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Monday, December 14, 2020

On December 1, 2020, the TSX Venture Exchange (the “TSXVE”) announced changes to its Capital Pool Company (“CPC”) program by way of a Bulletin published on its website here. A CPC is a special purpose corporation that has no assets, other than cash and its listing on the TSXVE, which has not yet commenced business operations and whose sole focus is on identifying a business to acquire which will be its “Qualifying Transaction”.

Over the years, the CPC program has listed over 2,600 CPCs, of which 85% have completed Qualifying Transactions. As of September 30, 2020, 32% of currently listed TSXVE issuers are former CPCs.

In response to market participant feedback and industry consultation, the TSXVE has determined to make certain changes to the CPC program, with an aim to increase use of the program. At its core, the CPC program is a stock-exchange facilitated “reverse takeover” or “RTO” process that has several advantages to the use of an existing “shell company” to complete an RTO and has existed in the context of a several decades-long decline in the number of businesses that choose to “go public” – whether by way of prospectus or RTO. One objective of the TSXVE in making these changes to the CPC program is to entice more businesses to go public through this route, thus filling the pipeline with more listings (some of which may ultimately graduate to the more senior Toronto Stock Exchange).

The amendments to the TSXVE’s Corporate Finance Manual, most of which will be reflected in Policy 2.4 – Capital Pool Companies (“Policy 2.4”), will become effective on January 1, 2021, assuming the receipt of all required regulatory approvals. A summary of certain significant changes to the CPC program follows.

Changes to Policy 2.4 - Capital Pool Companies

The amendments to Policy 2.4 include:

  • an increase from $500,000 to $1 million in the maximum seed capital that can be raised prior to the CPC’s initial public offering (“IPO”) at a price below the IPO price;
  • an increase from $5 million to $10 million in the maximum aggregate gross proceeds that a CPC can raise from seed capital, an IPO and any other financing;
  • no requirement to transfer to the NEX board of the TSXVE if the CPC does not complete its Qualifying Transaction within 24 months of listing;
  • a reduction from 200 to 150 in the number of “public” board lot holders required who, taken together, will now only be required to hold not less than 500,000 of the outstanding shares (compared with 1,000,000 shares under the existing Policy 2.4);
  • a change requiring a majority, rather than all, of the directors and officers of the CPC to be either residents of Canada or the United States or have public company experience;
  • the removal of the requirement that a majority of the directors and officers of the Resulting Issuer (as defined in Policy 2.4) must be either residents of Canada or the United States or have public company experience (existing policies applicable to all TSXVE-listed issuers now apply in this regard);
  • increased flexibility in the type of securities that can be issued prior to the completion of the Qualifying Transaction, with some compensation being permitted up to certain limits;
  • the use of proceeds of financing is now more strictly regulated, with increased guidance as to permitted uses;
  • CPCs can now spend up to an aggregate of $3,000 per month on allowable general and administrative (“G&A”) expenses prior to the completion of the Qualifying Transaction rather than the previously permitted limits of the lesser of 30% of the gross proceeds from the sale of securities issued by a CPC and $210,000;
  • CPCs will be able to implement a 10% rolling stock option plan, rather than only being permitted fixed number stock option plans, and to issue options at an exercise price less than the IPO price in certain circumstances;
  • the elimination of the 36-month escrow period previously applicable to Resulting Issuers that qualified as Tier 2 issuers following completion of their Qualifying Transaction – under the new rules, escrowed securities will now be released over a period of 18 months, with 25% released on the date of the Final QT Exchange Bulletin and 25% on the 6, 12 and 18-month anniversaries; and
  • CPC stock options and shares issued on exercise of the options released on the Final QT Exchange Bulletin, unless such options were granted before the IPO with an exercise price that is less than the IPO share price.

Transition Provisions

The amended Policy 2.4 also will include certain transition provisions that apply to:

  • issuers that have filed their CPC prospectus but have not completed their IPOs by December 31, 2020 (Type 1);
  • existing CPCs, including those listed on the NEX Board of the TSXVE (Type 2); and
  • CPCs that have completed a Qualifying Transaction and will be listed on the TSXVE (or the Toronto Stock Exchange) as at January 1, 2021 (Type 3).

Type 1 CPCs

A Type 1 CPC will have the option to elect to either comply with the amended Policy 2.4 (assuming it complies with certain conditions) or to file its final CPC prospectus and complete its IPO under the old rules, in which case the CPC will be governed by the current version of Policy 2.4, although it may later elect to comply with the transition provisions applicable to Type 2 CPCs.

Type 2 CPCs

A Type 2 CPC can implement certain changes without shareholder approval, such as an increase in the maximum aggregate gross proceeds raised by the CPC to $10 million from $5 million, it may comply with the use of proceeds set out under the new rules which remove the lesser of 30% or $210,000 limit on G&A expenses or it may issue new Agent’s Options (i.e., pay compensation) in connection with a private placement financing. However, certain changes will require disinterested shareholder approval (among other requirements), such as removing the consequences of failing to complete a Qualifying Transaction within 24 months of listing, the extension of outstanding out-of-the-money Agent’s Options to five years from two years, the amended escrow terms, permitting the payment of finder’s fees to “Non-Arm’s Length Parties” and the adoption of a 10% rolling stock option plan.‎ Disinterested shareholder approval for these purposes can be obtained by the CPC in writing or at a duly called shareholders’ meeting.

Type 3 CPCs

A Resulting Issuer can amend its existing CPC Escrow Agreement to track the escrow terms permitted under the revised Policy 2.4 and the revised CPC Escrow Agreement, including the 18-month release schedule and the immediate release of escrow securities that, under the revised provisions, would no longer be subject to escrow, provided that the CPC first obtains disinterested shareholder approval. In addition, the Resulting Issuer must issue a news release disclosing its intention to amend the CPC Escrow Agreement no less than seven business days prior to the effective date of such change and obtain approval of the TSXVE.

Disclosure Requirements

The TSXVE has previously prescribed the disclosure required by a CPC in connection with its Qualifying Transaction in Form 3B1/3B2 - Information Required in an Information Circular/Filing Statement for a Qualifying Transaction. Certain of the prescribed disclosure has also been amended, including the requirements applicable to a target company’s interim financial statements. Under the new rules, a CPC will be required to include an interim financial report for the period ended more than 45 days before the date of the Form 3B1/2B2, rather than 60 days as previously prescribed. This conforms to the requirements generally applicable to prospectus offerings.


We expect that the amendments to the CPC program will be well received and may lead to increased interest in the use of the program by those businesses wishing to go public other than by way of prospectus. While significant, these changes do not represent a sea change in the administration of the CPC program; rather, they represent common-sense incremental changes that are timely in nature.

If you have any questions with respect to the matters discussed above, please contact Al Wiens (, Jeff Hergott (, Michael Rennie ( or any other member of our Corporate Finance & Securities practice group.

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.

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