On April 3, 2023, significant amendments (the "Amendments") to each of the Canadian Securities Exchange listing policies (the "CSE Policies") came into force. This bulletin highlights some of the noteworthy amendments relevant to CSE listed issuers (a "Listed Issuer") and issuers applying to list on the CSE, specifically:
- qualifications, requirements and financial reporting obligations that reflect requirements for non-venture issuers that would apply to CSE Listed Issuers designated by the CSE as "NV Issuers";
- requirements and provisions for listing SPACs; and
- additional corporate governance requirements for all CSE Listed Issuers, including security holder approvals, and specific requirements related to shareholder rights plans and security-based compensation plans.
CSE Policy 2
CSE Policy 2 – Qualifications for Listing ("CSE Policy 2") sets out the minimum requirements for listing on the Canadian Securities Exchange (the "CSE").
Eligibility Review
The Amendments introduced an eligibility review process whereby all issuers applying to list on the CSE concurrently with or immediately following the filing of a preliminary prospectus must first must submit a document with sufficient detail to determine that the eligibility requirements have been met, which may include a draft prospectus or, in the case of natural resource issuers, the relevant technical report. The eligibility review is subject to a fee, which will be applied towards the non-refundable portion of the listing fee.
"NV Issuers"
The CSE also launched a new senior listing tier for larger issuers, referred to as "NV Issuers" (Non-Venture Issuers), and provides specific listing criteria which NV Issuers must meet. In addition to the CSE's basic listing qualifications, NV Issuers must meet one of the following four standards:
- Equity Standard: (i) shareholders' equity of at least $5,000,000, and (ii) expected market value of public float of at least $10,000,000;
- Net Income Standard: (i) net income of at least $400,000 from continuing operations in the most recent fiscal year or in two of three of the most recent fiscal years, (ii) shareholders' equity of at least $2,500,000, and (iii) expected market value of public float of at least $5,000,000;
- Market Value Standard: (i) market value of all securities, including the class(es) to be listed, but excluding warrants and options, of at least $50,000,000; (ii) shareholders' equity of at least $2,500,000 including the value of any offering concurrent with listing; and (iii) expected market value of public float of at least $10,000,000; or
- Assets and Revenue Standard: (i) total assets and total revenues of at least $50,000,000 each in the most recent fiscal year or in two of three of the most recent fiscal years; and (ii) expected market value of public float of at least $5,000,000.
The CSE has discretion to designate a CSE listed issuer ("Listed Issuer") as an NV Issuer if the Listed Issuer is sufficiently advanced in capitalization or operations that it is near the thresholds of at least two of the four standards, or the CSE determines it would be in the public interest to do so.
NV Issuers are also required to have a minimum public float of at least 1,000,000 freely tradeable shares and at least 300 public holders, each holding at least a board lot (versus 150 public holders for non-NV Issuers).
Special Purpose Acquisition Corporations ("SPAC")
The Amendments introduced listing requirements for SPACs, which include the following:
- 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 at least $30,000,000;
- at least 150 public holders, each holding at least a board lot; and
- a minimum IPO price of $2 per share or unit.
The CSE may grant or deny a SPAC listing application, notwithstanding it meeting the listing requirements. In exercising its discretion, the CSE must be satisfied that public interest considerations are satisfied, and will also consider the experience and track record of the officers and directors of the SPAC, the nature and extent of officers' and directors' compensation and the founding shareholder's equity interest in the SPAC.
CSE Policy 4
CSE Policy 4, which has been renamed "Corporate Governance, Securityholder Approvals and Miscellaneous Provisions" (previously "Corporate Governance and Miscellaneous Provisions") ("CSE Policy 4"), sets out certain corporate governance matters for NV Issuers and requires a Listed Issuer to obtain securityholder approval for certain transactions.
Majority Voting Policy
NV Issuers are now subject to majority voting requirements. Pursuant to the Amendments, each director of an NV Issuer must be individually elected by a majority (at least 50% +1 vote) of the votes cast with respect to their election other than at contested meetings ("Majority Voting Requirement"). An NV Issuer must adopt a majority voting policy , unless it otherwise satisfies the Majority Voting Requirement in a manner acceptable to the CSE, for example, by applicable statutes, articles, by-laws or other similar instruments.
NV Issuers that are majority controlled are exempted from the Majority Voting Requirement.
Other Securityholder Approvals
Sale of Securities
The Amendments require securityholder approval for a proposed offering if the number of securities issuable in the offering (i) is more than 50% of the total number of outstanding securities and a new control person is created, or (ii) if the offering is more than 100% of the outstanding securities. Securityholders must also approve security issuances in the event the issuance price is lower than the current market price, less the maximum permitted discount, regardless of the number of shares to be issued. Further, if the Listed Issuer or the CSE determines that the issuance will materially affect control (as defined in Section 1.3(2) of CSE Policy 1 – Interpretation and General Provisions) of the Listed Issuer, securityholder approval would also be required.
For NV Issuers, securityholder approval must be obtained if the number of securities issuable in the offering is more than 25% of the NV Issuer's outstanding securities. NV Issuers must also obtain securityholder approval if the number of securities issuable to related persons in the offering, when added to the number of securities issued to such related person in private placements or acquisitions in the preceding 12 months is more than 10% of the total number of securities or votes outstanding, regardless of the price of the offering.
Notwithstanding the foregoing, securityholder approval of an offering may not be required if: (i) the Listed Issuer is in serious financial difficulty, (ii) the Listed Issuer has reached an agreement to complete the offering, (iii) there is no related person participating in the offering, and (iv) the Listed Issuer's independently comprised audit committee or the majority of its independent directors 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 5 days in advance of the offering.
Acquisitions and Dispositions
In addition, Listed Issuers must obtain securityholder approval for acquisitions if (i) the number of securities to be issued is more than 50% of the total number of the outstanding securities and is accompanied by a new control person or 100% of the total number of outstanding securities, or (ii) it would, as determined by the Listed Issuer or CSE, Materially Affect Control of the Listed Issuer.
NV Issuers must obtain securityholder approval for an acquisition if a related person of an NV Issuer or a group of related persons of an NV Issuer has a 10% or greater interest in the assets to be acquired and the total number of securities issued are more than 5% of the total number of securities or votes of the NV Issuer's outstanding securities. NV Issuers (other than investment funds) must also obtain security hold approval for an acquisition if the total number of securities issuable is more than 25% of the total number of securities or votes of the NV Issuer's outstanding securities.
Pursuant to the Amendments, securityholder approval is also required for a disposition of all or substantially all of the assets, business or undertaking of the Listed Issuer.
Other Transactions
Pursuant to the Amendments, NV Issuers and Listed Issuers must also obtain securityholder approval for the following:
- the adoption or amendments to security based compensation plans;
- the adoption or amendments to any shareholder rights plans;
- consolidations if the consolidation ratio is greater than 10 to 1, or when combined with any other consolidation in the previous 24 months that was not approved by shareholders, the consolidation ratio is greater than 10 to 1; and
- where securities offered by way of a rights offering are offered at a price greater than the maximum permitted discount to the market price. However, where a Listed Issuer's independently comprised audit committee, or the majority of its independent directors, have determined that the rights offering is in the best interests of the Listed Issuer and is reasonable in the circumstances, securityholder approval may not be required. Listed Issuer's relying on this exemption must file a news release stating it will not hold a securityholder vote and explain how it qualifies for the exemption.
In addition to any specific requirement for securityholder approval, the CSE will generally require securityholder approval if in the opinion of the CSE the transaction would materially affect control of the Listed Issuer.
CSE Policy 6
CSE Policy 6 – Distributions and Corporate Finance (previously "Distributions") ("CSE Policy 6") now requires advance public notice for acquisitions and private placements, and sets out required details for price reservation requests.
Private Placements
The Amendments introduced exceptions to the $0.05 minimum security price for private placements. Listed Issuers may now complete a private placement at a price less than $0.05 provided that (i) the price is not lower than the volume-weighted average price for the previous 20 trading days as determined by the CSE, (ii) the proceeds will be used for working capital or bona fide debt settlement, excluding accrued salaries to officers or directors of the Listed Issuer and payment for investor relations activities, and (iii) certain required information is provided to the CSE when submitting a price protection request (see Section 6.2(4) of CSE Policy 6).
Price protection will expire within 45 days if the financing has not closed, unless securityholder or CSE approval is required, or where the CSE has consented to an extension.
Pursuant to the Amendments, Listed Issuers must announce an intention to complete a private placement at least five business days prior to closing, and immediately post notice of the proposed private placement.
Acquisitions
If a Listed Issuer submits a request for price protection for an acquisition, it must provide the same information as required when submitting a price protection request in connection with a private placement.
Pursuant to the Amendments, Listed Issuers must announce an intention to complete an acquisition at least five business days prior to closing, and if the CSE does not object to the acquisition within such five-business day period, the Listed Issuer may proceed to close the acquisition.
Security Based Compensation Arrangements
Pursuant to the Amendments, Section 5 of CSE Policy 6 was renamed "Security Based Compensation Arrangements" (previously "Incentive Stock Options") and additional filing and reporting requirements in connection with security-based compensation plans were introduced, including a requirement that Listed Issuers obtain securityholder approval for an evergreen plan (also known as a rolling plan) in order to continue to grant awards within three years after institution and within every three years thereafter.
Conclusion
The Amendments have implemented significant changes for Listed Issuers and issuers considering listing on the CSE. The Amendments are comprehensive, with stricter disclosure and governance rules, and are consistent with requirements of other Canadian exchanges for venture issuers and non-venture issuers. It is anticipated that the Amendments will be beneficial to both issuers and investors as they provide Listed Issuers with greater flexibility while also protecting the interests of securityholders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
