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.