National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- relief from prospectus requirement in connection with the use of electronic roadshow materials -- cross-border offering of securities -- compliance with U.S. offering rules leads to non-compliance with Canadian regime -- relief required as use of electronic roadshow materials constitutes a distribution requiring compliance with prospectus requirement -- relief granted from section 53 of the Securities Act (Ontario) in connection with a cross-border offering -- decision subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53.
National Policy 47-201 Trading Securities Using the Internet and Other Electronic Means, s. 2.7.
October 5 , 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SPROTT ASSET MANAGEMENT LP
IN THE MATTER OF
SPROTT PHYSICAL SILVER TRUST
The principal regulator in the Jurisdiction has received an application from the Filer, in its capacity as the manager of the Trust, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision exempting the posting of certain roadshow materials on the website of one or more commercial services, such as www.retailroadshow.com and/or www.netroadshow.com, during the portion of the "waiting period" between the date of this decision document and the date of the Final Prospectus (as defined below) from the prospectus requirement under the Legislation (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following facts represented by the Filer and the Trust:
1. The Filer is a limited partnership formed and organized under the laws of the Province of Ontario and maintains its head office in Toronto, Ontario. The general partner of the Filer is Sprott Asset Management GP Inc. (the General Partner), which is a corporation incorporated under the laws of the Province of Ontario. The General Partner is a wholly owned, direct subsidiary of Sprott Inc. Sprott Inc. is a corporation incorporated under the laws of the Province of Ontario and is a public company listed on the Toronto Stock Exchange (TSX). Sprott Inc. is the sole limited partner of the Filer and the sole shareholder of the General Partner.
2 The Filer is registered under the securities legislation in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as an adviser in the category of portfolio manager.
3. The Trust is a closed-end mutual fund trust established under the laws of the Province of Ontario pursuant to a trust agreement dated as of June 30, 2010, as amended and restated as of October 1, 2010 (the Trust Agreement), as the same may be further amended, restated or supplemented from time to time. Pursuant to the Trust Agreement, RBC Dexia Investor Services Trust and the Filer are the trustee and the manager of the Trust, respectively.
4. The Trust is a "mutual fund in Ontario" as such term is defined in the Securities Act (Ontario) and is subject to the investment restrictions applicable to mutual funds which are prescribed by National Instrument 81-102 Mutual Funds (NI 81-102). The Filer has established an independent review committee . for the Trust in accordance with the requirements under National Instrument 81-107 Independent Review Committee for Investment Funds.
5. The Trust is not required to register as an "investment company" as such term is defined in the U.S. Investment Company Act of 1940, as amended (the 1940 Act), since the Trust will invest all or substantially all of its assets in physical silver bullion. Physical silver bullion does not fall within the definition of either a "security" or an "investment security" under the 1940 Act and, accordingly, the Trust is not required to be registered as an "investment company".
6. The Filer and the Trust are not in default of securities legislation in any province or territory of Canada.
7 In connection with an initial public offering (the Offering) of transferable, redeemable units of the Trust (the Units), a preliminary base PREP prospectus dated July 9, 2010 of the Trust was filed with the securities regulatory authorities in each province and territory of Canada (collectively, the Canadian Jurisdictions) and the Trust intends to become a reporting issuer, or the equivalent thereof, in such Canadian Jurisdictions following the filing of the final base PREP prospectus of the Trust (the Final Prospectus).
8. Concurrently with filing the foregoing preliminary prospectus, the Trust filed a registration statement on Form F-1 (the Registration Statement) under the U.S. Securities Act of 1933, as amended (the 1933 Act), with the United States Securities and Exchange Commission (the SEC) in connection with the Offering of the Units in the United States.
9. The Trust subsequently filed via SEDAR the second amended and restated preliminary base PREP prospectus of the Trust dated October 1, 2010 (the Preliminary Prospectus) amending and restating the amended and restated preliminary base PREP prospectus of the Trust dated September 7, 2010 which amended and restated the preliminary base PREP prospectus of the Trust dated July 9, 2010 with each of the Canadian Jurisdictions. Concurrently with filing the Preliminary Prospectus, the Trust filed via EDGAR the Registration Statement, as amended, with the SEC.
10. The Trust intends to list the Units on the TSX and the New York Stock Exchange Arca (NYSE Area). The Trust will not file the Final Prospectus until the TSX and the NYSE Area have conditionally approved the listing of the Units.
11. The interval between the date of issuance of a preliminary receipt for the Preliminary Prospectus and the date of issuance of a receipt for the Final Prospectus under National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions is referred to as the waiting period. The Trust intends to utilize electronic roadshow materials (the Website Materials) during the portion of the "waiting period" between the date of this decision document and the date of the Final Prospectus as part of the marketing efforts for the Offering, as is now typical for an initial public offering in the United State's.
12. Because the Trust will not be required to file reports with the SEC pursuant to section 13 or section 15(d) of the U.S. Securities Exchange Act of 1934, as amended, until the time the Registration Statement, as amended, has become effective pursuant to the 1933 Act, Rule 433(d)(8)(ii) under the 1933 Act which came into effect in December 2005, requires the Trust to either file the Website Materials with the SEC or make them "available without restriction by means of graphic communication to any person ...". Staff of the SEC have taken the position that the requirement to be "available without restriction" means that there cannot be any restrictions on access or viewing imposed, both with respect to persons in and outside of the United States.
13. Compliance with applicable U.S. securities laws thus requires either making the Website Materials available in a manner that affords unrestricted access to the public, or filing the Website Materials on the SEC's EDGAR system, which will have the same effect of affording unrestricted access; however, this is inconsistent with Canadian securities laws, in particular, the prospectus requirement and activities that are permissible during the waiting period which, when applied together, require that access to the Website Materials be controlled by the Trust or the underwriters by such means as password protection and otherwise, as suggested by National Policy 47-201 Trading Securities Using the Internet and Other Electronic Means.
14. The Trust wishes to comply with applicable U.S. securities laws by posting the Website Materials on the website of one or more commercial services, such as www.retailroadshow.com or www.netroadshow.com, without any restriction thereon, such as password protection.
15. The securities laws of the Canadian Jurisdictions do not, absent the Exemption Sought, allow the Trust to post the Website Materials on the website of one or more commercial services, such as www.retailroadshow.com or www.netroadshow.com, during the waiting period in a manner that would allow the Website Materials to be accessible to all prospective investors in the Canadian Jurisdictions without restriction.
16. The Website Materials will contain a statement that information conveyed through the Website Materials does not contain all of the information in the Preliminary Prospectus, or any amendments thereto, or the Final Prospectus, or any amendments thereto, and that prospective purchasers should review all of those prospectuses, in addition to the Website Materials, for complete information regarding the Units.
17. All information about the Units is contained in the Preliminary Prospectus or will be contained in any amendments thereto.
18. The Website Materials will also contain a hyperlink to the prospectuses referred to in paragraph 16, as at and after such time as a particular prospectus is filed. The Website Materials will comply with Part 15 of NI 81-102.
19. The Website Materials will be fair and balanced.
20. The Website Materials, the Preliminary Prospectus and any amendments thereto, the Final Prospectus and any amendments thereto, state or will state that purchasers of Units in the Canadian Jurisdictions will have a contractual right of action against the Trust and the Canadian underwriters in connection with the information contained in the Website Materials posted on the website of one or more commercial services, such as www.retailroadshow.com and/or www.netroadshow.com.
21. At least one Canadian underwriter that signed the Preliminary Prospectus was, and, in respect of any subsequently amended preliminary prospectus, the Final Prospectus and any subsequently amended final prospectus, will be, registered in each of the Canadian Jurisdictions.
22. Canadian purchasers will only be able to purchase the Units under the Final Prospectus through an underwriter that is registered in the respective Canadian Jurisdiction of residence of the Canadian purchaser.
23. The Filer and the Trust acknowledge that the Exemption Sought relates only to the posting of the Website Materials on the website of one or more commercial services, such as www.retailroadshow.com and/or www.netroadshow.com, and not in respect of the Final Prospectus:
The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.
The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) The Trust and the Canadian underwriters provide each of the purchasers of the Units in the Canadian Jurisdictions under the Final Prospectus, including any amendments thereto, with a contractual right of action against the Trust and the Canadian underwriters as described in the disclosure required by condition (b) below.
(b) The Preliminary Prospectus and any amendments thereto, and the Final Prospectus and any amendments thereto, state that purchasers of Units in each of the Canadian Jurisdictions have a contractual right of action against the Trust and the Canadian underwriters, substantially in the following form:
"We may make available certain materials describing the offering (the Website Materials) on the website of one or more commercial services, such as www.retailroadshow.com and/or www.netroadshow.com, under the heading "Sprott Physical Silver Trust" in accordance with U.S. securities law during the period prior to obtaining a final receipt for the final prospectus relating to this offering (the Final Prospectus) from the securities regulatory authorities in each of the provinces and territories of Canada (the Canadian Jurisdictions). In order to give purchasers in each of the Canadian Jurisdictions the same unrestricted access to the Website Materials as provided to U.S. purchasers, we have applied for and obtained exemptive relief from the securities regulatory authorities in each of the Canadian Jurisdictions. Pursuant to the terms of that exemptive relief, we and each of the Canadian underwriters signing the certificate contained in the Final Prospectus have agreed that, in the event that the Website Materials contained any untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to make any statement therein not misleading in the light of the circumstances in which it was made (a misrepresentation) a purchaser resident in any of the Canadian Jurisdictions who purchases Units pursuant to the Final Prospectus during the period of distribution shall have, without regard to whether the purchaser relied on the misrepresentation, rights against the Trust and each Canadian underwriter with respect to such misrepresentations as are equivalent to the rights under section 130 of the Securities Act (Ontario) or the comparable provision of the securities legislation of each of the other Canadian Jurisdictions, as if such misrepresentation was contained in the Final Prospectus."
(c) The Website Materials will not include comparables unless the comparables are also included in the Preliminary Prospectus or in any amendments thereto that are filed prior to the Website Materials being made available.
(d) The Website Materials will also contain a hyperlink to the Preliminary Prospectus, including any amendments thereto, and the Final Prospectus, including any amendments thereto, as at and after such time as a particular prospectus is filed.
(e) At least one Canadian underwriter who signed the Preliminary Prospectus was, and any amendments thereto, the Final Prospectus, and any amendments thereto, will be, registered in each of the Canadian Jurisdictions.