Registration Rights Agreement Canada
In most Canadian PIPE transactions, investors negotiate the right to appoint at least one person to the board of directors. This right of appointment usually ends when the investor`s assets fall below a certain threshold, which varies depending on the initial scope of the offer. We often find that the rights of the board of directors are eliminated if the investor owns less than 10% of the converted shares. Some investors also trade prudential compliance rights, but board compliance rights can raise selective disclosure issues in Canada and are generally rejected. Recently, many PIPE deals in the U.S. have been closed without the investor negotiating for board seats – investors seem to focus on discounts rather than board seats. In the United States, registration fees are an important and common feature of a PIPE transaction. ==References=====External links===Investors almost always receive a combination of application registration, piggyback and/or resale fees that allow them to freely sell the securities they have purchased. In Canada, registration fees are not charged as often. If an investor owns less than 20% of the issuer`s shares, they can generally freely resell their shares after a four-month legal holding period in Canada. Investors who own 20% or more of the issuer are considered “controllers” and are subject to other resale restrictions. Despite the fact that many Canadian investors do not necessarily need registration fees to resell the issuer`s securities, some trade such rights because it may be difficult to sell large blocks of shares without a prospectus due to the lack of liquidity in the share. A PIPE transaction offers a number of advantages.
Compared to a public offering, a PIPE transaction can generally be completed without the need to file a prospectus (or U.S. registration statement), can generally be completed more quickly with little or no regulatory review, much less public disclosure is required, and at a lower cost. In addition, issuers may establish new relationships or strengthen existing ones that may enhance investor confidence in the issuer. As part of a PIPE transaction, investors, typically large qualified investors, acquire shares or equity-linked securities such as convertible bonds or preferred shares, often at a discount to the market price, directly from a publicly traded company on the basis of a private placement. The investor is generally able to freely resell the securities either at the end of the legal holding period (usually four months in Canada) or by means of a prospectus (or a U.S. registration statement) when trading registration fees. As described below, registration fees (or “qualifying rights” in Canada) are sometimes provided in Canadian transactions, but are an important and common feature of a PIPE transaction in the United States. In order to avoid dilution in future offers, investors in Canadian transactions will often negotiate pre-emptive rights or “participation rights”.
These rights allow an investor to participate in future offers to hold his stake in the capital. In the United States, most post-COVID transactions are concluded without preventive rights. U.S. investors are also more likely to trade related rights such as sale/call rights or other anti-dilution rights. The Toronto Stock Exchange prohibits flat-rate anti-dilution fees that allow a convertible bondholder to participate in a future offer price, which may limit the rights that are being negotiated on Canadian PIPE transactions. The terms of each PIPE transaction vary depending on the bargaining power and the main factors for the issuer and the investor. Target companies may be able to negotiate closure or transfer restrictions, including longer holding periods than legal restrictions. However, the majority of rights are negotiated in favour of the investor. Below are some of the fees that are often charged to PIPE investors.
PIPE transactions are private placements and are subject to applicable Canadian or U.S. securities laws. The issuance of securities in a PIPE transaction is generally made to a qualified investor in transactions that are exempt from prospectus or registration requirements under Canadian or U.S. securities laws. 1 According to a study by Preqin Ltd. published in December 2019. When conducting a PIPE transaction in Canada, issuers and investors should also be aware of the rules of each exchange where the issuer`s shares are traded. In Canada or the United States, exchange approval is generally required for the issuance of publicly traded shares or securities that can be converted into publicly traded shares. Potential disadvantages for issuers include offers with a larger discount in the market, dilution effects of the offer and, if convertible bonds are issued, there may be a charge or overhang on the stock. .
- On March 25, 2022
0 Comments