On April 3, 2023, significant amendments (the “Amendments”) to the policies of the Canadian Securities Exchange (the “CSE”) came into force. The CSE has amended each of its ten policies – some of the Amendments are material and comprehensive, while others are consequential changes made for housekeeping purposes.
We are releasing a series of blog posts which summarize the material Amendments implemented by the CSE. In this third post, we will focus on Amendments related to the addition of a new senior tier for “non-venture” issuers (the “NV Issuers”). Our next post will focus on Amendments related to the listing of special purpose acquisition corporations. Readers are also encouraged to review our recent posts on the qualifications for listing of new issuers on the CSE and the distribution of securities. Those posts are available here and here.
NV Issuers
The CSE has launched a new senior listing tier for larger, more senior issuers which are referred to as “non-venture” issuers (“NV Issuers”). The Amendments provide for initial listing requirements for NV Issuers, as well as enhanced disclosure and corporate governance requirements.
Initial Listing Requirements for NV Issuers
The Amendments introduce 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 may, in its sole discretion, designate an issuer as an NV Issuer if: (i) the issuer is sufficiently advanced in capitalization or operations such that it is near the thresholds of at least two of the four standards listed above; or (ii) the CSE determines that it would be in the public interest to designate the issuer as an NV Issuer.
In addition, NV Issuers are 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.
An NV Issuer may not sell securities pursuant to an initial public offering for less than $2 per share or unit.
In terms of continued listing requirements, NV Issuers must meet certain criteria on an annual basis including having a public distribution of 500,000 shares with a public float value of $2,000,000 and having net income from continuing operations of $100,000 or a market value of listed securities of at least $3,000,000. In determining whether these standards have been met, the CSE may exercise discretion in considering economic conditions, generally and those affecting the industry of the NV Issuer.
Designation as an NV Issuer
The CSE will review audited annual financial statements submitted by an issuer seeking to list on the CSE to determine whether or not such issuer qualifies as an NV Issuer. In addition, it is expected that, starting in May 2023, the CSE will begin reviewing the audited financial statements of its listed issuers to determine whether or not they qualify as NV Issuers. If an issuer is designated as an NV Issuer, it will need to comply with all applicable requirements for NV Issuers. Going forward, all issuers will be reviewed on annual basis following the filing of audited annual financial statements.
Issuers also have the ability to request that the CSE review available financial information and apply, or remove, the NV Issuer designation as required.
Disclosure Requirements
NV Issuers will be subject to enhanced disclosure requirements that are generally consistent with securities laws and regulations governing comparable senior tier issuers.
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, NV Issuers will be subject to stricter disclosure requirements and shorter filing deadlines than other “venture issuers”, as described below.
An NV Issuer will be required to prepare and file an annual information form within 90 days of its year end. This disclosure requirement will bring NV Issuers in line with the disclosure requirements of non-venture issuers under applicable Canadian securities legislation.
The Amendments introduce earlier filing deadlines for both annual and interim financial statements for NV Issuers. NV Issuers will have 90 days to file annual financial statements and 45 days to file quarterly financial statements. These tightened deadlines will bring NV Issuers in line with the deadlines required for non-venture issuers under applicable Canadian securities legislation.
An NV Issuer must post a quarterly listing statement no later than 45 days from the last day of the relevant quarter.
Existing CSE policies also require disclosure regarding certain “significant transactions” (i.e., dissemination of a news release and filing of a Notice of Proposed Transaction). A “significant transaction” means any corporate transaction not involving equity securities that constitutes material information concerning the Issuer, including, among other things, transactions or a series of transactions with a related person with an aggregate value greater than (i) $100,000; or (ii) 25% of an NV Issuer’s market capitalization. NV Issuer’s will need to ensure they adequately disclose any such transactions in a timely manner.
NV issuers are not required to post a monthly progress reports.
Governance Requirements
NV Issuers will also be subject to enhanced governance requirements that are generally consistent with securities laws and regulations governing comparable senior tier issuers.
Each director of an NV Issuer must be individually elected by a majority of the votes cast with respect to their election, other than at contested meetings. An NV Issuer must also adopt a majority voting policy (an “MV Policy”), unless it otherwise satisfies the majority voting requirement in a manner acceptable to the CSE. An MV Policy must provide that: (i) any director must immediately tender his or her resignation to if he or she is not elected by at least a majority of the votes cast with respect to the election; (ii) the board of directors of the issuer shall determine whether or not to accept the resignation within 90 days after the date of the relevant meeting and the board of directors of the issuer shall accept the resignation absent exceptional circumstances; (iii) the resignation will be effective when accepted by the board of directors of the issuer; (iv) a director who tenders a resignation pursuant to the MV Policy will not participate in any meeting of the board of directors of the issuer; and (v) the NV Issuer shall promptly issue a news release with the board of directors’ decision. If the board of directors of the issuer determines not to accept a resignation, the news release must fully state the reasons for that decision.
Shareholder Approval Requirements
The shareholder approval requirements of NV Issuers are slightly different than those of non-NV Issuers.
Shareholders must approve a securities offering by an NV Issuer if: (i) the number of securities issuable in the offering (calculated on a fully diluted basis) is more than 25% of the total number of securities or votes outstanding (calculated on a non-diluted basis) for an NV Issuer; or (ii) the number of securities issuable to related persons of an NV Issuer in the offering, when added to the number of securities issued to such related persons of the NV Issuer in private placements or acquisitions in the preceding twelve 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), regardless of the price of the offering.
Shareholders must also approve an acquisition by an NV Issuer if: (i) 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 issuable (calculated on a fully diluted basis) are more than 5% of the total number of securities or votes of the NV Issuer outstanding (calculated on a non-diluted basis); or (ii) for NV Issuers that are not investment funds, the total number of securities issuable, calculated on a fully diluted basis is more than 25% of the total number of securities or votes outstanding (calculated on a non-diluted basis).
Stay tuned for our final blog post regarding the Amendments. Please contact us if you would like further information.
DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.