Tuesday, March 22, 2005

Capital Pool Companies

Over the past week I was supposed to read two policy documents of Toronto Venture Exchange, Policy 2.4 and 4.1, for my summer internship at an Investment Banking Company.

Policy 2.4 talks about the Capital Pool Companiy and the procedures required to set one up. What is fails to mention is the purpose. So I had to look it up elsewhere. Here's what I found:

This CPC program, authorized in Qu├ębec and Ontario since the end of 2002, introduces investors, with financial market experience, to entrepreneurs whose development and growth stage companies require capital and management expertise.
The program enables seasoned directors and officers to form a CPC, with no assets other than cash and no commercial operation, to list on the TSX Venture Exchange and proceed with an initial public offering. The CPC will use these funds to seek out an investment opportunity.

:: Terms and Conditions (Summary) ::

1. An initial investment of $100,000.00 to $500,000.00 by directors and officers at a price generally varying between 5 cents and 20 cents per share.

2. Initial public offering by way of a prospectus approved by Securities Commissions at twice the initial share price to a minimum of 200 shareholders for total proceeds not exceeding $2,000,000.00 including the initial investment.

3. The CPC is listed on the Exchange for a maximum of 18 months.

4. During this 18 month period the only expenditures allowed are for the identification and evaluation of opportunities to complete a qualifying transaction.

5. he qualifying transaction is the acquisition, by the issuance of treasury shares, of a business, either an active company or assets which would result in the CPC meeting the regular listing requirements on the TSX Exchange.

At the meeting with my employer he told me that CPC was the most popular way of raising capital for a private placement in Canada, Ontario in particular. After I asked why, he said that it is the easiest to set up and proved to be quite effective.