Canadian Securities Administrators Create New Prospectus Exemption to Simplify Capital Raising for Listed Issuers – Securities

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On September 8, 2022, the Canadian Securities Administrators (CSA) announced the adoption of a new prospectus exemption allowing listed issuers to distribute freely tradeable listed equity securities without filing a prospectus, subject to several conditions, notably :

  • the issuer has been a reporting issuer in at least one (1) jurisdiction of Canada during the 12-month period preceding the date of the announcement of the offering;

  • the issuer has listed equity securities;

  • the issuer is not, or during the 12-month period immediately preceding the date on which the issuer announces the offer, the issuer or any person or company with which the issuer has entered into a restructuring transaction was not :
    • an issuer that has ceased operations, or

    • an issuer whose principal asset is cash, cash equivalents or its stock exchange listing (including special purpose acquisition vehicles, such as capital pool companies on the TSX Venture Exchange);

  • the issuer is not an investment fund; and

  • the issuer has generally complied with its continuous disclosure obligations and applicable securities laws.

Issuers using this prospectus exemption, referred to as the “listed issuer financing exemption”, are limited to raising, over a 12-month period, the greater of (i) $5,000,000; and (ii) 10% of the market capitalization of the issuer up to a maximum total amount of $10,000,000, calculated from the date of announcement of the offer. The exemption imposes a dilution limit on distributions under the exemption, preventing issuers from distributing, over a 12-month period, more than 50% of their outstanding securities, including the securities to be issued under the proposed offering .

The listed issuer financing exemption will allow issuers to raise smaller amounts of capital at a lower cost. While the exemption is of particular interest to smaller reporting issuers, it will benefit any issuer seeking to raise capital while avoiding the resale restrictions imposed on securities issued in a private placement and the higher costs typically associated to public offers. In addition, the exemption will provide smaller reporting issuers with greater access to retail investors and therefore provide retail investors with a broader choice of investment opportunities.

Prior to making an offering under the exemption, an issuer is required to publicly announce the offering and file new Form 45-106A19 – Listed Issuer Financing Documentwhich includes, among other things, a summary description of the issuer’s business, including objectives and milestones, the issuer’s available funds, details of the offering and intended use of the proceeds of the offering.

Issuers are not permitted to use funds raised under the listed issuer financing exemption for (i) a material acquisition (as defined in Part 8 of NI 51-102 – continuous disclosure obligations); (ii) a restructuring transaction; or (iii) any other transaction for which the issuer requires security holder approval.

Subject to obtaining all necessary ministerial approvals, amendments to National Instrument 45-106 – Prospectus Exemptions will enter into force on November 21, 2022.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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