Canada: Corporate Finance Update: Canadian Developments For 2014

In 2013, our principal stock exchanges and securities regulators updated requirements for listings and raising capital and proposed further changes in these areas. This bulletin summarizes some of those changes and how they may affect your company in 2014.


If your company is considering listing on the TSX or the TSX-V in 2014, you should be aware of the following recent and proposed changes to the TSX Company Manual and the TSX-V Corporate Finance Manual.

1. Guidance for Companies Seeking a TSX Listing

In November 2013, the TSX provided guidance in three areas:

  1. Pricing of Stock Options Granted Prior to an Initial Public Offering: If you are doing an initial public offering (IPO) and priced your options at a discount to the IPO price during the three months immediately prior to filing your preliminary prospectus, the TSX will likely require that your options be cancelled, forfeited or re-priced to the IPO price as a condition to listing. Where you have recently completed a material financing to arm's length parties and the exercise price of your options is not lower than the price at which you sold those securities, the TSX may consider accepting the options at their exercise price.
  2. Guidance Relating to Financial Statements:

    Forecast Financial Statements: If you are applying to list under the "forecasting profitability" category, you must meet certain financial tests supported by forecast financial statements and an independent auditor's opinion. If the audited forecast is not published in a prospectus or other disclosure document, and is not subject to the requirements of future-oriented financial information (FOFI) set out in applicable securities laws, the TSX will require that you engage a sponsor to review and comment on the audited forecast and other related FOFI presented with the listing application.

    Pro Forma Financial Statements: If your company is completing an acquisition or disposition of assets in connection with (or proximate to) its listing, the TSX may require pro forma financial statements to assess whether your company meets the original listing requirements. As there are no generally accepted accounting standards in Canada regarding the preparation and presentation of pro forma financial statements, and it is generally not feasible for an auditor to provide an audit opinion or other form of assurance for pro forma financial statements, the TSX will review and comment on your pro forma statements to ensure they reflect the transaction.

    Accounting Standards: The TSX will, in certain circumstances, accept financial statements prepared in accordance with US GAAP for SEC issuers that are currently filing or anticipate filing such statements in Canada, or financial statements prepared in accordance with GAAP of other jurisdictions. In making its determination, the TSX will take into account a variety of factors, including whether your company is from a "designated foreign jurisdiction" or is an "SEC foreign issuer".
  3. Economically Interesting Grades – Infrastructure on Remote Properties: If your company is applying to list under the "mineral exploration and development stage" category, you should be aware that some of the factors the TSX will consider in assessing whether you have an "advanced property" include mineralization, commodity grades, current and forecast commodity prices, geology and size of the deposit, location and infrastructure. Infrastructure may be a particularly important factor if your property is remote or isolated and not readily accessible by road, railway or port, and involves commodities to be shipped in bulk. In these instances, the TSX will want to see your plan to develop or obtain access to the required infrastructure, together with a cost estimate, ideally outlined in a technical report supported by a preliminary economic assessment, pre-feasibility study or feasibility study.

For more information, see our November 2013 MarketCaps by Stuart Breen and Catherine Graham.

2. Changes to TSX-V Capital Structure Guidelines

In August 2013, the TSX-V effectively removed the 15% limit on "founder shares". The TSX-V did however retain general discretion to refuse a listing on the basis of a company's capital structure being excessively dilutive or otherwise imbalanced. For more information, see our August 2013 MarketCaps by Alexander Lalka.

3. TSX Proposed Changes to Backdoor Listings

In November 2013, the TSX proposed amendments to its criteria for determining backdoor listings. In order to minimize the occurrences of unlisted companies using TSX-listed companies to go public without having to meet original listing requirements, the TSX is proposing to broaden the scope of transactions that may be considered backdoor listings. Factors to be considered will include the business and the sizes of the listed company and of the unlisted company, and changes to management and the board, voting power, security ownership and capital structure. The TSX will also consider securities offered by way of a public offering, in addition to securities issued by way of a private placement upon a financing concurrent to the transaction, when it evaluates whether a transaction would result or have the potential to result in the existing shareholders of the listed company holding less than 50% of the securities or voting power in the resulting company. For more information, see our December 2013 MarketCaps by Martine Guimond and Ali Amadee.


If your company is planning on raising capital in 2014, you should be aware of the following recent changes to marketing rules for public offerings and prospectus filing and disclosure requirements, as well as potential new prospectus exemptions.

1. Changes to Public Offering Marketing Rules

In August 2013, the Canadian Securities Administrators (CSA) introduced changes to the pre-marketing and marketing rules for public offerings. Under the new regime, during the time prior to the filing of the preliminary prospectus for an IPO, investment dealers are allowed to "test the waters" by confidentially contacting accredited investors to solicit expressions of interest, subject to certain conditions. This change permits dealers to determine the market appetite for an IPO before the company incurs the costs associated with filing a preliminary prospectus. During the period between receipt of the preliminary prospectus and the issuance of the receipt for the final prospectus or, for a bought deal offering, once the offering has been announced, dealers are now allowed to provide "standard term sheets" to potential investors, subject to certain conditions. Dealers may also provide more detailed marketing materials to potential investors together with a copy of the preliminary prospectus, subject to certain conditions. The changes also include new rules governing road shows and presentations for both institutional investors and retail investors.

The CSA also introduced changes to bought deals, including: (i) permitting confirmation clauses allowing the lead underwriter to terminate the bought deal agreement if it is unable to syndicate the deal within one business day of signing the agreement; (ii) the preliminary prospectus needing only to be filed, but not yet receipted, within four business days following the date of the bought deal agreement; (iii) the underwriters and the company being allowed to increase the offering size by up to 100%; (iv) new dealers being allowed to join the bought deal syndicate; (v) allowing an amendment of a bought deal agreement to reduce the number of offered securities or the price on or after the fourth business day from the date of the bought deal agreement; and (vi) a prohibition on "market out" termination clauses.

For more information, see our August 2013 MarketCaps by Paul Fornazzari, Vanessa Grant, Ian Palm and Jeff Zabalet.

2. Changes to Prospectus Filing and Disclosure Requirements

In May 2013, CSA changes to prospectus filing and disclosure requirements came into force. These changes were intended to clarify, modify, address gaps in, and remove or streamline, certain requirements, as well as codify certain relief that had been previously granted by securities regulators.

Changes to filing requirements included those related to time limits for filing a final prospectus if an amended preliminary prospectus is filed, personal information forms (including their form, content and currency), submissions to jurisdiction and appointments for agents of service (and related disclosure in the prospectus) and undertakings to file documents with the securities regulators.

Changes to disclosure requirements included those related to over-allotment options, use of proceeds, prior sales, and rights of withdrawal and rescission for convertible, exchangeable or exercisable securities, as well as clarifications on financial statement disclosure requirements.

3. Changes to the TSX-V Private Placement Pricing Rules

In August 2013, the TSX-V introduced new pricing requirements for private placements, reducing: (i) the minimum allowable exercise price for warrants and options from $0.10 to $0.05 per share; (ii) the minimum allowable conversion price for the first year of the term of a convertible debenture from $0.10 to $0.05 per share (but keeping the conversion price at $0.10 per share for the balance of the term of the debenture); and (iii) the minimum allowable offering price for a non-capital pool company IPO from $0.15 to $0.10 per security. For more information, see our August 2013 MarketCaps by Alexander Lalka.

4. Potential New Prospectus Exemptions

In November 2013, the CSA (with the exception of Ontario and Newfoundland and Labrador) proposed a prospectus exemption for TSX-V companies offering listed securities or units (consisting of the listed security and warrant) to current shareholders. The use of the exemption would be conditional on, among things, the company: (i) issuing a news release disclosing the proposed offering and use of proceeds; and (ii) obtaining confirmations in writing from the purchasers that, on or before the record date, they are each shareholders. Each investor would be restricted to investing a maximum of $15,000 under the exemption in any 12-month period, unless the investor has obtained advice regarding the suitability of the investment from a registered investment dealer. For more information, see our November 2013 MarketCaps by Martine Guimond and Ali Amadee.

In December 2013, Ontario announced that it intends to publish in the first quarter of 2014 the following new capital raising prospectus exemptions for comment: (i) an offering memorandum exemption; (ii) a family, friends and business associates exemption; (iii) an existing security holder exemption; and (iv) a crowdfunding exemption, together with a registration framework for online funding portals.

5. Potential Relief from Wrapper Requirements

If you are a foreign company seeking to offer your securities to sophisticated investors in Canada on a private placement basis, relief from Canadian disclosure requirements typically included in a "wrapper" may be available. In April 2013, the CSA granted exemptive relief to certain dealers and indicated they would entertain applications from others. At the same time, Ontario proposed changes to its rules to put all market participants in a similar position. For more information, see our May 2013 MarketCaps by Paul Dempsey, Vanessa Grant and Bryce Kraeker. In November 2013, the CSA published a proposed instrument with the same type of relief. For more information, see our December 2013 MarketCaps.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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