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TSX Venture Exchange Amends Policies Regarding Private Placements and Loans, Loan Bonuses, Finder’s Fees and Commissions

Posted by: Helen Racic · February 25th, 2015

On January 26, 2015, the TSX Venture Exchange (the “Exchange”) implemented amendments to Policy 4.1 – Private Placements (“Policy 4.1”) and corresponding amendments to Form 4B – Notice of Private Placement (“Form 4B”) and Policy 5.1 – Loans, Loan Bonuses, Finder’s Fees and Commissions of the TSX Venture Exchange Corporate Finance Manual (the “Manual”). Although the amendments involve a major redrafting of the current versions of Policy 4.1 and Policy 5.1, the Exchange has indicated that the bulk of the amendments are non-substantive in nature. The substantive amendments to Policy 4.1 and Policy 5.1 are described below.

All capitalized terms not otherwise defined herein have the meaning ascribed to them in the Manual.

AMENDMENTS TO POLICY 4.1

Set out below is a summary of amendments to Policy 4.1 which are substantive in nature:

1.    Closing of Private Placement

Policy 4.1 has been redrafted to include more detailed guidance in respect of the Exchange’s conditions to closing, time frames for closing and final filing requirements. The amendments clarify the following:

  • where a new Insider or a new Control Person will be created as a result of the private placement, an issuer may not close on the subscriptions from those persons until the Exchange has provided its final acceptance to the private placement;
  • where Insiders have subscribed for more than 25% of the private placement and such amount was not disclosed in the initial Form 4B, or subscriptions by members of the Aggregate Pro Group were not disclosed in the initial Form 4B, the issuer may close on the subscriptions from those persons into escrow (meaning the securities cannot be released to the placees and the subscription proceeds cannot be released to the issuer) pending receipt of the Exchange’s final acceptance of the private placement;
  • where an issuer closes a private placement on the conditional acceptance of the Exchange, it must confirm closing of the private placement with the Exchange and file the final Form 4B, along with the balance of all other information, documentation and filing fees, within five business days of the closing of the last tranche of the private placement;
  • if an issuer closes a private placement following receipt of final acceptance, it must confirm closing of the private placement with the Exchange within five business days of the closing of the last tranche of the private placement; and
  • if the identity of a corporate placee is required to be included in a Form 4B (i.e., the corporate placee will hold five percent or more of the issuer’s listed shares on the closing of the private placement), issuers filing a Form 4B in electronic format using V-File (discussed below) will need to provide the information about the corporate placee required by Form 4C – Corporate Placee Registration Form (“Form 4C”), regardless of whether a Form 4C has previously been filed with the Exchange for such corporate placee.

2.    Implementation of V-File and Discontinuation of Expedited Filing System

The Exchange has introduced a web-based application that allows for the electronic filing of the information that is currently included in a Form 4B and which also automates certain components of the Exchange’s review and acceptance process for private placements. This system, named “V-File” is currently functional and available for use by issuers. V-File is intended to create efficiencies in the review and acceptance process, as the transfer of information between the issuer and the Exchange will be quicker and certain aspects of the filing, review and acceptance process will be automated. With the implementation of V-File, the Exchange is discontinuing the Expedited Private Placement System, as the ability to file by way of V-File effectively makes the Expedited Private Placement System redundant.

For more information on V-File, please refer to our blog post entitled “TSX Venture Exchange Announces Implementation of V-File for Private Placement Filings”. 

3.    Part and Parcel Pricing Exception

This section of Policy 4.1 has been redrafted to facilitate an understanding of the existing part and parcel pricing rules and to clarify that the exercise price of warrants issued as part of a concurrent financing to a Qualifying Transaction, Reverse Takeover or Change of Business no longer needs to be set at a premium to the applicable Market Price.

4.    News Releases

Policy 4.1 provides expanded guidance regarding issuing news releases in the context of a private placement, including setting out the following:

  • an issuer must include a statement regarding the intended principal uses of the proceeds of the private placement in an issuer’s initial news release announcing a private placement and in its news release following the closing of the private placement; and
  • the Exchange will generally require an issuer to immediately issue a news release that provides an update on the status of the closing of a private placement in circumstances where the Exchange has consented to the issuer closing a private placement outside the time frames prescribed by Policy 4.1.

5.    Expanded Guidance on Notice and Acceptance Procedures

The summary of the private placement procedure has been expanded to provide more detailed guidance on each of the steps involved in a private placement. This includes providing more clarity with respect to the different steps involved when closing a private placement on receipt of the Exchange’s conditional acceptance of the private placement as compared to on receipt of the Exchange’s final acceptance of the private placement.

6.    Filing Requirements

Expanded and more detailed guidance in respect of the different filing requirements applicable to an application for conditional acceptance and an application for final acceptance has been added to Policy 4.1.

7.    Amending Convertible Securities

A new Part 4 has been added to Policy 4.1 which sets out the requirements applicable to obtaining Exchange acceptance for an amendment to the terms of a previously issued Convertible Security (i.e., a security which is convertible into an issuer’s listed shares, but does not include share purchase warrants, stock options or special warrants for the purposes of Policy 4.1).

Transitional Matters

All Exchange private placement filings will now be subject to the amended Policy 4.1. In order to ensure the timely processing of private placement applications, issuers must now make use of a new Form 4B, which has been redrafted to largely provide more guidance on completing the Form 4B. Filings made on or after January 26, 2015 using the old Form 4B may experience delayed processing times and may necessitate the issuer re-filing with the new Form 4B. However, an issuer may continue to use the old Form 4B in respect of an application to receive the Exchange’s final acceptance to a private placement if the initial Form 4B was submitted to the Exchange using the old Form 4B prior to January 26, 2015.

The full text of the amendments to Policy 4.1 is available at http://www.tsx.com/resource/en/1055.

AMENDMENTS TO POLICY 5.1

Set out below is a summary of amendments to Policy 5.1 which are substantive in nature:

1.    Revised Loan Bonus Requirements and Limitations

The following changes to loan bonus limitations have been made to Policy 5.1:

  • the limits for bonus shares and bonus warrants are now calculated using the applicable Market Price instead of the Discounted Market Price;
  • the limit on bonus warrants has been increased from 40% to 100% of the value of the loan (i.e., 100% warrant coverage);
  • bonus shares will generally not be permitted on loans having a term of less than one year; however, bonus warrants are permitted on loans having a term of less than one year; and
  • provisions relating to the acceptability of a loan bonus for loan renewals or extensions have been formalized.

2.    Restrictions on Finding Oneself

The Exchange has formalized restrictions on the ability of an issuer to pay either a commission to an investor in respect of such person’s own investment in the issuer or a finder’s fee to a vendor or purchaser in respect of such person’s sale or purchase of assets or services to or from the issuer.

Exceptions to the restriction of finding oneself set out above include:

  • commissions payable to a company that is a Registrant in consideration for any securities it acquired as principal pursuant to a brokered financing for which it acted as agent or underwriter;
  • commissions or finder’s fees payable to a person in respect of a transaction with such person who was, prior to and independent of the consummation of such transaction, retained by written agreement with the issuer to source capital (in the case of a financing transaction) or seek out a buyer/seller of assets or services or perform a similar function (in the case of a non-financing transaction); and
  • as may be determined on a case-by-case basis by the Exchange.

3.    Commission Limitations

Policy 5.1 has been amended to clarify that if a commission (or other form of compensation) payable by an issuer in respect of a financing transaction includes shares or warrants, the aggregate value of the shares and warrants cannot exceed 12.5% of the gross proceeds of the financing. For these purposes, one warrant will be valued as one-half of a share (i.e., the 25% limit on warrants under section 3.4 of Policy 5.1 remains unchanged).

The full text of the amendments to Policy 5.1 is available at http://www.tsx.com/resource/en/1061.

Categories: TSXV Rules
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