The Canadian Securities Directors
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On September 8, 2022, the Canadian Securities Directors introduced the introduction of a brand new prospectus exemption (the Listed Issuer Financing Exemption) to supply a extra environment friendly technique for issuers listed on a Canadian inventory trade to boost capital.
Reporting issuers buying and selling on a Canadian trade who’ve filed all required well timed and periodic disclosure paperwork will be capable of use this exemption to distribute freely tradable fairness securities with out getting ready a prospectus by counting on their present steady disclosure report, supplemented with a brief providing doc.
The brand new Listed Issuer Financing Exemption is predicted to take impact on November 21, 2022.
The Listed Issuer Financing Exemption is out there to any reporting issuers that fulfill the entire following standards:
As well as, on the time of the providing beneath this exemption, the issuer should fairly anticipate that it’s going to have obtainable funds to fulfill its enterprise goals and liquidity necessities for a interval of 12 months following the providing.
Distributions beneath the Listed Issuer Financing Exemption are restricted in measurement. As of the date of the information launch asserting the providing beneath the Listed Issuer Financing Exemption, the combination quantity of such providing, when mixed with all different distributions made beneath this exemption in the course of the previous 12 months, should not exceed the better of: (i) CA$5 million; and (ii) 10% of the issuer’s market capitalization as of the date of the information launch (as much as a most of CA$10 million).
As well as, the providing, when mixed with all different distributions made by the issuer beneath this exemption in the course of the 12 months previous the information launch asserting the providing, can’t lead to a rise of the issuer’s excellent listed fairness securities by greater than 50%.
Whereas there isn’t a minimal distribution measurement, the providing have to be massive sufficient such that following the providing, the issuer fairly expects to have ample funds to fulfill its liquidity wants and enterprise goals for the next 12 months.
Solely listed fairness securities of the issuer, or models consisting of listed fairness securities and warrants convertible into listed fairness securities, could also be distributed beneath the Listed Issuer Financing Exemption.
As such, the Listed Issuer Financing Exemption can’t be utilized in reference to an providing of different sorts of securities, corresponding to subscription receipts, particular warrants, or convertible debentures.
The issuer can’t use the proceeds raised beneath the Listed Issuer Financing Exemption to fund a big acquisition, a restructuring transaction, or another transaction for which the approval of safety holders is sought.
There aren’t any buy or resale restrictions beneath the Listed Issuer Financing Exemption. Securities issued beneath the exemption might be bought by anybody and are freely tradable instantly following issuance.
To make the most of the Listed Issuer Financing Exemption, the issuer should full the next steps previous to soliciting any provides to buy from traders:
Inside 10 days of distributing securities beneath the exemption, the reporting issuer should file a Type 45-106F1 Report of Exempt Distribution.
The distribution have to be accomplished inside 45 days of the information launch asserting the providing.
The Listed Issuer Financing Doc is the type of providing doc required beneath the Listed Issuer Financing Exemption. It’s anticipated that the Listed Issuer Financing Doc can be a brief, straightforward to know doc.
The Canadian securities regulators have indicated that they often don’t anticipate the Listed Issuer Financing Doc to be longer than 5 pages in size.
The Listed Issuer Financing Doc should comprise specified info, together with however not restricted to:
The CEO and CFO of the issuer are required to certify that the Listed Issuer Financing Doc, along with sure paperwork (inside the interval described under) filed by the issuer beneath Canadian securities legal guidelines, disclose all materials info referring to the securities being distributed, and don’t comprise a misrepresentation.
The aforementioned certification extends to paperwork filed by the issuer on or after the sooner of:
Within the occasion of any misrepresentation within the paperwork filed within the interval described above, purchasers of securities distributed beneath this exemption may have a proper to rescind their buy or a proper to damages towards the issuer.
The Listed Issuer Financing Doc can be thought of a “core doc” beneath relevant Canadian securities legislation for functions of the issuer’s steady disclosure report. As such, the issuer can be liable to purchasers of securities issued in reliance of the Listed Issuer Financing Exemption beneath the secondary market legal responsibility provisions if there’s a misrepresentation within the paperwork licensed by the CEO and CFO within the Listed Issuer Financing Doc.
The Listed Issuer Financing Exemption is predicted to create better accessibility within the capital markets for issuers, whereas additionally decreasing transaction prices for elevating financing. We anticipate this can be a very welcomed growth for junior reporting issuers, as they are going to be capable of distribute freely tradeable securities with out the burden of getting ready a prospectus, which might be price prohibitive for these elevating smaller quantities of capital.
Moreover, because the securities distributed beneath this exemption will not be topic to any maintain interval, we anticipate the low cost at which such securities are bought could also be lowered relative to securities bought pursuant to different prospectus exemptions, which in flip, would reduce dilution to present shareholders.
For extra details about the Listed Issuer Financing Exemption or in case you want help with getting ready a distribution beneath the exemption, please contact Eric Lung, Kimberly Burns, Saul Wang, or one other member of our Company Finance group.