On September 8, 2022, the Canadian Securities Administrators announced the introduction of a new prospectus exemption (the Listed Issuer Financing Exemption) to provide issuers listed on a Canadian stock exchange with a more efficient method of raising capital. Reporting issuers trading on a Canadian stock exchange that have filed all required timely and periodic disclosure materials will be able to rely on this exemption to distribute freely tradable equity securities without preparing a prospectus based on their disclosure record. continues, supplemented by a short offer document. The new listed issuer financing exemption is expected to come into effect on November 21, 2022.
The Listed Issuer Financing Exemption is available to all reporting issuers that meet all of the following criteria:
- The issuer has been a reporting issuer in at least one jurisdiction in Canada for at least 12 months prior to the press release announcing the offering under the listed issuer financing exemption.
- The issuer has a class of equity securities listed for trading on an exchange recognized by a securities regulatory authority in Canada (eg, TSX, TSX Venture Exchange, CSE, NEO).
- The issuer is up-to-date with all of its periodic and timely disclosure documents (eg, financial statements, MD&A, material change reports, etc.).
- The issuer is not an investment fund.
- The issuer, or any party with which the issuer has entered into a restructuring transaction within the 12 months preceding the press release announcing the offer under this exemption, may not have ceased operations or have as its principal asset, cash, cash equivalents or its stock exchange listing (which excludes capital pool companies, special purpose acquisition companies and growth acquisition companies from eligibility).
In addition, at the time of distribution under this exemption, the issuer must reasonably expect to have sufficient funds to meet its business objectives and liquidity needs for a period of 12 months following the distribution.
Limits on offer size
Distributions under the listed issuer financing exemption are limited in size. As of the date of the press release announcing the offering under the listed issuer financing exemption, the total amount of such offering, when combined with all other distributions made under this exemption during the 12 months above, shall not exceed the greater of the following amounts: (i) 5 million Canadian dollars; and (ii) 10% of the market capitalization of the issuer as of the date of the press release (up to a maximum of C$10 million).
In addition, the placement, when combined with all other distributions made by the issuer under this exemption during the 12 months preceding the press release announcing the placement, cannot result in an increase of more than 50% outstanding listed equity securities of the issuer.
Although there is no minimum distribution size, the offer must be large enough that after the offer the issuer reasonably expects to have sufficient funds to meet its liquidity needs and to its business objectives for the next 12 months.
Type of securities and destination of funds
Only listed equity securities of the issuer, or units consisting of listed equity securities and warrants convertible into listed equity securities, may be distributed under the listed issuer financing exemption. Accordingly, the listed issuer financing exemption cannot be used in the context of a distribution of other types of securities, such as subscription receipts, special warrants or convertible debentures.
The issuer may not use the proceeds raised under the listed issuer financing exemption to finance a material acquisition, restructuring transaction or any other transaction for which security holder approval is sought.
Purchase or Resale Restrictions
There are no purchase or resale restrictions under the Listed Issuer Financing Exemption. Securities issued under the exemption can be purchased by anyone and are freely tradable immediately upon issuance.
To rely on the listed issuer financing exemption, the issuer must take the following steps before soliciting offers to purchase from investors:
- File a press release announcing the offer and containing certain prescribed terms; and
- Prepare and file a Form 45-106F19 – Listed Issuer Financing Document within three business days of the date of this form and post a copy of the form on its website.
Within 10 days of the distribution of securities under the exemption, the reporting issuer must file a report of exempt distribution 45-106F1.
The distribution must be completed within 45 days of the press release announcing the offer.
The Listed Issuer Financing Document is the form of offering document required under the Listed Issuer Financing Exemption. It is expected that the Listed Issuer Financing Document will be short and easy to understand. Canadian securities regulators have indicated that they generally do not expect a listed issuer’s financing document to exceed five pages. The Listed Issuer Finance Document must contain specific information, including but not limited to:
- offer details;
- a brief description of the issuer’s business;
- any material fact regarding securities distributed that was not disclosed in disclosure documents for the preceding 12 months;
- the business objectives to be achieved using the funds raised by the offering, and a breakdown of how the available funds are intended to be applied to those objectives;
- how funds from any previous funding in the past 12 months have been used;
- information on access to the issuer’s continuous disclosure documents; and
- information regarding buyers’ rights of action in the event of misrepresentation.
The issuer’s CEO and CFO are required to certify that the listed issuer’s financing document, as well as certain documents (within the time period described below) filed by the issuer under Canadian securities laws, disclose all material facts relating to the securities being distributed, and do not contain any misrepresentation.
The above certification extends to documents filed by the issuer on or after the earliest of the following dates:
- 12 months before the date of the Registered Issuer Financing Document; and
- the date of the issuer’s most recent audited annual financial statements,
In the event of misrepresentation in documents filed during the period described above, purchasers of securities distributed under this exemption will have the right to rescind their purchase or recover damages against the issuer.
The listed issuer’s financing document will be considered a “core document” under applicable Canadian securities laws for purposes of the issuer’s continuous disclosure record. As such, the issuer will be liable to purchasers of securities issued on the basis of the Listed Issuer Funding Exemption under the Secondary Market Liability Provisions if there is a misrepresentation in the certified documents. by the CEO and CFO in the listed issuers’ financing document.
The Listed Issuer Financing Exemption is expected to create greater accessibility to capital markets for issuers, while reducing transaction costs to obtain financing. We expect this to be a particularly welcome development for smaller reporting issuers, as they will be able to place freely tradable securities without having to prepare a prospectus, which can be prohibitively expensive for those raising small amounts of capital. In addition, since securities distributed under this exemption are not subject to any hold period, we anticipate that the discount at which such securities are sold may be reduced relative to securities sold under other prospectus exemptions, which, in turn, would minimize dilution for existing shareholders. .
The authors would like to thank Susannah Blary, articling student in the Vancouver office of Dentons, for her valuable research and contributions to this update.