The TSX Venture Exchange (the “TSXV”) has recently made changes to its Capital Pool Company (“CPC”) program, effective January 1, 2021. The CPC program is a unique listing vehicle offered by the TSXV that provides a way in which private companies can go public. The CPC program enables experienced directors and officers to form a CPC, raise a pool of capital and be listed on the TSXV through an Initial Public Offering (“IPO”). Once a private company with commercial operations has completed a reverse takeover of a CPC, which is called a qualifying transaction (“QT”), that private company will have access to the capital, shareholders and expertise of the CPC required to complete its listing on the TSXV.

The following is a summary of notable changes to the CPC program:

1. Seed Capital and Aggregate Funds

The maximum amount of seed capital that can be raised below the CPC’s IPO share price has been increased from $500,000 to $1 million. In addition, the maximum amount a CPC can raise from all sources (i.e. seed capital, IPO, private placements etc.) has been increased from $5 million to $10 million.

2. Directors and Officers of a CPC

Formerly, all directors of a CPC must be a resident of Canada or the USA or have public company experience in a regulatory regime comparable to a Canadian exchange. The rules have been amended to allow CPCs to have international directors, although the majority of directors must still be a resident of Canada or the USA or have public company experience in a regulatory regime comparable to a Canadian exchange. Additionally, the same individual can now act as Chief Executive Officer, Chief Financial Officer and Corporate Secretary of the CPC.

3. Shareholder Distribution

The minimum number of public shareholders each owning at least 1,000 shares of a CPC upon completion of the IPO has been decreased from 200 to 150 public shareholders. Additionally, the minimum size of a public float has been decreased from 1 million to 500,000 shares. However, public shareholders will now need to collectively hold at least 20% of the outstanding shares of the CPC.

4. No Transfer to NEX Board

Under the former CPC program, the TSXV could suspend, delist or transfer to the NEX Board CPCs that have not completed a QT within 24 months of being listed on the TSXV. The NEX Board is a separate trading forum of the TSXV for companies that have zero to low levels of business activity. Under the amended rules, CPCs no longer have a deadline to complete a QT.

5. Agents and Pro Group

The amended CPC program removes certain restrictions related to agents and finders’ fees. The maximum term of options which may be granted to agents has been increased from two to five years. In addition, CPCs are now able to pay finder’s fees to a non-arm’s length party provided that certain conditions are met.

6. Escrow

Certain shares are no longer subject to escrow requirements, including shares acquired by the Pro Group (as defined in the TSXV’s policies) at above the CPC’s IPO share price and shares acquired by a control person in the secondary market. Formerly, escrowed CPC securities were subject to escrow restrictions lasting between 18 and 36 months. Escrowed CPC securities are now subject to a uniform 18-month escrow period following the completion of the QT, during which each of 25% of the escrowed securities will be released on the date the TSXV files the Final Exchange Bulletin in connection with the QT and on 6, 12 and 18 months thereafter.

Stock options and underlying shares will be released on the date the TSXV issues the Final Exchange Bulletin, unless they were granted before the IPO at an exercise price less than the IPO share price.

Transition Provisions

If a CPC has filed a prospectus but has not completed its IPO before January 1, 2021, it may elect to:

• complete its IPO in accordance with the amended policy, provided that the final prospectus complies with the new requirements; or
• file its prospectus and complete its IPO in accordance with the former policy.

A CPC listed on the TSXV as at January 1, 2021 and any CPC that has elected to complete its IPO in accordance with the former policy may choose to implement certain changes from the amended policy, although some of these changes require disinterested shareholder approval.

A CPC that has completed a QT as at January 1, 2021 may amend its escrow agreement pursuant to the amended policy, although it must first obtain disinterested shareholder approval.

Next Steps

For more information on the TSXV’s CPC program and its recent changes, visit: https://www.tsx.com/listings/listing-with-us/listing-guides/ways-to-list/capital-pool-company-cpc-program