Canada: TSXV Adopts Amended Rules For Private Placements

The TSXV recently amended Policy 4.1 (Private Placements), Form 4B (Private Placement Notice Form) and Policy 5.1 (Loans, Loan Bonuses, Finder's Fees and Commissions) of the TSX Venture Exchange Corporate Finance Manual. The amendments are described by the TSXV as "a major redrafting" though only some of the amendments are described as being non-substantive in nature.

In particular, the TSXV is discontinuing the Expedited Filing System (and consequently deleting what was formerly Part 5 of Policy 4.1). In its place, Issuers can use a new system called "V-File" which allows for the electronic filing of the information that is currently included in Form 4B. V-File also automates parts of the TSXV's review and acceptance process for private placements.

The following provides an overview of the amendments to Policy 4.1:

  1. Section 1.2 (Summary of Procedures, formerly section 1.1) is expanded to provide more detailed guidance on each of the steps involved in the notice and acceptance process for a private placement. This includes price reservation through to the publication of the TSXV's bulletin;
  2. Section 1.7 (Part and Parcel Pricing Exception) was redrafted to facilitate an understanding of the existing pricing rules. In addition, this section was substantively revised to now provide that the warrant exercise price premium component of the part and parcel pricing rules does not apply if the private placement is the concurrent financing to a Qualifying Transaction, Reverse Takeover or Change of Business. In other words, the exercise price of warrants issued as part of a concurrent financing to a Qualifying Transaction, Reverse Takeover or Change of Business does not have to be set at a premium to the applicable Market Price;
  3. Section 1.9 (News Releases, formerly section 1.11) and section 1.10 (Filing Requirements, formerly section 1.13) now include additional guidance relating to initial, closing and other news releases relating to private placements and applications for conditional and final acceptance, respectively;
  4. Section 1.11 (Closing of the Private Placement) now includes additional guidance with respect to conditions to and timeframes for closing and final filing requirements. In particular, if a private placement involves the creation of a new Insider or a new Control Person, the issuer may not close on their subscriptions until the TSXV has provided its final acceptance; and
  5. A new Part 4 is added which sets forth requirements for obtaining TSXV acceptance for an amendment to the terms of previously issued Convertible Securities. While Policy 4.1 did not previously have specific provisions in this regard, the TSXV has indicated that the amendments merely codify existing TSX practice.

In addition to the foregoing, the TSXV amended Policy 4.1 to include a guidance note which provides that a private placement with a creditor where the cash received from the creditor will be used to repay the debt to the creditor or where the creditor's subscription price is offset against the debt will be subject to Policy 4.3 – Shares for Debt. The TSXV also included guidance notes on the circumstances in which a transaction may be considered a private placement and subject to Policy 4.1:

  • any transaction or series of transactions that has the effect of directly or indirectly financing the issuer in exchange for the direct or indirect issuance of securities of the Issuer;
  • any private placement of special warrants (or a similar security, such as subscription receipts) will be treated as a private placement of the securities underlying the special warrants; and
  • an issuer's sale for cash of any of its previously issued listed shares that were purchased or otherwise acquired by the Issuer.

Policy 5.1 was also amended to incorporate guidance on existing policy requirements to improve clarity. Some of the substantive amendments are as follows. First, Policy 5.1 is revised to change the method of calculating the limits for bonus shares and warrants – the limits will now be calculated using the applicable Market Price instead of the Discounted Market Price. Further, the limit on bonus warrants is being increased from 40% to 100% of the value of the loan. Bonus shares are no longer permitted on loans having a term of less than one year.

Second, subject to certain exceptions, Policy 5.1 now includes a prohibition on the ability of an issuer to pay a commission to an investor in connection with such person's own investment in the issuer. Similarly, issuers are prohibited, subject to certain exceptions, from paying a finder's fee to a vendor or purchaser in connection with such person's sale or purchase of assets or services to or from the issuer.

Third, Policy 5.1 is clarified to provide that if a commission (or other compensation) is payable by an issuer in respect of a financing that includes shares and warrants, the aggregate value cannot exceed 12.5% of the gross proceeds of the financing.

For further details, please consult the blacklines of changes to the new Policy 4.1 and Policy 5.1 made available by the TSXV.

Policies 4.1 and 5.1 of the TSX Venture Exchange Corporate Finance Manual were amended effective January 26, 2015. Any private placement filings made on or after January 26, 2015 are subject to the new Policy 4.1. Any transactions that are filed on or after January 26, 2015 will be subject to the new Policy 5.1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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