TSX Enterprise Trade Publicizes Vital Optimistic Adjustments to its Capital Pool Firm Program
On December 1, 2020, the TSX Venture Exchange (“TSXV“) Announced significant positive changes to its Capital Pool Company (“CPC”) Program, a popular program for companies seeking access to the public markets. The changes to the program take the form of an amended and adapted guideline 2.4 – Capital Pool Companies (the “New guidelines”) The Corporate Finance Manual of the TSXV, the overview of which is given below. The new guideline in its current form is considerably more flexible than the previous guideline for CPCs (the “Old politics”) And is expected to be welcomed by capital market participants. The new directive is expected to come into force on January 1, 2021, subject to the relevant regulatory approvals.
The highlights of the new policy are as follows:
Seed Capital and Total Fund: Increase of: (i) the maximum seed capital raised below the IPO price of $ 500,000 to $ 1 million; and (ii) the maximum total fundraising from a CPC of $ 5 million to $ 10 million.
Failure to Complete Qualifying Transaction Within 24 Months: It is no longer necessary to either remove from the TSXV or transfer the listing of a CPC to NEX when the qualifying transaction of the CPC (“QT”) Will not be completed within 24 months of listing. The new policy removes the requirement to cancel seed capital shares if QT is not completed within 24 months of listing.
Distribution: The minimum number of public shareholders in a CPC has been reduced from 200 to 150, with each shareholder owning at least 1,000 shares. In total, public shareholders must hold at least 20% of the issued and outstanding CPC shares.
Directors and Officers: The majority of directors and officers (as opposed to all under the old policy) must be Canadian or United States residents or have experience in public companies for internationally based directors to be on the board of a CPC and one Issuer that results from a business combination or similar transaction with a CPC (the “Resulting issuer”). In addition, one person is now permitted to serve as the chief executive officer, chief financial officer, and secretary of a CPC.
Agents & Pro Group: The IPO agent of the CPC (the “agent”) No longer has to be a member (as defined in the new policy) of the TSXV. The maximum term of the options granted to the agent has been increased from two to five years. Shares issued to the Pro Group under the QT (as defined in the new policy) are no longer subject to a four-month holding period unless required by law.
CPC Stock Options: CPCs can now enact a 10% rolling stock option plan where the number of option options is based on the number of shares issued and outstanding at the time the option is granted. Under the old policy, CPCs were only allowed to have a fixed stock option plan where the total number of shares reserved for issue could not exceed 10% of the shares issued and outstanding at the time the IPO closed.
Fiduciary and fiduciary clearance: The fiduciary period of 36 months applicable to trust papers of a Tier 2 Resulting issuer has been replaced by an 18-month fiduciary period, with 25% released on the day the QT was concluded and 25% released on the 6-, 12- and 18-month anniversaries of that date.
Use of Income: CPCs can now incur general administrative expenses of $ 3,000 per month, while the old policy limited this expense to less than: (i) 30% of the total gross revenue generated by CPC; and (ii) $ 210,000 over the life of the CPC.
Finder Fees: A CPC can now pay a Finder Fee to a non-armored party (as defined in the new policy) if: (i) the QT is not a non-armored QT; (ii) the QT is not a transaction between the CPC and an existing public company; (iii) the finder’s fee is payable in cash, publicly traded stocks and / or warrants; and (iv) the approval of disinterested shareholders is obtained. The old directive did not allow finding fees to be paid to a non-armed party.
Structure of the CPC: The new policy enables the CPC to take the form of a trust relationship, whereas the old policy did not allow such a structure.
The TSXV has included some helpful transitional provisions in the new policy that apply to: (i) an issuer who has filed its CPC prospectus but has not yet completed an IPO as of December 31, 2020; (ii) existing CPCs as of January 1, 2021; and (iii) Resulting Issuers as of January 1, 2021.
Issuers who have filed their CPC prospectus but have not yet completed an IPO at the time the new policy takes effect can either comply with the new policy or submit their final prospectus and complete the IPO under the old policy and will be subject to the old policy.
Existing CPCs may implement certain changes without shareholder approval, such as: B. Increasing the maximum gross revenue through the CPC from USD 5 million to USD 10 million and complying with the new and relaxed rules for the use of proceeds set under the new policy. Certain other changes require specific uninterested shareholder approval, such as: (i) removal of the consequences if a QT is not completed within 24 months of listing; (ii) extending the term of any outstanding out-of-the-money options of the Agent from two years to five years; (iii) change the trust terms to reflect the new policy; (iv) allowing a finder fee to be paid to a non-independent party to the CPC; and (v) adopting a 10% vehicle option plan.
The resulting issuers can amend their existing CPC escrow agreement to keep track of the escrow terms permitted under the new policy, provided that disinterested shareholder approval is first obtained.