New “Listed Issuer” Prospectus Exemption to Permit Distribution of Freely Tradeable Securities Without a Prospectus

The Canadian Securities Administrators (“CSA”) announced the introduction of a new prospectus exemption (the “Listed Issuer Financing Exemption”) for reporting issuers listed on a Canadian stock exchange (“Listed Issuers”) effective November 21, 2022, assuming all necessary approvals are obtained. The Listed Issuer Financing Exemption is aimed at providing Listed Issuers with a more efficient method of capital raising.

The Listed Issuer Financing Exemption relies on a Listed Issuer’s continuous disclosure record, as supplemented by an Offering Document (as described below) and will allow a Listed Issuer to distribute freely tradeable listed equity securities to the public without having to file and clear a prospectus with the applicable securities commission(s).

The Listed Issuer Financing Exemption was developed by the CSA following the publication of CSA Consultation Paper 51-404 – Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers and seeks to address concerns raised by market participants relating to the cost and time requirements of the short form prospectus regime, and the barrier that those requirements represented for smaller Listed Issuers seeking to raise capital.

Eligibility

To be eligible for the Listed Issuer Financing Exemption, a Listed Issuer must:

• have been a reporting issuer in Canada for at least 12 months;
• have equity securities listed on a recognized stock exchange in Canada;1
• during the preceding 12 months, have an active operating business whose principal asset is not cash (i.e., this excludes capital pool companies and SPACs);
• have filed all required periodic and timely disclosure documents it is required to file; and
• reasonably expect that it will have available funds to meet its business objectives and liquidity requirements for a period of 12 months following the closing of the offering.

Investment funds are not eligible for the Listed Issuer Financing Exemption.

Offering Parameters

The Listed Issuer Financing Exemption contains certain requirements and limitations as outlined below.

• Equity Securities or Units: Each security being distributed in the offering 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. Distributions of securities such as subscription receipts, special warrants and convertible debentures are not permitted.

• Maximum Offering Size: On the date of the issuance of the news release announcing the offering (the “Offering Press Release”), the total dollar amount of the particular offering, combined with the dollar amount of all other offerings made by the Listed Issuer under the Listed Issuer Financing Exemption during the 12 months immediately before the date of the Offering Press Release, shall not exceed the greater of: (i) C$5,000,000; and (ii) 10% of the Listed Issuer’s market capitalization on the date of the Offering Press Release, to a maximum of C$10,000,000.

• Anti-Dilution: The offering, when combined with all other offerings made under the Listed Issuer Financing Exemption during the 12 months immediately prior to the date of the Offering Press Release, must not result in an increase of more than 50% in the Listed Issuer’s outstanding listed equity securities as of the date that is 12 months before the date of the Offering Press Release.

• 45 Day Closing: The offering must close within 45 days of the date of the Offering Press Release.

• Limitation to Allocation of Funds: Proceeds of the offering cannot be allocated to (i) an acquisition that is a “significant acquisition” under Part 8 of National Instrument 51-102 – Continuous Disclosure Obligations, (ii) a restructuring transaction, or (iii) any other transaction which requires any securityholder approval.

• Underwriter: There is no requirement for a Listed Issuer to engage a dealer in order to rely on the Listed Issuer Financing Exemption, though one may be engaged if the Listed Issuer so chooses.

Disclosure Requirements

To rely on the Listed Issuer Financing Exemption and prior to soliciting any offers to purchase, the Listed Issuer must:

(i) issue and file the Offering Press Release, which contains certain prescribed language; and

(ii) file a completed Form 45-106F19 – Listed Issuer Financing Document (the “Offering Document”) which outlines information about the offering including the securities being offered, the Listed Issuer’s use of available funds and the applicable purchaser’s rights within three days of the date of the Offering Document.

Both the Chief Executive Officer and Chief Financial Officer of the Listed Issuer are required to certify that the Offering Document, together with any document filed by the Listed Issuer under Canadian securities legislation on or after the date which is the earlier of: (i) the date that is 12 months before the date of the completed Offering Document, and (ii) the date that the Listed Issuer’s most recent audited annual financial statements were filed, contains disclosure of all material facts about the securities being offered and does not contain a misrepresentation.

In addition to the above requirements, within 10 days of distributing securities under the Listed Issuer Financing Exemption, the Listed 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.

Liability for Misrepresentation in the Offering Document

If the Offering Document contains a misrepresentation, purchasers of securities distributed under the Listed Issuer Financing Exemption have either: (i) a right to rescind their purchase of the securities; or (ii) a right to damages against the Listed Issuer and in certain jurisdictions, a right to damages from other persons.

The Listed Issuer will also be liable to purchasers on the secondary market if there is a misrepresentation in the Listed Issuer’s continuous disclosure documents filed during the applicable period referred to in the Listed Issuer’s certificate.

If you have any questions with respect to the Listed Issuer Financing Exemption discussed above, please contact Michael Rennie ([email protected]), Natalie Tershakowec ([email protected]) or any other member of Wildeboer Dellelce LLP. The authors gratefully acknowledge the assistance of articling student Marcus Moore in the preparation of this update.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.

1 “Recognized stock exchange in Canada” currently includes the Toronto Stock Exchange (TSX), the TSX Venture Exchange (TSXV), the NEO Exchange (NEO) and the Canadian Securities Exchange (CSE).