Acerus Pharmaceuticals Corporation

Headnote

National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions -- application for partial revocation of failure-to-file cease trade order -- issuer cease traded due to failure to file with the Commission annual financial statements, related management's discussion and analysis and related certifications -- issuer has applied for a partial revocation of the cease trade order to permit trades of securities of the issuer in connection with a court-approved transaction under the Companies' Creditors Arrangement Act -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.

National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the Act) AND IN THE MATTER OF ACERUS PHARMACEUTICALS CORPORATION

ORDER (Section 144)

BACKGROUND

1. Acerus Pharmaceuticals Corporation (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the Ontario Securities Commission (the Principal Regulator) on April 6, 2023.

2. The Issuer has applied to the Principal Regulator pursuant to section 144 of the Securities Act (Ontario) for a partial revocation order of the FFCTO.

INTERPRETATION

3. Terms defined in National Instrument 14-101 Definitions or National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions have the same meaning if used in this order, unless otherwise defined.

REPRESENTATIONS

4. This decision is based on the following facts represented by the Issuer:

a. The Issuer was incorporated under the Business Corporations Act (Ontario) on July 15, 2009.

b. The Issuer is a reporting issuer in each of the provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland. The Issuer is not a reporting issuer in any other jurisdiction in Canada.

c. The Issuer's registered and head office is located at 7025 Langer Drive, Suite 205, Mississauga, Ontario.

d. The Issuer is a specialty pharmaceutical company focused on the commercialization and development of prescription products, with a primary focus in the field of men's health.

e. The authorized capital of the Issuer consists of an unlimited number of common shares (the Common Shares). As at the date hereof, there are approximately 7,707,738 Common Shares issued and outstanding. The Issuer also has approximately 559,635 options outstanding (the Options). The Issuer has no other outstanding securities (including debt securities).

f. The Common Shares were listed on the Toronto Stock Exchange (the TSX) under the symbol "ASP". The Common Shares were delisted from the TSX effective as of the close of markets on March 3, 2023 as a result of the failure of the Issuer to meet the continued listing requirements of the TSX. The Common Shares are also quoted for trading on the OTC Pink in the United States (the OTC Pink) under the symbol "ASPCF". The Issuer intends to delist the Common Shares from the OTC Pink following completion of the Transaction (as defined herein).

g. The FFCTO was issued as a result of the Issuer's failure to file the following continuous disclosure materials as required by applicable Canadian securities laws:

(i) audited financial statements for the year ended December 31, 2022;

(ii) management's discussion and analysis relating to the audited annual financial statements for the year ended December 31, 2022;

(iii) annual information form for the year ended December 31, 2022; and

(iv) certifications for the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings;

(collectively, the Unfiled Documents).

h. Except for certain press releases filed by the Issuer, the Issuer has not filed continuous disclosure documents required to be filed by applicable Canadian securities laws since the date of the FFCTO including financial statements, management's discussion and analysis and related certifications for the period ended March 31, 2023 (together with the Unfiled Documents, the Unfiled Continuous Disclosure Documents).

i. In light of ongoing financial difficulties, the Issuer and its subsidiaries (the Acerus Group) filed for creditor protection under the Companies' Creditors Arrangement Act (the CCAA) and received an order (the Initial Order) for creditor protection under the CCAA from the Ontario Superior Court of Justice (Commercial List) (the Court) on January 26, 2023 (the CCAA Proceedings).

j. Pursuant to the Initial Order, the Court, inter alia, appointed Ernst & Young Inc. as monitor (in such capacity, the Monitor) of the Acerus Group under the CCAA Proceedings and authorized the Issuer to obtain a loan from First Generation Capital Inc. (First Generation) in the maximum amount of US$7,000,000 in order to fund the CCAA Proceedings and for other short-term working capital requirements of the Issuer (the DIP Loan).

k. On February 3, 2023, the Court granted an order, among other things, amending and restating the Initial Order.

l. On February 27, 2023, pursuant to Chapter 15 of the U.S. Bankruptcy Code, the U.S. Bankruptcy Court for the District of Delaware (the U.S. Court) granted an order recognizing the CCAA Proceedings as the foreign main proceedings in respect of the Acerus Group and giving full force and effect to the orders entered in the CCAA Proceedings.

m. On March 9, 2023, the Court granted an order (the SISP Order) authorizing the Monitor to conduct, with the assistance of the Issuer, a sale and investment solicitation process (the SISP) intended to solicit interest in the opportunity for a sale of or investment in all or part of the Issuer's assets and business operations. The Monitor, with oversight on behalf of the Corporation by a committee of independent directors, oversaw the SISP.

n. On March 23, 2023, the U.S. Court granted an order, among other things, recognizing and enforcing the SISP Order.

o. On May 25, 2023, the Issuer announced that a bid by First Generation had been designated as the successful bid under the SISP (the Successful Bid) and that in accordance with the SISP Order the Issuer would seek Court approval of the Successful Bid and authority to consummate the transactions provided for therein.

p. On May 30, 2023, the Court granted an order under the CCCA (the Sale Approval and Vesting Order) pursuant to which, inter alia, (i) the Court vested certain excluded assets and excluded liabilities in "Residual Co. 1" and "Residual Co. 2" and (ii) the Court authorized the completion of a reorganization transaction (the Transaction) partially comprised of the following steps:

(i) the Issuer shall issue to First Generation 1,000,000,000,000,000 Class "A" common shares (the Purchased Shares) to be paid by the forgiveness by First Generation of certain secured loan agreements of the Acerus Group owing to First Generation and the DIP Loan, which amount as of April 28, 2023 was US$62,187,732.63 in the aggregate; and

(ii) pursuant to articles of reorganization of the Issuer, all equity interests of the Issuer outstanding prior to the issuance of the Purchased Shares, including the Common Shares and the Options, shall be deemed terminated and cancelled without consideration and the only equity interests of the Issuer that shall remain outstanding shall be the Purchased Shares such that First Generation shall become the sole shareholder of the Issuer.

q. Pursuant to the Sale Approval and Vesting Order, having been advised of the provisions of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions relating to the requirement for "minority" shareholder approval in certain circumstances, the Court ordered that no meeting of shareholders or other holders of equity interests of the Acerus Group is required to be held in respect of the Transaction.

r. On June 13, 2023, the U.S. Court granted an order, among other things, recognizing and enforcing the Sale Approval and Vesting Order and approving the sale of the Purchased Shares to First Generation pursuant to the Transaction.

s. In connection with carrying out the SISP Order and obtaining the Sale Approval and Vesting Order, the Issuer has engaged in certain acts in furtherance of trades in the securities of the Issuer, including its entry into the subscription agreement, dated May 15, 2023 with First Generation (the Acts), which Acts were taken at the direction of, and with the approval of, and under the supervision of, the Court. Except for the Acts and the outstanding filings and continuous disclosure defaults since the issuance of the FFCTO, the Issuer is not in default of any requirements of the FFCTO, the securities legislation of any jurisdiction in which the Issuer is a reporting issuer (the Legislation), or the rules and regulations made pursuant thereto.

t. Since the issuance of the FFCTO, there have not been any material changes in the business, operations or affairs of the Issuer that have not been disclosed to the public apart from matters relating to the CCAA Proceedings and the Transaction, materials for which are available through the Monitor and posted on the Monitor's website.

u. As the Transaction will involve trades in securities of the Issuer, the closing of the Transaction is conditional on the partial revocation of the FFCTO.

v. The issuance of the Purchased Shares by the Issuer will occur in Ontario.

w. The Purchased Shares will not be qualified for distribution to the public under any applicable Canadian securities laws and will be subject to restrictions on transfer in Canada.

x. Following completion of the Transaction, all securities of the Issuer will remain subject to the FFCTO until a full revocation of the FFCTO is granted.

y. Other than the Transaction, no further trading in securities of the Issuer will be made by the Issuer unless further relief from the FFCTO is sought by the Issuer.

z. Following completion of the Transaction, the Issuer intends to apply for a full revocation of the FFCTO and a cease to be a reporting issuer order.

ORDER

5. The Principal Regulator is satisfied that a partial revocation order of the FFCTO meets the test set out in the Legislation for the Principal Regulator to make the decision.

6. The decision of the Principal Regulator under the Legislation is that the FFCTO is partially revoked solely to permit the trades in securities of the Issuer (including for greater certainty, acts in furtherance of trades in securities of the Issuer) that are necessary for and are in connection with the Transaction, provided that:

a. prior to completion of the Transaction, First Generation will receive:

(i) a copy of the FFCTO;

(ii) a copy of this order; and

(iii) written notice from the Issuer, to be acknowledged by First Generation in writing (the Acknowledgement), that all of the Issuer's securities, including the securities issued in connection with the Transaction, will remain subject to the FFCTO until a full revocation order is granted, the issuance of which is not certain and that the Issuer intends to apply to cease to be a reporting issuer following closing of the Transaction;

b. the Issuer undertakes to make available a copy of the Acknowledgement to staff of the Principal Regulator upon request; and

c. this order will terminate on the earlier of:

(i) the completion of the Transaction; and

(ii) 60 days from the date hereof.

DATED this 28th day of June, 2023.