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Sept. 2013

September 2013
From the Colorado Bar Association
Business Law Section

Ed Naylor, Editor
In this issue...

New Web Resource Available for Colorado Business Law Practitioners

CBA-CLE launched a new website last spring with some great new features including improved content classification, search and navigation, and the addition of the “CLE Dashboard” where you can access all your CLE content in one convenient place. The entire library can be accessed using your PC, tablet, or mobile phone. There are almost 300 active accredited Business Law programs available on the Business Law section of the website. Additionally, the new website is designed to help lawyers find CLE content when they need it instead of if they need it. So, if you have a client with a legal issue, this new website resource will allow you to find information pertaining to the area of law. Click here to check it out.

Topics covered include Choice of Entity, Corporate Law, Financing, Franchises, Lender Liability, Mergers & Acquisitions, Private Equity, Non-profits, Securities, Start-Up Companies, UCC and many more.

If you need help, click here to visit the Support Center.

Expanded Use of Rule 144 for Securities of Canadian Issuers

©Victoria B. Bantz, Esq., Burns Figa & Will, P.C.

On September 6, 2013, the Securities and Exchange Commission (the “SEC”) issued a no-action letter providing that Rule 144 of the Securities Act of 1933 (the “Securities Act”) is available to certain securities of Canadian issuers that were once considered “shell” companies under Rule 144(i) and Rule 405 of the Securities Act, thereby giving certain securityholders a safe harbor exemption from registration on the resale of their securities in the United States.

Many U.S. persons holding securities of Canadian companies acquire these securities in private placements and as a result, hold “restricted securities” under Rule 144(a)(3). Holders of restricted securities may resell their securities pursuant to the requirements of Rule 144(b), unless of course, the issuer of the securities is or at one time was a shell company (no or nominal operations and either no or nominal assets or assets consisting mainly of cash or its equivalent).

Under Rule 144(i), if an issuer was ever once considered a “shell” company, the exemption for resale under Rule 144 is unavailable unless the issuer:

  • Is no longer a shell company;
  • Is subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”);
  • Has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
  • Has filed current “Form 10 information” with the SEC reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i).

If the above requirements are met, then those securities may be sold after one year has elapsed from the date the issuer filed “Form 10 information” with the SEC.

The term “Form 10 information” means the information that is required by Form 10 or Form 20-F, as applicable to the issuer of the securities, to register under the Exchange Act each class of securities being sold under this rule. This information requirement is similar to the information provided in an Annual Information Form.

The Good News

Many Canadian companies were and are originally formed in Canada as Capital Pool Companies (“CPC”) under the CPC program of the TSX Venture Exchange or Special Purpose Acquisition Corporations (“SPAC”) under the SPAC program of the Toronto Stock Exchange. CPCs and SPACs are akin to special purpose acquisition companies in the United States and by virtue of being a CPC or SPAC, meet the definition of a shell company, thereby making Rule 144 unavailable unless all of the requirements of Rule 144(i) are met. Now under this no-action letter, Rule 144 is available for securities of issuers meeting the following requirements:

  • The issuer is organized under the laws of Canada;
  • Before becoming a public company in Canada, the issuer was a “Capital Pool Company” or Special Purpose Acquisition Corporation;
  • The issuer has ceased to fit under the definition of a shell company by completing a “qualifying transaction” under the CPC or SPAC rules and has never again become a shell company;
  • The issuer is a “reporting company” under Canadian provincial law and is required to file reports on the System for Electronic Document Analysis and Retrieval (“SEDAR”) (the Canadian equivalent of EDGAR);
  • The issuer has filed on SEDAR all required reports within the last 12 months, or for such shorter time as required;
  • The issuer has filed an Annual Information Form (“AIF”) on SEDAR within the previous 16 months; and
  • The issuer has filed on SEDAR at least one year prior to the action taken under Rule 144 an AIF, audited annual financial statements, management discussion and analysis, and management information circular/proxy statement which show that the issuer does not meet the definition of a shell company.

It is not clear from the no-action letter request whether the securities of a company that has been formed as a CPC or SPAC under the provincial laws rather than the Canadian federal law will have Rule 144 available, but logically, any provincial jurisdiction which allows CPCs or SPACs should qualify.

The Bad News

There are some limits to the reach of the no-action letter allowing the use of Rule 144 by securityholders of Canadian companies that were once shell companies:

  • TSX Venture listed companies. Issuers listed on the TSX Venture Exchange are not required to file Annual Information Forms and many do not do so voluntarily because of time and expense. Those companies may need to review the geographic makeup of their shareholder base and consider voluntary filing of AIFs.
  • Subsequently meeting the definition of a shell company. Rule 144 will not be available for the securities of any issuer that goes through a qualifying transaction under the CPC or SPAC rules in Canada and then subsequently fits the definition of a shell company.
  • Former shell companies not formed as CPCs or SPACs. Securityholders of any issuer that met the definition of a shell company but was not initially formed as a CPC or SPAC will also not be able to use Rule 144.
  • Reporting for at least one year. Securityholders of any issuer that has not posted each of its audited financial statements, management discussion and analysis, proxy information and AIF at least 12 months from the date of action under Rule 144 will be ineligible to use Rule 144.

Lastly, as a general rule, SEC no-action letters can only be relied upon by the requester and the specific facts and circumstances set forth in the request. However, the request to make Rule 144(i) available to certain Canadian companies was written in broad language and with a specific enough set of facts such that issuers following those requirements should be able to rely upon it. This should make our jobs as legal counsel providing Rule 144 opinions to these issuers slightly easier.

Business Law Section Activities
Financial Institutions Subsection

The CBA Financial Institutions subsection will not hold its monthly CLE Lunch and Learn on Wednesday, Oct. 16, because of the Colorado Business Law Institute (BLI) at the Grand Hyatt Denver, Oct. 16–17. We look forward to seeing you at the BLI event in October and at our next lunch and learn on Wednesday, Nov. 20.

Mergers and Acquisitions Subsection

The CBA M&A subsection will not hold its monthly CLE breakfast program in October because of the Colorado Business Law Institute (BLI) at the Grand Hyatt Denver, Oct. 16–17. We look forward to seeing you at the BLI event in October and at our next breakfast program on Tuesday, Nov. 12.

Securities Subsection

General Solicitation in Action and Novel Ways to Raise Capital Under the JOBS Act—Monday, Nov. 11

Live in Denver at Noon at the Brown Palace Hotel, 321 17th Street, Denver, CO

This panel will address two aspects of the JOBS (“Jumpstart Our Business Startup”) Act: General solicitation in action and innovative crowdfunding potentials.

Title II of the JOBS Act allows companies to generally offer their securities to the public—including through advertising—while still maintaining the benefits of a non-public offering, so long as the securities sales are made solely to accredited investors. Jim Carroll, a partner at Faegre Baker Daniels who practices in this area, will report on how Title II is working so far. Jim will address questions such as:

  • How are issuers taking advantage of general solicitation?
  • How should issuers plan ahead to use general solicitation?
  • What lessons have been learned so far?

Title III of the JOBS Act authorizes the “crowdfunding” of securities, defined as the online sale of small amounts of unregistered securities to all adults, accredited or not. Andrew Schwartz, an Associate Professor of Law at the University of Colorado Law School who recently published on the subject, will address how Title III may play out once the SEC issues final rules, and how issuers can use crowdfunding in ways that they may not realize, including issue debt.

To RSVP, please email Andrea Mueller Arias at

CBA-CLE Information

Unless otherwise noted, all programs are at the CBA-CLE offices, 1900 Grant St., Ste. 300, Denver

Transactions—The Art and Skill of Lawyering—Tuesday, Oct. 1

Learn in a short interview session what it took four experienced business lawyers decades to acquire. We will find out how they confronted the challenges of putting together sophisticated transactions in complex environments, at times with challenging clients. Our panel will share their experiences and how their perspectives changed over decades of representing business clients. 2 general CLE credits available.

Learn more and register online, or call 303-860-0608 (toll free 888-860-2531).

2013 Business Law Institute—Oct. 16–17

Live at the Grand Hyatt Pinnacle Club, 1750 Welton Street, 38th Floor, Denver

This is an exceptional program if you are in private practice or in-house counsel—and if you’re new to business law or have many years of experience. This blend of dynamic topics and talented professionals can provide important lessons that directly affect your business practice. Plenary sessions include Colorado Business Case Law and Legislative Update; Exploring Current Corporate Transactional Issues Through Recent Delaware Case Law; What Business Lawyers Do that Litigators Love; and Legal Ethics for Corporate and Transactional Attorneys. 12 general CLE credits available, including 1.9 ethics.

Learn more and register online, or call 303-860-0608 (toll free 888-860-2531).

Recent Homestudies

CBA-CLE Featured Publications

CBA-CLE carries an extensive catalog of business law ABA publications—and CBA members always get a 15% discount on the ABA regular price! Check out just some of the books available:

  • Advising the Small Business: Forms and Advice for the Legal Practitioner, 2nd Ed.
  • Business Bankruptcy Essentials, 1st Ed.
  • Business Torts Litigation, 2nd Ed.
  • Contract Drafting: Powerful Prose in Transactional Practice, 1st Ed.
  • Intellectual Property Deskbook for the Business Lawyer—A Transactions-based Guide to Intellectual Property, 3rd Ed.
  • Model Jury Instructions—Business Torts Litigation, 4th Ed.
  • A Manual of Style for Contract Drafting, 3rd Ed.

Check out the CBA-CLE library!

Contributions for future newsletters are welcome —
Contact Ed Naylor at or 303-292-2900

This newsletter is for information only and does not provide legal advice.

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