The Canadian Securities Administrators (the “CSA”) recently published amendments to National Instrument 45-106 – Prospectus Exemptions which create a new capital raising method for reporting issuers listed on a Canadian stock exchange (the “Listed Issuer Exemption”). The Listed Issuer Exemption is expected to come into effect on November 21, 2022, after which point reporting issuers will be able to rely on it to issue freely tradeable equity securities to investors without a prospectus.
The Listed Issuer Exemption is meant to provide a more efficient method for reporting issuers that have filed all timely and periodic disclosure documents required under applicable Canadian securities legislation and have securities listed on a Canadian stock exchange.
Qualification Criteria
In order to rely on the Listed Issuer Exemption, a company must:
have securities listed on a recognized Canadian stock exchange;
have been a reporting issuer for 12 months in at least one jurisdiction in Canada;
have active business operations and not have recently completed a restructuring transaction with a person or company that did not have active business operations;
not be an investment fund;
have filed all timely and periodic disclosure documents as required under applicable Canadian securities laws;
reasonably expect that it will have available funds to meet its business objectives and liquidity requirements for a period of 12 months following the distribution; and
prepare and file a short offering document (the “Offering Document”), known as a Form 45-106F9 Listing Issuer Financing Document, which will contain certain prescribed disclosure, on its SEDAR page and website.
There is no requirement for a registrant or underwriter to be retained in connection with an offering under the Listed Issuer Exemption.
Exemption Parameters
Only equity securities, or securities convertible into equity securities, can be distributed in reliance of the Listed Issuer Exemption. The securities distributed will not be subject to any statutory hold periods. In addition, issuers are limited be limited in the amount that can be raised in reliance of the Listed Issuer Exemption. The total dollar amount that an issuer may raise using the Listed Issuer Exemption during any 12 month period may not exceed the greater of $5 million or 10% of the aggregate market value of the issuer’s listed equity securities, to a maximum total dollar amount of $10 million. In addition, the total number of listed equity securities issued using the Listed Issuer Exemption during any 12 month period must not result in an increase of more than 50% in the issuer’s outstanding listed equity securities.
The Listed Issuer Exemption will not be available to issuers that intend on using the proceeds for: (i) a significant acquisition; (ii) a restructuring transaction; or (iii) any other transaction for which the issuer seeks approval of any securityholder.
Disclosure Requirements
As mentioned above, issuers seeking to rely on the Listed Issuer Exemption will be required to prepare and file an Offering Document on its SEDAR page and website. The Offering Document must contain certain prescribed disclosure including, but not limited to, the issuer’s business, the offering, the use of funds and purchasers’ rights.
The Offering Document, which must be filed within three business days of its effective date, will not be subject to review by the CSA. However, issuers will be required to certify that the Offering Document, together with the issuer’s continuous disclosure for the past 12 months, contains disclosure of all material facts about the issuer or the securities being distributed and does not contain a misrepresentation. The Offering Document will be considered a “core document” in the issuer’s continuous disclosure record. In the event of a misrepresentation in the Offering Document or in the issuer’s continuous disclosure record for a prescribed period, purchasers relying on the Listed Issuer Exemption will have the same rights of action under secondary market civil liability as purchasers on the secondary market. Purchasers relying on the Listed Issuer Exemption will also have a contractual right of rescission against the issuer for a period of 180 days following the distribution in the event of a misrepresentation, as all issuers seeking to rely on the Listed Issuer Exemption must grant this contractual right to purchasers.
Issuers are also required to disseminate a news release announcing a proposed offering and informing potential purchasers that they can access the Offering Document on the issuer’s SEDAR page and website. Such news release must be disseminated prior to soliciting offers to purchase securities and contain certain prescribed language. Proposed distributions must be completed with 45 days of dissemination of such news release.
Upon completion of any offering in reliance of the Listed Issuer Exemption, the issuer must report use of the exemption by filing a Form 45-106F1 Report of Exempt Distribution.
Next Steps
Provided all necessary Ministerial approvals are obtained, the Listed Issuer Exemption will come into force on November 21, 2022. We expect the Listed Issuer Exemption will provide smaller issuers with access to public markets and retail investors in a more cost-efficient manner.
Please contact us if you would like further information on the Listed Issuer Exemption.
DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.