Archive for the ‘TSX Venture Exchange’ Category
Posted by Shane McLean on November 30, 2009
On November 20, 2009 the Canadian Securities Administrators (the “CSA”) released their report on their recent review of executive compensation disclosure. The review conducted by the CSA follows the adoption of a new form for executive compensation disclosure by Canadian public companies which came into effect on December 31, 2008. The new form requirements added additional areas of disclosure and more detail in some of the areas previously covered.
The CSA began their review in spring of 2009 in order to assess the implementation of the new disclosure requirements. 70 public companies were reviewed and of that number, the CSA reports that 62 “generally met the [new] requirements”. However, “most” of the issuers reviewed were asked to improve their disclosure in future filings and 8 of the companies reviewed were required to file supplemental materials because their disclosure did not meet minimum acceptable standards.
The two key areas where most issuers failed to meet the standards expected by the CSA were the discussion and analysis of (i) performance goals and (i) benchmarking. The CSA believes that companies should be more specific and detailed with respect to the performance goals that are tied to executive compensation. In addition, the CSA felt that companies that use benchmarking to assess executive compensation as against companies in their peer group did not, among other things, clearly explain the methodologies and many did not disclose the peer group against which executive compensation was benchmarked.
Issuers and their advisors should take note not just of the findings of the CSA review but also of the areas on which the review concentrated in an effort to ensure that future executive compensation disclosure is carefully crafted so as to avoid the shortcomings described in the report. In this era of closer scrutiny on executive compensation levels, transparency and attention to detail are crucial.
Posted in Law, Misc., TSX, TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on November 12, 2009
In the past 6 months or so I have had a number of clients ask about the possibility of raising funds by way of a rights offering. In late October we even filed a preliminary prospectus for one of our TSX Venture Exchange listed clients in connection with a proposed rights offering. Public markets have seen a bit of a resurgence lately but we all know how abysmal things have been over the last while and so I think more companies are looking at creative ways to raise funds and have been looking to the rights offering as one alternative.
In a “rights offering” a corporation issues “rights” to its existing shareholders. The rights entitle those existing shareholders to acquire additional shares (or some other form of security) from the corporation for a fixed exercise price over a fixed period of time (called the rights offering period). When issued by a public company, the rights will typically trade as separate securities on the same exchange as the company’s shares for the duration of the rights offering period.
Companies often look at rights offerings as a way to provide a presumably willing audience — i.e. those who have already bought the company’s shares — with an ability to buy additional shares directly from the company. To sweeten the deal and encourage exercise of the rights, the rights are often issued with an exercise price at a discount to the market price of the common shares and may also entitle the exerciser to receive a warrant, preferred share or some other security in addition to the common share on exercise of the right. The “sweeter” the deal, the more likely the rights will have some trading value, thereby enriching your shareholders just by issuing them, and the more likely they will ultimately be exercised prior to the end of the rights offering period.
Rights offerings of smaller sizes can often be done without prospectus under applicable Canadian securities laws but larger offerings will usually require a prospectus.
Rights offerings seem to have had a mixed reputation in the past with some viewing them as a fund raising method of last resort. For example, I was told by someone at the TSX Venture Exchange that for many years they have only seen one or two a year on the exchange. Recently, however, there seems to be a renewed interest in this fund raising vehicle and it’s worth a second look for any company looking to raise funds.
Posted in Financing, Law, Misc., TSX, TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on October 25, 2009
Congratulations to Chemaphor Inc which announced Friday (see press release) that it successfully raised a round of just over $1.2 Million! No small task in this still tentative financing market. Great work was done on the agency front by Bloom Burton & Co. and others.
Chemaphor is a LaBarge Weinstein client and I have had the privilege of working with Chemaphor for about 6 years.
Posted in Capital Pool Company Program, Financing, LaBarge Weinstein, Misc., TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on September 16, 2009
In early August I posted about CPC Combinations (here). In that post I discussed the concept of combining a public shell company listed under the TSX Venture Exchange’s Capital Pool Company (“CPC”) Program with another existing public company (instead of the typical acquisition of a private entity).
With most CPC shell companies raising only the minimum of $200,000 on their initial public offering (which, when taken with the $100,000 in seed money, would leave the company with $300,000 less expenses after the IPO), many are finding that they do not have much purchasing power, either in terms of cash in the bank or overall valuation, to go after the really interesting target companies. In order to help alleviate this problem, there is another type of CPC “combination” available in which two or more CPC shell companies combine together in order to pool their resources.
When the shell companies combine, each can only be given a value equal to its cash in the bank and the funds available to the combined company cannot exceed $2,000,000. Most CPC shells are likely to combine in this way only if they have a target company lined up already since the combined entity has only 12 months post-combination to complete its “qualifying transaction”.
At a time when the list of CPC shell companies that have not announced a qualifying transaction is approaching 150 names, combining a few of them may help the prospects for finding attractive targets and also help the whole program by reducing the glut of shell companies out there.
Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, Misc., TSX Venture Exchange | 1 Comment »
Posted by Shane McLean on August 9, 2009
I have previously posted information about the TSX Venture Exchange’s Capital Pool Company Program (see here). This is the program that allows for a shell company to go public on the TSX Venture Exchange and then look for an operating business to acquire. Usually, this means finding an operating private company to combine with.
Less known is that the TSX Venture Exchange’s policies also permit CPC shell companies to “combine” with other public companies. Essentially, this means that the CPC shell invests its cash into another public company instead of finding a private company to acquire or invest in. There are some ways to structure this type of transaction to get it done fairly efficiently, but the key hurdle is convincing the board of directors (and then the shareholders) of the CPC shell that it’s a good idea.
Usually, a CPC shell company views itself as having a valuation that is at some premium to both its IPO value and the amount of cash in the bank. The logic is that, having gone through the process of obtaining a public listing, the CPC shell has an intrinsic value that is in addition to the value of the funds it has in the bank and a total enterprise value that is greater than the valuation used on its IPO. This allows the directors of a CPC shell to show some increase in valuation to their IPO investors on closing of the qualifying transaction and may help justify the decision to enter into a particular qualifying transaction.
From the CPC shell’s perspective, the downside to negotiating a combination with another public company includes: (a) the fact that other public company doesn’t value your listing because they are already publicly listed, and (b) the TSX Venture Exchange’s policies prevent the CPC shell from being valued at anything other than cash value on this type of deal. As a result, directors of the CPC shell may be loathe to recommend to shareholders that they bet on an existing public company because they may not see as much instant (i.e. paper) upside.
However, depending on what market the other public company is listed on, the other public company can usually offer to issue shares to the CPC shell at some discount to its market price, thus giving the CPC shareholders some notional return on their investment. If the other public company appears poised for growth, the CPC shell directors and shareholders just might be able to see the benefit of a public to public deal. This may be especially true if the CPC shell is getting close to its deadline for finding a qualifying transaction.
Another kind of “CPC Combination” involves combining multiple CPC shell companies into one entity in order to pursue a larger qualifying transaction. I will talk about this kind of transaction in a later post.
Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on July 29, 2009
On July 24, 2009 the Canadian Securities Administrators (“CSA”) released a staff notice with the results of their continuous disclosure review program of public companies in Canada for the fiscal year ended March 31, 2009. The CSA conducted a total of 1,094 continuous disclosure reviews out of approximately 4,300 issuers who are reporting issuers in Canada. Of those, 465 were full reviews and 629 were issue oriented reviews. These numbers are up from last year when the CSA reviewed only 854 issuers.
The results are a bit concerning in that a full 80% of issuers reviewed had some form of action required as a result of the review. In other words, of the 1,094 companies reviewed only around 218 of them came out clean. Here are some highlights:
- 5% of reviewed companies had critical disclosure deficiencies and were either referred to enforcement, cease traded or placed on a default list
- 13% were required to amend or refile certain continuous disclosure documents
- 14% were warned about certain disclosure enhancements that should be considered in their next filings
- a full 48% were required to make changes or enhancements in their next filings as a result of deficiencies identified
Even if we exclude the 14% who received ”warnings” to “consider” disclosure enhancements in their next filings, that leaves 66%, or about 722 issuers, who were actually not in compliance with the legal public disclosure requirements. That’s over 16% of all reporting issuers in Canada!
This should be a wake up call to public companies to ensure that adequate time and attention is given to public disclosure documents and requirements by both the company and its legal and accounting advisers. Not only will this avoid future heat from the CSA, but more importantly it will mean that the investing public will have access to the information they are supposed to receive by law.
Too often I hear from companies that we speak to that their existing lawyers and accountants do not dedicate enough time to prepare and review public disclosure documents and only turn their attention to the task when the filing deadline looms. This kind of approach makes it more likely that there will be deficiencies in disclosure and should definitely be avoided. As everyone knows, it’s far too easy to miss a detail when rushing through the materials at the last minute.
A final note to companies that don’t use their accountants and/or lawyers to review all continuous disclosure documents: you should. If the cost of review scares you, remember that an ounce of prevention is worth a pound of cure and if your advisers are too expensive relative to the service you are receiving, get new advisers that are more reasonably priced.
Posted in Law, Misc., TSX, TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on June 7, 2009
With many similarities to the TSX Venture Exchange’s Capital Pool Company Program (see my prior post on the CPC Program), the TSX has itself rolled out a program in which it will permit the listing of what are essentially shell companies with lots of cash in them for the sole purpose of finding an acquisition target. Called a Special Purpose Acquisition Corporation or “SPAC” (note that unlike my post about the CPC program when I joked that nobody calls it a “C-Pick”, in this case people do call it a “Spack”), the TSX has adopted the concept from the United States where this type of program has existed on the more junior exchanges/bulletin boards for years.
The similarities between the TSX SPAC Program and the TSX Venture Exchange CPC Program are many including (i) the small group of founders with certain minimum investment requirements; (ii) an IPO to raise funds in a shell company and (iii) a defined period of time in which to find a target acquisition. The biggest difference in my mind is size. Where a CPC shell can raise as little as $200,000 including both seed capital and IPO proceeds, a SPAC must raise a minimum of $30 Million on its IPO. The cash commitment on the part of the founders of a SPAC is larger too given that they must hold an equity stake of between 10% and 20% of the SPAC after the IPO.
According to the website SPACAnalytics.com, from 2003 to 2008 there was nearly $22 Billion raised on SPAC IPOs in the United States. However, as far as I am aware there have been no SPACs in Canada yet even though the TSX opened the program for business in December of 2008. The TSX is out there at seminars and events talking up the program in the hopes that someone will take the plunge (don’t forget that more IPOs and more listings means more revenue in the form of listing fees for the TSX which is itself a for-profit company). Unfortunately they rolled out the program in the middle of a recession and it may be a while before anyone is able to raise $30 Million for a shell company IPO in Canada.
For more detail on the program, check out the TSX’s product sheet on SPACs or give me a call.
Posted in Capital Pool Company Program, Financing, Special Purpose Acquisition Corporations, TSX, TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on May 28, 2009
Someone once asked me: ”What’s a C-Pick?” When I asked a few questions it became clear that they were asking about Capital Pool Companies or “CPCs” under the TSX Venture Exchange’s Capital Pool Company Program. (By the way, I have never heard anyone else refer to it as a “C-Pick”.)
The CPC Program essentially works like this:
- 3 to 6 people get together and incorporate a company. Together they must invest at least $100,000 in seed money into that company with at least $5,000 each.
- The company has no assets other than the seed money and no operating business (hence, it is commonly referred to as a “CPC shell”)
- With the help of a banker the CPC shell “goes public”. Essentially this means that it raises between $200,000 $1,900,000 using a prospectus from at least 200 shareholders that are unrelated to the founders and begins trading on the TSX Venture Exchange. The process is not unlike a traditional IPO except that you don’t have the usual level of business and financial information to disclose because the CPC shell would have been only recently formed and has no business or assets.
- Once the IPO is out of the way and the shares are listed on the TSX Venture Exchange, the sole purpose of the CPC shell is to seek out an operating business or some other asset(s) to acquire within 24 months.
- Often the target business is acquired through a “reverse takeover”. Instead of paying cash for the company or asset being purchased the CPC shell often pays by issuing new shares to the owners of that company or asset. The “reverse takeover” part comes in because at the end of the day the total number of shares issued to the owners of the target often represents a majority of the outstanding shares of the CPC shell, meaning that as a group the previous owners of the target now control the overall company.
Why would anyone do this? For the founders and IPO investors of the CPC shell, the hope is that the target business will ultimately be very successful and their initial small investment will be returned to them many-fold. For this reason, the pressure is on the CPC shell founders to find a viable target with good prospects. For the owners of the target it is a way to obtain a public listing for their shares, eventual liquidity (i.e. an ability to sell their ownership stake on the public market) and it may provide the company with access to public market capital (i.e. $) that is not available to it as a private company.
Why would a target do a CPC deal rather than an IPO? There is a level of skepticism in the market relating to IPOs. I think it is a bit of hangover from the dot-com bubble where people thought getting in on an IPO was the key to riches. Once bitten, twice shy. People seem more comfortable to invest a relatively small amount of money into the CPC shell IPO based on the reputation of the founders and then let those founders make the ultimate investment decision by choosing the right target. We see serial CPC founders who do it again and again and, if successful, they can build a following of investors willing to invest in their CPC IPOs. A traditional IPO works best if you have a splashy business story that makes good press and is easy to sell to potential investors. For companies that have a very viable business that represents a solid investment but may not itself be overly exciting, gaining a public listing by being a target company in the CPC process may be the preferred route.
There are a lot of details about the process and a lot of pros and cons that I don’t have the space to include here. If you have questions about the CPC program please feel free to give me a call. I have experience on both sides of these kinds of transactions (i.e. CPC shell and target).
Posted in Business Structure, Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | Leave a Comment »
