RE:Warrant ExpiryIn case anyone is wondering about the rules:
SRO Notices and Disciplinary Proceedings
May 4, 2007 (2007) 30 OSCB 4265
The amended section 7 includes the addition of a maximum permitted term of 5 years, where there was previously no maximum, and specific criteria that must be met for extending terms or amending exercise prices of warrants.
The section provides for the amendment of warrant terms if: the warrants are not listed for trading; the exercise price is higher than the current market price, no warrants have been exercised in the last six months; and at least 10 trading days remain before the expiry date.
The term of a warrant may not be extended beyond 5 years from the date of issuance, and the exercise price may be amended once, subject to a number of conditions. An Issuer may amend the exercise price if the warrants were priced above the market price at the time of issuance and amended is also at or above that price; and, the amended price is at or above the average
closing price of the listed shares for the last 20 trading days (or average of the bid/ask on days with no trading.
An Issuer may amend the exercise price to a price below the market price at the time of issuance, provided that if for 10 consecutive trading days the closing price of the listed shares exceeds the amended price by the applicable private placement discount the terms of the warrants must also be amended to 30 days, commencing 7 days from the end of the 10 day period. In this case, consent must be obtained from all holders of the warrants.
A maximum of 10% of the total warrants to be repriced may be repriced for insiders. If insiders hold more than 10% of the total, then the allowable 10% will be allocated pro rata among those insiders.
Disclosure must be made by press release and filing of new Form 13 – Notice of Amendment of Warrant Terms.
Impact of the Proposed Change
The proposed changes would have a minor overall positive impact on the ability of listed companies to raise capita. Not all companies would take advantage of the changes, however, those that could potentially receive a great benefit from increased financing flexibility.
Consultation
CNQ has had several discussions with listed companies and their respective counsel regarding the proposed changes. While these were not systematic consultations it is clear that they believe that such changes would be beneficial to CNQ listed companies and would not cause undue dilution to shareholders.
Alternatives
CNQ considered maintaining the prohibition on amendments to privately-issued warrants. It was rejected as it could cause hardship to CNQ listed companies and be an incentive to list on an exchange that does permit amendments. Another option was to impose no restrictions on the amendments that could be made. This was rejected as it could result in excessive dilution of existing shareholders. The proposal attempts to reach a balance by imposing a maximum term for warrants as a quid pro quo for allowing extensions.
Comparable Policies
Other Canadian stock exchanges have similar provisions for the amendment of warrant terms.
Questions
Questions regarding this notice may be directed to:
Mark Faulkner
Director, Listings & Regulation
Canadian Trading and Quotation System, Inc.
161 Bay Street, Suite 3850
Toronto, Ontario M5J 2S1
Fax: 416-572-2000
e-mail: mark.faulkner@cnq.ca