Amendments to the CSE Listing Policies

On March 30, 2023, the Canadian Securities Exchange (“CSE”) announced that it received final approval from the Ontario Securities Commission (“OSC”) and British Columbia Securities Commission (“BCSC”) on significant amendments (the “Amendments”) to the policies and forms of the CSE (the “CSE Policies”), which became effective on April 3, 2023. The Amendments introduce a variety of changes, including, among other things, additional corporate governance requirements for CSE-listed issuers, permitting listings of Special Purpose Acquisition Corporations (“SPACs”) and Exchange Traded Funds (“ETFs”), and the introduction of a senior tier on the CSE for larger and later stage issuers (“Senior Tier”). Although each of the CSE Policies were amended, this legal update aims to discuss the significant changes following approval of the Amendments by the OSC and BCSC.

Launch of the Senior Tier

One of the more noteworthy changes to the CSE Policies was the addition of the Senior Tier. The CSE’s objective of introducing the Senior Tier is to enable listed issuers on the CSE to expand their investor base by providing access to a broader base of institutional investors.

NV Issuers

The Amendments establish a new designation for CSE-listed issuers, referred to as the “NV Issuer” (or non-venture issuer), which will be listed on the Senior Tier. In addition to the standard listing requirements, a NV Issuer must also meet one of the four listing criteria set out in Appendix 2A of the CSE Policies:

1. Equity Standard: Shareholders’ equity of at least $5 million and a market value of the public float of at least $10 million;
2. Net Income Standard: Net income of at least $400,000 in the most recent fiscal year or in two of the three most recent fiscal years, shareholders’ equity of at least $2.5 million, and a market value of the public float of at least $5 million;
3. Market Value Standard: A market value of all securities of at least $50 million, shareholders’ equity of at least $2.5 million, and a market value of the public float of at least $10 million; or
4. Assets and Revenue Standard: Total assets and total revenues of at least $50 million each in the most recent fiscal year or in two of the three most recent fiscal years, and a market value of the public float of at least $5 million.

In addition, NV Issuers are required to have a public float of at least 1,000,000 freely tradeable securities and at least 300 public holders.

It is important to note that the definition of “venture issuer” under applicable Canadian securities laws means any reporting issuer not listed on the Toronto Stock Exchange, NEO Exchange, a U.S. marketplace such as NASDAQ or NYSE, or certain marketplaces outside of Canada and the United States. Therefore, NV Issuers listed on the CSE would continue to be considered “venture issuers” under applicable Canadian securities laws; however, pursuant to the Amendments, such NV Issuers will be subject to stricter disclosure requirements, including the requirement to file an Annual Information Form, and will have shorter filing deadlines for their financial statements. The enhanced disclosure and governance requirements are intended to be largely consistent with policies from other senior exchanges such as the Toronto Stock Exchange or NEO Exchange.

SPACs

The Amendments also permit SPACs to be listed on the CSE Senior Tier. Previously, SPACs could not be listed on the CSE as it was considered a “junior exchange.”

The Amendments introduce similar SPAC requirements to those of the Toronto Stock Exchange and NEO Exchange, with the intent that the CSE would be the third Canadian stock exchange that provides for the listings of SPACs. Appendix 2C of the CSE Policies set out the listing requirements for SPACs, including, among other things:

• a minimum IPO raise of $30,000,000;
• a capital structure acceptable to the CSE;
• at least 1,000,000 freely tradeable securities held by public holders;
• the aggregate market value of the securities held by public holders is at least $30,000,000;
• at least 150 public holders of securities; and
• a minimum IPO price of $2.00 per share or unit.

Upon listing, the resulting SPAC would be subject to all continued listing requirements provided for in the CSE Policies.

ETFs

The introduction of the Senior Tier also provides a marketplace for ETFs to trade on the CSE. The Amendments, as with SPACs, incorporate many of the same conditions for listing as other Canadian stock exchanges. For example, an ETF listed on the Senior Tier would be required to have a minimum net asset value of at least $1,000,000 as well as providing the CSE with confirmation that the net asset value will be published each trading day.

Eligibility Review

Issuers applying to list on the CSE concurrently with or immediately following the filing of a prospectus must now first undergo an “eligibility review” with the CSE. The eligibility review process applies to all applicants applying to list on the CSE, regardless of whether or not the issuer is a NV Issuer. An issuer undergoing an “eligibility review” must submit a document with sufficient detail to determine that the eligibility requirements of the CSE have been met or will be met prior to listing, which may include the draft of the prospectus and, in the case of a resource issuer, the relevant technical report.

Sales of Securities Requiring Securityholder Approval

The Amendments have resulted in some significant changes related to securities offerings for CSE-listed issuers. For NV Issuers, CSE Policy 4 requires majority securityholder approval if the number of securities issued in the offering is greater than 25% of the NV Issuer’s current outstanding securities. NV Issuers must also obtain securityholder approval if the securities issuable to a related person, when added to the number of securities issued to such related person in private placements or acquisitions in the past 12 months (in each case, calculated on a fully diluted basis) is more than 10% of the total number of securities or votes outstanding (calculated on a non-diluted basis).

For all CSE-listed issuers that are not NV Issuers, securityholder approval is required if the issuance of securities in an offering: (i) is greater than 50% of the outstanding securities and a new control person is created; or (ii) if the issuance is greater than 100% of the securities outstanding.

With regards to all CSE-listed issuers, securityholder approval is required if the price per security is lower than the market price less the maximum permitted discount. Additionally, securityholder approval is required if the listed issuer or the CSE otherwise determine that the offering will materially affect control of the listed issuer.

Other Transactions That Require Securityholder Approval

Pursuant to the Amendments, the scope of the CSE Policies has been expanded to require listed issuers to obtain securityholder approval for a number of transactions, including:

• an acquisition if: (i) the number of securities to be issued is greater than 50% of outstanding securities, and a new control person is created; (ii) the total number of securities to be issued is more than 100% of the listed issuer’s outstanding securities; or (iii) it would materially affect control of the listed issuer;
• a disposition of all or substantially all of the assets, business, or undertaking of the listed issuer;
• the adoption of, or amendments to, a security-based compensation plan;
  a rights offering that is offered at a price greater than the maximum permitted discount;
• the adoption of or amendments to a shareholder rights plan;
  certain related party transactions; and
• share consolidations if: (i) the consolidation ratio is greater than ten (10) to one (1); or (ii) when combined with any other consolidation in the previous 24 months that was not approved by shareholders, the consolidation ratio is greater than ten (10) to one (1).

Distributions

Private Placements

The Amendments remove the minimum offering price requirement of $0.05 per security and permit listed issuers to complete private placements at a price of less than $0.05 per security in limited circumstances. Following the Amendments, if the below conditions are met, a listed issuer can complete a private placement at a price of less than $0.05 per security if:

• the proposed price is not less than the twenty (20) day volume weighted average price less the maximum permitted discount;
• the proceeds will be used for working capital and/or bona fide debt settlement; and
• the following information is provided to the CSE:
  • name and trading symbol;
  • anticipated insider participation;
  • confirmation there is no undisclosed material information;
  • intended total proceeds and use of proceeds;
  • structure of the financing; and
  • any other relevant information.

In addition, a listed issuer must announce an intention to complete a private placement at least five business days prior to closing.

Acquisitions

Similar to the Amendments related to the issuance of securities in a private placement, a listed issuer proposing to issue securities in connection with an acquisition must give public notice of its intention to complete the acquisition and issue the securities at least five business days prior to closing, and if the CSE does not object within such period, the listed issuer may close the acquisition.

Securities-Based Compensation Arrangements

The Amendments introduce additional reporting and securityholder approval requirements for securities-based compensation arrangements to bring the CSE Policies closer in line with other Canadian stock exchanges, including requiring securityholder approval every three years for “rolling” securities-based compensation arrangements.

Mineral Exploration Companies

The Amendments also strengthen the standards governing mineral exploration companies (previously known as “mineral resource companies”). These changes either meet or exceed the standards compared to other Canadian exchanges. Certain thresholds, such as “qualifying expenditures” and “explorations budgets,” have been increased to better reflect the actual cost associated with these activities.

Conclusion

In summary, the Amendments have implemented significant changes for CSE-listed issuers and issuers considering listing on the CSE. The addition of the Senior Tier can potentially offer benefits that otherwise would not have been available to CSE-listed issuers, such as margin relief or better access to capital. Other changes introduced by the Amendments will provide financing flexibility for listed issuers while also ensuring securityholder interests are protected. The Amendments are likely to produce advantageous results for both issuers and investors.

If you have any questions with respect to the matters discussed above, please contact Michael Rennie at [email protected], Joel Fraser at [email protected] or any other member of Wildeboer Dellelce LLP. The authors gratefully acknowledge the assistance of articling student Sam Fata in the preparation of this update.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.