TSX Enterprise Alternate Declares Important Constructive Adjustments To Its Capital Pool Firm Program – Company/Industrial Legislation
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 will take the form of an amended and adapted guideline 2.4 – Capital Pool Companies (the”New guidelines“) of the TSXV Corporate Finance Handbook, 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, provided that the relevant regulatory approvals have been obtained.
The highlights of the new policy are as follows:
Start-up capital and total funds:
AIncrease in: (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 the qualifying transaction within 24 months: There is no longer any need to clear a CPC’s list or submit a CPC’s listing to NEX when the CPC’s qualifying transaction (“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.
TheThe 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:A majority of directors and officers (as opposed to all
under the old policy) must be resident in Canada or the United States, or have experience in public corporations in order to serve on the boards of directors of a CPC and an issuer arising out of a business combination or similar transaction with a CPC (the “Resulting issuerIn 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 needs to be a member (as defined in the new policy) of the TSXV. The maximum duration of the options granted to the agent has been increased from two to five years. Shares issued to the Pro Group (as defined in the definition) New policy) as part of the QT is no longer subject to a four-month blocking period, unless this is required by law.
CPC stock options:CPCs can now enact a 10% rolling stock option plan in which 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.
Escrow and Escrow Release: The 36-month escrow period applicable to escrow securities of a Tier 2 Resulting Issuer has been replaced by an 18-month escrow period, with 25% released on the day the QT was closed and 25% released on the 6th, 12th – and 18-month anniversaries of that date .
Use of the proceeds:CPCs are now allowed to incur general administrative expenses of $ 3,000 per month, while the old policy limited that expense to less than: (i) 30% of 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), provided that: (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 allows 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.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.