On December 1, 2020, the TSX Venture Exchange (Exchange) issued a news release to announce changes to its Capital Pool Company (CPC) program that will come into force on January 1, 2021. The CPC program is a way for private companies to go public in Canada. The CPC program enables seasoned directors and officers to form a CPC, raise a pool of capital and list the CPC on the Exchange with no assets other than cash and no commercial operations. The CPC then uses the capital raised to identify a private operating company to complete a qualifying transaction with the CPC (Qualifying Transaction). After the CPC has completed its Qualifying Transaction, the resulting issuer’s shares trade as a regular listing on the Exchange.
The Exchange advised that the changes are aimed at providing increased flexibility by included additional jurisdictions, easing the residency requirements and simplifying spending restriction. The changes are also aimed at reducing regulatory burden by relaxing the requirements on shareholder distribution and shareholder approvals.
The changes below are included in the Exchange’s Corporate Finance Bulletin issued on December 1, 2020.
Overview of the Amended CPC Policies
Topic and Section Reference |
New Policy |
Former Policy |
Seed Capital & Aggregate Funds: | ||
Section 3.2(f)(i) | Maximum $1,000,000 Seed Capital raised below IPO price |
Maximum $500,000 Seed Capital raised below IPO price |
Section 3.2(k) |
Maximum $10,000,000 in aggregate funds raised by a CPC |
Maximum $5,000,000 in aggregate funds raised by a CPC |
No Transfer to NEX: | ||
Removal of section 14.13 of the Former Policy |
No transfer to NEX if Qualifying Transaction not completed within 24 months after listing |
No transfer to NEX if Qualifying Transaction not completed within 24 months after listing |
Distribution: | ||
Section 3.2(l) | 150 Public Shareholders each owning at least 1,000 shares | 200 Public Shareholders each owning at least 1,000 shares |
Section 3.2(l) | Public Float per Policy 2.1 for Tier 2 -currently 500,000 shares | Public Float 1,000,000 shares |
Section 3.2(l) | Public Shareholders collectively hold at least 20% of the outstanding shares | |
Topic and Section Reference | New Policy | Former Policy |
Distribution: | ||
Section 3.2(m) |
2% and 4% limits do not apply to 25% of the IPO |
2% and 4% limits apply to the entire IPO |
Section 3.2(n) | No new Insider on closing of IPO if not disclosed in CPC Prospectus | |
Directors and Officers: | ||
Section 3.2(a) |
CPC – Majority must be residents of Canada/USA or have public company experience (permits international directors) |
CPC – All must be residents of Canada/USA or have public company experience |
Removal of section 12.1(d) of the Former Policy |
Resulting Issuer – No restrictions (rely on Policy 3.1) |
Resulting Issuer – Majority must be residents of Canada/USA or have public company experience |
Section 3.2(d) |
CPC – one person can be CEO, CFO and secretary |
CPC – one person cannot be CEO, CFO and secretary |
Agents & Pro Group: | ||
Section 5.1 |
IPO Agent need not be a Member of the Exchange |
IPO Agent must be a Member of the Exchange |
Section 5.2(c)(iv) | Agent’s Options maximum 5 year term | Agent’s Options maximum 2 year term |
Removal of section 14.8 of the Former Policy |
Shares acquired by the Pro Group at or above the IPO price are not subject to escrow |
All shares acquired by the Pro Group are subject to escrow, regardless of the issue price |
Removal of section 14.8 of the Former Policy |
Shares issued to the Pro Group as part of the Qualifying Transaction are not subject to a four month hold period unless required by law |
All shares issued to the Pro Group as part of the Qualifying Transaction are subject to a four month hold period |
CPC Stock Options: | ||
Section 6.1 | Stock Option Plan – 10% rolling based on number of shares outstanding at the time of grant |
Stock Option Plan – 10% fixed based on number of shares outstanding on closing of the IPO |
Section 6.4 | Minimum exercise price for CPC Stock Options granted before the IPO is lowest Seed Share issue price; after the IPO, price per Policy 4.4 – Incentive Stock Options |
Minimum exercise price for CPC Stock Options is greater of IPO price and Discounted Market Price |
Section 10.1 |
Escrow for all CPC Stock Options and all Option Shares issued at an exercise price that is less than the IPO price |
|
Topic and Section Reference | New Policy | Former Policy |
Escrow: | ||
Section 10.1 |
Escrow applies to: – Seed Shares issued below IPO price; – Shares acquired from treasury by Non-Arm’s Length Parties to the CPC; – CPC Stock Options; and – Shares issued on exercise of CPC Stock Options at an exercise price that is less than the IPO price |
Escrow applies to: – Seed Shares issued below IPO price; – Shares acquired from treasury by Non-Arm’s Length Parties to the CPC; – Shares acquired by a Control Person in the secondary market; and – All Seed Shares issued to a member of the Aggregate Pro Group, regardless of price |
Escrow Release: | ||
Section 10.2 |
18 month escrow: Escrow Securities released as to 25% on Final QT Exchange Bulletin and 25% on each of 6, 12 and 18 months following that date |
18 month escrow: If Resulting Issuer is listed on Tier 1, released as to 25% on Final QT Exchange Bulletin and 25% on each of 6, 12 and 18 months following that date 36 month escrow: If Resulting Issuer is listed on Tier 2, released as to 10% on Final QT Exchange Bulletin and 15% on each of 6, 12, 18, 24, 30 and 36 months following that date |
Section 10.2 |
CPC Stock Options and Option Shares released on Final QT Exchange Bulletin unless granted before the IPO with exercise price less than IPO price |
|
Removal of section 14.13 of the Former Policy |
No requirement to cancel any Seed Shares if the Qualifying Transaction is not completed within 24 months after listing |
Certain Seed Shares must be cancelled if the Qualifying Transaction is not completed within 24 months after listing and the CPC is being transferred to NEX |
Topic and Section Reference |
New Policy |
Former Policy |
Use of Proceeds: | ||
Section 7.1 |
G&A expenses limited to $3,000 per month |
Non-QT expenses (e.g. G&A) limited to lesser of 30% of gross proceeds raised by CPC and $210,000 over life of CPC |
Sections 7.1 and 7.2 |
Expanded guidance on permitted uses of proceeds and payments to NonArm’s Length Parties |
|
Section 7.4 |
to those in Policy 5.2 – Changes of Business and Reverse Takeovers |
|
Private Placements: | ||
Section 9.3 |
Only Common Shares prior to Completion of the Qualifying Transaction, but a Concurrent Financing may in certain circumstances involve the issuance of Subscription Receipts or Special Warrants that convert into Listed Shares, or Listed Shares and Warrants, on Completion of the Qualifying Transaction |
Only Common Shares prior to Completion of the Qualifying Transaction |
Section 9.7 |
Pre-Qualifying Transaction – compensation up to 10% cash plus 10% Warrants permitted |
|
Sections 9.4, 9.5 and 9.6 and section 7.4 |
Bridge Financing and Concurrent Financing provisions similar to those in Policy 5.2 – Changes of Business and Reverse Takeovers |
|
QT Finder’s Fees: | ||
Section 7.3(a) |
Finder’s fee may be paid to Person that is not a Non-Arm’s Length Party to the CPC |
Finder’s fee may be paid to Person that is not a Non-Arm’s Length Party to the CPC |
Section 7.3(b) |
Finder’s fee may be paid to a NonArm’s Length Party to the CPC if:- Qualifying Transaction is not a NonArm’s Length Qualifying Transaction; – Qualifying Transaction is not a transaction between the CPC and an existing public company; – Finder’s fee is payable in cash, Listed Shares and/or Warrants; – The amount of any Concurrent Financing is not included in the value of the measurable benefit; and – Disinterested Shareholder approval is obtained |
Finder’s fee may not be paid to a NonArm’s Length Party to the CPC |
Financial Statements: | ||
Form 3B1/3B2 |
CPC: – Annual Financial Statements 120 days – Interim Financial Statements 60 days |
CPC: – Annual Financial Statements 120 days – Interim Financial Statements 60 days |
Form 3B1/3B2 |
Target Company: – Annual Financial Statements 90 days – Interim Financial Statements 45 days |
Target Company: – Annual Financial Statements 90 days – Interim Financial Statements 60 days |
Other Points: | ||
Section 1.1 | CPC can be a trust | Trust structure not expressly permitted |
Section 1.1 |
Majority of the Minority Approval may be obtained at a meeting of Shareholders OR by written consent |
Majority of the Minority Approval required to be obtained at a meeting of Shareholders |
Removal of section 14.9 of the Former Policy |
No restriction on RTO within first year after Qualifying Transaction |
Restriction on RTO within first year after Qualifying Transaction |
Section 11.1(e) |
Resulting Issuer may be a finance issuer (still cannot be a mutual fund) |
Resulting Issuer could not be a finance issuer |
The Exchange will be hosting virtual events on December 8 and 9, 2020 to review the CPC policy changes. For more information, please visit tsx.com/cpc.