Effective January 26, 2015, the TSX Venture Exchange (the “TSXV”) is implementing amendments to its Policy 5.1 – Loans, Loan Bonuses, Finder’s Fees and Commissions (“Policy 5.1”).
The substantive amendments to Policy 5.1 primarily relate to the following:
1. Revised Loan Bonus Requirements and Limitations
Loan bonuses:
-
Loan bonuses may not be granted to a lender or guarantor for a loan or debt instrument that is convertible into Listed Shares.
-
The limits for both bonus shares and bonus warrants will now be calculated using the applicable Market Price instead of the Discounted Market Price.
-
The limit on bonus warrants is increased from 40% to 100% of the value of the loan so that there can be up to 100% warrant coverage. This change together with the amendment listed above is intended to match the TSXV’s limit on detachable warrants issued in connection with a convertible debenture (as set out in TSXV Policy 4.1 – Private Placements) and the current limit on bonus warrants issued in connection with a non-convertible loan.
-
Bonus shares will generally no longer 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.
2. Restrictions on “Finding Oneself”
The TSXV has put into written policy its restrictions on the ability of an issuer to pay either: (a) a commission to an investor in respect of such investor’s own investment in the issuer; or (b) 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.
The limited exceptions to this general rule as set out in Policy 5.1 include:
- commissions payable to a company that is a Registrant in consideration for any securities it acquires as a principal pursuant to a brokered financing for which it is acting as agent or underwriter;
- commissions or finder’s fees payable to a person in respect of a transaction in which such person 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
- such other circumstances as may be determined by the TSXV on a case by case basis.
3. Commission Limitations
The amendments to Policy 5.1 clarify that if a commission (or other form of compensation) payable by an issuer in respect of a financing transaction includes share 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 existing 25% limit on warrants under section 3.4 of Policy 5.1 remains unchanged).
The amendments to Policy 5.1 also clarify the following:
- Although the TSXV does not prescribe any specific limits for interest rates on loan to an issuer or debt instruments issued by an issuer, the TSXV expects and requires that any such interest will be at a commercially reasonable rate taking into consideration the circumstances of the issuer and the risks to the lender. The TSXV may, at its discretion, request the issuer to provide satisfactory analysis of the reasonableness of the interest rate.
- Only one loan bonus may be granted on a loan regardless of the term of the loan. As such, a further loan bonus may not be granted on each renewal.
- a loan bonus may not be granted to both the lender and the guarantor in respect of a loan, and in the case of multiple guarantors for the same loan, the aggregate loan bonus granted to the guarantors must not exceed the bonus limits prescribed by Policy 5.1.
- An issuer must give advance notice to the TSXV of any proposed finder’s fee or commission in accordance with Policy 5.1, and the issuer must receive TSXV acceptance of the finder’s fee or commission and the related transaction prior to payment of the finder’s fee or commission, unless: (i) the finder is not a Non-Arm’s Length Party of the issuer; (ii) the finder’s fee or commission is payable in cash only; (iii) in the case of a finder’s fee, the fee is in compliance with the limitations set out in Policy 5.1; and (iv) the transaction is one that does not require TSXV acceptance (such as an Exempt Transaction under TSXV Policy 5.3 – Acquisitions and Dispositions of Non-Cash Assets).
All capitalized terms that are used but not defined in this article have the meaning ascribed to those terms in the policies of the TSXV.
The full text of the amended Policy 5.1 and a blackline showing the amendments can be found at: http://www.tsx.com/resource/en/1062
For more information regarding these amendments to the TSXV policies, please contact any member of the Clark Wilson Corporate Finance and Securities Group.