Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – application by Toronto Stock Exchange-listed issuer and foreign resident purchaser and manager for exemptive relief to permit the issuer and the purchaser to distribute securities through the Toronto Stock Exchange under an “equity line of credit” facility – an equity line of credit is a type of financing which permits a public company to require, at a time or times of its choosing, that a purchaser purchase newly issued securities of the company at a discount to the market price of the securities at the time of drawdown – the purchaser will generally finance its purchase commitments and offset market risk through short sales, resales or other hedging transactions in the secondary market during the pricing period with a view to monetizing the spread between the discounted purchase price and the market price – a drawdown under an equity line may be considered to be an indirect at-the-market distribution of securities of the issuer to investors in the secondary market through the equity line purchaser acting as underwriter – purchaser requires dealer registration relief – issuer and purchaser require prospectus form and prospectus delivery relief – issuer will file shelf prospectus which will qualify resales, short sales and other hedging transactions by purchaser over a specified period – relief granted to the issuer and purchaser from certain registration and prospectus requirements, subject to terms and conditions, including restrictions on the number of securities that may be distributed under an equity line in any 12 month period, certain restrictions on the permitted activities of the purchaser, timely disclosure of each drawdown, and certain notification and disclosure requirements.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, ss. 25(1), 25(2), 71(1), 71(2), 74(1) and 147 National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1 Form 44-101F1 Short Form Prospectus, Item 20 National Instrument 44-102 Shelf Distributions, ss. 5.5.2, 5.5.3 and 11.1
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE “JURISDICTION”)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF VENA RESOURCES INC. (THE “ISSUER”), YA GLOBAL MASTER SPV, LTD. (THE “PURCHASER”) AND YORKVILLE ADVISORS, LLC (THE “PURCHASER MANAGER” AND, TOGETHER WITH THE ISSUER AND THE PURCHASER, THE “FILERS”)
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for certain exemptions sought, namely that:
(a) the following prospectus disclosure requirements under the Legislation (the “Prospectus Disclosure Requirements”) do not fully apply to the Issuer in connection with the Distribution (as defined below):
(i) the statement in the Prospectus Supplement (as defined below) respecting statutory rights of withdrawal and rescission in the form prescribed by item 20 of Form 44-101F1 of National Instrument 44-101 Short Form Prospectus Distributions (“NI 44-101”); and
(ii) the statements required by subsections 5.5(2) and (3) of National Instrument 44-102 Shelf Distributions (“NI 44-102”);
(b) the prohibition from acting as a dealer unless the person is registered as such (the “Dealer Registration Requirement”) does not apply to the Purchaser and the Purchaser Manager in connection with the Distribution; and
(c) the requirement that a dealer send a copy of the Prospectus (as defined below) to a subscriber or purchaser in the context of a distribution (the “Prospectus Delivery Requirement”) does not apply to the Purchaser, the Purchaser Manager or the dealer(s) through whom the Purchaser distributes the Shares (as defined below) and that, as a result, rights of withdrawal or rights of rescission, price revision or damages for non-delivery of the Prospectus do not apply in connection with the Distribution;
(the Prospectus Disclosure Requirements, Dealer Registration Requirement and Prospectus Delivery Requirement, are collectively referred to herein as the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11‑102 ‑ Passport System (“MI 11‑102”) is intended to be relied upon in Alberta and British Columbia.
Interpretation
Terms defined in National Instrument 14‑101 ‑ Definitions and MI 11‑102 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
The Issuer
The Issuer is incorporated under the laws of Canada and has its head office located at 130 Adelaide Street West, Suite 1010, Toronto, Ontario, M5H 3P5.
The Issuer is a reporting issuer in the provinces of Alberta, British Columbia and Ontario and is not in default of the securities legislation of any jurisdiction in Canada.
The Issuer’s authorized share capital currently consists of an unlimited number of common shares (the “Shares”) of which 124,601,658 Shares were outstanding as at May 11, 2012.
The Shares are listed for trading on the Toronto Stock Exchange (the “TSX”). Based on the closing price of $0.255 of the Shares on the TSX on August 8, 2012, the current market capitalization of the Issuer is approximately $21,182,281.
The Issuer is qualified to file a short form prospectus under section 2.2 of NI 44‑101 and therefore, qualified to file a base shelf prospectus under NI 44-102.
Pursuant to a decision (the “Original Decision”) dated March 16, 2010, the Issuer and the Purchaser Manager obtained exemptive relief from certain requirements of the Legislation.
On March 31, 2010 the Issuer entered into a Distribution Agreement (as defined and further described below) which expires on March 31, 2015.
On May 6, 2010 the Issuer obtained a receipt from the securities regulatory authorities in British Columbia, Alberta and Ontario for a base shelf prospectus (the “2010 Prospectus”) dated May 5, 2010.
The 2010 Prospectus expired on June 5, 2012. The Issuer intends to file a base shelf prospectus (such base shelf prospectus and any amendments thereto referred to as the “Base Shelf Prospectus”) with the securities regulatory authorities in British Columbia, Alberta and Ontario in connection with the Distribution Agreement.
The statements required by subsections 5.5(2) and (3) of NI 44-102 to be included in the Base Shelf Prospectus will be qualified by adding the following statement: “, except in cases where an exemption from such delivery requirements has been obtained”.
The Purchaser and The Purchaser Manager
The Purchaser is an exempted company incorporated in the Cayman Islands with limited liability and has its head office at 101 Hudson Street, Suite 3700, Jersey City, New Jersey, 07302. The Purchaser and Purchaser Manager are not in default of the securities legislation of any jurisdiction in Canada.
The Purchaser is managed by the Purchaser Manager, a Delaware limited liability company, with its head office at 101 Hudson Street, Suite 3700, Jersey City, New Jersey, 07302. The Purchaser Manager is an affiliate of the Purchaser under applicable securities laws.
Neither the Purchaser nor the Purchaser Manager is a reporting issuer or registered as a registered firm as defined in National Instrument 31‑103 ‑ Registration Requirements and Exemptions in any jurisdiction of Canada. The Purchaser and the Purchaser Manager are not in default of any requirements under the Legislation.
The Purchaser Manager provides advisory services to pooled investment vehicles. The Purchaser Manager was formed in December 2000 and in addition to its principal office in Jersey City, New Jersey, it also maintains offices in Denver, Colorado, Palm Beach Gardens, Florida and London, England through a sub-advisory relationship with Yorkville Advisors UK, LLP. The Purchaser Manager currently has two clients. The Purchaser is a special purpose vehicle which is owned by those two clients and used for the purposes of allocating investments between them. The Purchaser focuses on providing unique alternative financing structures to public and private companies based on the following investment strategies: (i) investing in equity, equity linked and debt instruments, (ii) investing in U.S. and non-U.S. issuers, (iii) investing without geographic limit, including emerging markets, and investing in forward contracts and other various derivative transactions and instruments to manage or hedge interest rates, currency exchange and other risks. The Purchaser carries out its investment strategy primarily through entering into equity line financings, as well as entering into and purchasing convertible and non-convertible debt instruments, preferred stock, common stock and warrants to purchase common stock.
The Distribution Agreement
The Issuer established a standby equity distribution agreement with the Purchaser on March 31, 2010 and amended on July 3, 2012 (the “Distribution Agreement”) pursuant to which the Purchaser agreed to purchase, and the Issuer has the right but not the obligation to issue and sell, up to $10,000,000 of Shares (the “Aggregate Commitment Amount”) over a period of 60 months in a series of drawdowns.
The Distribution Agreement provides the Issuer with the ability to raise capital as needed from time to time. The Purchaser regularly engages in such transactions. The Purchaser may, in certain circumstances, finance its commitment to subscribe for Shares on a drawdown through short-sales or resales out of existing holdings of the Issuer’s securities.
Under the Distribution Agreement, the Issuer has the sole ability to determine the timing and the amount of each drawdown, subject to certain conditions, including a maximum investment amount per drawdown and the Aggregate Commitment Amount.
The purchase price per Share and the number of Shares to be issued to the Purchaser for each drawdown will be calculated based on a predetermined percentage discount from the daily volume-weighted average price of the Shares traded on the TSX over a period of five (5) trading days following a drawdown notice sent by the Issuer (the “Drawdown Pricing Period”). The Issuer may fix in such drawdown notice a minimum purchase price below which it will not issue any Shares for any given trading day. Notwithstanding the foregoing, the purchase price per Share may not be lower than the closing price per Share on the TSX on the trading day immediately preceding the applicable drawdown notice, less the permitted discount under the private placement rules contained in the TSX Company Manual (the “Floor Price”).
On the 6th trading day following the date of each drawdown notice (the “Settlement Date”), the amount of the drawdown will be paid by the Purchaser and the relevant number of Shares will be issued by the Issuer.
The Distribution Agreement provides that, at the time of each drawdown notice and at each Settlement Date, the Issuer will make a representation to the Purchaser that the Base Shelf Prospectus, as supplemented (the “Prospectus”), contains full, true and plain disclosure of all material facts relating to the Issuer and the Shares being distributed. The Issuer would therefore be unable to issue, or decide to issue, Shares when it is in possession of undisclosed information that would constitute a material fact or a material change.
On or after the Settlement Date for any drawdown, the Purchaser may seek to sell all or a portion of the Shares purchased under the drawdown.
During the term of the Distribution Agreement, the Purchaser, its affiliates, associates, partners or insiders, as a group, will not own at any time, directly or indirectly, more than 9.9% of all issued and outstanding Shares.
The Purchaser and its affiliates, associates, partners or insiders, will not hold a net short position in Shares during the term of the Distribution Agreement. However, the Purchaser may, after the receipt of a drawdown notice, seek to resell Shares to be purchased under the drawdown, or engage in hedging strategies, in order to reduce the economic risk associated with its commitment to subscribe for Shares, provided that:
(a) the Purchaser and its affiliates, associates, partners and insiders comply with applicable rules of the TSX, applicable securities laws and this decision document;
(b) the Purchaser and its affiliates, associates, partners or insiders, will not during the period between a drawdown notice and the corresponding Settlement Date, directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for Shares, in an amount exceeding the number of Shares to be subscribed by the Purchaser under the applicable drawdown; and
(c) notwithstanding the foregoing, the Purchaser and its affiliates, associates and insiders, will not directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for Shares, between the time of delivery of a drawdown notice and the filing of the news release announcing the drawdown.
Disclosure of the activities of the Purchaser and its affiliates, associates, partners or insiders, as well as the restrictions thereon, the whole as described in paragraph 23 above, will be included in the Base Shelf Prospectus and/or the Prospectus Supplement (as defined below). In addition, the Issuer will disclose in the Base Shelf Prospectus, as a risk factor, that the Purchaser may engage in short sales, resales or other hedging strategies to reduce investment risks associated with a drawdown, and the possibility that such transactions may result in significant dilution to existing shareholders and could have a significant effect on the price of the Shares.
No extraordinary commission or consideration will be paid by the Purchaser or the Purchaser Manager to a person or company in respect of the disposition of Shares by the Purchaser to purchasers who purchase the same on the TSX through dealer(s) engaged by the Purchaser (the “TSX Purchasers”).
The Purchaser and the Purchaser Manager will also agree, in effecting any sale of Shares, not to engage in any sales, marketing or solicitation activities of the type undertaken by underwriters in the context of a public offering. More specifically, the Purchaser and the Purchaser Manager will not (a) advertise or otherwise hold itself out as a dealer, (b) purchase or sell securities as principal from or to customers, (c) carry a dealer inventory in securities, (d) quote a market in securities, (e) with the exception of any bridge facility or convertible debt facility provided to the Issuer by the Purchaser, extend, or arrange for the extension of credit, in connection with transactions of securities of the Issuer, (f) run a book of repurchase and reverse repurchase agreements, (g) use a carrying broker for securities transactions, (h) lend securities for customers, (i) guarantee contract performance or indemnify the Issuer for any loss or liability from the failure of the transaction to be successfully consummated, or (j) participate in a selling group.
The Purchaser and the Purchaser Manager will not solicit offers to purchase Shares and will complete all sales of Shares to TSX Purchasers through one or more dealer(s) unaffiliated with the Purchaser, the Purchaser Manager or the Issuer.
The Prospectus Supplements
The Issuer intends to file with the securities regulator in each of the provinces of Alberta, British Columbia and Ontario a prospectus supplement to the Base Shelf Prospectus (each a “Prospectus Supplement”) within two business days after the Settlement Date for each drawdown under the Distribution Agreement.
The Prospectus Supplement will include (i) the number of Shares sold to the Purchaser, (ii) the price per Share paid by the Purchaser, (iii) the information required under NI 44-102 including the disclosure required by subsection 9.1(3) of NI 44-102, and (iv) the following statement (the “Amended Statement of Rights”):
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. The securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment are not delivered to the purchaser, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. However, such rights and remedies will not be available to purchasers of common shares distributed under this prospectus because the prospectus will not be delivered to purchasers, as permitted under a decision document issued by the Ontario Securities Commission on ●, 2012.
The securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contain a misrepresentation, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. Such remedies remain unaffected by the non‑delivery of the prospectus, as permitted under the decision document referred to above.
The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal adviser.
The Base Shelf Prospectus, as supplemented by each Prospectus Supplement, will qualify, inter alia: (a) the distribution of Shares to the Purchaser on the Settlement Date of the drawdown disclosed in the relevant Prospectus Supplement; and (b) the distribution of Shares to TSX Purchasers during the period that commences on the first day of the relevant Drawdown Pricing Period and ends on the earlier of (i) the date on which the distribution of such Shares has ended or (ii) the 40th day following the relevant Settlement Date (collectively, the “Distribution”).
The Prospectus Delivery Requirement is not workable in the context of a Distribution because the TSX Purchasers will not be readily identifiable as the dealer(s) acting on behalf of the Purchaser may combine the sell orders made under the Prospectus with other sell orders and the dealer(s) acting on behalf of the TSX Purchasers may combine a number of purchase orders.
The Prospectus Supplement will contain an underwriter’s certificate in the form set out in section 2.2 of Appendix B to NI 44‑102 signed by the Purchaser.
At least three business days prior to the filing of the first Prospectus Supplement to be filed in connection with a distribution pursuant to the equity line facility under the Distribution Agreement, the Issuer will provide for comment to the Ontario Securities Commission a draft of such Prospectus Supplement.
Press Releases / Continuous Disclosure
Promptly after delivery of each drawdown notice to the Purchaser, regardless of the size of the drawdown, the Issuer will issue and file on SEDAR a news release disclosing, for that drawdown, the aggregate amount, the maximum number of Shares to be issued, the minimum price (if any) per Share, the Floor Price and the availability on SEDAR of the Base Shelf Prospectus and specifying how a copy of this document can be obtained.
Promptly upon any amendment to the minimum price set forth in a drawdown notice, the Issuer will issue and file on SEDAR a news release disclosing the amended minimum price per Share and the maximum number of Shares to be issued.
The Issuer will:
(a) on or as soon as practicably possible after, the last day of each Drawdown Pricing Period, issue and file on SEDAR a news release disclosing:
(i) the number of Shares issued to, and the price per Share paid by, the Purchaser;
(ii) that the Base Shelf Prospectus and the relevant Prospectus Supplement will be available on SEDAR and specifying how a copy of these documents can be obtained; and
(iii) the Amended Statement of Rights; and
(b) file a material change report on SEDAR within ten days of each Settlement Date, if the relevant Distribution constitutes a material change under applicable securities legislation, disclosing at a minimum the information required in subparagraph (a) above.
- The Issuer will also disclose in its financial statements and management’s discussion and analysis filed on SEDAR under National Instrument 51-102 Continuous Disclosure Obligations, for each financial period, the number and price of Shares issued to the Purchaser pursuant to the Distribution Agreement.
Deliveries upon Request
The Issuer will deliver to the Ontario Securities Commission and to the TSX, upon request, a copy of each drawdown notice delivered by the Issuer to the Purchaser under the Distribution Agreement.
Pursuant to the Distribution Agreement, the Purchaser agrees to make available to the Ontario Securities Commission, upon request, full particulars of the trading and hedging activities by the Purchaser or the Purchaser Manager (and, if required, trading and hedging activities by their affiliates, associates, partners or insiders) in relation to securities of the Issuer during the term of the Distribution Agreement.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) as it relates to the Prospectus Disclosure Requirements:
(i) the Issuer comply with the representations in paragraphs 10, 24, 29, 30, 34, 35, 36, 37 and 38;
(ii) the number of Shares distributed by the Issuer under one or more equity lines of credit, including the equity line of credit established under the Distribution Agreement, does not exceed, in any 12 month period, 9.9% of the aggregate number of Shares outstanding calculated at the beginning of such period, and
(b) as it relates to the Prospectus Delivery Requirement and the Dealer Registration Requirement, the Purchaser and/or the Purchaser Manager, as the case may be, comply with the representations in paragraphs 23, 25, 26, 27, 32 and 39; and
(c) this decision will terminate 25 months after the date hereof.
As to the Exemption Sought from the Prospectus Disclosure Requirements:
“Jo-Anne Matear”
Jo-Anne Matear Manager, Corporate Finance Branch Ontario Securities Commission
As to the Exemption Sought from the Dealer Registration Requirement and the Prospectus Delivery Requirement:
“Edward P. Kerwin”
“Christopher Portner”