Listed Issuer Financing Exemption

The Canadian Securities Administrators (the “CSA”) have approved a new prospectus exemption for reporting issuers listed on a Canadian stock exchange seeking to raise equity (the “Listed Issuer Financing Exemption”). The Listed Issuer Financing Exemption relies on the issuer’s continuous disclosure record, supplemented by an abbreviated offering document, and will allow such issuers to distribute freely tradeable listed equity securities to the public. Subject to necessary ministerial approvals, the exemption will come into effect on November 21, 2022 through an amendment to National Instrument 45-106 – Prospectus Exemptions.

The relief is part of the CSA’s ongoing efforts to reduce the regulatory burden on reporting issuers that are not investment funds, including providing issuers with efficient means to raise capital while maintaining investor protection. The CSA have made consequential amendments to the System for Electronic Document Analysis and Retrieval (“SEDAR”) and National Instrument 45-102 – Resale of securities therefore to add the element of exemption.

Eligibility criteria

To rely on the listed issuer financing exemption, an issuer must:

  • list securities on a Canadian stock exchange recognized by a securities regulatory authority in Canada;
  • be a reporting issuer for at least 12 months in Canada;
  • have filed all periodic and timely disclosure documents that it is required to file;
  • have active business activities or its principal asset does not consist of cash (or its equivalent) or its public listing (for example, a seed capital company or an empty shell); and
  • Prepare a short offering document that will be considered a “core” document under the secondary market liability regime.

Limits

The exemption imposes the following limitations:

  • the aggregate dollar amount of the distribution will not exceed the greater of five million dollars or ten percent of the market capitalization of the issuer, to a maximum of ten million dollars in any 12 month period active ; and
  • the security distributed is either a listed equity security or a unit consisting of a listed equity security and a warrant convertible into a listed equity security.

Proceeds of funds raised under the Listed Issuer Funding Exemption cannot be used for a material acquisition, a restructuring transaction that would require additional financial statements under the prospectus rules, or for any other transaction that requires the security holder approval.

Exempt Market Underwriter and Dealer

It is not necessary that a registrant or an underwriter be retained in connection with the distribution. Relevant securities dealers and exempt market dealers will be subject to their registration requirements. It is important to note that investors wishing to purchase the new issue with the intention of reselling the securities immediately on the secondary market should consider the applicability of any ‘backhand’ rules.

Bidding documents and reporting requirements

Prior to soliciting purchasers under the listed issuer financing exemption, issuers must file with a securities regulatory or regulatory authority a press release announcing the offering and Form 45-106F19 Listed Issuer Financing Document (“Form 45-106A19”). Form 45-106A19 is used as an offering document under the listed issuer financing exemption and must include the following information:

  • the securities offered and the terms/limits of the offer;‎
  • confirmation that the offering document has not been reviewed by a securities regulatory authority; ‎
  • certification that the financing document and the 12-month continuous disclosure file do not contain any misrepresentation;
  • a summary description of the business, recent developments, material facts and business objectives and milestones;
  • information and a detailed breakdown of the use of funds available after the offer;‎
  • a description of the use of the proceeds of any funding over the previous 12 months and any deviations from this disclosure;‎
  • the involvement of resellers or intermediaries and their fees, if any, and ‎
  • a description of the statutory rights available to purchasers.‎

Issuers must also file Form 45-106A1 Declaration of exempt distribution in each jurisdiction where a distribution has been made within ten days of the distribution of securities under the exemption. Distribution must end no later than the 45e day after the publication of the press release.

Legal liability

Since the CSA would not review the offering documents, the CSA imposed legal liability on the issuer and, in some jurisdictions, the officers signing the offering document, as well as the directors of the issuers, for any misrepresentation in the offering documents.

For more information, please see CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions to Introduce Listed Issuer Funding Exemption.

Summary and Benefits for Issuers and Advisors

In summary, under the listed issuer financing exemption, issuers and their financial advisors will no longer need to prepare and file a short form prospectus and instead the issuer can rely on a condensed short form offering document. , which will save him time and money. The listed issuer financing exemption will also allow smaller issuers greater access to retail investors and provide retail investors with a broader choice of investments. Equity securities issued under the exemption will be freely tradable but subject to a seasoning period which will be satisfied by the issuer being a reporting issuer in good standing. If the issuer intends to raise capital to finance a major acquisition or restructuring transaction by distributing securities to retail investors, such capital increase must be supplemented by the use of the prospectus regime in order to to ensure full, truthful and clear disclosure.

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