliance with the requirements of the exemption in order to take advantage of it

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Requirements

• Exemption only applies to a solicitation of an expression of interest in order to ascertain if there would be sufficient interest in an IPO of securities pursuant to a long form prospectus

• Requirements:

1. Issuer has a reasonable expectation of filing a preliminary long form prospectus in respect of an IPO in at least one jurisdiction in Canada

2. Issuer is not a “public issuer” anywhere – cannot be:

- a reporting issuer (includes debt only reporting issuers)

- SEC issuer

- listed, quoted or traded on a market place outside Canada if trade data publicly reported

3. None of the issuer’s securities can be held by a control person that is a “public issuer” if the IPO would be a material fact or material change with respect to the control person

- May not be available for spin out IPOs

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Requirements

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4. Investment dealer makes the solicitation on behalf of the issuer

5. Issuer provides written authorization to the investment dealer to act on its behalf before the investment dealer makes the solicitation

6. Solicitation is made to an “accredited investor”

- Investment dealer should conduct reasonable diligence to determine that an investor is an accredited investor before soliciting the investor and retain all documentation they receive in that regard

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Requirements

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7. Issuer and investment must keep all information about the proposed offering confidential until the earlier of:

a. The information being generally disclosed in the preliminary long form prospectus or otherwise; and

b. The issuer confirming in writing that it will not be pursuing the potential offering

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Requirements

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8. Investment dealer cannot solicit an expression of interest unless:

a. All written material provided to investors is

i. approved in writing by issuer before it is provided;

ii. marked confidential; and

iii. contains a legend – material not full true and plain disclosure of all material facts and not subject to liability for misrepresentations under securities legislation

b. Before providing information about the issuer, the securities or the offering, the investment dealer obtains confirmation in writing from the investor that

i. the investor will keep information about the proposed offering confidential, and

ii. the investor will not use the information for any purpose other than assessing the investor’s interest in the offering, until the earlier of:

A. the information being generally disclosed in a preliminary long form prospectus or otherwise, and

B. the issuer confirming in writing it will not be pursuing the potential offering

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Requirements

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• “Provided” includes showing a document without providing an actual copy and includes electronic documents, or information shown on a computer or projector screen.

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Requirements

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• Securities Commission Guidance –

• Here is a sample email that an investment dealer could use:

“We want to provide you with information about a proposed initial public offering of securities. Before we can provide you with this information, you must confirm by return email that:

• You agree to receive certain confidential information about a proposed initial public offering by an issuer.

• You agree to keep the information about the proposed offering confidential and not to use the information for any purpose other than assessing your interest in the offering, until the earlier of (i) the information being generally disclosed in a preliminary prospectus or otherwise, or (ii) the issuer confirming in writing that it will not be pursuing the potential offering.”

An accredited investor may respond to this email by simply stating “I so confirm”

Requirements

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• All “material facts” disclosed to an accredited investor must be contained in the subsequent preliminary prospectus

• “Material Fact” means a fact that would reasonably be expected to have a significant effect on the market price or value or the securities

• Need to make sure material information disclosed to investors can and will be included in preliminary prospectus

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Requirements

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Investment Dealer must keep records:

• a written record of any accredited investor that is solicited

• at a minimum - contact person and contact information for that person at each accredited investor

• a copy of any written material and written approval from issuer

• any written confidentiality confirmations

• issuer also has record keeping obligations

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Engagement Letter Modifications

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Engagement Letter Modifications to consider

• Issuer agrees to provide written authorization to investment dealer to “test the waters”

• When issuer authorizes written materials for use, it will covenant that any material facts in the information can and will be contained in the preliminary prospectus

• Issuer to represent it is not, and immediately before filing a preliminary prospectus will not be, a “public issuer” anywhere with reference to the definition of “public issuer” in the instrument and does not have “public issuer “ control person

• Issuer covenants not to file the preliminary prospectus until at least 15 days after the date on which the last solicitation occurs

• Issuer will keep information confidential in accordance with terms of instrument

• Consider general covenant from issuer to comply with requirements of “testing the waters” exemption so as to allow its use (may be alternative to previous two items)

• Make sure expense and indemnity provisions apply to testing the waters activities of investment dealer

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Bought Deal Agreement Changes


Presented by: Tim Haney

Bought Deal Exemption


• Bought Deal Exemption allows solicitation of expressions of interest before the filing of a Preliminary Short Form Prospectus if, among other things:

• issuer has entered into an enforceable “Bought Deal Agreement” with Underwriters who have agreed to purchase the full amount of offering;

• issuer has issued a news release announcing agreement;

• issuer files(1) a preliminary prospectus within four (4) business days of entering into the 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.

(1) Note, a receipt for Preliminary Prospectus is not required to be granted on fourth (4th) Business Day.

Bought Deal Agreement


• “Bought Deal Agreement” means a written agreement:

• 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;

• that does not have “market-out” clause;

• 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

• that, other than what is agreed to under a confirmation clause(1) that complies with the amendments, is not conditional on one or more additional underwriters agreeing to purchase any of the securities offered.

(1) See slide #23

“Upsizing” Bought Deals


• Enlarging Bought Deals “Upsizing”• Subject to conditions set fourth below, Bought Deals may be increased in size to specifically allow

issuers to benefit from increased demand for the offering.• Bought Deals now can be enlarged up to 100% of the size of the original deal.• Bought Deal agreements can not contain an upsizing “option”.• In order to increase the size of Bought Deal the following must be adhered to:

• the number of additional securities to be purchased does not exceed 100% of the total of the base offering contemplated by the original agreement plus any securities that would be acquired upon the exercise of an over-allotment option;

• the type of securities to be purchased, and the price per security, is the same as under the original agreement;

• the issuer files a preliminary short form prospectus for the increased number of securities in accordance with this Instrument within four (4) business days after the date that the original agreement was entered into;

• Immediately upon agreeing to change the number of securities to be purchased, the issuer issued and filed a news release announcing the amendment;

• no previous amendment has been made to the original agreement to increase the number of securities to be purchased; and

• the amended agreement meets the definition of a “bought deal agreement” (see slide #18).

Enlarging or Reducing Bought Deal Syndicates


• A syndicate may add/remove an underwriter or adjust the number of securities to be purchased by each underwriter on a proportionate basis, provided the following conditions are met:

• the aggregate dollar amount of the securities to be purchased by the underwriter(s) under the amended agreement is the same as the aggregate dollar amount of the securities that were to be purchased by the underwriter(s) under the original agreement; and

• the amended agreement is a Bought Deal Agreement and the conditions set forth on slide #17 are complied with.

Amending Bought Deal Agreements


• Amending Bought Deal Agreements to provide for different or additional classes of securities

• A different type of security and a different price for the security is permissible, if:

• in the case where a different type of securities is to be substituted in whole or in part for the securities that were the subject of the original agreement, or offered in addition to the securities that were subject of the original agreement, the aggregate dollar amount of the securities to be purchased by the underwriter or underwriters on a firm commitment basis under the amended agreement is the same as the aggregate dollar amount of the securities that were to be purchased by the underwriter or underwriters on a firm commitment basis under the original agreement or under an agreement amended in accordance with the provisions set forth on the prior slides;

• before a solicitation of an expression of interest in the different type of securities and immediately upon entering into the amendment to the original agreement, the issuer issued and filed a news release announcing the amendment;

• the issuer files a preliminary short form prospectus for the different type of securities pursuant to this Instrument within four (4) business days after the date that the original agreement was entered into;

• no previous amendment has been made to the original agreement to provide for a different type of securities to be purchased; and

• the amended agreement is a bought deal agreement and the conditions set forth on slide #17 are complied with.

Reduction in Number of Securities or Reduction in Price of Securities


• The parties to a Bought Deal Agreement may reduce the number of securities or price per security, if the amendment is made on or after the date which is four (4) business days AFTER the date of the original Bought Deal Agreement was entered into.

Confirmation Clauses in Bought Deal Engagement Letters


• The rule amendments now define “confirmation clause” for the purpose of Part 7 of NI 44-101 to mean 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 being offered.

• Confirmation clauses are only acceptable if, among other things:

• the lead underwriter provides a signed bought deal agreement to the issuer and the issuer signs it on the same day; and

• on the following day, the lead underwriter provides a notice to the issuer either confirming the bought deal or advising that the bought deal has been terminated. If the bought deal is confirmed, the issuer must file a news release announcing the bought deal.

• This is generally current practice, but underwriters must ensure timing tracks the above.

Marketing Materials & Road Shows


Policy Rationale


• Material information given to investors should be in the prospectus• Prospectus should be used as the main marketing document• Issuers and underwriters potentially liable for prospectus misrepresentations

• Marketing materials and procedures should avoid insider trading/tipping concerns

• New rules generally codify existing practices and provide clarity and certainty around permissible marketing materials and road show procedures

Types of Marketing Materials


• Prospectus notices

• Standard term sheets

• Marketing materials

Prospectus Notices


• Brief notices providing limited prescribed information:• Legend• Identifies the security being offered• States the offering price (if determined)• States the name/address of a person/company from whom purchases of the security may be made

and from whom the prospectus may be obtained

• Example – Email notifications of offerings from brokerage accounts

Standard Term Sheets


• Written communications intended for potential investors regarding a prospectus distribution that can contain only certain prescribed information, including:• Name of the issuer• Brief description of the issuer’s business and the offered securities• The offering price and total number or dollar amount of offered securities• Terms of the greenshoe• Names of the underwriters• Closing date• Brief description of the use of proceeds• A statement regarding eligibility for investment• Certain additional info about the specific terms of the offered securities and offering

• “Brief description” must not be more than three lines of text

• Ratings?

Standard Term Sheets cont’d


• Other than contact information for the underwriters and legend, all information must generally be disclosed in or derived from the applicable prospectus document• No “immateriality” threshold for disclosure

• Interest rate spreads?

• Does not form part of the prospectus and is not incorporated into the prospectus but still subject to securities law prohibitions on misleading and untrue statements

• Underwriters are not required to deliver a copy of the prospectus with standard term sheets

• Standard term sheets can be provided to any potential investor (i.e. not limited to accredited investors or institutional investors)

• Not subject to approval requirements with the issuer

• Green sheets are still permitted for internal use, but must comply with the new rules if distributed publicly

Standard Term Sheets cont’d


• Underwriters will have to revisit the term sheets they currently provide to investors as many term sheets typically provide disclosure that exceeds the prescribed content

• Underwriters can continue to provide term sheets that exceed the prescribed content but they will be “marketing materials” for purposes of securities laws and will form part of the prospectus

Timing of Delivery of Standard Term Sheets


• Delivery of standard term sheets is subject to the following timing requirements:• For bought deals, standard term sheets cannot be provided until bought deal agreement is signed

and press released• For shelf drawdowns, standard term sheets cannot be provided until final base shelf prospectus is

receipted

Content of Standard Term Sheets


• The content of standard term sheets is subject to the following limitations:• For bought deals, other than contact info for the dealers, all information must be disclosed in or

derived from:• the bought deal news release• the documents that will be incorporated by reference into the prospectus• the preliminary short form prospectus that is subsequently filed

• For shelf drawdowns, other than contact info for the dealers, all information must be disclosed in or derived from:• the final base shelf prospectus or the applicable prospectus supplement if filed• the applicable prospectus supplement that is subsequently filed

• In order to avoid “selective disclosure” issues, ensure that any material information contained in the standard term sheet has been previously publically disclosed (i.e. in a news release, material change report or previously filed continuous disclosure document) – May not disclose material information for the first time in the standard term sheet

Marketing Materials

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• “Marketing Materials”: any 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, other than

• a prospectus• a standard term sheet• a prospectus notice

• Rules apply to marketing materials “provided” to potential investors, which includes showing marketing materials to a person without allowing them to retain or make copies

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Timing of Delivery of Marketing Materials


• Delivery of marketing materials is subject to the following timing requirements:• For bought deals, marketing materials cannot be provided until bought deal agreement is signed and

press released• For shelf drawdowns, marketing materials cannot be provided until final base shelf prospectus is

receipted

• A copy of the preliminary prospectus or final prospectus, as applicable, must be provided to investors with the marketing materials• In the case of a bought deal, upon issuance of a receipt for the preliminary prospectus, the preliminary

prospectus must be provided to each investor that received marketing materials and expressed an interest in acquiring the securities

Content of Marketing Materials


• The content of marketing materials is subject to the following limitations:• For bought deals, other than contact info for the dealers and any comparables and legends, all

information must be disclosed in or derived from:• the bought deal news release• the documents that will be incorporated by reference into the prospectus• the preliminary short form prospectus that is subsequently filed

• For shelf drawdowns, other than contact info for the dealers and any comparables and legends, all information must be disclosed in or derived from:• the final base shelf prospectus or the applicable prospectus supplement if filed• the applicable prospectus supplement that is subsequently filed

• In order to avoid “selective disclosure” issues, ensure that any material information contained in the marketing materials has been previously publically disclosed (i.e. in a news release, material change report or previously filed continuous disclosure document) – May not disclose material information for the first time in the marketing materials

Content of Marketing Materials cont’d

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• Marketing materials may contain comparables (information that compares an issuer to other issuers)• comparables do not need to be disclosed in the prospectus• comparables should be disclosed in a separate section of the marketing materials• marketing materials should:

• explain what comparables are• explain the basis on which the other issuers were included in the comparables and why such

issuers are considered to be appropriate for comparison with the issuer• explain the basis on which the compared attributes were included• state that information about other issuers was obtained from public sources and has not been

verified• disclose risks relating to the comparables, including risks making investment decisions based on

comparables• state that if comparables contain a misrepresentation, the investor has no remedy under

securities laws

• Interest rate spreads?

• Marketing materials must be dated and contain a prescribed legend

• Marketing materials must contain any non-prescribed cautionary language contained on the cover page of the prospectus

• Marketing materials are subject to general prohibitions on representing resales, repurchases or refunds of securities and future value of securities and restrictions on listing representations

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Approval and Filing of Marketing Materials

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• A template version of the marketing materials must be approved in writing by the issuer and the lead underwriter before the marketing materials are provided to investors

• The template version of the marketing materials must be filed on or before the day that marketing materials are first provided to investors

• Any comparables, and disclosure relating to comparables, may be redacted from the template version of the marketing materials before filing if:

• such comparables are in a separate section of the marketing materials• the filed version of the marketing materials contains a note advising that such comparables were

removed• the complete version of the marketing materials is “delivered” to the applicable securities regulators

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Approval and Filing of Marketing Materials cont’d

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• Marketing materials provided to investors may differ from the filed version as follows:• may have different date• may contain a cover page referring to the investment dealers and containing their contact

information• may have different formatting, including font, colour or size• may remove one or more sections included in the filed version

• The filed version of the marketing materials must be included or incorporated by reference in the issuer’s final prospectus (or prospectus supplement in the case of a shelf offering)

• The prospectus must contain certain prescribed disclosure with respect to marketing materials and the prospectus certificate to be signed by the issuer and the dealers will extend to the marketing materials (i.e. the prospectus (including the marketing materials) contains full, true and plain disclosure of all material facts)

• If statements of material fact contained in the marketing materials are modified by a subsequently filed prospectus or amendment, the marketing materials must be revised to show the modification

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Road Shows

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• “Road Show”: a presentation to potential investors, regarding a distribution of securities under a prospectus, conducted by one or more investment dealers on behalf of an issuer in which one or more executive officers, or other representatives, of the issuer participate

• Dealers are permitted to conduct road shows to market a prospectus offering:• after a bought deal agreement is signed and press released, for bought deals• after a final base shelf prospectus is receipted, for shelf drawdowns

• Dealers conducting a road show must establish and follow reasonable procedures to:• ask any investor attending the road show in person, by telephone, on the Internet or by other

electronic means to provide their name and contact information• keep a record of any information provided by the investor; and• provide the investor with a copy of the preliminary prospectus or final prospectus, as applicable

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Road Shows cont’d

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• Any marketing materials used in the road show must comply with the rules for marketing materials

• Use caution when giving oral presentations and responding to questions• avoid making selective disclosure to road show attendees (all material information should be publically

disclosed in advance)• issuer and its representatives may be liable for misrepresentations contained in oral statements• securities legislation prohibits the making of misleading or untrue statements

• If “non-accredited investors” attend the road show, the dealers must commence the road show with the following cautionary statement:

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.

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The preceding presentation contains examples of the kinds of issues people dealing with marketing prospectus offerings could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

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New Canadian Rules for Marketing Prospectus Offerings

Business

Transcript of New Canadian Rules for Marketing Prospectus Offerings