On August 14, 2013, the TSX Venture Exchange (“TSX-V”) published policy amendments to replace certain temporary pricing relief measures related to private placements, which were implemented last year and set to expire on August 31, 2013. The purpose of the amendments is to promote and facilitate both access to capital and the completion of listing transactions by easing the rules relating to minimum pricing requirements for offerings and capital structure matters. In addition, effective August 7, 2013, the TSX-V removed, effective immediately, the existing 15% limit imposed on “Founder Shares” of issuers listing on the TSX-V.
Under the relief measures, TSX-V-listed issuers were able to offer securities at an issue price below the $0.05 minimum. The TSX-V implemented the relief measures to assist issuers facing imminent financial hardship in a depressed capital markets environment, which saw the share prices of many TSX-V issuers fall below $0.05. The relief measures effectively permitted companies to complete financings without having to first complete a share consolidation in order to meet minimum pricing requirements. As it stands now, an issuer on the TSX-V needs shareholder approval to complete a share consolidation, which is both costly and timing-consuming.
The policy amendments include:
- Minimum Price for Warrants and Options:
A reduction of the minimum exercise price for share purchase warrants and incentive stock options from $0.10 to $0.05 per share, which will apply to the full term of the warrant or option.
- Minimum Price for Convertible Debentures:
A reduction in the minimum conversion price for debentures from $0.10 to $0.05 per share for the first year of the debenture’s term.
- Minimum Price for Initial Public Offerings:
A reduction in the minimum offering price from $0.15 to $0.10 per share for a non-Capital Pool Company initial public offering.
- Shareholder Approval for Share Consolidations:
A modification to the TSX-V’s shareholder approval requirement for share consolidations. The TSX-V will only require shareholder approval for a consolidation if such consolidation, when combined with any other consolidation conducted by an issuer within the previous 24 months that was not approved by the issuer’s shareholders, would result in a cumulative consolidation ratio of greater than 10 to 1 over such 24 month period.
LAPSE OF RELIEF MEASURES
With the relief measures set to lapse and the capital markets malaise continuing, easing of the financing and share consolidation rules should provide some relief to the cash-strapped junior resource sector, where by TSX-V estimates around half of the junior TSX-V issuers are trading below $0.05. The TSX-V has indicated that it will not be implementing any policy amendments that would continue to allow issuers to offer shares below $0.05. Thus it is worth noting that, while the easing of shareholder approval rules appear on their face to provide relief to beleaguered issuers, an issuer will still be subject to shareholder approval requirements under applicable corporate laws, so this hurdle has not been removed entirely. Further, share consolidations are subject to TSX-V acceptance and certain other requirements under Policy 5.8 of the TSX Venture Exchange Corporate Finance Manual.
The TSX-V has provided a transition period for the termination of the relief measures allowing any private placement that has been conditionally accepted by the TSX-V on or before August 31, 2013 to be completed within 30 days following the date of conditional acceptance of such private placement.
RECISSION OF DEAL STRUCTURE AND FOUNDER SHARE GUIDELINES
In addition to the above changes, the TSX-V announced that it has rescinded two of its Bulletins/Notices to Issuers dated December 11, 2007 and October 20, 2008 related to deal structure and founder shares guidelines. The rescission of these guidelines will have the principal effect of removing the existing 15% limit on “Founder Shares”. We note that the TSX-V will retain its general discretion to refuse a listing on the basis that an issuer’s capital structure is excessively dilutive or otherwise imbalanced. The TSX-V will apply this discretion on a case by case basis with a view to the facts specific to each listing.