Borealis Foods Inc.
Headnote
Subsection 74(1) -- Application for exemption from prospectus requirement in connection with first trade of shares of issuer through exchange or market outside of Canada or to person or company outside of Canada -- issuer not a reporting issuer in any jurisdiction in Canada -- The issuer meets all the conditions of section 2.14 of National Instrument 45-102 Resale of Securities except that residents of Canada own more than 10% of the securities of the class; the issuer's securities are listed on an exchange outside of Canada; there is no market for the issuer's securities in Canada; the issuer has established that, despite being organized under Ontario corporate law and having a non-traditional head office in Ontario, it has minimal connection to Canada in that none of its material operations are conducted in Canada; a majority of the directors and officers are not resident in Canada; the issuer will provide securityholders with the same continuous disclosure materials that are provided to foreign shareholders -- conditions of the exemption in section 2.15 of National Instrument 45-102 Resale of Securities not satisfied as the issuer will have its head office located in Canada.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53 and 74(1).
National Instrument 45-102 Resale of Securities, ss. 2.14 and 2.15.
February 5, 2024
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the "Jurisdiction")
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
BOREALIS FOODS INC.
("New Borealis")
DECISION
Background
The principal regulator in the Jurisdiction (the "Decision Maker") has received an application (the "Application") from Borealis Foods Inc. ("Borealis" or the "Filer") on behalf of New Borealis in connection with the proposed Business Combination (as defined below) between Borealis and Oxus Acquisition Corp. ("Oxus"), for a decision under section 74(1) of the Securities Act (Ontario) (the "Act") that the prospectus requirement set forth in section 53 of the Act does not apply to the first trade of New Borealis Shares (as defined below) held by Canadian Owners (as defined below) for a trade made: (i) through an exchange, or a market, outside of Canada; or (ii) to a person or company outside of Canada (collectively, the "Resale Relief").
The Decision Maker has also received a request from the Filer for a decision that the Application and this decision (together, the "Confidential Material") be kept confidential and not be made public until the earliest of: (i) the date on which the Business Combination (as defined herein) is completed; (ii) the date on which the Filer advises that there is no longer any need for the Confidential Material to remain confidential; or (iii) the date that is 90 days after the date of this decision (the "Confidentiality Relief").
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Ontario Securities Commission (the "Commission") is the principal regulator for this Application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, (the "Passport Jurisdictions").
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Oxus
1. Oxus is a blank check company incorporated as a Cayman Islands exempted company. Oxus was created for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses or entities.
2. The principal executive office of Oxus is located at at Harbour Place, P.O. Box 472, 103 South Church Street, Grand Cayman KY1-1106, Cayman Islands. Its sponsor is Oxus Capital PTE. LTD, a corporation incorporated in Singapore and the controlling shareholder of the sponsor, Mr. Kenges Rakishev, is a citizen of Kazakhstan.
3. Oxus is a registrant with the United States Securities and Exchange Commission (the "SEC") and Oxus is subject to the requirements of the Securities Exchange Act of 1934 of the United States (the "U.S. Securities Act") and the rules and regulations of the Nasdaq Capital Market (the "Nasdaq"). Oxus is in compliance with the requirements of the U.S. Securities Act and is in good standing with the rules of the Nasdaq.
4. Oxus is not a reporting issuer in any jurisdiction of Canada and has no intention of becoming a reporting issuer in any jurisdiction of Canada. Oxus is not in default of securities legislation in any jurisdiction.
5. Neither the sponsor of Oxus nor any of its directors or executive officers are residents of or spend a significant amount of time in Canada. To the knowledge of the parties, Oxus does not have any Canadian shareholders.
6. Pursuant to Oxus's amended and restated memorandum and articles of association, a holder of Oxus's public shares (an "Oxus public shareholder") may request that Oxus redeem all or a portion of such public shares for cash if the Business Combination (as defined below) is consummated.
7. If the Business Combination is consummated, and if an Oxus public shareholder exercises redemption rights, Oxus will redeem such public shares for a per-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of Oxus's initial public offering. The redemption will take place immediately after consummation of the Business Combination. Given the recent market trends in similar de-SPAC transactions, the parties anticipate that all, or close to all, of such public shares will be redeemed in connection with the completion of the Business Combination.
Borealis
8. Borealis is a Canadian federal corporation that operates a manufacturing and distribution business primarily through subsidiaries domiciled in the United States. Borealis is not a reporting issuer in Canada and is not in default of securities legislation in any jurisdiction.
9. Borealis's manufacturing activities are carried out entirely in the United States through U.S.-domiciled subsidiaries. Borealis does not have significant operations in Canada, as detailed further below.
10. Borealis has a registered office in Ontario (the "Ontario office"). While Borealis is formed in Canada, it does not have a traditional head office environment, as there is no central location from which all of the executive officers of Borealis operate. There are fewer than 10 employees of Borealis who work from Canada, of the more than 300 total employees.
11. The founder and Chief Executive Officer (the "CEO") of Borealis is a U.S. citizen who is resident in Canada. He is one of two directors of Borealis; the other is a citizen of Switzerland. The CEO travels often to the United States for operational purposes. He spends the majority of his time in Canada on video-conference calls with people outside of Canada (primarily in the United States). He would spend almost all of his time in the United States were it not for technology that facilitates such remote work.
12. In addition to the CEO, two other officers of Borealis reside in and work out of the Ontario office. The other employees in Canada are involved in administrative, marketing, and legal functions. No revenues are generated from the Ontario office.
13. Additionally:
(a) all of Borealis's products are manufactured at facilities located in the United States;
(b) Borealis sells its products solely to wholesalers in the United States for distribution domestically and internationally (certain of which may resell such products to wholesalers or retailers with Canadian operations);
(c) Borealis does not directly sell its products to wholesalers or retailers in Canada;
(d) Borealis's products are currently sold through retail channels in the United States and Canada;
(e) Borealis's products are primarily distributed outside of Canada, with over 88% of the retail locations which distribute Borealis's products being located in the United States;
(f) all of New Borealis's revenue will be recognized in the United States or through sales by its U.S. subsidiaries (and will be considered U.S. sales under U.S GAAP);
(g) Borealis's go-to-market strategy and expansion is focused primarily outside of Canada, pursuing schools, armed forces, correctional facilities, and non-governmental organizations as customers in the United States and internationally, including a European expansion planned for 2024; and
(h) only three of New Borealis's anticipated executive officers, and fewer than 10 of its 300-plus person workforce of employees or contractors, are expected to be located in Canada.
14. As of the date hereof, there are approximately 163,462,954 issued and outstanding shares in the capital of Borealis (the "Borealis Shares") held by approximately 48 holders (the "Shareholders"). As of the date hereof, there are approximately options to acquire up to 3,696,417 Borealis Shares held by approximately 15 holders (the "Optionholders"). No Shareholder is also an Optionholder. Additionally, Borealis has an aggregate principal amount of approximately U.S.$47 million of convertible notes outstanding (the "Borealis Convertible Notes"), which will ultimately be exchanged for common shares in the capital of New Borealis ("New Borealis Shares") in accordance with the Plan of Arrangement (as defined below). All options will be exercised for Borealis Shares and then subsequently exchanged for New Borealis Shares pursuant to the Plan of Arrangement.
15. Four of the 48 Shareholders and three of the 15 Optionholders are residents of Canada and none of the outstanding debt instruments of Borealis are held by Canadian residents. Canadian Shareholders and Optionholders of Borealis (collectively, the "Canadian Owners") hold, directly or indirectly, approximately 34% of the issued and outstanding shares of Borealis on a partially diluted basis (giving effect to the exercise of options).
16. Five of the seven Canadian Owners are officers, employees, or consultants of Borealis (or corporations affiliated with the foregoing). Nearly all of the shares of Borealis held by Canadian Owners are held by two holding corporations (together, the "Management HoldCos"), both of which are wholly or majority-owned and controlled primarily by its Chief Executive Officer (the "CEO") and his spouse. Certain additional employees of Borealis have a minority interest in the Management HoldCos. One holding corporation is formed in Ontario and the other is a British Columbia unlimited liability corporation.
17. The Management HoldCos account for approximately 98% of the direct and indirect ownership of Borealis Shares by Canadian Owners. The CEO has sole voting and dispositive control over the shares of Borealis held by the Management HoldCos.
18. Excluding the Management HoldCos, there are five Canadian Owners who beneficially own, or exercise control or direction over, less than 2% of the issued and outstanding shares of Borealis on a partially diluted basis (giving effect to the exercise of options).
The Business Combination
19. On February 23, 2023, Oxus entered into a business combination agreement with 1000397116 Ontario Inc. (a wholly owned subsidiary of Oxus) and Borealis (as the same may be amended, supplemented or otherwise modified from time to time, the "Business Combination Agreement").
20. The Business Combination Agreement contemplates, among other things, that Borealis and Oxus will complete a de-SPAC transaction to be implemented pursuant to a plan of arrangement (the "Plan of Arrangement", and collectively, the "Business Combination").
21. The Business Combination Agreement further contemplates that Oxus will continue into Ontario and Borealis will be arranged. The arrangement will ultimately result in an amalgamated corporation under the Business Corporations Act (Ontario), New Borealis, which will be the resulting issuer following completion of the Business Combination with the name "Borealis Foods Inc.".
22. The parties to the Business Combination determined to complete the continuance of Oxus into Canada in order to provide an opportunity to the shareholders of Borealis for tax-deferred reorganization treatment on the share exchange under the Business Combination and to eliminate the need for a complex exchangeable share structure; but for such tax-planning considerations, New Borealis could have been redomiciled into a jurisdiction outside Canada, in which case it would have qualified as a non-reporting foreign issuer and there would have been no de minimis threshold.
New Borealis and SEC Issuer Status
23. New Borealis will distribute the securities pursuant to the Plan of Arrangement under section 2.11 of National Instrument 45-106 Prospectus Exemptions ("NI 45-106"). Securities distributed under section 2.11 are subject to a seasoning period under section 2.6 of National Instrument 45-102 Resale of Securities ("NI 45-102").
24. As of the effective time of the Business Combination, New Borealis will not be a reporting issuer in any jurisdiction in Canada. The New Borealis Shares will only be listed on the Nasdaq.
25. The business and operations of New Borealis after the Business Combination will be that of Borealis and will substantially be carried on outside of Canada through New Borealis's U.S. subsidiaries.
26. New Borealis will be an SEC Issuer within the meaning of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, as Oxus is required to file a registration statement with the SEC in connection with the Business Combination (the "Oxus Registration Statement"). The SEC's declaration of effectiveness of the Oxus Registration Statement is a condition precedent to the completion of the Business Combination. The Oxus Registration Statement will become that of New Borealis upon completion of the amalgamations contemplated by the Business Combination. The Oxus Registration Statement will register all securities to be issued by New Borealis pursuant to the Business Combination, except for the issuance of New Borealis Shares issuable upon the conversion of certain outstanding Borealis Convertible Notes. All securities to be issued by New Borealis to the Canadian Owners will be registered by the Oxus Registration Statement.
27. Following the closing of the Business Combination, it is expected that less than 18% of the New Borealis Shares will be held by Canadian residents. Almost all such shares will be held, directly or indirectly, by directors, officers, or employees of New Borealis. Nearly all of the New Borealis Shares held by Canadian Owners will be held by the Management HoldCos. Other than the Management HoldCos, there will be de minimis ownership of New Borealis Shares by Canadian residents (likely less than 2%).
28. The parties to the Business Combination determined to complete a continuance of Oxus into Canada in order to provide an opportunity to the shareholders of Borealis for tax-deferred reorganization treatment on the share exchange under the Business Combination and to eliminate the need for a complex exchangeable share structure. But for such tax-planning considerations, New Borealis could have been redomiciled into a jurisdiction outside Canada, in which case it would have qualified as a non-reporting foreign issuer and there would have been no de minimis threshold.
29. Following completion of the Business Combination, the Canadian Owners will represent less than 10% of all holders of New Borealis Shares but will hold more than 10% of the New Borealis Shares. It is not possible to provide an exact shareholding percentage due to: (i) the continued trading of the Oxus shares until closing; (ii) unknown redemption levels by Oxus public shareholders; (iii) the terms of the Borealis Convertible Notes pertaining to accrual of interest and conversion; and (iv) the terms of the Agreement, which does not provide for a fixed share exchange ratio. The share exchange ratio is, in part, a function of Borealis's indebtedness immediately prior to closing.
30. Current estimates are that ownership by Canadian Owners may be as high as approximately 15% to 18% of the New Borealis Shares immediately upon completion of the Business Combination. However, the final figure may be lower than these estimates as a result of the terms of the Borealis Convertible Notes, the floating share exchange ratio and final redemptions by Oxus public shareholders. The proportionate ownership by Canadians is anticipated to further decline after closing, as future financing activities are most likely to be through registered offerings in the United States or otherwise with non-Canadian investors.
31. Almost all of the New Borealis Shares held by Canadian Owners will be held by the Management HoldCos (i.e., the holding corporations formed in Ontario and British Columbia). There will be de minimis ownership of New Borealis Shares by Canadian residents other than the Management HoldCos.
32. The shares of New Borealis to be held by the Management HoldCos will be subject to a contractual restricted period pursuant to a lock-up agreement to be entered into upon closing of the Business Combination. The form of lock-up agreement contemplates that, subject to certain exceptions, all subject shares will be locked-up for up to 12 months following completion of the Business Combination. The lock-up agreement will contemplate that: (i) the subject shares may be transferred to a permitted transferee and (ii) 50% of the subject shares will no longer be restricted if, during the restricted period, the closing price of the New Borealis Shares equals or exceeds US$12.00 for any twenty (20) trading days within a thirty (30)-trading day period starting after the Closing.
33. Section 2.7 of Ontario Securities Commission Rule 72-503 Distributions Outside Canada ("OSC Rule 72-503"), and the equivalent provisions in section 2.14(1) of NI 45-102 and Alberta securities legislation, provide an exemption from the prospectus requirement for the first trade of a security of an issuer distributed under an exemption from the prospectus requirement provided that:
(a) the issuer of the security:
(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date, or
(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;
(b) at the distribution date, after giving effect to the issue of the security and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security, residents of Canada:
(i) did not own directly or indirectly more than 10% of the outstanding securities of the class or series, and
(ii) did not represent in number more than 10% of the total number of owners directly or indirectly of securities of the class or series
(the "10% de minimis condition"); and
(c) the trade is made:
(i) through an exchange, or a market, outside of Canada, or
(ii) to a person or company outside of Canada.
(collectively, the "First Trade Exemption").
34. In the absence of an order granting relief or an exemption being available, the first trades in securities held by Canadian residents, will be deemed to be a distribution pursuant to section 2.6 of NI 45-102, unless, among other things, New Borealis is and has been a reporting issuer for four months immediately preceding the trade in a jurisdiction of Canada.
35. As New Borealis is not and will not become a reporting issuer, the first trade relief in section 2.6 of NI 45-102 is not available. In addition, the First Trade Exemption will not be available to New Borealis. On closing of the Business Combination, the Canadian Owners are expected to hold more than 10% of the issued and outstanding New Borealis Shares.
36. The Canadian Owners would have been entitled to rely on section 2.8 of OSC Rule 72-503 (or the equivalent provision in section 2.15 of NI 45-102) but for the fact that New Borealis will be organized under the laws of Ontario and have a modest administrative office in Ontario. In particular, a majority of the directors and of the executive officers of New Borealis do not ordinarily reside in Canada.
37. The shares of New Borealis will trade only on Nasdaq and will not be listed in Canada. No market for the New Borealis Shares is expected to exist in Canada on completion of the Business Combination and none is expected to develop. There is no current contemplation that Canada would be a focus area for New Borealis from a capital markets perspective. Oxus has no significant presence in Canada, nor does it intend to increase its presence in Canada, and it does not propose list on a Canadian stock exchange. Further, as New Borealis will be a SEC registrant, it is expected that any public offerings will be conducted in the United States and not in Canada.
38. It is intended that any resale of New Borealis Shares by Canadian Owners will be made through the facilities of the Nasdaq, or any other exchange or market outside of Canada on which the New Borealis Shares may be quoted or listed at the time that the trade occurs, or to a person or company outside of Canada, in accordance with the rules and regulations of such foreign market.
39. Following the Business Combination, New Borealis's registered office and principal executive office identified for SEC filing purposes is expected to be located in Ontario. This location was chosen merely for convenience as it is where New Borealis's Canadian internal legal counsel is located, where the CEO's principal residence is and for the requirement to comply with the requirements of applicable corporate legislation that New Borealis have a records office in Ontario. Borealis does not, and New Borealis will not, have a traditional head office environment, as there is no central location from which all of the executive officers of New Borealis will operate.
40. New Borealis will not have a material connection to Canada on the basis that:
(a) the business of Borealis and its subsidiaries prior to the consummation of the Business Combination will be the business of New Borealis following the consummation of the Business Combination;
(b) Borealis does not have material operations in Canada;
(c) all of Borealis's products are manufactured at facilities located in the United States;
(d) Borealis sells its products solely to wholesalers in the United States for distribution domestically and internationally (certain of which may resell such products to wholesalers or retailers with Canadian operations);
(e) Borealis does not directly sell its products to wholesalers or retailers in Canada;
(f) Borealis's products are currently sold through retail in the United States and Canada;
(g) Borealis's products are primarily distributed outside of Canada, with over 88% of the retail locations which distribute Borealis's products being located in the United States;
(h) all of New Borealis's revenue will be recognized in the United States or through sales by its U.S. subsidiaries (and will be considered U.S. sales under U.S GAAP);
(i) Borealis's go-to-market strategy and expansion is focused primarily outside of Canada, pursuing schools, armed forces, correctional facilities, and non-governmental organizations as customers in the United States and internationally, including a European expansion planned for 2024;
(j) only three of New Borealis's anticipated executive officers, and less than 10 of its 300-plus person workforce of employees or contractors, are expected to be located in Canada;
(k) a minority of the directors and of the executive officers of New Borealis are expected to be located in Canada, with the remaining directors and executive officers resident in locations such as the United States, Europe and Asia; and
(l) Oxus is not continuing from the Cayman Islands to Ontario for business or operational reasons or to increase its connection to Canada, but for unrelated tax planning purposes.
41. Canadian Owners will receive the same level of disclosure as other shareholders of New Borealis given that:
(a) New Borealis will be an SEC registrant and will be subject to the requirements of the U.S. Securities Act and the rules and regulations of the Nasdaq;
(b) in accordance with the current requirements of the Nasdaq, Canadian Owners will receive copies of all shareholder materials provided to all other shareholders of New Borealis and information about New Borealis will be available publicly through the SEC's Electronic Data Gathering, Analysis, and Retrieval system (EDGAR); and
(c) Canadian Owners would receive substantially the same continuous disclosure materials from New Borealis that an SEC issuer would be permitted to provide under National Instrument 51-102 Continuous Disclosure Obligations, even if New Borealis were a reporting issuer in Canada.
Decision
The Decision Maker is satisfied that the decision meets the test set out in subsection 74(1) of the Act.
The order of the Decision Maker under subsection 74(1) of the Act is that the Requested Relief is granted provided that:
(a) immediately following the Business Combination: (i) the Canadian Owners together will own, directly or indirectly, no more than 25% of the total issued and outstanding New Borealis Shares and (ii) the Canadian Owners will represent no more than 25% of the total number of holders directly or indirectly of the New
(b) any resale by Canadian Owners qualifies under the First Trade Exemption, other than the 10% de minimis condition.
The further order of the Decision Maker is that the Confidentiality Relief is granted.
DATED at Toronto, Ontario this 5th day of February, 2024.
OSC File #: 2023/0653