On August 17, 2012 the TSX Venture Exchange (TSXV) published a bulletin entitled Private Placements – Temporary Relief from Certain Pricing Requirements, which provided, on a temporary basis and subject to compliance with the bulletin, the granting of relief to TSXV issuers from certain existing pricing requirements related to private placement financings. These temporary measures were effective as of August 17, 2012 and continued until December 31, 2012. On December 12, 2012 and April 12, 2013, respectively, the TSXV extended the temporary relief period to April 30, 2013 and August 31, 2013, respectively. On August 7, 2013 the TSXV published a bulletin notifying market participants that the temporary relief measures would lapse on August 31, 2013 and indicated that certain amendments would be made to the TSXV Corporate Finance Manual and previous TSXV bulletins to:
- reduce the minimum price for warrants, options, convertible securities and initial public offerings;
- amend the provisions dealing with shareholder approval requirements for share consolidations; and
- rescind the deal structure and founder share guidelines.
On August 14, 2013, the TSXV issued a further bulletin entitled Policy Amendments - Amendment of Minimum Pricing Rules for Convertible Securities and Initial Public Offerings and Amendment of Shareholder Approval Requirement for Share Consolidations (Bulletin), which implemented the foregoing, as more fully described in this bulletin.
Summary of the Bulletin
Minimum Price for Warrants, Options, Convertible Debentures and Initial Public Offerings
The Bulletin provides for a reduction in the minimum acceptable exercise price for share purchase warrants and options from $0.10 to $0.05 per share, which will apply for the full term of the warrant or option. In addition, the 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 the Bulletin also implements a reduction in the minimum acceptable offering price for non Capital Pool Company initial public offerings from $0.15 to $0.10 per security. After the first year of the term of a convertible security (other than warrants and options) the conversion price of such securities must be the greater of the Market Price and $0.10. It should be noted that the definitions of “Discounted Market Price” and “Market Price” in TSXV Policy 1.1 have been amended to remove references to a $0.10 minimum acceptable exercise or conversion price, as applicable, in respect of warrants, options and other convertible securities, which results in the minimum acceptable exercise price or conversion price for such securities under these definitions to be $0.05.
Section 3.4(e) of TSXV Policy 4.1 - Private Placements has been amended to clarify that for any warrants issued in connection with a convertible security (i.e., convertible securities other than warrants and options), the exercise price of the warrant must not be less than the initial conversion price of the convertible security (i.e., for a convertible security issued with an initial conversion price of $0.05 which increases to $0.10 after the first year of the term, any warrant issued in connection with such convertible security can have an exercise price of $0.05 for the full term of the warrant).
TSXV Policy 4.6 - Public Offering by Short Form Offering Document has been amended to require that a minimum exercise price for warrants issued under a Short Form Offering Document 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.
The Bulletin also clarifies that the exercise price of agent’s or finder’s warrants on a financing can be equal to the offering price of the financing, even if such offering price is below the Market Price.
In respect of any in-progress financing or transaction filed with the TSXV involving the issuance of warrants or convertible securities (other than warrants and options) that has not closed, issuers may reduce the applicable exercise or conversion price for such securities to benefit from the pricing rule changes, 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 on such date. In such circumstances, issuers will be required to issue a news release announcing any such amendment to the terms of the financing or transaction. In addition, the Bulletin provides that for any in-progress initial public offering that has not closed, the issuer may reduce the offering price to as low as $0.10 per security.
With respect to existing incentive stock options, the TSXV has indicated that issuers may apply to have such options repriced to benefit from the lower minimum pricing rules. In addition, the Bulletin provides that the TSXV will not apply either the 6 month waiting period requirement prescribed by section 5.1(b) of Policy 4.4 - Incentive Stock Options or the disinterested shareholder approval requirement prescribed by section 5.1(b) of such policy, in respect of any application to amend the exercise price of an incentive stock option to a price below $0.10 provided that:
- the option was granted between January 1, 2013 and August 14, 2013;
- the proposed revised price is not less than the Discounted Market Price (using the new definition) at the time of the grant;
- the proposed revised price is not less than the Discounted Market Price at the time of the application to reprice the option; and
- the application is received by the TSXV on or prior to January 31, 2014.
The Bulletin also provides that issuers may apply to have existing share purchase warrants repriced to benefit from the pricing amendments; however, the TSXV only allows unlisted warrants issued pursuant to a financing transaction (excluding agent’s or finder’s warrants) to be amended. Warrants issued pursuant to transactions, other than a private placement, prospectus offering or short form offering document, may not be amended.
The Bulletin states that the TSXV will only require shareholder approval for a consolidation if such consolidation, 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 10:1 over such period. Issuers are reminded that they still may be subject to shareholder approval requirements under their governing corporate statutes. The Bulletin also provides that for an in-progress share consolidation filed with the TSXV for which an issuer is not required by applicable corporate law to obtain shareholder approval, the TSXV will only require evidence of shareholder approval for such consolidation if it is on a greater than 10:1 basis as discussed above.
The amendments discussed above apply to NEX issuers as well; however, Capital Pool Companies, including those listed on the NEX, remain subject to the specific provisions of TSXV Policy 2.4 - Capital Pool Companies, which provides for restrictions on the issuance of warrants and debentures prior to the completion of a Qualifying Transaction.
Rescission of Deal Structure and Founder Share Guidelines
Pursuant to the TSXV bulletin released on August 7, 2013, the TSXV has rescinded its bulletins dated December 11, 2007 and October 20, 2008 related to Deal Structure and Founder Share Guidelines. The effect of such rescission is that the existing 15% limit on Founder Shares prescribed by these bulletins in respect of any new listing will be removed. The TSXV however notes that it will retain its general discretion under section 4.7 of Policy 2.1 - Initial Listing Requirements to refuse a listing on the basis that an issuer’s capital structure is excessively dilutive or imbalanced.
The TSXV has implemented amendments to shareholder approval requirements for share consolidations and the pricing rules to assist issuers in raising capital in a difficult capital market environment. These amendments provide certain pricing flexibility in respect of offerings involving convertible securities and initial public offerings, which should assist issuers in raising capital. Hopefully, such amendments will prove to provide the flexibility intended by the Bulletin.