At the time of previous financial crises, the TSX Venture Exchange (TSXV) granted blanket relief to listed issuers from its $0.05 per share minimum pricing requirement for various share issuances. In response to the COVID-19 pandemic, with many TSXV issuers trading at less than $0.05, the TSXV issued a Bulletin on April 8, 2020 providing important relief (Temporary Relief) from certain requirements of the TSXV Corporate Finance Manual. In particular, the Temporary Relief removes in the specific cases set out below the TSXV’s $0.05 minimum price for share issuances by issuers whose “Market Price” is $0.05 or less, subject to a new minimum of $0.01, until September 30, 2020.
By way of background, a number of TSXV Policies, including Policy 4.1 Private Placements, incorporate the concepts of “Market Price” and “Discounted Market Price”. The terms are defined in TSXV Policy 1.1 Interpretation; “Market Price” is the last closing price of an issuer’s shares prior to the issuance of a news release or filing with the TSXV of Form 4A – Price Reservation Form for a share issuance, while “Discounted Market Price” is “Market Price” less maximum permitted discounts (for example, 25% if the closing price is up to $0.50), but subject in all cases to a minimum price per share of $0.05. This reflects a long-standing, fundamental rule of the TSXV – the TSXV does not permit shares to be issued from treasury at less than $0.05, so as to prevent excessive dilution.
The Temporary Relief revises the minimum pricing requirements for certain corporate finance transactions where an issuer’s “Market Price” is $0.05 or less, including the following, subject in all cases to a new minimum price per share of $0.01:
- Private Placements – Under TSXV Policy 4.1 Private Placements, the minimum price per share for a private placement is the issuer’s “Discounted Market Price”, subject to a minimum of $0.05. Under the Temporary Relief, if an issuer’s “Market Price” is $0.05 or less, the minimum price for a private placement will be such “Market Price”, subject to a minimum of $0.01. For example, if an issuer’s “Market Price” is $0.02, it will be able to issue shares, or units comprised of one share and one common share purchase warrant, at $0.02. This is an important change as many TSXV issuers raise funds by way of private placement.
- Shares for Debt – Under TSXV Policy 4.3 Shares for Debt, the minimum deemed price per share at which an issuer’s debt may be converted into shares is the “Discounted Market Price” at the date of a news release announcing the “shares for debt” transaction, subject to a minimum of $0.05. Under the Temporary Relief, if an issuer’s “Market Price” is $0.05 or less, it will be able to issue “shares for debt” at such “Market Price”, subject to a minimum price of $0.01. This will allow listed issuers to issue shares in payment of debt at “Market Price” even if it is less than $0.05. Many TSXV issuers use the “shares for debt” mechanism to pay their debts and conserve cash; the Temporary Relief will facilitate such payments.
- Bonus Shares and Warrants – Under TSXV Policy 5.1 Loans, Loan Bonuses, Finder’s Fees and Commissions, an issuer may issue shares and warrants to a party making a non-convertible loan to the issuer or guaranteeing repayment by the issuer of the loan, known as a “loan bonus”. For purposes of calculating the maximum number of shares and warrants that may be issued as a “loan bonus, “Market Price” is used, that is, the issuer’s last closing price before the issuance of the news release required to fix the price at which the securities are to be issued, subject to a minimum of $0.05. Similarly, for purposes of calculating the maximum number of shares and warrants that may be issued in payment of a commission for a financing transaction, “Market Price” is used, also subject to a minimum of $0.05. Under the Temporary Relief, where “Market Price” is $0.05 or less, the $0.05 minimum referred to above has been reduced to $0.01. Depending on an issuer’s “Market Price”, the Temporary Relief will allow it to issue a greater number of shares and warrants as a “loan bonus” and in payment of commissions for financing transactions.
- Public Offerings – Under TSXV Policy 4.2 Prospectus Offerings, the minimum price of a prospectus offering generally cannot exceed a discount of 20% from “Market Price” at the date of a receipt for a final prospectus in respect of the offering, subject to a minimum of $0.05. Under the Temporary Relief, if an issuer’s “Market Price” is $0.05 or less, the minimum price for the prospectus offering will be such “Market Price”, subject to a minimum of $0.01. This will allow issuers to price prospectus offerings at “Market Price” even if it is less than $0.05.
- Short Form Offerings – Under TSXV Policy 4.6 Public Offering by Short Form Offering Document, the offering price for a short form prospectus offering cannot be less than the closing price of the issuer’s shares on the trading day before a news release disclosing the short form offering is disseminated, less a discount of 10%, subject to a minimum of $0.05 per share. Under the Temporary Relief, if an issuer’s “Market Price” is $0.05 or less, the minimum price for the short form offering will be such “Market Price”, subject to a minimum of $0.01. Once again, this will allow issuers to price a short form prospectus offering at “Market Price” even if it is less than $0.05.
The Temporary Relief does not change the TSXV’s pricing regime for issuers with a “Market Price” of more than $0.05. For example, if an issuer’s “Market Price” is $0.08 at the time of price reservation for a private placement or news release announcing a “shares for debt” transaction, the minimum price at which shares can be issued in the private placement or “shares for debt” transaction will remain $0.06, being the issuer’s “Discounted Market Price”.
No Temporary Relief for Stock Options, Warrants or Convertible Debt
The Temporary Relief is notable for the relief it does not provide. It is a fundamental rule of the TSXV that listed companies cannot issue convertible securities, including incentive stock options and common share purchase warrants, with a conversion or exercise price of less than $0.05. This rule remains unchanged. In particular, the Temporary Relief does not lower the minimum exercise price for stock options under TSXV Policy 4.4 Incentive Stock Options, so that the minimum exercise price for stock options remains the issuer’s “Discounted Market Price”, subject to a $0.05 minimum. A listed issuer whose shares are trading at $0.02, for example, will not be able to grant stock options with an exercise price of less than $0.05.
Similarly, the Temporary Relief does not apply to the exercise price of warrants issued in a private placement or by way of prospectus. Under TSXV Policy 4.1 Private Placements and TSXV Policy 4.2 Prospectus Offerings, the exercise price of warrants cannot be less than the issuer’s “Market Price” at the date of price reservation or receipt for a final prospectus, subject to a minimum of $0.05. This rule is not affected by the Temporary Relief. For example, if an issuer trading at $0.02 effects a private placement of units at an issue price of $0.02 under the Temporary Relief, the exercise price of warrants comprised in the units cannot be less than $0.05.
Finally, the Temporary Relief does not apply to convertible debt instruments such as debentures or notes issued by way of private placement. Under TSXV Policy 4.1 Private Placements, the minimum conversion price of such instruments cannot be less than the “Market Price” at the date of price reservation. If the convertible security has a term of more than one year, the minimum conversion price after the first year must be the greater of such “Market Price” and $0.10. The Temporary Relief does not affect these provisions. As a result, the minimum conversion price of such debt instruments remains $0.05 for the first year (and $0.10 thereafter), even if the issuer’s Market Price is less than $0.05 at the time the convertible debt instrument is issued. The rationale for the TSXV not reducing the conversion price to less than $0.05 may lie in the fact that the holders of debt instruments are generally entitled to interest payments during the term of the debt instrument.
Criteria for Use of the Temporary Relief
An issuer seeking to rely on the Temporary Relief must satisfy all of the following criteria:
- The proposed issue price must be protected or reserved by way of a news release (as opposed to filing Form 4A – Price Reservation Form with the TSXV). It is evident that the TSXV wants shareholders and others to be aware of potential low-priced share issuances.
- The aggregate number of shares that can be issued under the Temporary Relief at a price that is less than $0.05 cannot be more than 100% of the number of the issuer’s outstanding shares, on a non-diluted basis, on April 7, 2020. In other words, a listed issuer can double its share capital at less than $0.05 between now and September 30, 2020, but not more.
- The proceeds of any financing under the Temporary Relief cannot be used primarily to pay the issuer’s management fees or for “Investor Relations Activities”, as that term is defined in TSXV Policy 1.1 Interpretation.
- At the time of the announcement of any financing under the Temporary Relief, and at the time of closing of any such financing, issuers must fully disclose to the public the proposed use of proceeds of the financing, including any proposed payments to related parties of the issuer. This presumably must be done by way of news release.
- In addition to any applicable resale restrictions under securities laws, all securities issued under the Temporary Relief at a price or deemed price that is less than $0.05 will be subject to four-month resale restrictions (or “hold period”) under TSXV policies and must be legended accordingly. In the case of a private placement, this requirement will not change anything.
Issuers Trading on NEX
The Temporary Relief extends in similar manner to share issuances under the NEX Policy, which governs issuers trading on the NEX Board, that is, those previously listed on the TSXV or Toronto Stock Exchange that have failed to comply with the ongoing financial listing standards of those markets. Under the NEX Policy, all share issuances are subject to a minimum issue price of $0.05. Under the Temporary Relief, the minimum issue price for any financings and “shares for debt” transactions has been lowered from $0.05 to $0.01 where the “Market Price” of an issuer’s shares is $0.05 or less.
Going Forward
While share issuances under the Temporary Relief will have an obvious dilutive effect given the low issue prices, the Temporary Relief may assist TSXV issuers in raising funds at this exceedingly difficult time. The generous deadline of September 30, 2020 for share issuances under the Temporary Relief should give TSXV issuers sufficient time to assess the effect of the COVID-19 pandemic on their finances and share prices and to plan their financings accordingly.
Fasken professionals are available to assist TSXV issuers in understanding the effect of the Temporary Relief.
Other Fasken resources that may also be helpful to issuers include:
- The Toronto Stock Exchange and TSX Venture Exchange Provide Temporary Blanket Relief in Response to COVID-19
- CSA Provides Guidance on Previously Announced Blanket Orders in Response to COVID-19
- Canadian Securities Regulators Publish Local Blanket Relief Orders to Provide Market Participants Relief from Reporting Deadlines during COVID-19
- Canadian Securities Regulators Will Provide Blanket Relief to Market Participants due to COVID-19