Effective April 3, 2023, the Canadian Securities Exchange (the “CSE”) has adopted significant amendments (the “Amendments”) to its policies. While the scope and breadth of the Amendments is comprehensive and include extensive revisions to many of the policies, for the purposes of this Legal Alert we will focus our review on Policy 2 – Qualification for Listing, Policy 4 – Corporate Governance and Miscellaneous Provisions and Policy 6 – Distributions.
CSE Policy 2 – Qualifications for Listing
Policy 2 outlines requirements that issuers must meet in order to list on the CSE. The amendments expand the scope of the existing CSE Policy 2 and introduce several new listing requirements.
Eligibility Review
Following the Amendments, the CSE has introduced an “eligibility review” for all applicants applying to list on the CSE immediately before or concurrently with filing a prospectus. The eligibility review process starts with the applicant submitting a “document with sufficient detail to determine that the eligibility requirements have been met”. With respect to the documents that must be filed with the application, the CSE notes that a draft prospectus will be sufficient as long as it provides all required information and that natural resource issuers must provide the relevant technical report. The CSE will then conduct a review and will provide confirmation of eligibility or conditions the applicant must meet before listing.
“NV Issuers”
Policy 2 introduces a new category of listing for senior issuers, which the CSE coins “NV Issuers” (Non-Venture Issuers) and provides specific listing criteria which NV Issuers must meet. In addition to meeting the CSE’s basic listing qualifications, NV Issuers must meet one of four elevated listing standards. Each of the four standards sets minimum thresholds with respect to Equity, Net Income, Market Value, or Assets and Revenue.
Interestingly, the definition of “venture issuer” under applicable securities laws means any reporting issuer not listed on the Toronto Stock Exchange, NEO, or a U.S. marketplace such as NASDAQ or NYSE, among other certain categories. NV Issuers listing on the CSE would continue to be considered “venture issuers” under securities laws; however, pursuant to CSE policies they will be subject to certain additional requirements which mirror some of the statutory requirements for non-venture issuers. This includes the obligation to post an Annual Information Form and abridged filing deadlines for annual and interim financial statements.
Special Purpose Acquisition Corporations (“SPAC”)
CSE Policy 2 introduces SPAC listing requirements, which are similar to the requirements of other Canadian stock exchanges. SPACs may submit a listing application (the “SPAC Listing Application”) to demonstrate that they meet the CSE’s SPAC listing requirements. The CSE SPAC listing requirements include, but are not limited to:
- a minimum IPO raise of $30,000,000 through the sale of shares or units;
- at least 1,000,000 freely tradable securities are held by public holders;
- the aggregate market value of the securities held by public holders is $30,000,000; and
- a minimum IPO price of $2 per share.
Policy 4 – Corporate Governance and Miscellaneous Provisions
As a result of the Amendments, the scope of CSE Policy 4 has been expanded to require that a CSE-listed issuer (a “Listed Issuer”) obtain securityholder approval for certain transactions.
Sale of Securities
For Listed 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. Securityholders must also approve security issuances where the issuance price is lower than the current market price, less the Maximum Permitted Discount. Additionally, if the Listed Issuer or the CSE determines that the issuance will materially affect the control of the Listed Issuer, securityholder approval for the issuance will be required.
CSE Policy 4 requires securityholders of NV Issuers to approve proposed security offerings if the number of securities issuable in the offering is more than 25% of its currently outstanding securities. NV Issuers must also obtain securityholder approval if the securities issuable to a related person, combined with those issued to the related person in the last 12 months in private placements or acquisitions, is more than 10% of the issuer’s outstanding securities.
Notwithstanding the foregoing, securityholder approval may not be required if a Listed Issuer is in serious financial difficulty, has reached an agreement to complete the offering, and there is no related person participating in the offering. In addition, to rely on the exemption from the securityholder approval requirement, the Listed Issuer’s independently comprised audit committee or the majority of its independent directors must determine that the offering is in the Listed Issuer’s best interests, is reasonable, and it is not feasible to obtain securityholder approval or complete a rights offering to existing securityholders on the same terms. Listed Issuers relying on this exemption must issue a news release stating that it will not hold a securityholder vote and must explain its qualification for the exemption five (5) days in advance of the offering.
Acquisitions and Dispositions
Similar to the requirements for financings, securityholders of Listed Issuers must approve acquisitions if (i) the number of securities to be issued is greater than 50% of outstanding securities, and a new control person is created, (ii) if the total number of securities to be issued is more than 100% of the Listed Issuer’s outstanding securities, or (iii) it would, as determined by the Listed Issuer or the CSE, materially affect control of the Listed Issuer. Pursuant to the Amendments, securityholders must also approve of a disposition of all or substantially all of the assets, business, or undertaking of a Listed Issuer.
Further, securityholders of NV Issuers must approve acquisitions if related persons hold an interest of 10% or greater in the target assets and the total number of issuable securities is more than 5% of the NV Issuer’s outstanding securities. Securityholders of NV Issuers, other than investment funds, must also approve acquisitions if the total number of securities to be issued is greater than 25% of the NV Issuer’s outstanding securities.
Other Transactions Requiring Securityholder Approval
The Amendments to CSE Policy 4 also now require that both NV Issuers and Listed Issuers obtain securityholder approval for certain other items including:
- the adoption or amendments to any shareholder rights plans;
- the adoption or amendments to security based compensation plans; and
- consolidations if: (a) the consolidation ratio is greater than ten (10) to one (1); or (b) 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).
Policy 6 – Distributions and Corporate Finance
The scope of CSE Policy 6 has been expanded to require advance public notice for acquisitions and private placements, as well as requiring prescribed details for price reservation submissions.
Private Placements
The Amendments now provide limited exceptions to the $0.05 minimum private placement security price requirement. A Listed Issuer may now complete a private placement at a price less than $0.05 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 when the price reservation request is submitted:
- name and trading symbol;
- anticipated insider participation;
- confirmation that there is no undisclosed material information;
- intended use of proceeds;
- structure of the financing; and
- any other information that may be relevant.
Listed Issuers are also required to give advance five (5) day public notice of an intention to complete a private placement. The Amendments also clarify that the price protection will expire if the financing is not closed within forty-five (45) days unless securityholder or CSE approval is required or the CSE has consented to an extension.
Acquisitions
Under the Amendments, if a Listed Issuer is requesting confidential price protection with respect to an acquisition, they must provide the same information as required when submitting a price reservation request in connection with a private placement, as listed above. As with private placements, Listed Issuers are also now required to give advance five (5) day public notice of an intention to complete an acquisition. If the CSE does not object within the five (5) day window, the Listed Issuer may close the acquisition.
Security Based Compensation Arrangements
The Amendments have introduced securityholder approval requirements, additional filings, posting and reporting requirements to bring security based compensation arrangement requirements more in line with other Canadian stock exchanges. More specifically, the Amendments to CSE Policy 6 now require that Listed Issuers obtain approval every three (3) years for “evergreen” or “rolling” plans.
Conclusion
While the Amendments have made sweeping changes to the Policies, they have also introduced additional clarity, which should prove useful to management of listed issuers.
Importantly, all issuers listed on the CSE must be compliant with the amended policies as of April 3, 2023. If you are involved with a CSE listed company and have questions concerning the impact or interpretation of the amendments please contact Keith Inman at [email protected] or by phone at 250-869-1195.
