Business Law Blog

The Canadian Securities Administrators (“CSA”) recently announced amendments to National Instrument 45-106 – Prospectus Exemptions introducing a new prospectus exemption that is expected to take effect on November 21, 2022 (the “Listed Issuer Exemption”).

Listed issuers that qualify for the Listed Issuer Exemption will be able to distribute freely tradeable listed equity securities to the public based on their continuous disclosure record, as supplemented by a short offering document. This new exemption will provide reporting issuers that have securities listed on a Canadian stock exchange with a more efficient and cost-effective method of raising limited amounts of capital, and is expected to allow smaller issuers better access to retail investors.

The average amount raised in financings completed by issuers listed on the TSX Venture Exchange (“TSX-V”) is $3.5 million^[1]. Under the Listed Issuer Exemption, an issuer will be able to raise up to between $5 million and $10 million, depending on its market capitalization, in a 12-month period. As a result, we anticipate that many TSX-V listed issuers will seek to rely on the Listed Issuer Exemption for future financings.

Issuer Eligibility

The Listed Issuer Exemption is available to issuers that are not investment funds and that:

• have been a reporting issuer for at least 12 months prior to the date of the news release announcing the offering;
• have equity securities listed on a recognized stock exchange in Canada;
• have filed all periodic and timely disclosure documents in accordance with Canadian securities law; and
• have an active operating business whose principal asset is not cash, cash equivalents or its exchange listing during the preceding 12 months (in other words, a capital pool company, special purpose acquisition company, growth acquisition corporation or any similar person or company will not be eligible).

Conditions and Limitations

Reliance on the Listed Issuer Exemption is subject to the following conditions and limitations:

• the maximum amount that may be raised in a 12 month period is the greater of $5 million and 10% of the issuer’s market capitalization, up to a maximum of $10 million;
• securities distributed under the Listed Issuer Exemption cannot result in existing shareholders being diluted by more than 50% in a 12 month period;
• the funds raised may not be used to finance a significant acquisition, a restructuring transaction or any other transaction for which the issuer seeks security holder approval;
• the security being distributed must be either a listed equity security or a unit consisting of a listed equity security and a warrant convertible into a listed equity security; and
• at the time of the distribution, the issuer must reasonably expect that it will have funds available to meet its business objectives and liquidity requirements for 12 months following the distribution.

Offering Document, Liability and Reporting Requirements

Before an issuer may solicit purchasers using the Listed Issuer Exemption it must: (i) issue a news release announcing the distribution; (ii) file a completed Form 45-106F19 – Listed Issuer Financing Document (the “Offering Document”); and (iii) if the issuer has a website, post the Offering Document on its website.

The Offering Document requires, among other things, specific disclosure about the offering, as well as descriptions of the issuer’s business, objectives and milestones, how the raised funds will be used upon closing of the offering, how funds raised in the preceding 12 months have been used and the purchaser’s rights in the event of a misrepresentation. The Offering Document will not be reviewed by CSA staff or securities regulators.

The Offering Document, together with the issuer’s continuous disclosure documents filed on or after the earlier of (i) the date that is 12 months before the date of the Offering Document and (ii) the date the issuer’s most recently completed audited annual financial statements were filed, must contain all material facts relating to the securities being distributed and must not contain a misrepresentation. The issuers, and in some jurisdictions certain executives signing the Offering Document and the issuer’s directors, will be subject to statutory liability for any misrepresentation in the Offering Document.

Within 10 days following the distribution of securities under the Listed Issuer Exemption, the issuer must file a report of exempt distribution in every applicable jurisdiction in Canada.

To discuss the Listed Issuer Exemption, please contact any member of our Corporate Finance and Securities Group.

[1] https://www.tsx.com/listings/listing-with-us