The TSX Venture Exchange (TSXV) has announced updates to its policy on escrow and resale restrictions. The immediately effective updates amended and renamed Policy 5.4 – Capital Structure, Escrow and Resale Restrictions (New Policy 5.4), which applies to new listings on the TSXV (New Listings), which include initial public offerings (IPOs), reverse takeovers (RTOs), changes of business (COBs) and qualifying transactions (QTs).
Significant updates include:
New Policy 5.4 illustrates different ways for an issuer to demonstrate acceptable capital structure to the TSXV when seeking approval for a New Listing:
Each of the above methods includes specific additional criteria, adjustments or exclusions as set out under New Policy 5.4.
If an issuer is unable to demonstrate an acceptable capital structure in one of the ways set out under New Policy 5.4, the issuer is also able to request a pre-filing conference to discuss alternatives with the TSXV.
A significant update in New Policy 5.4 is the elimination of the bifurcated escrow release schedule for securities held by principals of the issuer based on underlying consideration received for the securities.
Previously, the TSXV imposed a delayed release schedule for Surplus Securities—generally, securities issued with a deemed value that does not reasonably correspond to the value of the asset, property, business, indebtedness, or service for which they were issued—in connection with New Listings that are not IPOs. In contrast, Value Securities—generally, securities issued pursuant to a transaction with a deemed value that reasonably corresponds to the value of the asset, property, business, indebtedness or service for which they were issued—followed the NP 46-201 release schedule. New Listings that were IPOs also followed the NP 46-201 escrow requirements.
Under the New Policy 5.4, unless an exemption applies, all principals' securities will be escrowed and released consistent with the escrow release schedules set out in NP 46-201, being: (1) eighteen months for established issuers (or TSXV Tier 1 issuers), or (2) three years for emerging issuers (or TSXV Tier 2 issuers):
| Tier 1 Issuers (Established Issuers) | Tier 2 Issuers (Emerging Issuers) | ||
| % | Release Date | % | Release Date |
| 25 | On the Bulletin Date | 10 | On the Bulletin Date |
| 25 | 6 months following the Bulletin Date | 15 | 6 months following the Bulletin Date |
| 25 | 12 months following the Bulletin Date | 15 | 12 months following the Bulletin Date |
| 25 | 18 months following the Bulletin Date | 15 | 18 months following the Bulletin Date |
| 15 | 24 months following the Bulletin Date | ||
| 15 | 30 months following the Bulletin Date | ||
| 15 | 36 months following the Bulletin Date | ||
The elimination of the Surplus Security concept does not change the overall duration of the escrow release but removes the prior differences in release percentages throughout the term based on valuation of the securities.
Principals' securities include securities outstanding upon completion of a New Listing transaction, those that will be issued subsequently in connection with a New Listing transaction, and securities transferred from a principal within six months before a listing application.
New Policy 5.4 also simplifies the hold period restrictions for seed shares (securities issued before a New Listing) held by non-principals.
Unless an exemption applies, securities will be subject to SSRRs if they were issued or are convertible at:
Securities subject to the SSRRs will have a hold period of one year, with 20 percent being released every three months starting from the Bulletin Date.
The issuer is required to either legend the certificates representing securities subject to SSRRs or require holders of securities subject to SSRRs to enter into a pooling agreement with the issuer's transfer agent which contains such restrictions.
The Canadian Securities Exchange (CSE) requires an issuer's capital structure to be acceptable to the CSE under CSE Policy 2–Qualifications for Listing (CSE Policy 2) as a prerequisite to listing its securities on the CSE but does not provide the same illustrative categories as under TSXV New Policy 5.4.
The CSE generally requires securities issued to Related Persons (an equivalent concept to principals under TSXV policies) to be subject to an escrow agreement under NP 46-201. Generally, the same release schedules under NP 46-201 would apply as for securities held by principals under the TSXV.
The CSE prescribes certain requirements for 'builder shares', which are generally securities issued or convertible at less than C$0.02 per security, or to related persons in certain circumstances involving valuation concerns. This is similar to the concept of seed shares under the TSXV, but is a narrower concept tied to valuation rather than valuation and time of issuance.
Unlike the TSXV's SSRRs, the CSE does not prescribe equivalent resale restrictions for builder shares. CSE rules around builder shares relate to permitted capital structure. CSE Policy 2 restricts the ratio of builder shares permitted in the capital structure of an issuer undergoing a new listing or following a fundamental change.
Builder shares under the CSE may be subject to escrow in a narrow issuer category, for mineral exploration companies approved for listing with reduced minimum amounts for qualifying expenditures and a first phase budget. In this scenario, the initial release from escrow is subject to CSE approval but must be after public announcement of the results of the first phase exploration program.
TSXV New Policy 5.4 provides issuers with greater clarity for demonstrating an acceptable capital structure for a New Listing and streamlines the escrow release schedule for principals' securities and the resale restrictions for seed shares held by non-principals.
Bennett Jones is available to assist clients with any questions related to New Policy 5.4 and listing on the TSXV or the CSE.