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Dec 17, 2021

New Tier, New Horizons for the Canadian Securities Exchange

The CSE Proposes a New Senior Tier for Larger Issuers and a New CSE SPAC Program

By Russell J. Sanders, Jeffrey K. Merk and Brodie Kirsh

The Canadian Securities Exchange (“CSE”) describes itself as the “Exchange for Entrepreneurs,” and in this role has carved out a great niche for itself in the marketplace by welcoming early-stage companies, including a host of cannabis and psychedelics companies. Today, the CSE has over 700 listed issuers, many of which are early-stage, emerging companies.

In order to continue to evolve with developments in the Canadian capital markets, particularly with many more established companies choosing the CSE as their preferred Canadian stock exchange, the CSE has initiated a proposal (the "Proposal") to create a new senior tier (the “Senior Tier”) for larger and more advanced issuers which commonly list their securities on the Toronto Stock Exchange or NEO Exchange Inc. As we have discussed in prior articles, special purpose acquisition corporations ("SPAC") and similar “blind pool” listed companies have been a feature of the Canadian capital markets landscape for an extended period of time. Prior to the Proposal, the CSE did not have a SPAC program so, not surprisingly, one of the other focal points of the Proposal is the creation of a CSE SPAC program.

Although this publication focuses on the potential creation of the Senior Tier and the CSE SPAC program, the Proposal contains additional amendments to CSE policies that, if enacted, will be the subject matter of additional publications by the Capital Markets Group at Aird & Berlis.

How does an issuer qualify for the Senior Tier?

In order to qualify for a listing on the Senior Tier, an issuer must have: (i) a public float of at least one million freely tradable securities; and (ii) at least 300 public holders each holding a board lot. An issuer must also meet at least one of the following tests:

  1. Equity standard
    • Shareholders' equity of at least C$5 million; and
    • Expected market value of public float of at least C$10 million
  2. Net income standard
    • Net income of at least C$400,000 from continuing operations in the last fiscal year or in two of the last three fiscal years;
    • Shareholders' equity of at least C$2.5 million; and
    • Expected market value of public float of at least C$5 million
  3. Market value standard
    • Market value of all securities must be at least C$50 million;
    • Shareholders' equity of at least C$2.5 million (including the value of any offering concurrent with listing); and
    • Expected market value of public float of at least C$10 million
  4. Assets and revenue standard standard
    • Total assets and total revenues of at least C$50 million each in the last fiscal year or in two of the last three fiscal years; and
    • Expected market value of public float of at least C$5 million

The new Senior Tier will introduce more robust qualifications and requirements, and financial reporting obligations that apply to "non-venture issuers" under applicable securities laws, including:

  • a Quarterly Listing Statement which must be posted concurrently with an issuer's interim financial statements no later than 45 days from the last day of the relevant quarter;
  • an annual information form which must be posted concurrently with an issuer's annual financial statements no later than 90 days from the issuer's financial year end;
  • each issuer must adopt a majority voting policy which provides that a director must tender their resignation if they fail to secure at least a majority of the votes cast, unless the issuer is majority controlled, in which case they will be exempt from having such a policy; and
  • security holders must approve a proposed securities offering if the number of securities issuable in a prospectus offering or private placement (calculated on a fully-diluted basis) is more than 25% of the total number of securities or votes outstanding.

By virtue of listing on the CSE, issuers were historically designated as "venture issuers." For more established issuers that could have qualified on other Canadian stock exchanges without being designated as a "venture issuer," this prevented them from enjoying the same benefits available to comparable issuers listed on other “senior” Canadian stock exchanges (such as the Toronto Stock Exchange and the NEO Exchange). For example, this prevented eligibility for margin relief, which can reduce the cost of trading for individual investors and dealers in that issuer’s securities. These issuers were also often unable to obtain exposure to certain institutions that are unable to invest in “venture issuers,” which could have the effect of limiting liquidity and access to capital. For applicable issuers, it can be expected that qualification on the new Senior Tier will result in a reversal of these limitations.

Introduction of the CSE SPAC program

The Proposal includes the introduction of a new SPAC program with features that bear a strong resemblance to the programs established by other Canadian stock exchanges. Under the CSE SPAC program:

  • a SPAC must raise a minimum of C$30 million through the sale of shares or units by way of an initial public offering ("IPO"), with each unit consisting of no more than one share and no more than two warrants;
  • the minimum IPO price is C$2.00 per share or unit;
  • the founding security holders' equity ownership in the SPAC is generally expected to be an aggregate equity interest of: (i) not less than 10% of the SPAC immediately following closing of the IPO; and (ii) not more than 20% of the SPAC immediately following closing of the IPO, taking into account the price at which the founding securities are purchased and the resulting economic dilution;
  • 100% of the gross proceeds raised in the IPO and a minimum of 50% of the underwriter's commission must be placed into escrow;
  • listed securities must have a redemption feature that will permit holders, in the event that a Qualifying Acquisition1 is completed within 36 months, to elect that each share held be redeemed for an amount at least equal to the aggregate amount remaining in the escrow account (net of applicable taxes and expenses) divided by the number of shares outstanding, excluding SPAC Builder Shares2;
  • the businesses or assets forming the Qualifying Acquisition must have an aggregate fair market value equal to at least 80% of the aggregate amount then on deposit in the escrow account, excluding deferred underwriting commissions held in escrow and any taxes payable on the income earned on the escrowed funds;
  • the Qualifying Acquisition must be approved by a majority of directors unrelated to the Qualifying Acquisition and a majority of the votes cast by shareholders of the SPAC unless 100% of the gross proceeds of the IPO (and any additional funds raised pursuant to a rights offering) have been placed into escrow;
  • a prospectus must be filed containing disclosure regarding the SPAC and its proposed Qualifying Acquisition; if a Qualifying Acquisition is subject to shareholder approval, the SPAC must obtain a receipt for its final prospectus from the applicable securities regulatory authorities prior to mailing the information circular;
  • if a SPAC fails to complete a Qualifying Acquisition within the permitted time frame, it must complete a liquidation distribution within 30 calendar days pursuant to which the escrowed funds must be distributed to the holders of shares other than SPAC Builder Shares on a pro rata basis; and
  • a SPAC can be incorporated outside of Canada; however the CSE should first be consulted.

If these two aspects of the Proposal are ultimately included in the final version of the updated CSE Policies, we expect that both the Senior Tier and the CSE SPAC Program will lead to broader selection of Canadian stock exchanges for more established issuers to list on, thereby fostering more competition amongst Canadian stock exchanges.

The Ontario Securities Commission and British Columbia Securities Commission have initiated a 60-day comment period on the Proposal.

The Capital Markets Group at Aird & Berlis will continue to monitor the Proposal. We are ready to assist with any matter or question related to securities legislation, including the Proposal. If you require any assistance with the foregoing, please contact us.


1 "Qualifying Acquisition" means, with respect to a SPAC, the acquisition of assets or one or more businesses by the corporation which results in the corporation meeting the CSE's original Listing requirements set out in Policy 2.

2 "SPAC Builder Shares" means shares issued to the founding holders, excluding those purchased under the IPO or on the same or similar terms as the IPO at essentially the same time, on the secondary market, or by way of a rights offering of a listed SPAC.

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