New Listed Issuer Financing Exemption (that’s “LIFE”) – Raise $10M Annually – No 4-month Resale Restriction and Available for Charity Flow-Through Financings
On November 21, 2022, the Listed Issuer Financing Exemption (the “Listed Issuer Financing Exemption” or “LIFE”) went into effect in Canada by the Canadian Securities Administrators. The exemption allows reporting issuers that have securities listed on an exchange recognized by a Canadian securities regulatory authority to issue new securities by preparing a short offering document.
LIFE is intended to allow an issuer to raise up to $10,000,000 annually from any person – not just accredited investors – and does not come with a minimum investment amount requirement and the usual four-month resale restriction. To be eligible, an issuer must have been a reporting issuer in at least one Canadian jurisdiction for at least 12 months preceding the offering. In addition, the issuer must have filed all periodic and timely disclosure documents it is required to have filed.
The Listed Issuer Financing Exemption is not available if the issuer intends to allocate proceeds from the offering to complete a significant acquisition, a restructuring transaction or any other transaction that requires security holder approval.
Before soliciting purchasers, the issuer must file both (1) a news release announcing the offering; and (2) the completed Form 45-106F19 Listed Issuer Financing Document (“Form 45-106F19”), which has been introduced as part of the Listed Issuer Financing Exemption regime, with the securities commission in each jurisdiction where the offering is being conducted, even if the issuer is not a reporting issuer in that jurisdiction.
The total dollar amount of the distribution, combined with the dollar amount of all other distributions made by the issuer under LIFE during the 12 months immediately before the date of the news release announcing the offering, must not exceed the greater of, (1) $5,000,000; and (2) 10% of the aggregate market value of the issuer’s listed securities, on the date the issuer issues the news release announcing the offering, to a maximum of $10,000,000. See the examples below.
The distribution, combined with all other distributions made by the issuer under the Listed Issuer Financing Exemption during the 12 months immediately before the date of the issuance of the news release announcing the offering, must not result in an increase of more than 50% in the issuer’s outstanding listed equity securities, as of the date that is 12 months before the date of the news release announcing the offering (the “Dilution Limit”). Some issuers may find that the Dilution Limit significantly restricts its ability to raise capital and may pursue other financing regimes.
An issuer may engage a registered investment dealer or exempt market dealer to assist in the offering.
Preparing the Form 45-106F19
The Form 45-106F19 is intended to be a concise and easy to understand disclosure document. Generally, it should be no longer than five pages. Issuers should not incorporate information into the offering document by reference. Issuers are advised to use plain, easy to understand language in preparing the offering document. The offering document must disclose all material facts relating to the securities being distributed. Senior management and the board of directors of an issuer should be mindful of the potential liabilities in the event of a misrepresentation in the offering document, which will give investors the right to rescind their purchase or the right to damages.
Examples: Limits on the Dollar Amounts that can be Raised under the Listed Issuer Financing Exemption
No. of Outstanding Listed Shares
Trading Price per Share
Total Market Capitalization
No. of Outstanding Listed Shares 12 months Preceding Offering Announcement
12 month Limit – Lesser of (a) Greater of $5M and 10% of Market Cap; and (b) $10M
Limit for Specific Offering
10,000,000
$1.50
$15,000,000
10,000,000
$7,500,000 (5M shares x $1.50)
$5,000,000
$5,000,000
10,000,000
$0.50
$5,000,000
10,000,000
$2,500,000 (5M shares x $0.50)
$5,000,000
$2,500,000
20,000,000
$0.50
$10,000,000
15,000,000
$3,750,000 (7.5M shares x $0.50)
$5,000,000
$3,750,000
150,000,000
$0.10
$15,000,000
80,000,000
$4,000,000 (40M shares x $0.10)
$5,000,000
$4,000,000
150,000,000
$1.00
$150,000,000
120,000,000
$60,000,000 ($60M shares x $1.00)
$10,000,000
$10,000,000
[1] Assumes that the offering price equals the trading price.
Application to Charity Flow-Through Financings
The Listed Issuer Financing Exemption allows issuers to offer, (1) equity securities that are listed for trading on a recognized exchange (“Listed Equity Securities”); and (2) units consisting of Listed Equity Securities and warrants convertible into Listed Equity Securities. Therefore, the Listed Issuer Financing Exemption can be used for most flow-through share offerings including those offerings structured for donation arrangements. The Listed Issuer Financing Exemption cannot be used for the distribution of subscription receipts, special warrants, or convertible debentures.
Conclusion
The Listed Issuer Financing Exemption allows issuers to conduct a quick and straight-forward financing, allowing issuers to raise up to $10,000,000 by preparing a short offering document. Its quick and straight-forward process, combined with the advantages of being able to raise capital from any person and without the imposition of the minimum investment amount requirement and the four-month resale restriction make the Listed Issuer Financing Exemption an attractive financing vehicle for many issuers. PearTree has the knowledge and expertise to conduct a financing under the Listed Issuer Financing Exemption regime. Please feel free to reach out to the PearTree team for any enquiries.
Legal Disclaimer
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