Coverage Adjustments To The TSX Enterprise Trade Capital Pool Firm Program – Company/Business Legislation

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Policy changes to the TSX Venture Exchange Capital Pool Company program

December 16, 2020

Field LLP

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On December 1, 2020, the TSX Venture Exchange (“TSXV“) announced new policy changes to its” capital pool company “(“CPC“) Program. The CPC program is a two-tier, non-traditional listing instrument that enables private and high-growth companies to access capital through the public markets.

The CPC program allows experienced directors and officers to form a CPC with no business or assets other than cash and have that company’s securities listed on the TSXV in a CPC initial public offering (a “CPC offerThe CPC then uses the funds raised through its initial seed funding and CPC offering to identify, value, and acquire existing assets or businesses through a “qualifying transaction” (“QTOnce the CPC has completed its QT and acquired an operating business that meets the requirements of TSXV listing, its securities will continue to trade as a regular listing on the TSXV.

The new policy changes proposed by the TSXV aim to improve the CPC program by raising more capital for CPCs, attracting seasoned executives from around the world as directors, and generally encouraging greater participation from potential investors and market participants – resulting in better opportunities for Canada’s growth companies .

Some of the highlights of the changes being made to the CPC program are listed below, and full information about the changes can be found here Here and Here1.

Highlights of the new policy changes

Requirement Existing policy New guidelines
Directors and officers

All CPC directors must be US or Canadian residents or have experience in public companies.

One person cannot act as CEO, CFO and secretary at the same time.

The majority of CPC directors must be US or Canadian residents or have experience in public companies.

One person can effectively serve as CEO, CFO and secretary at the same time.

Seed capital A maximum of USD 500,000 in seed capital can be raised below the IPO price. A maximum of USD 1,000,000 in seed capital can be raised below the IPO price.
Total means Maximum total funds that can be raised by a CPC – $ 5,000,000.

Maximum total funds that can be raised by a CPC – $ 10,000,000

(This limit applies only to the initial CPC offering. Subject to the other rules of the TSXV, a resulting issuer may raise unlimited capital upon completion of its QT.)

Distributions from Shareholders At least 200 public shareholders with at least 1,000 ordinary shares each.

Minimum number of public shareholders, which corresponds to the lower number:

  1. 150 public shareholders; and
  2. the minimum number of public shareholders in accordance with Directive 2.1 – Requirements for the initial listing of a Tier 2 issuer;

each of these public shareholders owning at least 1,000 common shares.

IPO agent

At least one IPO agent must be a member of the exchange.

A maximum of 24 months for the agent’s rights or options.

IPO agents no longer need to be members of the exchange.

A maximum of five years for the agent’s rights or options.

No transmission to NEX Transfer to the NEX board of the TSXV if QT has not been completed after 24 months of listing and certain seed capital shares may be canceled with the approval of shareholders.

No transfer to the NEX board of the TSXV if the QT is not completed after 24 months of listing.

(The CPC will remain listed on the TSXV until the QT closes. There is no need to cancel any seed capital if the QT is not closed within 24 months of the listing.)

Private placements Only common shares can be distributed prior to the QT closing. Only common shares can be distributed prior to the QT closing. However, under certain circumstances, with concurrent funding, subscription receipts or warrants may be issued that convert to publicly traded stocks, or publicly traded stocks and warrants upon completion of the QT.
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Escrow applies to:

  1. seed shares issued below the IPO price,
  2. all securities acquired from treasury by non-customary parties of the CPC,
  3. shares purchased by a controller on the secondary market and
  4. All seed shares issued to a member of the aggregated pro group regardless of price.

Escrow applies to:

  1. seed shares issued below the IPO price,
  2. Shares acquired from the treasury by non-market parties of the CPC,
  3. CPC stock options and
  4. Option shares that are issued at an exercise price that is lower than the IPO price.

Escrow does not apply to:

  1. Shares acquired by the Pro Group at or above the IPO price.
Escrow release

18 Month Escrow: If the resulting issuer is listed in Tier 1, it will be published in the Final QT Exchange Bulletin at 25% and in 6, 12 and 18 months after that date at 25%.

36 Month Escrow: If the resulting issuer is listed in Tier 2, 10% will be published in the Final QT Exchange Bulletin and 15% will be published in each of the 6, 12, 18, 24, 30 and 36 months after that date.

18 Month Escrow: Escrow securities that are 25% released in the Final QT Exchange Bulletin and 25% released in 6, 12 and 18 months after that date.

CPC stock options and option stocks published in the Final QT Exchange Bulletin, unless they were granted prior to the IPO at an exercise price below the IPO price.

QT Finder fees

The Finder Fee can be paid to an individual who is not an independent party to the CPC.

The Finder Fee may not be payable to a party who does not participate in the CPC on market terms.

The Finder Fee can be paid to an individual who is not an independent party to the CPC.

The finder fee can be paid to a party on market terms if:

  • QT is not an arm-length QT.
  • QT is not a transaction between the CPC and an existing public company.
  • The finder’s fee is payable in cash, listed stocks and / or warrants.
  • The amount of simultaneous funding is not included in the value of the measurable benefit
  • The approval of the disinterested shareholders will be obtained.

Conclusion

In implementing the changes to its CPC Policy, the TSXV has also incorporated transitional provisions that provide guidance to current CPC applicants, existing CPCs and resulting CPC issuers on options available to them in light of the changes. With the new policy changes expected to go into effect in January 2021, CPCs, market participants, private companies, potential CPC founders, and investors are encouraged to reevaluate the CPC program and review how these changes will affect or benefit them Can be useful.

footnote

1. The TSXV Corporate Finance Handbook provides both clean and black versions of Policy 2.4, which lists any proposed changes that should be implemented.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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