We spoke with Will Van Horne, Founder and President of Socium Law about the impact that the LIFE exemption is having on capital markets in Canada. In addition to being a highly experienced corporate lawyer, Will also sits on the local TSV advisory committee and plays an active role in the Alberta IoT community.
Katipult: Will, as we get started, could you tell us a little bit about yourself and Socium Law?
Will Van Horne: Socium Law is a corporate-focused law firm created by entrepreneurs for entrepreneurs. We focus on earlier-stage, high-growth public and private companies, with clients across a number of diverse industries throughout Canada and the United States.
We differentiate ourselves from our competitors by relentlessly focusing on service delivery costs to offer an attractive fee structure combined with a service delivery standard you would typically only find at a larger firm.
In addition, because we believe our clients are looking for a partner, not just a service provider, we frequently act as our clients' corporate secretary and often invest in our clients. Our clients tend to value that we're willing to put our capital at risk, just like they are.
Katipult: We’re here today to discuss the Listed Issuer Financing Exemption, or LIFE for short. Could you explain what this is and how it came about?
Will Van Horne: Absolutely. The LIFE exemption is a unique exemption to the prospectus requirement and was introduced in late 2022. It allows listed issuers to issue freely trading listed securities by means of a condensed offering document rather than a short-form prospectus.
The exemption came about when the CSA (Canadian Securities Administrators) proposed the exemption in July 2021 after receiving feedback from market participants that smaller issuers were experiencing difficulties in raising capital by means of short-form prospectus offerings due to the related costs.
The regulators expected it to result in reduced costs for issuers who were raising smaller amounts of capital through public markets, allowing them greater access to retail investors and, in turn, allowing greater access for retail investors to invest in smaller issuers.
While it provides issuers with more flexibility in financing options, to use this exemption, issuers must meet certain conditions and the amount of securities that may be issued under this exemption is also constrained by particular limits, both of which we’ll get into today.
Katipult: Could you explain how this exemption supports the growth of Canadian businesses?
Will Van Horne: Sure, essentially, it offers listed issuers a cost and time-effective means of raising capital through a wider pool of investors. This additional means of financing can help businesses maintain their working capital requirements as they execute their growth and business plans.
The exemption was created to fix the problem of high costs related to offering securities in public markets, particularly for smaller businesses.
These types of companies are more affected by the high costs of the traditional public offering process–it is very expensive to undertake a long-form prospectus offering and many issuers are not eligible to access the short-form prospectus rules–the LIFE exemption allows them to raise money from these markets more easily while still meeting regulatory requirements through their periodic and timely disclosure obligations.
Katipult: Can you explain the requirements for qualifying as a LIFE deal? What is the upper capital raise limit that the exemption applies to?
Will Van Horne: There are only a handful of requirements the issuer needs to meet;
- They must be a reporting issuer in at least one Canadian jurisdiction for at least 12 months
- They must have listed equity securities on a Canadian stock exchange
- They must be an operating company and not a company whose principal assets are cash or cash equivalents, such as a capital pool company, special purpose acquisition company, or investment fund
- They must have filed all periodic and timely disclosure documents as required under applicable securities legislation and regulations
Finally, the issuer must also reasonably expect to have available funds to meet its business objectives and liquidity requirements for a period of 12 months following distribution through this exemption.
There are also a couple of restrictions that companies should be aware of as well.
Firstly, an issuer cannot use the exemption to raise funds for the purpose of a significant acquisition, restructuring transaction or any other transaction for which an issuer must seek the approval of security holders.
Secondly, issuers may only issue listed equity securities–or warrants to acquire the same–through this exemption and not convertible debt or other forms of securities such as subscription receipts.
There are also some time and dollar constraints that apply.
Within a 12-month period, an issuer may only use the exemption to raise up to either $5,000,000 or 10% of the aggregate market value of the issuer's listed securities, up to an absolute maximum of $10,000,000.
Issuers are also prohibited from issuing more than 50% of their outstanding listed equity securities through this exemption within a 12-month period.
Finally, regarding requirements and restrictions, the CSA has advised in a recent FAQ that this limit also accounts for dilution by exercise of warrants where units consisting of shares and warrants are issued.
Katipult: Can you discuss any notable deals or transactions that have used the exemption since it was introduced?
Will Van Horne: Yes, there are a few deals that we’ve seen, and notably, the exemption has been used by a fair number of TSXV-listed mineral exploration and production companies to bolster their private placements.
We’ve seen a number of companies combining a $5 million brokered raise using the LIFE exemption with a traditional non-brokered private placement.
A few examples of this include financings by Nevada King Gold, Kodiak Copper and Luminex Resources spanning from January to May of this year. The relative market capitalization of these companies ranges from approximately $120 million to $45 million, respectively.
In each case, the companies raised $5 million under the LIFE exemption in a brokered private placement with an additional $2.5 million to $11.25 million by means of a regular non-brokered private placement using traditional prospectus exemptions.
Join us soon for the second part of our interview when we cover some of the different scenarios where LIFE is being used and discovers some of the risks and challenges with the exemption.