On July 28, 2021, the Canadian Securities Administrators (CSA) published, for comment, proposed amendments to National Instrument 45-106 Prospectus Exemptions (NI 45-106) to introduce a new prospectus exemption available to reporting issuers that are listed on a Canadian stock exchange (the Listed Issuer Financing Exemption). The CSA also published for comment proposed changes to Companion Policy 45-106CP (45- 106CP). The Proposed Amendments create a new capital raising method for reporting issuers listed on a Canadian stock exchange.
The proposed exemption relies on the issuer’s continuous disclosure record, as supplemented with a short offering document, and would allow these issuers to distribute freely tradeable listed equity securities to the public. Issuers would generally be limited to raising the greater of $5million or 10% of the issuer’s market capitalization to a maximum total dollar amount of $10,000,000. In order to use the exemption, the issuer must have been a reporting issuer for at least 12 months.
The offering document would be a “core document” under Canadian securities legislation, forming part of the issuer’s continuous disclosure record for purposes of secondary market civil liability. In the event of a misrepresentation in the offering document or in the issuer’s continuous disclosure record for a prescribed period, purchasers under the Listed Issuer Financing Exemption would have the same rights of action under secondary market civil liability as purchasers on the secondary market. In addition, purchasers under the exemption would have a contractual right of rescission against the issuer for a period of 180 days following the distribution in the event of a misrepresentation. The offering document would not be reviewed by CSA staff before use.
The Listed Issuer Financing Exemption is subject to the following key conditions:
- The issuer must have securities listed on a Canadian stock exchange; been a reporting issuer for 12 months in at least one jurisdiction in Canada; filed all timely and periodic disclosure documents as required under the continuous disclosure requirements in Canadian securities legislation; and active business operations.
- The total dollar amount that an issuer may raise using the exemption during any 12 month period may not exceed: the greater of $5 million or 10% of the aggregate market value of the issuer’s listed equity securities, to a maximum total dollar amount of $10 million; or 100% dilution.
- The issuer must prepare and file a short offering document, proposed new Form 45-106F Listed Issuer Financing Document, containing prescribed disclosure highlighting: any new developments in the issuer’s business, the issuer’s financial condition, including confirmation that the issuer will have sufficient funds to last 12 months after the offering, how proceeds from the current offering will be used, and how proceeds from any other offering in the previous 12 months were actually used.
- The issuer must certify that the offering document, together with the continuous disclosure of the issuer for the past 12 months, contains disclosure of all material facts about the issuer or the securities being distributed and does not contain a misrepresentation. The offering document would be prescribed as a “core document” in the issuer’s continuous disclosure record, subject to statutory secondary market civil liability in the event of a misrepresentation Purchasers under the exemption would have two options for recourse in the event of a misrepresentation: A contractual right of recission against the issuer and rights of action under secondary market civil liability a contractual right of rescission against the issuer.
- Exemption is not available if the issuer is planning to use the proceeds for a significant acquisition or restructuring transaction, such that the issuer would be required to provide additional financial statements under prospectus rules.
- Securities must be listed equity securities or securities convertible into listed equity securities. Subscription receipts may be issued if not used in connection with a significant acquisition, restructuring transaction or other type of transaction that would require security holder approval.
- Securities would not be subject to a hold period.
- While investment dealers and exempt market dealers may participate, there is no requirement for an underwriter to be involved
- No registration exemption.
- The issuer would be required to report use of the exemption by filing a Form 45-106F1 Report of Exempt Distribution. The issuer would not be required to complete Schedule 1. limits on the type of investor that may participate. Not requiring purchaser information will reduce the administrative burden for the issuer.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
