A New Prospectus Exemption for Small Issuers – the “Listed Issuer Financing Exemption”


On September 8, 2022, the Canadian Securities Administrators (“CSA”) announced that they have approved a new prospectus exemption under National Instrument 45-106 Prospectus Exemptions for issuers listed on Canadian stock exchanges (the “Listed issuer Financing waiver”).

For your information, while the short form prospectus regime was designed to facilitate efficient capital raising for reporting issuers, the CSA have been told by stakeholders that the time and cost of preparing a short form prospectus pose a barrier to raising capital, especially for smaller issuers. Accordingly, the substance and purpose of the Listed Issuer Financing Exemption is to provide a more efficient method of conducting small capital raisings, particularly for junior issuers, by reducing regulatory burden and issuer costs.

The listed issuer financing exemption is supported by the issuer’s continuous disclosure record, supplemented by a simplified offering document written in plain language and in question and answer format. It is important to note that listed equity securities distributed by issuers to the public under the exemption will not be subject to a hold period and will be freely tradable upon issuance. In addition, an underwriter would not be required to participate in the distribution.

Assuming all necessary ministerial approvals are obtained, the listed issuer financing exemption will come into effect on November 21, 2022.

Qualification Criteria for Exemption

Generally, to qualify for the listed issuer financing exemption, an issuer must:

(a) be a reporting issuer and have been a reporting issuer in at least one Canadian jurisdiction during the 12 months preceding the date on which the issuer files the press release announcing the offering;

(b) have equity securities listed on a Canadian stock exchange recognized by a securities regulatory authority in Canada;

(c) have active business activities and its main asset must not be: (i) cash (or its equivalent); or (ii) its listing on a stock exchange (for example, a capital pool company or a special purpose acquisition company) and the issuer cannot have entered into a restructuring transaction with a person or company that does not has not had active commercial activities in the 12 months preceding the announcement of the distribution;

(d) not be an investment fund;

(e) have filed all periodic and timely disclosure documents required to be filed under applicable Canadian securities laws; and

(f) reasonably expect, at the time of the distribution, to have sufficient funds to meet its business objectives and liquidity requirements for a period of 12 months following the distribution.

Although there is no strict requirement to have a minimum offering amount under the listed issuer financing exemption, the issuer must set a minimum offering amount, so that the issuer has sufficient funds to meet its business objectives and liquidity requirements for a 12-month period. period following the end of the distribution. If this minimum amount cannot be fixed, the issuer cannot rely on the exemption to close the offer and the information to this effect must be made on the cover page of the offer document.

Finally, reporting issuers do not need to have an up-to-date AIF or have filed a Notice of Intention to Run Out of Eligibility to rely on the Listed Issuer Funding Exemption.

Limits of use of the exemption

The listed issuer financing exemption will only be available for offerings that meet all of the following conditions:

(i) the aggregate dollar amount of the distribution will not exceed the greater of $5 million or 10% of the market capitalization of the issuer, up to a maximum of $10 million per 12 month period;

(ii) the distribution, combined with all other distributions made under the Listed Issuer Financing Exemption in the preceding 12 months, will not result in an increase of more than 50% in the outstanding listed equity securities of the issuer on the date 12 months before the date of the press release;

(iii) the security distributed is a listed equity security or a unit consisting of a listed equity security and a warrant convertible into a listed equity security; and

(iv) proceeds of funds raised under the Listed Issuer Financing Exemption will not be used for a Material Acquisition (as defined in NI 51-102 Continuous disclosure obligations in Part 8), a restructuring transaction or any other transaction requiring security holder approval.

Other requirements

Before soliciting offers to purchase under the listed issuer financing exemption, issuers must:

  • Issue and file a press release announcing the Offer, in the prescribed language; and
  • Issue and file a completed Form 45-106A19 Listed Issuer Financing Document (“Form 45-106F19”) which serves as the offering document. It includes information relating to: (i) the securities offered; (ii) the terms of the offer; (iii) a summary description of the issuer’s business; (iv) the use of funds available after the offer; (v) the involvement of brokers or intermediaries and their fees (if any); and (vi) a description of the statutory rights available to purchasers. Form 45-106A19 also includes certifications that it and the 12-month continuous disclosure record do not contain any misrepresentations.

Issuers must also ensure the offering closes within 45 days of the news release and file Form 45-106A1 Declaration of exempt distribution (including a completed Schedule 1 with buyer information) in each jurisdiction where distribution was made within 10 days of distribution.

Responsibility of the issuer

If the offering document contains a misrepresentation, purchasers of securities issued under the listed issuer financing exemption will have the right to rescind their purchase of securities (for a period of 180 days following the distribution) or a right to damages against the issuer, and in some jurisdictions against other persons signing the offering document (eg, officers). Investors under the exemption would also have such rights of rescission or damages, if any document filed by the issuer under Canadian securities laws on or after the earliest date between (i) the date that is 12 months before the date of the issuer’s completed offering document and (ii) the date on which the issuer’s last audited annual financial statements were filed contains a misrepresentation or does not disclose all material facts. These rights are available to buyers whether or not they relied on the misrepresentation. However, certain circumstances may limit these rights, in particular if the buyer was aware of the misrepresentation when purchasing the securities.

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