In order to address challenges faced by listed issuers in the current market environment, the TSX Venture Exchange (“TSXV”) recently released a Notice to Issuers¹ regarding temporary relief from certain minimum pricing requirements for private placements (the “Notice”). The temporary measures are effective until December 31, 2012. Subject to compliance with certain conditions, as summarized below, issuers which have securities listed for trading on the TSXV (“Issuers”) may conduct private placements involving the issuance of: (i) common shares (or units which include common shares) with an offering price of less than $0.05 per share; or (ii) convertible debentures with a conversion price per share of less than $0.10. In addition, subject to compliance with certain conditions, Issuers may conduct private placements involving the issuance of warrants with an exercise price per share of less than $0.10.

In the Notice, the TSXV acknowledges that for Issuers whose shares are trading below $0.05: (i) the existing $0.05 minimum offering price requirement may create difficulties in completing a financing without first completing a share consolidation; and (ii) the time required to complete a share consolidation may prevent an Issuer which is subject to immediate or imminent financial hardship from completing a private placement.

Conditions Enabling Share/Unit Offering Price Below $0.05 and Debenture Conversion Price Below $0.10:

Share/Unit Offering – Minimum Offering Price: Common shares, or units which include common shares, may not be offered at a price per share/unit less than the last closing price of the Issuer’s common shares before issuance of the news release announcing the private placement.

Convertible Debentures – Minimum Conversion Price, Limited Term: The conversion price per share may not be less than the last closing price of the Issuer’s common shares before the issuance of the news release announcing the private placement, subject to a minimum conversion price of $0.05. Further, the TSXV will allow a conversion price of less than $0.10 per share only for the first 12 months following completion of the private placement, following which the conversion price must automatically increase to a minimum of $0.10 for any unconverted debentures for the remainder of the term of the debenture.

Financial Hardship and Use of Proceeds: The Issuer must demonstrate that it is subject to “immediate or imminent financial hardship” and that there is insufficient time or resources to effect a share consolidation prior to completing the private placement. The following requirements must be met to satisfy the TSXV in this regard:

  1. Financial Information: Before the TSXV will provide conditional acceptance to the private placement, the Issuer must provide a detailed narrative of the events and factors leading to the financial hardship and indicate whether these details have been publicly disclosed, a description of the alternatives considered by management, an itemization of the use of proceeds of the private placement, and any other relevant material information.
  2. Existing Business Use: The principal purpose of the private placement proceeds must be to maintain or preserve the Issuer’s existing operations, activities and assets (i.e. may not be used to fund the purchase or pursuit of new business operations or activities). 3
  3. Related Parties: None of the private placement proceeds may be used to satisfy obligations to related parties of the Issuer. 
  4. Public Disclosure: A news release must be disseminated providing itemized disclosure of the use of the proceeds of the private placement.
  5. Officer’s Certificate: Before the TSXV will conditionally accept the private placement, the CEO or CFO of the Issuer must certify, in prescribed form: (i) the necessity of the private placement under the terms of the relief measures as set out in the Notice; and (ii) the approval of same by the Issuer’s board of directors, excluding any directors with a direct interest in the private placement.

Limit under Relief Measures: An Issuer may raise up to $500,000 in aggregate gross proceeds (except as may otherwise be consented to by the TSXV).

75% Arm’s Length: At least 75% of the private placement must be subscribed for by persons who are not related parties of the Issuer.

Conditions Enabling Warrant Exercise Price Below $0.10

Minimum Exercise Price: The exercise price of a warrant attached to a common share must be no less than the greater of: (i) the share offering price; (ii) the last closing price of the Issuer’s common shares before the issuance of the news release announcing the private placement; and (iii) $0.05. In the case of a private placement involving convertible debentures with either detachable warrants or warrants issuable upon conversion of the debenture, the exercise price of such warrants must not be less than the conversion price of the debentures.

Limited Term: 12 months after the completion of the private placement, the exercise price of any unexercised warrants (including warrants issuable upon conversion of a convertible debenture) must automatically increase to a minimum of $0.10 for the remainder of the term of the warrant.

75% Arm’s Length: At least 75% of the private placement must be subscribed for by persons who are not related parties of the Issuer.

Procedural Matters

To rely on the relief measures set out in the Notice, an Issuer must comply with all other requirements of TSXV private placement policies, must complete the transaction prior to December 31, 2012 and must issue a news release in order to protect/reserve the price. No expedited filings are permitted in conjunction with these relief measures.