The new Listed Issuer Financing Exemption will permit issuers listed on Canadian stock exchanges with an operating business to distribute freely tradeable listed equity securities to the public in reliance on the issuer’s continuous disclosure record as supplemented with a brief offering document. The Canadian Securities Administrators have approved the new prospectus exemption and, subject to all necessary ministerial approvals of amendments to National Instrument 45–106 Prospectus Exemptions and related amendments, the Listed Issuer Financing Exemption can be used by issuers starting on November 21, 2022.
With the Listed Issuer Financing Exemption, issuers will benefit from a much broader pool of potential investors, the ability to offer freely tradeable securities, and an efficient method of raising capital. Retail investors will now have investment opportunities traditionally available only to institutional investors, high-net-worth individuals, and those closely connected to an issuer, with all the protections of a prospectus, including statutory rights of withdrawal, rescission, and damages.
To be eligible to distribute freely tradeable listed equity securities (or units consisting of listed equity securities and warrants convertible into listed equity securities) to the public using the Listed Issuer Financing Exemption, an issuer must have equity securities listed on a recognized stock exchange in Canada, been a reporting issuer in at least one jurisdiction of Canada for the 12 months immediately before the date of the news release announcing the offering, and filed all periodic and timely disclosure documents required under applicable Canadian securities laws.
The Listed Issuer Financing Exemption is not available to an issuer that is an investment fund. It is also not available to an issuer if the issuer is, or during the 12 months immediately before the date of the news release announcing the offering, the issuer or any person or company with whom the issuer completed a restructuring transaction was either (i) an issuer whose operations have ceased, or (ii) an issuer whose principal asset is cash, cash equivalents, or its exchange listing, including, for greater certainty, a capital pool company, a special purpose acquisition company, a growth acquisition corporation or any similar person or company.
Offering Limitations and Requirements
Issuers using the Listed Issuer Financing Exemption are limited to raising $5,000,000 in any 12-month period (calculated from the date the issuer files the news release announcing the offering and assuming completion of the offering) unless an issuer’s aggregate market value is greater than $50,000,000 on the date the issuer files the news release announcing the offering, in which case, the amount is 10% of the aggregate market value, to a maximum of $10,000,000.
Issuers are also limited to issuing such number of listed equity securities that, when combined with all other issuances made by the issuer under the Listed Issuer Exemption during the 12 months immediately before the date the issuer files the news release announcing the offering, would result in an increase of more than 50% in the issuer’s outstanding listed equity securities (as of the date that is 12 months before the date the issuer files the news release announcing the offering).
Although there is no requirement to have a minimum offering amount under the Listed Issuer Financing Exemption, if, following completion of the offering, the issuer will not have sufficient available funds to meet the issuer’s business objectives and liquidity requirements for a period of 12 months, the issuer must set a minimum offering amount such that, following completion of the distribution, the issuer will have sufficient available funds to meet its business objectives and liquidity requirements for a period of 12 months.
The Listed Issuer Financing Exemption is not available to an issuer that intends to allocate funds to an acquisition that is a significant acquisition under Part 8 of National Instrument 51–102 Continuous Disclosure Obligations, a restructuring transaction, or any other transaction for which the issuer seeks approval of any security holder.
An offering using the Listed Issuer Financing Exemption must close no later than the 45th day after the date the issuer issues and files the news release announcing the offering.
Disclosure and Reporting Requirements
Before soliciting purchasers under the Listed Issuer Financing Exemption, the issuer must file both a news release announcing the offering and a completed Form 45–106F19 Listed Issuer Financing Document (the offering document). The issuer must file these documents with the regulator or securities regulatory authority in each jurisdiction where the offering is being conducted, even if the issuer is not a reporting issuer in that jurisdiction. If the issuer has a website, the offering document must also be posted on its website.
Issuers must take reasonable steps to ensure that prospective purchasers are aware of how to access the offering document. In that regard, the news release announcing the offering and any initial written communication with a prospective purchaser must include a statement that the offering document can be accessed under the issuer’s SEDAR profile and on the issuer’s website, if the issuer has a website, and urges prospective investors to read it before making an investment decision.
The offering document is meant to be concise and easy to understand and is expected to be no more than about 5 pages. Information to be provided in the offering document includes:
• details of the offering, including:
o type and number of securities being offered;
o offering price;
o minimum and maximum amount of securities being offered;
o closing price of the issuer’s securities on the most recent trading day before the date of the offering document;
• cautions, including that no securities regulatory authority or regulator has assessed the merits of the securities offered or reviewed the offering document, and representations relating to compliance with the Listed Issuer Financing Exemption;
• summary description of the issuer’s business, including:
o the business the issuer carries on or intends to carry on;
o key recent developments involving or affecting the issuer;
o business objectives expected to be accomplished using the available funds;
• availability and use of available funds;
• involvement of dealers or finders and their fees; and
• purchasers’ rights of action in the event of a misrepresentation.
The offering document must contain a statement certifying that the offering document and any document filed under Canadian securities legislation on or after the earlier of the date that is 12 months before the date of the offering document and the date that the issuer’s most recent audited annual financial statements were filed, contains disclosure of all material facts about the securities being distributed and does not contain a misrepresentation. The offering document must be signed by the chief executive officer and chief financial officer of the issuer.
The issuer, and in some jurisdictions, the executives signing the offering document, as well as the issuer’s directors, may be subject to statutory liability for any misrepresentation in the offering document or in the issuer’s continuous disclosure filed in the specified period. Issuers and their executives may also be subject to liability to purchasers in the secondary market for the disclosure in the offering document under secondary market liability provisions.
If there is a material change in the business, operations, or capital of the issuer before the closing of an offering using the Listed Issuer Financing Exemption, the issuer must pause the offering until the issuer complies with National Instrument 51–102 Continuous Disclosure Obligations in connection with the material change, files an amendment to the offering document and issues and files a news release disclosing that the amended offering document has filed.
Within 10 days of closing the offering under the Listed Issuer Financing Exemption, the issuer must file a report of exempt distribution in Form 45–106F1 Report of Exempt Distribution in every jurisdiction in which a distribution has been made.
The impact of the Listed Issuer Financing Exemption on the Canadian capital markets cannot be overstated. Issuers with securities listed on Canadian stock exchanges will be able to offer freely tradeable securities to the public, essentially equity crowdfunding for public companies. Issuers should anticipate such offerings having significantly more investors, albeit for lesser dollar amounts. Platforms such as Capiche (capiche.io), which streamline and bring the capital raising process online, will be incredibly useful for launching and administering offerings using the Listed Issuer Financing Exemption.