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On October 11, 2016, the Toronto Stock Exchange (TSX) provided guidance with respect to pricing a prospectus offering or private placement where there is undisclosed material information. The TSX provided the following guidance:

  • While reviewing the price at which securities are issued from treasury for financings, the TSX will factor in trading activity, liquidity and any material events, changes or announcements, as described under the definition of “market price” (Market Price) seen in Part I of the TSX Company Manual.
  • When listed issuers are proposing a prospectus offering or a private placement, the TSX expects the price of such offerings to reflect the Market Price. The Market Price in this regard should factor in all material events, changes or announcements of a listed issuer (Material Information).
  • Listed issuers should consult with the TSX or Investment Industry Regulatory Organization of Canada (IIROC) if there is any doubt or concern about whether an event is material.
  • If there is undisclosed Material Information, a listed issuer should not price a financing preceding the public disclosure of the Material Information. Doing so may prevent the Market Price of the securities from accurately reflecting the business and affairs of the listed issuer. That said, historically the TSX has permitted an exception to pricing a financing where there is undisclosed Material Information when the event would not otherwise occur without a financing agreement (Pricing Exception).
  • Pricing Exceptions are most common when listed issuers offer securities (i.e., subscription receipts, common shares, etc.) and the proceeds of such offering are used to fund an acquisition. Normally, the principal terms of the financing (including the price) and the acquisition are announced at the same time. In such a case, the financing is priced before the acquisition is disclosed to the public. The TSX has shown that it will generally accept pricing of such financings in this manner, provided that the TSX is satisfied that the acquisition would not otherwise have been approved by the board of directors of the listed issuer, but for a financing agreement. To support the Pricing Exception, the TSX generally requires an officer’s certificate confirming that the listed issuer’s board of directors would not have entered into the acquisition agreement without also having entered into the financing agreement.
  • If a listed issuer is unable to deliver an officer’s certificate outlining the above, it should consider announcing the Material Information and pricing its financing after dissemination and disclosure of the Material Information, based on the post-announcement Market Price. The TSX may, in extraordinary circumstances, accept alternative documentation in support of the Pricing Exception. Listed issuers and their advisors should contemplate these requirements of the TSX well before any financing.
  • Regardless of providing an officer’s certificate or alternative documentation, the TSX may not allow the Pricing Exception for financings in the following circumstances:
    • the net proceeds of the financing significantly exceed the cash consideration of the acquisition (plus reasonable capital expenditures or similar expenses related to the acquisition); or
    • the financing provides for significant insider participation.