This blog was written with the assistance of Robert Johnstone, summer law student.
Given the growth of Alberta’s technology and clean-tech industries, many Alberta-based companies are looking to raise capital from investors in the U.S.
While cross-border capital raises can offer unique opportunities, provincial and U.S. securities laws apply to securities distributions outside Alberta. Alberta Securities Commission (ASC) Rule 72-501 Distributions to Purchasers Outside Alberta (Rule 72-501) provides a prospectus exemption for reporting and non-reporting issuers making foreign distributions.
This discussion applies to raising capital in the U.S. by an Alberta-based business where a registration statement will not be filed with the U.S. Securities and Exchange Commission (SEC), similar to exempt distributions made pursuant to a prospectus exemption in Canada.
Distributions to Purchasers Outside Alberta
Most of the prospectus exemptions in Rule 72-501 remove the Alberta prospectus requirements when a securities offering materially complies with the disclosure requirements of the foreign jurisdiction, or if the securities offering is exempt from such requirements in the foreign jurisdiction.
The ASC will generally consider an issuer to have materially complied with the disclosure requirements of a foreign jurisdiction if it has taken reasonable steps to ensure the distribution is made in accordance with the securities laws of the foreign jurisdiction.
Companies looking to raise capital in the U.S. must obtain advice from U.S. counsel to ensure their distribution complies with local laws. Subscription agreements or investment agreements used in the offering typically contain both U.S. and Canadian legal requirements.
U.S. counsel will also advise on whether your company must complete any filings with the SEC or state governmental authorities.
Hold Period
National Instrument 45-102 – Resale Restrictions states that securities issued under a prospectus exemption provided in Rule 72-501 are subject to a four-month hold period and must carry a prescribed legend on the certificate representing the securities.
Alberta companies raising capital in the U.S. should confirm with U.S. counsel whether any hold period, resale restrictions or legend requirements are required under U.S. securities law.
Report on Exempt Distribution
Alberta companies that rely on the prospectus exemptions in Rule 72-501 must file a report of exempt distribution using Form 45-106F1 – Report of Exempt Distribution. This report must be filed within a prescribed timeframe set out in National Instrument 45-106 – Prospectus Exemptions (NI 45-106) with the applicable securities commissions.
U.S. Filings
In addition, Alberta companies should confirm with U.S. counsel whether any filings are required from the SEC or with any state regulators. Typically, U.S. counsel will advise Alberta companies to complete and file a “bad actor” questionnaire and a Form D.
The purpose of the bad actor questionnaire is to determine whether any person responsible for the offering has been disqualified under Rule 506(d) of the Securities Act (US) from relying on an exemption under U.S. Securities law.
Form D is a disclosure document filed with the SEC by companies that complete a private placement of securities in the U.S. relying on a registration exemption under Regulation D. Form D requires the company to provide information about the private placement, including the value of the securities sold, whether brokers were used and the states where the securities were offered and sold.
Looking for Advice?
Alberta-based companies looking to raise capital in Canada and the United States should contact Mark Mielke at MLT Aikins. The MLT Aikins Corporate Finance & Securities team has wide-ranging experience advising clients in the clean energy and tech sectors across Western Canada. Contact us to learn how we can help.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.