On June 1, 2023, the Canadian Securities Administrators (CSA) published CSA Staff Notice 45-330: Frequently Asked Questions about the Listed Issuer Financing Exemption (the Notice) providing guidance on questions market participants have raised since the adoption of the listed issuer financing exemption (the Exemption) in November 2022. Those questions concerned, notably, the qualification criteria, the available funds requirement and the types of securities and offerings permitted.
As discussed in a previous blog post, the Exemption allows seasoned reporting issuers with equity securities listed on a Canadian stock exchange to raise capital without filing a prospectus in an amount up to the greater of $5,000,000 and 10% of their market capitalization (to a maximum of $10,000,000) in a 12-month period, in one or more tranches (the Maximum Offering Amount).
Qualification Criteria
Issuers must have equity securities listed on a recognized Canadian exchange and have filed all requisite periodic and timely disclosure documents to rely on the Exemption.
In response to questions from market participants on these criteria, the CSA confirmed:
- The Exemption is not available to Issuers that are in default of securities legislation requirements.
- Issuers that do not have listed equity securities trading on a Canadian exchange at the time of distribution cannot rely on the Exemption. Accordingly, an exchange listing must be completed prior to, and not concurrent with or following, the closing of the offering.
For the Exemption to be available, the distribution, combined with all other distributions made by the issuer under the Exemption during the preceding 12 months, must also not result in an increase of more than 50% of the issuer’s outstanding listed equity securities. The CSA confirmed that common shares issuable on exercise of warrants must be included when calculating the dilution limit. However, as the common shares issuable on exercise of warrants are not part of the initial distribution, they are not required to be included in the calculation of the Maximum Offering Amount.
Available Funds Requirement
Issuers must reasonably expect to have available funds to meet their business objectives and liquidity requirements for a period of 12 months following the distribution (the Available Funds Requirement) to qualify for the Exemption.
The CSA advised issuers to consider several factors in determining whether they meet the Available Funds Requirement and in setting a minimum offering amount, such as:
- the costs of their business objectives for the next 12 months (including the costs related to each significant event that must occur for the business objectives to be met);
- their cash flow from operations;
- the offering costs,
- their working capital or deficiency; and
- any committed sources of additional funding.
If the available funds are not sufficient to cover business objectives and meet liquidity requirements for a period of 12 months, issuers must increase the minimum offering amount.
Subject to the maximum amount that can be raised under the Exemption, issuers are permitted to close offerings under the Exemption in multiple tranches. If an issuer needs to raise a minimum offering amount to satisfy the Available Funds Requirement, it must raise this minimum amount in the first tranche. In addition, the last tranche must not be closed later than the 45th day after announcing the offering.
Types of Securities
The CSA has confirmed that issuers can use the Exemption to distribute flow-through shares and charitable flow-through shares provided all other conditions of the Exemption are met. The CSA has advised that the end purchaser of charitable flow-through shares must be named in the report of exempt distribution and have all statutory rights under the Exemption.
The CSA also clarified that the Exemption is not available in connection with the distribution of broker’s warrants, which would not typically be listed equity securities. In addition, the Exemption is not available for the issuance of securities for debt, as issuers cannot solicit an offer to purchase before announcing the offering and filing the offering document.
Types of Offerings
In response to questions from market participants, the CSA has advised that the Exemption can be used for bought deal offerings provided that:
- The bought deal is conducted in such a way that the actual purchaser has all of the rights contemplated under the Exemption and is named in the report of exempt distribution.
- The underwriter does not end up having to purchase any left-over securities.
- Any marketing of the offering complies with the conditions of the Exemption so that no solicitations occur prior to the issuance and filing of the news release and the offering document.
The CSA also confirmed that issuers can use the Exemption concurrently with other prospectus exemptions. However, issuers cannot use the Exemption in Quebec concurrently with a prospectus in other provinces.
