Seasoned reporting issuers with equity securities listed on a Canadian stock exchange will have the ability to raise capital (up to the greater of $5 million and 10% of their market capitalization (to a maximum of $10 million)) without filing a prospectus under a new prospectus exemption that will come into force on November 21, 2022 (the Listed Issuer Exemption). The equity securities issued pursuant to the Listed Issuer Exemption will be freely tradeable.

The Canadian Securities Administrators (CSA) have approved amendments to the existing prospectus exemption regime under National Instrument 45-106 – Prospectus Exemptions for certain non-investment fund reporting issuers. Previewed in a blog post last summer, these amendments aim to reduce the regulatory burden for issuers with securities listed on a recognized Canadian stock exchange (including the TSX, TSXV, CSE and NEO).

Qualification Criteria

An issuer will only be qualified to rely on the Listed Issuer Exemption if it:

  • has been a reporting issuer in at least one Canadian jurisdiction for the 12 months immediately before the offering;
  • has equity securities listed on a recognized Canadian stock exchange;
  • has a principal asset other than cash, cash equivalents or its exchange listing;
  • has filed all requisite periodic and timely disclosure documents;
  • has active business operations for the 12-month period leading up to the offering; and
  • is not an investment fund.

Attributes of the Offering

Qualified issuers will be able to distribute freely tradeable securities pursuant to the Listed Issuer Exemption provided that they satisfy the following requirements:

  • Maximum Offering Amount. The total dollar amount of the offering, combined with all other offerings made by the issuer over the previous 12 months in reliance on the Listed Issuer Exemption, cannot exceed the greater of $5 million and 10% of the issuer's market capitalization (to a maximum of $10 million).
  • Type of Security. Securities distributed as part of the offering may only be listed equity security and/or units consisting of a listed equity security and a warrant convertible into a listed equity security. Issuers will be unable to distribute convertible debt, special warrants or subscription receipts under the Listed Issuer Exemption
  • Allocation of Funds. Funds from the offering are not allocated to a significant acquisition, a restructuring transaction, or any other transaction in which the issuer seeks approval from any security holder.
  • Disclosure Documents. A news release and Form 45-106F19 Listed Issuer Financing Document (Offering Document) are filed prior to the issuer soliciting any offers to purchase securities in the offering.
  • The offering does not result in the issuer's outstanding listed equity securities being diluted by more than 50% as of the date that is 12 months prior to the issuance of the news release announcing the offering, when combined with all other distributions made by the issuer under the Listed Issuer Exemption.
  • The issuer must reasonably expect to have available funds to meet its business objectives and liquidity requirements for a period of 12 months following the offering.
  • Closing. The final closing of an offering under the Listed Issuer Exemption must occur no later than 45 days after the date the issuer issues and files the news release announcing the offering.
  • Investment Dealer. If an investment dealer is involved in the offering, such dealer is a registered dealer or relies on an available registration exemption for any activities undertaken in connection with the offering.
  • Report of Exempt Distribution. A post-trade report in Form 45-106F1 – Report of Exemption Distribution, must be filed within 10 days of the distribution date.

The Listed Issuer Exemption does not impact any requirements or approvals imposed by the stock exchange on which an issuer's securities are listed.

Dealer Considerations

Notably, the Listed Issuer Exemption is only a prospectus exemption and no equivalent exemption from the dealer registration requirement has been proposed or adopted. As a result, issuers looking to rely on the Listed Issuer Exemption will have to consider whether they are "in the business of trading securities" thereby triggering the dealer registration requirements, particularly if the issuer intends to rely on the Listed Issuer Exemption with some frequency. Issuers are referred to the Companion Policy to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations for guidance on when registration may be triggered. Investors purchasing securities under the Listed Issuer Exemption should also be cautious of any immediate resales of the securities so as not to become subject to the dealer registration requirement themselves.

In addition, the Listed Issuer Exemption also limits pre-marketing efforts as an issuer must issue and file a news release announcing the offering and file an Offering Document prior to soliciting an offer to purchase. In addition, an offering under the Listed Issuer Exemption must close within 45 days of its initial announcement. As a result, Issuers relying on the Listed Issuer Exemption, and dealers engaged in offerings relying on such exemption, should carefully consider the investor landscape in advance of launching an offering.

Finally, while issuers relying on the Listed Issuer Exemption will be subject to primary offering statutory liability and remedies in the event of a misrepresentation, statutory liability is not being imposed on dealers involved in such offerings (as with most other prospectus exemptions). The CSA expects registered dealers to perform due diligence on the issuer and its continuous disclosure in order to meet the dealer's suitability obligations under securities legislation, which includes requirements to know-your-client (KYC) and know-your-product (KYP). Registered dealers may also be subject to common law liability and reputational risk in connection with their participation in a private placement.

Differences Between the Proposed and Final Exemption

While the Listed Issuer Exemption generally follows the 2021 proposal, a handful of changes have been made to the Listed Issuer Exemption, including the following:

  • An issuer must have equity securities listed on a Canadian stock exchange, instead of securities of any type.
  • Issuers will not have the option to offer securities convertible into listed equity securities (other than warrants convertible into equity securities issued as part of a unit).
  • The maximum amount of dilution to the issuer's listed equity securities has been reduced from 100% to 50%.
  • Investment fund issuers may not use the Listed Issuer Exemption.
  • Schedule 1-– Confidential Purchaser Information to Form 45-106F1 – Report of Exemption Distributions must be completed, along with the Report of Exemption Distribution, within 10 days following the offering.
  • The Offering Document, along with certain public disclosure of the issuer over the previous 12-month period, will be subject to primary statutory liability instead of secondary statutory liability in the event of a misrepresentation.

Disclosure Requirements

The Listed Issuer Exemption was implemented in part to allow smaller issuers greater access to retail investors and to provide such investors with a broader choice of investments. The use of the Offering Document recognizes that investors may be more likely to read a brief document that contains the key information necessary for making an investment decision as opposed to a much longer prospectus. For venture issuers that do not currently use the short form prospectus system, the use of the Listed Issuer Exemption may result in better and more current disclosure to the market than if they used other prospectus exemptions.

To that end, prior to soliciting an offer to a prospective purchaser, an issuer must file a news release containing information prescribed by National Instrument 45-106 – Prospectus Exemptions and must file the Offering Document, which is also to be posted on the issuer's website, if one exists. Further, an issuer must take steps to ensure a prospective purchaser is aware of the means to access the Offering Document and must include a statement in any initial written communication with a prospective purchaser stating that the Offering Document can be accessed under its profile on www.sedar.com, along with its website, if one exists, and that investors should read the Offering Document before making an investment decision.

If an offering is being made in Quebec, the Offering Document must be in French or in French and English. Regardless of jurisdiction, the Offering Document must contain disclosure of all material facts relating to the securities being distributed under the Listed Issuer Exemption and must not contain a misrepresentation.

If a material change occurs before the completion of the offering, the issuer must cease the distribution of securities until the issuer (i) complies with its obligations under National Instrument 51-102 – Continuous Disclosure Obligations in connection with the material change; (ii) files an amendment to the Offering Document; and (iii) issues and files a news release stating that an amendment to the Offering Document has been made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.