CSA Abandons Separate Regulatory Regime for Venture Issuers

On July 25, 2013, the Canadian Securities Administrators ("CSA") announced that they are no longer considering the implementation of a new regulatory regime for venture issuers. The CSA had previously released proposed National Instrument 51-103 and other rule amendments which would have resulted in a distinct and separate regulatory regime for venture issuers, including new continuous disclosure and corporate governance obligations.

Although the proposed new regulatory regime was intended to be more suited to the size and nature of venture issuers, the CSA ultimately decided to abandon the new regime due to concerns expressed by commentators on the burden of transitioning to a new system of rules and disclosure obligations, such as the mandatory preparation of an annual report.  It is important to note that the CSA have stated that certain items contained in the abandoned National Instrument 51-103 may be used in the future to amend existing regulations affecting venture issuers, which would occur following a subsequent comment and review process.

Recent Amendments to the TSXV Corporate Finance Manual

On August 7 and August 14, 2013, the TSX Venture Exchange (the “TSXV”) issued bulletins which describe a series of amendments to the TSXV Corporate Finance Manual (the “TSXV Policy”) aimed at easing the requirements and restrictions placed on issuers pertaining to minimum pricing rules and capital structure matters.  The amendments also codify certain temporary relief measures from minimum pricing rules for private placement transactions introduced by the TSXV in 2012 to assist issuers in raising capital in a challenging marketplace.

Minimum Price for Warrants and Options:  The minimum allowable exercise price for share purchase warrants and incentive stock options has been reduced from $0.10 to $0.05 per share and will apply to the full term of the warrant or option. 

Issuers may apply to have current incentive stock options amended to be in line with the lower minimum pricing rules.  The TSXV will not impose either the six month waiting period or the disinterested shareholder approval requirements prescribed by TSXV Policy 4.4 in respect of any application to lower the exercise price of an incentive stock option to below $0.10 provided that: (i) the option was granted between January 1, 2013 and August 14, 2013; (ii) the proposed revised price is not less than the Discounted Market Price (as defined in the amended TSXV Policy) at the time of the grant; (iii) the proposed revised price is not less than the Discounted Market Price at the time of the application for acceptance of the option repricing; and (iv) the application is received by the TSXV on or prior to January 31, 2014.  Amendments to the exercise price of options must be otherwise completed in accordance with TSXV Policy 4.4.

Also, issuers may apply to have existing share purchase warrants amended to be in line with the recent pricing amendments; however, the TSXV only allows unlisted warrants issued pursuant to a financing transaction (excluding agents’ or finders’ warrants) to be amended.  Any such application must be completed in accordance with the requirements to amend existing warrants outlined in TSXV Policy 4.1.

Minimum Price for Convertible Debentures:  The minimum allowable conversion price for debentures has been reduced from $0.10 to $0.05 per share for the first year of the term of the debenture, and will remain at $0.10 per share for the balance of the term of the debenture.

Minimum Price for IPOs:  The minimum allowable offering price for a non-Capital Pool Company initial public offering has been reduced from $0.15 to $0.10 per security.

Shareholder Approval for Share Consolidations:  The TSXV now only requires shareholder approval for a share consolidation which, when combined with any other consolidation conducted by the issuer within the previous 24 months that was not approved by shareholders, would result in a cumulative consolidation of greater than 10 to 1 over such period.  Note that issuers are still subject to the shareholder approval requirements contained in applicable corporate law.

Rescission of Capital Structure Guidelines:  The TSXV has rescinded its Bulletins/Notices to issuers dated December 11, 2007 and October 20, 2008 related to Deal Structure and Founder Shares Guidelines. Rescinding these guidelines has the principal effect of removing the 15% limit on founder shares in respect of any new listing.  It is important to note that the TSXV will retain its discretion under TSXV Policy 2.1 to refuse a listing on the basis that an issuer’s capital structure is excessively dilutive or otherwise imbalanced.

Public Offering by Short Form Offering Document: The minimum exercise price for warrants issued under a Short Form Offering Document (in accordance with TSXV Policy 4.6) is now the greater of the offering price for the securities offered under the offering and the closing price of the issuer’s shares on the trading day before the announcement of the offering.

NEX Issuers and Capital Pool Companies: The new amendments to the TSXV Policy apply to NEX issuers.  It is important to note that Capital Pool Companies (including those listed on NEX), continue to be subject to TSXV Policy 2.4, which provides for restrictions on the issuance of securities prior to the completion of a Qualifying Transaction.

In-Progress Financings: For an in-progress financing filed with the TSXV that has not closed, the TSXV will allow the issuer to amend the terms of the financing to benefit from the lower minimum pricing rules provided that the revised pricing would have been acceptable at the time of the original announcement of the financing or transaction had the policy amendments been in effect as of such date.  For any in-progress initial public offering filed with the TSXV that has not closed, the issuer can reduce the offering price to as low as $0.10 per security.