What You Need to Know About the Listed Issuer Financing Exemption

If you’re a reporting issuer looking to list securities on a Canadian stock exchange without filing a prospectus, a new prospectus exemption will allow you to do just that.

Earlier this year, the Canadian Securities Administrators announced they would introduce a new Listed Issuer Financing Exemption, which we discussed in a previous blog. This exemption becomes available on November 21, 2022, allowing reporting issuers to list shares on a stock exchange by preparing a short offering document (the “Offering Document”).

In this blog, we’ll summarize what you need to include in your Offering Document.

General Drafting Instructions

Your Offering Document must be drafted in “plain language” that is easily understood by investors and does not include overly complex jargon or industry-specific terms that aren’t explained. The document should use the headings set out in form 45-106F19.

As with other disclosure documents, forward-looking information must be presented in accordance with the requirements under National Instrument 45-102 Continuous Disclosure. Importantly, your Offering Document cannot incorporate information by reference, a practice that is often permitted in other disclosure documents.

Details of the Offering

In addition to some basic disclosure regarding your offering, the cover page of your Offering Document must include details including:

  • the type and number of securities you are offering and a description of the significant attributes of the securities;
  • the offering price;
  • the minimum and maximum amount of securities that you may offer;
  • whether the offering may close in one or more closings and the date the offering is expected to close (if known);
  • the exchange and quotation system, if any, on which your securities are listed, traded or quoted; and
  • the closing price of your securities on the most recent trading day before the date of your Offering Document.

Required Statements

You must make several statements in your Offering Document, including:

  • you have active operations and your principal asset is not cash, cash equivalents or your exchange listing;
  • you have filed all periodic and timely disclosure in accordance with applicable securities laws;
  • the total dollar amount of your offering and all offerings made under the Listed Issuer Financing Exemption in the past 12 months will not exceed the greater of $5 million or 10% of your market capitalization, up to a maximum of $10 million;
  • you will not close the offering unless you reasonably believe you have raised sufficient funds to meet your business objectives and liquidity requirements for a period of 12 months; and
  • you will not allocate funds from your offering to a significant acquisition or restructuring transaction under securities laws or to any other transaction for which you seek security holder approval.

Summary of the Business

You must provide a summary of your business as well as any recent key developments and business objectives and milestones you expect to accomplish using the funds you raise. You must also disclose any material facts about the securities you are distributing that have not been disclosed elsewhere in your Offering Document or any other document filed in the past 12 months or in your most recent audited financial statements.

Use of Available Funds

You must disclose the amount of funds you will have available assuming a minimum offering and assuming that you raise 100% of your desired amount. You must also explain how you intend to use the funds in either scenario.

Depending on how the funds will be used, additional disclosure may be required. For example, if more than 10% of the available funds will be used to reduce or retire debt you incurred within the past two years, you must describe the principal purpose of that debt. If your creditor is an insider, associate or affiliate, you must identify them, state the nature of your relationship and indicate the outstanding amount owed.

If you have raised funds within the past 12 months, you must also disclose how those funds have been used.

Fees and Commissions

Finder’s fees are often paid to people who help you connect with investors. If any dealer, finder or other person has or will receive any commission in connection with your offering, you must provide information about the compensation paid to that person. You must also disclose any dealer conflicts pursuant to National Instrument 33-105 Underwriting Conflicts.

Purchaser’s Rights

Securities issued under your Offering Document are subject to recission rights if there is a misrepresentation in the document. Investors may also have a right to damages if the Offering Document contains a misrepresentation. These rights are generally available to investors regardless of whether they relied on the misrepresentation when deciding to invest in your company.

Additional Information

You must provide details on where investors can access additional documents and information about your business. This would include your website and a statement that your continuous disclosure documents are available on SEDAR.

Toronto Stock Exchange Requirements

The Toronto Stock Exchange (“TSX”) recently published Staff Notice 2022-0003, which provides guidance on its treatment of the Listed Issuer Financing Exemption.

Absent exceptional circumstances, the TSX will deem the use of the Listed Issuer Financing Exemption to be a bona fide public offering. As a result, securities issued under the exemption will be freely tradeable. The TSX will require issuers to file an Offering Document and confirm that all requirements necessary under exemption have been satisfied.

The Listed Issuer Financing Exemption will provide reporting issuers listed on a Canadian stock exchange with efficient access to capital markets and offers several advantages over other prospectus exemptions. For further information on this exemption or any other fundraising you may be contemplating, please contact a member of our Corporate Finance & Securities Group.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.