Increased LIFE Offering Limits And Other Measures To Support The Competitiveness Of Canada's Capital Markets And Help Companies Grow Introduced By Canadian Securities Regulators

Highlights

• LIFE Offering Limits Significantly Increased
• New Follow-on Offerings of Free-Trading Shares for New Reporting Issuers
• Prospectus Financial Statements Limited to Two Years in All Cases
• Prospectus Pricing Made Simpler
• Investment Limits Under OM Exemption Include Reinvestments into the Issuer

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In response to prevailing global market uncertainty, the Canadian Securities Administrators (CSA) recently announced several measures designed to support the competitiveness of Canada's capital markets and encourage issuers and investors to participate in such markets. The CSA's measures, in the form of four coordinated blanket orders (the Blanket Orders), are intended to increase capital raising opportunities for issuers, including by permitting investors to participate in more exempt market financing opportunities, promote capital raising by new reporting issuers (other than investment funds), and simplify certain disclosure requirements that apply to prospectus filings and certain other transactions in order to reduce associated costs and time, and increase capital raising opportunities for users of the OM Exemption.

The following is a brief discussion of the material aspects of each of the four Blanket Orders. Readers should note that although the Blanket Orders adopted by the various members of the CSA all aim to achieve the same outcome, the language of the Blanket Orders issued by each province and territory differs due to local securities legislation. Similarly, the duration of the Blanket Orders also varies by jurisdiction, with the Blanket Orders in effect in Ontario set to expire on November 15, 2026, in respect of the LIFE offering Blanket Order and October 16, 2026, for all other Blanket Orders.

Coordinated Blanket Order 45-935: Exemptions from Certain Conditions of the Listed Issuer Financing Exemption

• LIFE Offering Limits Significantly Increased

The most recent Blanket Order provides relief from certain limits in the listed issuer financing exemption (LIFE) in National Instrument 45-106 Prospectus Exemptions (NI 45-106). This exemption permits listed issuers that have been reporting for at least 12 months and that otherwise qualify to issue a limited number of freely-tradeable securities (known as LIFE offerings). Since its introduction in November 2022, the exemption has been used by more than 270 issuers, collectively raising over $1 billion. However, the capital-raising limits have kept many issuers from using the exemption or required them to combine it with other exemptions. As a result, the CSA has increased the limits for an initial time-limited period.

The exemption in the Blanket Order now permits listed issuers to raise, during a 12-month period, the greater of:

1. $25 million, and
2. 20% of the aggregate market value of their listed securities, to a maximum of $50 million.

The Blanket Order relief is still limited to no more than 50% of the issuer's outstanding listed equity securities during the 12-month period, although issuers can now exclude securities issuable on the exercise of warrants from the calculation if they are not convertible within 60 days of closing of the offering.

Previously, listed issuers were limited to raising the greater of $5 million and 10% of their aggregate market value to a maximum of $10 million in a 12-month period, subject to the 50% dilution limit. In addition, the dilution calculation required the inclusion of all shares issuable under warrants.

The timing for calculating the 20% limit under (b) above is (i) the date of the news release announcing the LIFE offering if the issuer has completed a LIFE offering in the last 12 months, or (ii) the date of the news release announcing the first LIFE offering in the prior 12-month period.

See our initial commentary on the LIFE exemption here for additional information.

Coordinated Blanket Order 45-930: Prospectus Exemptions for New Reporting Issuers

• New Follow-on Offerings of Free-Trading Shares for New Reporting Issuers

This Blanket Order provides a new, time-limited prospectus exemption to new reporting issuers (other than investment funds) that have completed a recent initial public offering (IPO) that was effected through an underwriter (including a best efforts, agency offering), and allows such reporting issuers to raise up to the lesser of $100 million or 20% of the aggregate market value of their listed equity securities within the 12-month period following such IPO. The exemption is essentially a LIFE offering exemption for those issuers that have not been reporting for at least 12 months:

• securities issued under the exemption are free-trading and not subject to resale restrictions, and
• other than the requirement that the offering be priced higher than the IPO, the conditions to the exemption are in general very similar to the conditions to the use of the LIFE exemption.

In order to rely on this prospectus exemption, among other things:

• the issuer must have a class of equity securities listed for trading on a recognized Canadian stock exchange,
• the securities distributed in reliance on the prospectus exemption must
  • be of the same class of securities that were qualified under the issuer's IPO prospectus, and
  • be issued at a price per security that is not less than the issue price per security distributed under the IPO prospectus,
• the issuer must issue and file a news release and file an offering document, in each case containing certain prescribed information, before soliciting any offers to purchase,¹
• the issuer must, at the time of the distribution in reliance on the prospectus exemption, reasonably expect to have available funds to meet its business objectives and liquidity requirements for a period of 12 months after the distribution, and
• the offering document must provide a purchaser, to the extent the securities legislation where the purchaser is resident does not provide a comparable right, (i) a contractual right to cancel the agreement to purchase the security within two (2) days of purchase, and (ii) a contractual right of action against the issuer for rescission or damages if there is a misrepresentation in the offering document or certain other prescribed documents.

The exemption cannot be used (a) for a distribution that could result in the creation of a new control person, or, a beneficial owner of securities that would be entitled to elect most of the issuer's directors, (b) for a distribution to an employee, insider or consultant of the issuer, (c) if the issuer wishes to allocate the proceeds of the distribution to a restructuring transaction or any other transaction requiring the approval of the issuer's securityholders, or (d) if the issuer is a venture issuer, and the issuer wishes to allocate the proceeds of the distribution to an acquisition that is or would be a "significant acquisition" within the meaning of applicable Canadian securities laws.

Coordinated Blanket Order 41-930: Exemptions from Certain Prospectus and Disclosure Requirements

• Prospectus Financial Statements Limited to Two Years in All Cases
• Prospectus Pricing Made Simpler

This Blanket Order aims to streamline certain disclosure requirements that apply to prospectus filings and certain other transactions in order to make it faster and less expensive to undertake such transactions. Specifically:

• Historical Financial Statements Now Limited to Two Years: The Blanket Order exempts issuers filing an IPO prospectus from existing Canadian securities law requirements to provide audited financial and operating statements for the third most recently completed financial year. This exemption also extends to issuers and offerors filing circulars (including take-over bid circulars and issuer bid circulars) and material change reports that incorporate the long-form prospectus requirements. Previously, only issuers that qualified as "IPO venture issuers" and issuers that were already reporting issuers did not have to provide this third year of historical financial statements.
• Pricing or Re-Pricing an Offering Need Not Trigger a Prospectus Amendment: The Blanket Order also introduces an exemption that permits investment dealers to provide term sheets and marketing materials (collectively, Marketing Materials) to prospective investors during the prospectus "waiting period" (i.e., the period between obtaining a receipt for a preliminary prospectus and obtaining a receipt for the final prospectus) that contain "specified pricing information" that was not contained in the preliminary prospectus. "Specified pricing information" includes:
• • the price, or the price range, of offered securities,
  • the total number, or the range of the total number, of offered securities,
  • the total dollar amount, or the range of the total dollar amount, of offered securities, and
  • any other terms of the offered securities or information regarding the issuer that are mathematically derived from any of the foregoing.

Previously, if a preliminary prospectus contained specified pricing information and the offering thereunder was re-priced, or the preliminary prospectus contained "bulleted" specified pricing information and the offering thereunder was priced, the issuer would have to file an amended preliminary prospectus to disclose pricing and related information before such information could be marketed to potential investors during the waiting period.

• Eliminating Certain Promoter Certificates: Finally, the Blanket Order provides that an issuer is exempt from the requirement to include a promoter certificate in a prospectus (or an amendment thereto) if either (i) the promoter is an individual and has signed another certificate included in the prospectus in another capacity (e.g., a director or officer of the issuer), or (ii) the issuer has been a reporting issuer for at least 2 years, the prospectus (or amendment) does not qualify asset-backed securities for distribution, and the promoter is not a director, officer or control person of the issuer.

Coordinated Blanket Order 45-933: Exemption from the Investment Limit under the Offering Memorandum Prospectus Exemption to Exclude Reinvestment Amounts

• Investment Limits Under OM Exemption Include Reinvestments into the Issuer

Certain Canadian jurisdictions (being Alberta, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan), impose limits on the total amount an investor can invest in a 12-month period in reliance on the "offering memorandum" prospectus exemption under NI 45-106 (the OM Exemption), which limits range from $10,000 to $100,000 for "eligible investors" that receive suitability advice from a portfolio manager, investment dealer or exempt market dealer. This Blanket Order increases the 12-month investment limit under the OM Exemption for eligible investors who have received advice that the investment is suitable, by permitting reinvestment of the proceeds of dispositions from the same issuer.

For such eligible investors, the 12-month investment limit for securities acquired under the OM Exemption is now the total of (i) $100,000, plus (ii) all proceeds of disposition during the preceding 12 months of securities of the issuer making the distribution in which the eligible investor is participating (up to $100,000). In Ontario, issuers relying on the exemption in this Blanket Order must notify the Ontario Securities Commission within 10 days of the applicable distribution and provide certain specified information.

Footnote

1. For example, the offering document must include, among other information, details of the offering, disclosure of any material fact relating to the securities being distributed that was not previously disclosed by the issuer, and a description of the issuer's business objectives, recent developments and use of proceeds.

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.