TSX Venture Exchange Liberalizes Capital Structure Guidelines, Private Placement Pricing

Capital Structure Changes

Effective August 7, 2013, the TSX Venture Exchange (the “Exchange”) rescinded its Bulletins/Notices to Issuers dated December 11, 2007 and October 20, 2008 related to Deal Structure and Founder Shares Guidelines (collectively, the “Capital Structure Guidelines”). Rescinding the Capital Structure Guidelines will have the principal effect of removing the existing 15% limit on “Founder Shares” prescribed by the Capital Structure Guidelines in respect of any New Listing.

In 2007 and 2008, the Exchange made it clear that it would not accept issuers that had capital structures like those acceptable on the OTC Bulletin Board in the United States, where a small number of founders owned a large percentage of the issuer’s outstanding shares acquired at low prices. These rules had the effect of discouraging founders from reorganizing a company by acquiring a large share position cheaply and then finding a new project for the company, because the founder’s share position would often exceed 15% on listing.

It should be noted that although the Exchange rescinded the Capital Structure Guidelines, it did not rescind or otherwise amend section 4.7 of Policy 2.1 – Initial Listing Requirements. The Exchange will retain its general discretion under section 4.7 of Policy 2.1 to refuse a listing on the basis that an issuer’s capital structure is excessively dilutive or otherwise imbalanced. The Exchange will apply this discretion on a case by case basis with a view to the facts specific to each listing.

Private Placement Pricing Changes

Effective August 31, 2013, the temporary relief measures implemented by the Exchange to permit private placements to be conducted at below prior price thresholds will lapse. New pricing requirements of the Exchange for private placements will come into effect and include:

  1. Minimum Price for Warrants and Options: The minimum allowable exercise price for share purchase warrants and incentive stock options will be reduced from $0.10 to $0.05 per share. This will apply to the full term of the warrant or option.
  2. Minimum Price for Convertible Debentures: The minimum allowable conversion price for debentures will be reduced from $0.10 to $0.05 per share for the first year of the term of the debenture. It will remain at $0.10 per share for the balance of the term of the debenture.
  3. Minimum Price for Initial Public Offerings: The minimum allowable offering price for a non-Capital Pool Company initial public offering will be reduced from $0.15 to $0.10 per security.
  4. Shareholder Approval for Share Consolidations: The Exchange will only require shareholder approval for a share consolidation which, when combined with any other share consolidation conducted by the issuer within the previous 24 months that was not approved by the issuer’s shareholders, would result in a cumulative consolidation of greater than 10 to 1 over such 24 month period. It should be noted that an issuer may still be subject to shareholder approval requirements under applicable corporate laws.

If you have questions about TSX Venture Exchange requirements, contact any member of Clark Wilson LLP’s Corporate Finance & Securities Group.