Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Securities Regulation, November 2008
The TSX Venture Exchange (the Exchange) recently announced that it would provide relief to listed issuers in light of the current volatility of global markets.
The Exchange also announced, in a separate bulletin, that it would proceed with the implementation of a series of amendments (the Amendments) to the policies contained in its corporate finance manual (the Corporate Finance Manual), effective December 15, 2008.
TEMPORARY RELIEF TO LISTED ISSUERS
From November 3, 2008 until March 31, 2009 (the Relief Period), issuers listed on the Exchange may apply in writing for relief from certain requirements set out in the Corporate Finance Manual. In particular, the Exchange has provided the following specific discretionary relief measures in connection with tier maintenance requirements, time-frames to complete a qualifying transaction (QT) and pricing in respect of private placements and shares for debt transactions.
Issuers with viable businesses that no longer meet certain minimum listing requirements due to market conditions may apply to the Exchange for relief from a tier downgrade or a transfer to the NEX board of the Exchange.
Capital Pool Companies
A listed and trading capital pool company (CPC) that is required to complete its QT within the Relief Period may apply to the Exchange for an additional six-month extension to complete such transaction. In addition, a listed and trading CPC looking to complete a combination with another CPC during the Relief Period may apply for an additional extension to complete its QT ending on the later of: (i) 12 months from the closing date of the combination and (ii) 24 months from the date of listing of the most recently listed CPC that is a party to the combination.
Shares. Where third parties who are at arm's length to an issuer propose to subscribe for 75% of a private placement of shares, the issuer may apply to the Exchange to issue shares at a price less than C$0.05 per share, provided that the minimum subscription price is no less than the last closing price of such shares.
Warrants. Similarly, where third parties who are at arm's length to an issuer propose to subscribe for 75% of a private placement of warrants, the issuer may apply to the Exchange to issue warrants having a minimum exercise price of C$0.05 per share during the initial 12-month period following the issuance thereof and increasing to a minimum exercise price of C$0.10 per share for the remainder of the term.
Shares for Debt. An issuer may apply to the Exchange to issue shares for debt to an arm's length creditor at a deemed conversion price that is less than C$0.05 per share, provided that the minimum price per share is not less than the last closing price of such shares.
AMENDMENTS TO CORPORATE FINANCE MANUAL
By proceeding with the Amendments, the Exchange aims to achieve a number of objectives including: (i) the elimination of certain distinctions between Tier 1 and Tier 2 issuers, (ii) streamlining the Corporate Finance Manual policies to increase filing efficiency as well as ensuring consistency with the rules set forth in the Toronto Stock Exchange Company Manual (TSX Company Manual), and (iii) clarifying and enhancing existing policies.
The material amendments are contained in Policies 2.3 — Listing Procedures, 3.1 — Directors, Officers, Corporate Governance, 3.3 — Timely Disclosure, 3.4 — Investor Relations, Promotional and Market Making Activities, 4.1 — Private Placements, 4.5 — Rights Offerings, 5.4 — Escrow Vendor Consideration and Resale Restrictions, and 5.8 — Name Changes, Security Consolidations and Splits.
There are currently no copies of the amended Corporate Finance Manual available for review, however, the Exchange bulletin provides a high-level overview of the Amendments and revised policies will be available at www.tsx.com by December 15, 2008.
Tier 1 and Tier 2 Issuers
The Amendments eliminate certain distinctions between Tier 1 and Tier 2 issuers, including:
- Tier 1 issuers will no longer be permitted to comply with the substantive requirements of the TSX Company Manual in lieu of the Exchange's requirement with respect to filing requirements, continuous disclosure and private placements.
- Tier 2 issuers no longer need to seek Exchange acceptance for investor relations contracts over C$100,000. Investor relations providers will henceforth be subjected to the same level of disclosure and suitability review process as directors.
- Tier 2 issuers will now be permitted to issue warrants with a conversion term of five years.
- With respect to incentive stock options, the Amendments provide that:
- Tier 2 issuers with fixed stock incentive plans reserving more than 10% of the issued and outstanding shares no longer require vesting provisions;
- Tier 2 issuers will be entitled to grant options representing more than 5% of their issued and outstanding shares in any 12-month period, provided disinterested shareholder approval is obtained;
- shares underlying stock options will not be subject to Exchange hold periods in circumstances where the exercise price of the stock options is equal to or greater than the market price;
- the stock option expiration periods applicable to Tier 2 issuers have been removed; and
- Tier 2 issuers may extend the term of granted options to 10 years.
- Tier 2 issuers no longer need to seek conditional Exchange acceptance of a proposed transaction in connection with the issuance of bonus shares, warrants, finder's fees or commissions.
- Tier 1 will now be required to adhere to the same bonus limitations as Tier 2 issuers.
- Tier 2 issuers that have been listed for less than one year or have completed a reverse take-over (RTO) or QT within the last year will no longer be prohibited from completing a change of business or RTO.
- The restriction which precluded a Tier 2 issuer from conducting an expedited acquisition if, within the previous six months, it had issued more than 25% of its listed shares, has been eliminated.
- In any six-month period, Tier 2 issuers will be entitled to issue up to 50% of their issued and outstanding shares pursuant to an expedited private placement.
Increased Filing Efficiency
The Exchange has eliminated certain filing requirements:
- Issuers will no longer need to demonstrate in writing how they meet the minimum listing requirements given that the Exchange proceeds with such an analysis for each new listing application.
- Issuers will provide information regarding issued and outstanding shares or shares to be issued in the Exchange's new Form 2J – Security Holder Information.
- Issuers will no longer be required to file copies of their constating documents or, subject to certain exceptions, their material contracts entered into within the last two years.
- Issuers that adopt generic share certificates supported by a confirmation from the transfer agent that the certificate is STAC compliant need not file a copy of such certificate.
- The Amendments remove the requirement for issuers to list the names of subscribers who participate in a private placement, where such subscribers will hold less than 5% of the issued and outstanding shares of the issuer following completion of the private placement and are not insiders or pro group members. In addition, only those corporate placees that hold more than 5% of the issued and outstanding shares of the issuer following completion of a private placement or subscribe to more than 25% of the private placement will be required to file a Form 4C – Corporate Placee Registration Form.
Exercise of Discretion and Clarification
Currently, certain policies in the Corporate Finance Manual contain provisions dealing with the ability of the Exchange to exercise its discretion. The Amendments delete such references, other than those that relate to a specific subject matter, and consolidate them in a general provision relating to the exercise of the Exchange's discretion contained in Policy 1.1 – Interpretation.
Moreover, the Exchange has amended Policy 3.1 – Directors, Officers and Corporate Governance by broadening its scope to include its application to control persons, employees, consultants or agents engaged by or working on behalf of an issuer, at the discretion of the Exchange, and specifying the implications that suitability reviews of individuals will have on an initial listing and on a continuing listing basis. In addition, all listed issuers will be required to appoint a corporate secretary.
Amendments to Policy 3.3 – Timely Disclosure provide greater information on how the Investment Industry Regulatory Organization of Canada deals with trading halts, what types of information may and may not be kept confidential and the types of events that are deemed to be material.
Consistency with the TSX Requirements
A number of the provisions the Amendments modify make the Corporate Finance Manual more consistent with the rules set out in the TSX Company Manual.
Policy 4.5 – Rights Offerings has been modified such that the maximum time-frames set forth therein for fixed and non-fixed minimum subscriptions have been deleted. In addition, the process for filing trading information has been amended to reflect the more efficient policies of the TSX.
In addition, in an effort to be consistent with the TSX, Policy 5.8 – Name Changes, Security Consolidations, and Splits will permit overprinting of share certificates and issuers will now have to change the colour of the security certificate where applicable. Additionally, sections dealing with the timing of trading following a name change as well as the reclassification of securities have been added to reflect TSX practice and policies.
Other Noteworthy Amendments
- Surplus Security Escrow Period. The Amendments reduce the surplus security escrow time period from six to three years. While surplus and value securities will now be subject to the same escrow period, a greater number of surplus securities will be released towards the end of the escrow term. Consequential amendments have also been made to the forms of escrow agreement.
- Timely Disclosure. News releases updating the status of certain transactions will be required within 30 days as opposed to the previous 45 days. Additionally, subject to securities law, issuers will be required to make certain disclosures with respect to earnings and financial forecasts.
- Private Placement of Convertible Securities. The provision requiring the conversion price of a convertible security to be not less than the market price for the first two years of its term has been deleted. The conversion price must not be less than the market price at any time. Furthermore, under the Amendments, the conversion price per share need not be escalated by 10% each year.
- Special Warrants. The sections dealing with private placements of special warrants have been deleted based on the declining number of such private placements in recent years.
- Financial Statements. The Amendments provide greater detail with respect to the financial statements that are to be filed with a listing application.
In addition to the amendments highlighted above, a number of additional housekeeping amendments will be included in the Corporate Finance Manual.
- TSX Venture Exchange (the Exchange) recently announced temporary measures providing relief to issuers affected by the current global market volatility in connection with tier maintenance requirements, time-frames to complete qualifying transactions and pricing of securities.
- The Exchange also announced that it will proceed with the implementation of a series of amendments (the Amendments) to the corporate finance manual (the Corporate Finance Manual), effective December 15, 2008.
The Amendments aim to:
- eliminate certain distinctions between Tier 1 and Tier 2 issuers,
- streamline the Corporate Finance Manual policies to increase filing efficiency as well as ensure consistency with the rules set forth in the Toronto Stock Exchange Company Manual, and
- clarify and enhance existing policies.
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.