Monday, August 19, 2019Canada's Leading Online Business Magazine

TSX-Venture ‘Option To Give’ Program Embraces Social Good

By R Brent Lang

Perhaps you’re familiar with Environmental, Social & Governance (ESG for short) mandates, Corporate Social Responsibility (CSR), and Principiles for Responsible Investment (PRI). Canada has an “option” for good corporate citizens, receiving renewed focus from industry leadership.

C-SUITE EXECUTIVES TAKE notice! You have within your power, the ability to drive growth in your enterprise and issue Stock Options to benefit management, employees AND Charities across Canada.

Through a program – not widely known – championed by the innovative nature of TSX Venture Exchange President, Brady Fletcher, and the non-profit sector’s leadership and respective charities’ board members – in particular, Canadian Cancer Society, Juvenile Diabetes Research Society, Centre for Addiction & Mental Health, SickKids Foundation and Canadian Liver Foundation. Effecting a positive change in the world, through strategic, insightful and impactful planning – is the ultimate gift a corporation’s board of director’s policies can make.

The program falls under these policies:

– TSX Policy 4.4, ‘Incentive Stock Options’
– TSX Policy 4.7, ‘Charitable Options in Connection with an IPO’

You’re aggressively growing your business and the next step is an IPO or qualifying transaction in a CPC (Capital Pool Company), on the TSX-Venture Exchange in Canada to inject the growth capital and corporate structure to take your business to the next level.

The TSX Venture Exchange FY2018 figures, just published, are significant:

Equity Capital Raised, TSX-V
2016 – $6,796,800,000
2017 – $6,102,100,000
Net Change – +11%
*vs. $40.8 billion on TSX

Going Public Activity / New Issue, TSX-V
2018 – 212
2017 – 148
Net Change – +48%
*vs. 132 on TSX

By all measures – to quote Frank Sinatra, ‘It was a very good year.’

From the top down, the TSX and TSXVenture are primed to perform, led by seasoned, senior executives; Lou Eccelston, CEO of TMX Group and Brady Fletcher, Managing Director & Head of TSX Venture Exchange, TSX-V.

Nearly ¾ of the activity is based in British Columbia (51%) and Ontario (23%). There are traditional sectors that the West is synonymous with, such as the resource sectors, junior mining, junior oil & gas, but as the economy adapts to innovation, you can find robust Capital Markets activity in Clean Tech and Renewable Energy (3 deals in 2018, 2 deals in 2017), Financial Services (8 deals in 2018, 4 deals in 2017) and Technology (32 deals in 2018, 8 deals in 2017) *note this was a record for Innovation Sector listings. Twelve companies graduated from TSX-V to the TSX in 2018.

TSX Venture Exchange Composite Index, is comprised of the following as at Jan 18, 2019

chart-tsx-v-1chart-tsx-v-2

With strong Capital Markets, entrepreneurs reap the rewards of capitalism. Some become serial entrepreneurs and some turn to philanthropy when the liquidity event occurs, or a successful Venture Capital “Exit” is achieved. What options (pun intended) there are for companies in the rapid growth stage, to effect charity in our society? Good news – the TSX-V has already created two successful policies for Stock Option granting that C-Suite executives will want to know more about.

To begin, we will define what the TSX Venture Exchange considers an “Eligible Charitable Organization”:

(a) Any Charitable Organization or Public Foundation which is a Registered Charity, but is not a Private Foundation, or
(b) A Registered National Arts Service Organization

Eligible Issuer is defined as:

(a) Is an Unlisted Issuer
(b) Has filed a preliminary prospectus for its IPO, and
(c) Has received conditional approval from the Exchange for the listing of Eligible Securities

TSX Venture defines “Eligible Securities” as “securities issuable from the treasury of an Eligible Issuer that are securities of the class or series being offered for sale to the public pursuant to the IPO Final Prospectus.

Policy 4.4, “Incentive Stock Options” specifically mentions “Eligible Charitable Organizations” may be granted stock options, perhaps as an altruistic gesture by the board, or perhaps in a connected purpose way such as Life Sciences and health charities. Not to dive too deep into the technical details, a “Charitable Option” means a stock option or equivalent security granted by an Issuer to an Eligible Charitable Organization”. Section 3.3 outlines “Options to Eligible Charitable Organizations”;

(a) The aggregate number of options granted and outstanding to Eligible Charitable Organizations must not at any time exceed 1% of the issued shares of the Issuer;
(c) A Charitable Option may contain anti-dilution provision;
(d) A Charitable Option must expire after the earlier of:
(i) a date that is not more than 10 years from the grant date of the option; and
(ii) the 90th day following the date that the holder of the Charitable Option ceases to be an Eligible Charitable Organization.

Policy 4.7, “Charitable Options in Connection with an IPO” highlights include;

This Policy does not permit the granting of Charitable Options by Issuers that have securities already listed
An eligible issuer must apply to the Exchange for approval to grant any Charitable Options

Transfers of escrowed securities from security holders of an Issuer, including a CPC that has completed a Qualifying Transaction, to an Eligible Charitable Organization will be permitted if such transfer is in accordance with Policy 5.4 – Escrow, Vendor Consideration and Resale Restrictions

Charitable Option means an option or warrant that is exercisable for Eligible Securities and is granted by an Eligible Issuer to an Eligible Charitable Organization

What we’ve covered thus far concerns the merits of the TSX Venture Exchange, and not the TSX Exchange’s larger, more established senior issuers.

The TSX-Venture leadership is considering certain changes that may make Charitable Options available to currently listed issuers – this would be a very welcome change to the charitable community.

One of the leaders in this field of Charitable Options is Canadian Cancer Society – in particular, the Alberta branch. Their appeal is, “By giving a gift, you will be joining forces with the Exchange and other TSX.V Issuers that have already donated stock options. This program allows Canadian investors and companies like yours to join us in the fight against cancer”. Other charities include, Juvenile Diabetes Research Foundation, the Centre for Addiction and Mental Health, the Lung Association and the Heart and Stroke Foundation. Veterans’ charity, Last Post Fund and the Charity that helps other Children’s Charities, The Yellow Bus Foundation, will join this distinguished cohort in 2019 and beyond. This program is open to any Registered Canadian Charity.

Michael Thomson, former investment banker and Director of Alberta Branch of Canadian Cancer Society sums it up very well, “We are hoping the Option to Give program will provide a repeatable, predictable and sustainable way of raising funds at a time when people are giving less, and most charities are fighting to be profitable in a very competitive giving environment.”

The TSX-V is flourishing under their strong management. They’re utilizing this momentum to expand their brand Internationally. Part of this plan is to leverage familiar face to the finance industry in Canada, broadcaster, Michael Hainsworth, (formerly of BNN), showing up daily on your social media feed, discussing Capital Formation with Leaders of the Capital Markets. See more here: https://tmxpresents.tmx.com/

Success for the program is evident:
01/01/2017 – Goldplay Exploration Ltd. granted 70,000 options to Canadian Cancer Society
03/01/2017 – VR Resources Ltd. granted 50,000 options to Canadian Cancer Society
08/16/2017 – Apolo Acquisition Corp. granted 25,000 options to Canadian Liver Foundation
07/17/2018 – good natured, Products, Inc. granted 100,000 options to Canadian Cancer Society
10/26/2018 – County Capital One Ltd. granted 2,286,900 options to SickKids Foundation

Charities are reaching out too: here, Plan International Canada Inc., weaves calming and feel-good words targeting C-Suite directly. https://plancanada.ca/charitable-options

THE BENEFITS:
• There are no costs associated with granting charitable options beyond the minimal dilution of outstanding stock, if options are exercised.
• Your company will be making a strong and highly visible commitment to Plan International Canada.
• There is no risk involved. If the shares don’t rise in value, the options will simply expire.

Heart & Stroke Foundation also proudly holds their appeal publicly, https://www.heartandstroke.ca/get-involved/donate/option-to-give

Queens University, Dalhousie University, St. Francis Xavier University – and many more specifically name Charitable Stock Options in their gift acceptance policy with wording that appears boiler-plate: “types of gifts are deemed eligible for acceptance by the University” or “guidelines are used in connection with all charitable and non-charitable gifts we receive”, respectively:
https://www.queensu.ca/secretariat/policies/senate/gift-acceptance-policy
https://alumni.dal.ca/giving/accountability/gift-acceptance-guidelines/
https://www.stfx.ca/sites/default/files/Gift%20Acceptance%20Policy.pdf

Brady Fletcher, of the TSX-V says, “2018 was a great year for the Venture Exchange, with 95 new CPCs listing with us, and 117 new companies listing with us to grow through Public Venture Capital. CPCs’, like County Capital, are an efficient way for entrepreneurs to list on our market, and we look forward to the Qualifying Transactions they pursue. We’re excited to be partnered with Canadian Cancer Society, Juvenile Diabetes Research Foundation and Centre for Addiction and Mental Health to help bring visibility to Policy 4.7, in support of Canadian charities.”

Additionally, he wishes to recognize that it was Canadian Cancer Society who brought the “Option To Give” program to us, as an effort to bring attention to a perhaps underutilized policy that allows new listings to support good causes without having a huge cash cost. The Option To Give program itself is a brand developed by CCS, and, launched in conjunction with JDRF and CAMH.

It is important to feel confident in your strategic giving ideology. Management, as a team may not know today, where they want to direct their Charitable Options – a solution may be to name CHIMP Foundation, and within that Foundation would be a Donor-Advised Fund – a strategic giving account that you can amass your giving legacy and fund the projects and initiatives that are meaningful to you today, next year and decades from now. The Donor Advised Fund is flexible; possibly holding your personal stock options, private shares and publicly-listed securities – that you have dedicated to your Strategic Philanthropy.

CHIMP (short for CHaritable IMPact) CEO, John Bromley, sums up their value proposition, “CHIMP provides tools and support to donors to make it as easy as possible for them to give effectively and with confidence, no matter what charities they want to support. Because our donor-advised fund allows people to donate a wide range of assets including publicly traded and private company securities we are confident when managing non-cash donations such as options.“

Mr. Bromley adds, “CHIMP is a perfect vehicle for companies choosing to participate in TSX.V’s Option To Give program because our donor-advised fund empowers them with the time and space to develop their giving strategy over time as the company matures. This happens in part because a donor-advised fund enables donors to optimize each of the two component parts of any charitable gift. First, in this case, how many options to donate. And second, how to best use any monetization eventually resulting from the donated options to maximize the charitable impact the company wants to create. By being able to separate these two components, CHIMP enables companies to be thoughtful and strategic as they determine what their giving will focus on, whether it’s a particular cause or geographic area, and whether it will engage employees or customers by way of donation matching, for example. As companies develop their giving strategy and focus, CHIMP provides objective tools and support with the end goal of helping donors making the biggest difference possible. I’m very pleased that the leadership at TSX Venture Exchange is providing meaningful pathways for companies to get more strategically involved with giving”.

A hearty, “thank you” goes out to those charitably-minded industry leaders who played an integral role in this article: Brady Fletcher, Christian Mosley, Michael “Mick” Thomson, Catherine Kee, Cheryl Mascarenhas, John Bromley and Luisa Velez.

R. Brent Lang, CIM, FCSI, Vice-President & Associate Portfolio Manager, MacNicol & Associates Asset Management Inc. (MAAM). He enjoys contributing to enterprising non-profit organizations with an emphasis on social entrepreneurship, social procurement, planned-giving, community impact, donor-relations and board governance.

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