On September 8, 2022, the Canadian Securities Administrators announced the introduction of a new prospectus exemption (the Listed Issuer Financing Exemption) to provide a more efficient method for issuers listed on a Canadian stock exchange to raise capital. Reporting issuers trading on a Canadian exchange who have filed all required timely and periodic disclosure documents will be able to use this exemption to distribute freely tradable equity securities without preparing a prospectus by relying on their existing continuous disclosure record, supplemented with a short offering document. The new Listed Issuer Financing Exemption is expected to take effect on November 21, 2022.

Qualifications

The Listed Issuer Financing Exemption is available to any reporting issuers that satisfy all of the following criteria:

1. The issuer has been a reporting issuer in at least one jurisdiction in Canada for at least 12 months prior to the news release announcing the offering under the Listed Issuer Financing Exemption.
2. The issuer has a class of equity securities listed for trading on an exchange recognized by a securities regulatory authority in Canada (e.g., TSX, TSX Venture Exchange, CSE, NEO).
3. The issuer is up to date with all of its periodic and timely disclosure filings (e.g., financial statements, MD&A, material change reports, etc.).
4. The issuer is not an investment fund.
5. The issuer, or any party with whom the issuer completed a restructuring transaction within the 12 months prior to the news release announcing the offering under this exemption, may not have ceased operations or have as its principal asset, cash, cash equivalents or its exchange listing (which excludes capital pool companies, special purpose acquisition companies and growth acquisition companies from being eligible).

In addition, at the time of the offering under this exemption, the issuer must reasonably expect that it will have available funds to meet its business objectives and liquidity requirements for a period of 12 months following the offering.

Limitations on offering size

Distributions under the Listed Issuer Financing Exemption are limited in size.  As of the date of the news release announcing the offering under the Listed Issuer Financing Exemption, the aggregate amount of such offering, when combined with all other distributions made under this exemption during the preceding 12 months, must not exceed the greater of: (i) CA$5 million; and (ii) 10% of the issuer’s market capitalization as of the date of the news release (up to a maximum of CA$10 million).

In addition, the offering, when combined with all other distributions made by the issuer under this exemption during the 12 months preceding the news release announcing the offering, cannot result in an increase of the issuer’s outstanding listed equity securities by more than 50%.

While there is no minimum distribution size, the offering must be large enough such that following the offering, the issuer reasonably expects to have sufficient funds to meet its liquidity needs and business objectives for the following 12 months.

Type of securities and purpose of funds

Only listed equity securities of the issuer, or units consisting of listed equity securities and warrants convertible into listed equity securities, may be distributed under the Listed Issuer Financing Exemption. As such, the Listed Issuer Financing Exemption cannot be used in connection with an offering of other types of securities, such as subscription receipts, special warrants, or convertible debentures.
The issuer cannot use the proceeds raised under the Listed Issuer Financing Exemption to fund a significant acquisition, a restructuring transaction, or any other transaction for which the approval of security holders is sought.

Purchase or resale restrictions

There are no purchase or resale restrictions under the Listed Issuer Financing Exemption.  Securities issued under the exemption can be purchased by anyone and are freely tradable immediately following issuance. 

Procedure

To take advantage of the Listed Issuer Financing Exemption, the issuer must complete the following steps prior to soliciting any offers to purchase from investors:

• File a news release announcing the offering and which contains certain prescribed language; and
• Prepare and file, a Form 45-106F19 - Listed Issuer Financing Document within three business days after the date of such form, and post a copy of the form on its corporate website.

Within 10 days of distributing securities under the exemption, the reporting issuer must file a Form 45-106F1 Report of Exempt Distribution.

The distribution must be completed within 45 days of the news release announcing the offering.

Offering document

The Listed Issuer Financing Document is the form of offering document required under the Listed Issuer Financing Exemption.  It is anticipated that the Listed Issuer Financing Document will be a short, easy to understand document. The Canadian securities regulators have indicated that they generally do not expect the Listed Issuer Financing Document to be longer than five pages in length.  The Listed Issuer Financing Document must contain specified information, including but not limited to:

1. details of the offering;
2. a brief description of the issuer’s business;
3. any material facts about the securities being distributed that have not been disclosed in the previous 12 months’ disclosure documents;
4. the business objectives to be accomplished using the funds raised by the offering, and a breakdown of how the available funds are intended to be allocated towards those objectives;
5. how funds from any previous financings in the past 12 months have been used;
6. information on where to access the issuer’s continuous disclosure documents; and
7. information regarding the purchasers’ rights of action in the event of a misrepresentation.

Liability

The CEO and CFO of the issuer are required to certify that the Listed Issuer Financing Document, together with certain documents (within the period described below) filed by the issuer under Canadian securities laws, disclose all material facts relating to the securities being distributed, and do not contain a misrepresentation.

The aforementioned certification extends to documents filed by the issuer on or after the earlier of:

• 12 months before the date of the Listed Issuer Financing Document; and
• the date of the issuer’s most recent audited annual financial statements,

In the event of any misrepresentation in the documents filed in the period described above, purchasers of securities distributed under this exemption will have a right to rescind their purchase or a right to damages against the issuer.

The Listed Issuer Financing Document will be considered a "core document" under applicable Canadian securities law for purposes of the issuer's continuous disclosure record. As such, the issuer will be liable to purchasers of securities issued in reliance of the Listed Issuer Financing Exemption under the secondary market liability provisions if there is a misrepresentation in the documents certified by the CEO and CFO in the Listed Issuer Financing Document.

Implications

The Listed Issuer Financing Exemption is expected to create greater accessibility in the capital markets for issuers, while also reducing transaction costs for raising financing. We expect this will be a particularly welcomed development for junior reporting issuers, as they will be able to distribute freely tradeable securities without the burden of preparing a prospectus, which can be cost prohibitive for those raising smaller amounts of capital. Furthermore, as the securities distributed under this exemption are not subject to any hold period, we anticipate the discount at which such securities are sold may be reduced relative to securities sold pursuant to other prospectus exemptions, which in turn, would minimize dilution to existing shareholders.

For more information about the Listed Issuer Financing Exemption or if you need assistance with preparing a distribution under the exemption, please contact Eric Lung, Kimberly Burns, Saul Wang, or another member of our Corporate Finance group. 

For more information about secondary market liability, you may also be interested in Dentons Insights here and here.

The authors would like to thank Susannah Blary, articling student at Dentons’ Vancouver office, for her valuable research and contributions to this update.