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On August 17, 2012 the TSX Venture Exchange (TSXV) published a bulletin entitled Private Placements – Temporary Relief from Certain Pricing Requirements (Bulletin), which provides, 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 (Relief Measures) are effective as of August 17, 2012 and continue until December 31, 2012 (Temporary Relief Period). The TSXV has issued the Bulletin as a result of the current market environment faced by many of its listed issuers and the effect that this is having on their ability to complete financings and maintain and preserve their existing operations, activities and assets. In addition, the TSXV noted in the Bulletin that it acknowledges that: (a) for issuers whose shares are trading below $0.05, the $0.05 minimum offering price may create difficulties in completing a financing without first effecting a share consolidation; and (b) the time necessary to effect a share consolidation may preclude an issuer subject to immediate or imminent financial hardship from completing a financing opportunity. As a result, the Bulletin provides Relief Measures to complete a Private Placement for issuers subject to immediate or imminent financial hardship.
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Relief Measures
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Share/Unit Offering Price Below $0.05 and Debenture Conversion Price Below $0.10
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TSXV policies require that:
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(a) the offering price for a Private Placement of shares (or units of which shares form a part) be not less than the applicable Discounted Market Price (i.e., the Market Price[1] less the applicable maximum discounts under the TSXV policies, subject to a minimum price per share of $0.05); and
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(b) the conversion price of convertible debentures issued under the Private Placement be not less than the applicable Market Price, subject to a minimum conversion price per share of $0.10.
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During the Temporary Relief Period, an issuer may conduct a Private Placement involving the issuance of: (a) common shares (or units of which common shares form a part) having an offering price of less than $0.05 per share; and (b) convertible debentures having a conversion price per share of less than $0.10. In the case of a Private Placement of common shares (or units of which common shares form a part), the offering price per share (or unit) must 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. In the case of a Private Placement of convertible debentures the conversion price per share must not be less than the last closing price of the issuer’s common shares prior to the issuance of the news release announcing the Private Placement, subject to a minimum conversion price of $0.05 per share. In addition, the Bulletin provides that the TSXV will permit a conversion price of less than $0.10 only for the first 12 months following the closing of the Private Placement. At the end of such 12 month period, the conversion price of any unconverted debenture must automatically increase to a minimum of $0.10 for the remainder of the term of the debenture.
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Financing Hardship/Use of Proceeds
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To rely on the Relief Measures, the issuer must demonstrate to the satisfaction of the TSXV that it is subject to immediate or imminent financial hardship and that it does not have the time or resources to undertake a share consolidation. In this regard, the issuer must comply with the following requirements:
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(a) Financial Information: the following information must be provided to the TSXV as a condition precedent to the TSXV providing its conditional acceptance of the Private Placement:
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(i) detailed description of the events and factors which led to and contributed to the issuer being subject to immediate or imminent financial hardship and whether this information has previously been publicly disclosed;
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(ii) detailed description of alternatives considered by management to improve the issuer’s financial condition;
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(iii) itemized breakdown of the use of proceeds of the Private Placement, including the required timing for each stated use. In this regard the TSXV will generally require the timing to be immediate or imminent; and
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(iv) any other material information in respect of the issuer’s financial situation which may be relevant.
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(b) Maintain/Preserve Existing Business: principal purpose of the proceeds of the Private Placement must be to maintain or preserve the issuer’s existing operations, activities and assets (i.e., cannot be used to fund the purchase or pursuit of a new business operation or activity).
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(c) No Payments to Related Parties: proceeds from the private placement cannot be used to compensate, settle indebtedness with or otherwise satisfy obligations to Related Parties (as defined in the TSXV policies).
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(d) Public Disclosure: the issuer must disseminate a news release in conjunction with the closing of the Private Placement which provides an itemized breakdown of the use of proceeds.
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(e) Officer’s Certificate: an officer’s certificate, in the form prescribed by the Bulletin, must be provided to the TSXV.
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(f) Limit on Private Placement: maximum aggregate gross proceeds of $500,000 can be raised in reliance on these Relief Measures, except as may otherwise be consented to by the TSXV.
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(g) Arm’s Length: at least 75% of the Private Placement must be subscribed for by persons that are not Related Parties of the issuer. If the issuer completes more than one Private Placement in reliance on these Relief Measures, each Private Placement must satisfy this requirement.
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Warrant Exercise Price Below $0.10
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TSXV policies require that the exercise price of warrants issued under a Private Placement be not less than the applicable Market Price, subject to a minimum exercise price per share of $0.10. During the Temporary Relief Period, an issuer may conduct a Private Placement involving the issuance of warrants having an exercise price of less than $0.10, subject to the following requirements:
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(a) Minimum Exercise Price: exercise price of each warrant must not be less than the greater of: (a) the offering price of the Private Placement; (b) the last closing price of the issuer’s common shares before the issuance of the news release announcing the Private Placement; and (c) $0.05. In the case of a Private Placement of convertible debentures for which either detachable warrants are issued or warrants are issued upon conversion of the debenture, the exercise price of each warrant must not be less than the conversion price of the debenture.
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(b) Limited Term: the reduced exercise price will only apply for the first 12 months following closing of the Private Placement. At the end of such 12 month period, the exercise price must automatically increase to a minimum of $0.10 for the remainder of the warrant. In the case of warrants issuable upon conversion of a debenture, such 12 month period commences on the date of the closing of the Private Placement and not the date of conversion of the debenture.
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(c) Arm’s Length: 75% of the Private Placement must be subscribed for by persons that are not Related Parties.
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Procedural Matters Applicable to Share, Convertible Debenture and Warrant Private Placements
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The following procedural requirements will apply to all Private Placements for which an issuer relies on the Relief Measures:
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(a) issuers must continue to comply with all requirements applicable to Private Placements under existing TSXV policies, except as modified by the Bulletin;
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(b) the Private Placement must be completed during the Temporary Relief Period (i.e., an issuer cannot announce the Private Placement prior to the end of the Temporary Relief Period and close it after the end of the period);
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(c) pricing of the Private Placement may not be protected/reserved by filing a Form 4A – Price Reservation Form, rather the issuer must issue a comprehensive press release announcing the proposed Private Placement in order to protect/reserve the price;
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(d) issuers will not be entitled to rely on the Expedited Filings provisions of TSXV Policy 4.1 – Private Placements; and
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(e) NEX issuers may use the Relief Measures provided that they: (a) comply with the Bulletin; (b) do not close the Private Placement without TSXV conditional acceptance; and (c) comply with the applicable requirements under the NEX Policy, as they relate to Private Placements, except to the extent they are modified by the Bulletin.
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Conclusion
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The Bulletin provides issuers in financial hardship with relief from the TSXV’s pricing requirements where there is no time to effect a share consolidation to complete a Private Placement. In such circumstances, issuers are required to comply with the requirements of the Bulletin. The Bulletin is a direct response to the current market environment faced by TSXV issuers in raising capital and will be helpful, at least in the short term, in assisting issuers facing financial hardship to complete financings in order to maintain and preserve their existing operations, activities and assets.
-] “Market Price” is defined in TSXV Policy 1.1 – Interpretation to mean the last closing price of the issuer’s listed shares before either the issuance of the news release or the filing of the Price Reservation Form (Form 4A) required to fix the price at which the securities are to be issued or deemed to be issued, except under certain circumstances as more specifically described in the definition of “Market Price” in TSXV Policy 1.1 – Interpretation.