On September 8, 2022, the Canadian Securities Administrators (the “CSA”) announced an amendment to the National Instrument 45-106 Prospectus Exemptions to introduce a new prospectus exemption for issuers listed on a Canadian stock exchange (the “Listed Issuer Financing Exemption”).
The Listed Issuer Financing Exemption will allow eligible issuers to distribute freely tradeable listed securities by preparing a short offering document under Form 45-106F19 Listed Issuer Financing Document (the “Offering Document”) rather than a short form prospectus, which will save both time and cost for issuers. The Listed Issuer Financing Exemption is a part of the CSA’s goal to provide a more efficient method to raise capital and reduce the regulatory burden for smaller offerings.
The following is a summary of the Listed Issuer Financing Exemption, which will take effect on November 21, 2022.
In order to be eligible for the Listed Issuer Financing Exemption, the issuer must meet the following requirements:
- have been a issuer in a Canadian jurisdiction for at least 12 months prior to the announcement of the offering;
- have securities listed on a Canadian stock exchange;
- have filed all timely and periodic disclosure documents required under the Canadian securities legislation;
- have active business operations at the time of the offering and reasonably expect to have available funds to meet business objectives for the 12 months after distribution;
- must not have cash, cash equivalents, or exchange listings as its principal asset within the preceding 12 month period prior to the announcement of the offering; and
- must not be an investment fund, capital pool company, and a growth acquisition company within the preceding 12 month period prior to the announcement of the offering.
Issuers who qualify for the Listed Issuer Financing Exemption will be limited to the following:
- the distributing securities must be listed equity securities or units consisting of listed equity securities and warrants convertible into listed equity securities;
- the total dollar amount of the offering, combined with any other distributions made under the Listed Issuer Financing Exemption during the 12 month period prior to the news release announcing the offering, must not exceed the greater of $5 million and 10% of the issuer’s market capitalization for a maximum of up to $10 million;
- the distribution of securities under the offering, combined with any other distributions made under the Listed Issuer Financing Exemption during the 12 month preceding the news release of the offering, must not increase by more than 50% in the issuer’s outstanding listed equity securities;
- must not use the offering proceeds for a significant acquisition or a restructuring transaction (as defined in National Instrument 51-102 Continuous Disclosure Obligations);
- the offering must close within 45 days of the issuance and filing of the news release announcing the offering; and
- must not use the offering proceeds for any transaction for which the issuer seeks approval of any security holder.
All issuers relying on the Listed Issuer Financing Exemption will be required to disclose the following:
- issue and file a news release announcing the offering;
- prepare the Offering Document disclosing the details of the offering including, the issuer’s financial condition, the intended use of the proceeds from the offering, a disclaimer that the Offering Document has not been reviewed by an securities regulatory authority, and certification that the Offering Document and the issuer’s continuous disclosure contain no misrepresentations;
- file the Offering Document in the form prescribed in National Instrument 45-106 with the relevant securities regulator within three days after the date of the Offering Document;
- file the completed Offering Document on SEDAR and the issuer’s website prior to soliciting offers to purchase; and
- complete Form 45-106F1 Report of Exempt Distribution in every Canadian jurisdiction where the distribution has been made within 10 days of the distribution.
Since the CSA will not be reviewing the Offering Document, in order to protect investors from misrepresentation, issuers are required to certify that the Offering Document and other disclosure documents filed by the issuer on the date of the earlier of the 12 months before the date of the Offering Document and the date of the most recent audited annual financial statements, contain no misrepresentation. The issuer will also be liable to any purchasers in the secondary market if there are any misrepresentations under the secondary market liability provisions in the Canadian securities legislation.
For more information on the new Listed Issuer Financing Exemption, visit: https://www.bcsc.bc.ca/about/media-room/news-releases/2022/62-canadian-securities-regulators-adopt-streamlined-capital-raising-option-for-canadian-listed-issuers