Nepra Foods Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Issuer granted relief from certain restricted security requirements under National Instrument 41-101 General Prospectus Requirements, National Instrument 44-101 Short Form Prospectus Distributions, and National Instrument 51-102 Continuous Disclosure Obligations -- relief granted subject to conditions.

OSC Rule 56-501 Restricted Shares -- Issuer granted relief from certain restricted share requirements under OSC Rule 56-501 -- relief granted subject to conditions.

Applicable Legislative Provisions

National Instrument 41-101 General Prospectus Requirements, ss. 12.2, 12.3, and 19.1.

Form 41-101F1 Information Required in a Prospectus, ss. 1.13 and 10.6.

National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1.

Form 44-101F1 Short Form Prospectus, ss. 1.12 and 7.7.

National Instrument 51-102 Continuous Disclosure Obligations, Part 10 and s. 13.1.

OSC Rule 56-501 Restricted Shares, Parts 2 and 3, and s. 4.2.

August 10, 2021

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 NEPRA FOODS INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirements under:

(a) subsections 12.2(1), 12.2(3) and 12.2(4) of National Instrument 41-101 General Prospectus Requirements (NI 41-101), relating to the use of restricted security terms, and subsections 1.13(1) and 10.6 of Form 41-101F1 Information Required in a Prospectus and subsections 1.12(1) and 7.7 of Form 44-101F1 Short Form Prospectus, relating to restricted security disclosure, shall not apply to the common shares of the Filer (the Common Shares) in connection with any prospectus that may be filed by the Filer under NI 41-101, National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) or National Instrument 44-102 Shelf Distributions (the Prospectus Disclosure Exemption);

(b) section 12.3 of NI 41-101 relating to prospectus filing eligibility for distributions of restricted securities, subject securities or securities that are, directly or indirectly, convertible into, or exercisable or exchangeable for, restricted securities or subject securities, shall not apply to distributions by the Filer of Common Shares, Proportionate Voting Shares (as defined below), options to purchase Common Shares, Series III Notes (as defined below), and any other securities of the Filer that are directly or indirectly convertible into, or exercisable or exchangeable for, Common Shares or Proportionate Voting Shares (the Prospectus Eligibility Exemption);

(c) subsections 10.1(1)(a), 10.1(2), 10.1(4) and 10.1(6) of National Instrument 51-102 Continuous Disclosure Obligations relating to the use of restricted security terms and restricted security disclosure shall not apply to the Common Shares in connection with continuous disclosure documents that may be prepared by the Filer under NI 51-102 (the CD Disclosure Exemption);

(d) subsections 2.3(1)(1.), 2.3(1)(3.) and 2.3(2) of Ontario Securities Commission Rule 56-501 Restricted Shares (OSC Rule 56-501) relating to the use of restricted share terms and restricted share disclosure shall not apply to the Common Shares in connection with dealer and adviser documentation, rights offering circulars and offering memoranda of the Filer (the OSC Rule 56-501 Disclosure Exemption); and

(e) subsection 3.2 of OSC Rule 56-501 relating to the withdrawal of prospectus exemptions for distributions of restricted shares, subject securities or securities that are, directly or indirectly, convertible into, or exercisable or exchangeable for, restricted securities or subject securities, shall not apply to distributions by the Filer of Common Shares, Proportionate Voting Shares, options to purchase Common Shares, Series III Notes, and any other securities of the Filer that are directly or indirectly convertible into, or exercisable or exchangeable for, Common Shares or Proportionate Voting Shares (the OSC Rule 56-501 Withdrawal Exemption and, together with the Prospectus Disclosure Exemption, the Prospectus Eligibility Exemption, the CD Disclosure Exemption and the OSC Rule 56-501 Disclosure Exemption, the Exemption Sought).

The aforementioned requirements are collectively referred to as the Restricted Security Rules.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission is the principal regulator for this Application; and

(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon (other than with respect to the OSC Rule 56-501 Disclosure Exemption and the OSC Rule 56-501 Withdrawal Exemption), which, pursuant to subsection 8.2(2) of National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions (NP 11-202) and subsection 5.2(6) of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203), also satisfies the notice requirement of paragraph 4.7(1)(c) of MI 11-102.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, NP 11-202, NP 11-203, NI 41-101, NI 44-101, NI 51-102 and OSC Rule 56-501 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:

1. The Filer is a corporation incorporated under the Business Corporations Act (British Columbia) (the BCBCA).

2. The registered office of the Filer is located at Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N7, and its head office is located at 7025 S. Revere Parkway, Unit 100, Centennial, Colorado, USA 80112.

3. The Filer was incorporated to acquire and hold all of the capital stock of Nepra Foods, Ltd., (NFL) a corporation formed under the laws of the State of Colorado, in contemplation of the Filer's initial public offering (the IPO).

4. On April 20, 2021, the Filer filed a preliminary prospectus (the April 20, 2021 Preliminary Prospectus) with the securities regulatory authorities in British Columbia, Alberta and Ontario in connection with the IPO.

5. On June 28, 2021, the Filer filed an amended and restated preliminary prospectus (the A&R Preliminary Prospectus), amending and restating the April 20, 2021 Preliminary Prospectus.

6. Upon completion of the IPO, the Common Shares are expected to be listed on the Canadian Securities Exchange (the CSE).

7. Prior to filing the April 20, 2021 Preliminary Prospectus, the Filer completed a share exchange transaction (the Share Exchange Transaction) whereby NFL's existing shareholders exchanged all of their shares of NFL for shares of the Filer pursuant to a share exchange agreement dated April 6, 2021 (the Share Exchange Agreement). Following completion of the Share Exchange Transaction, the Filer became the owner of 100% of the shares of NFL.

8. Upon completion of the IPO, the Proportionate Voting Shares will constitute subject securities (as defined in NI 41-101 and OSC Rule 56-501) and the Filer's only issued and outstanding subject securities will be the Proportionate Voting Shares.

9. Upon incorporation, the Filer's authorized share capital consisted of an unlimited number of Common Shares. In connection with the Share Exchange Transaction, the Filer amended its articles to create an additional class of shares, being the Class "A" common shares (the Proportionate Voting Shares). Currently, the Filer's authorized share capital consists of:

(a) an unlimited number of Common Shares; and

(b) an unlimited number of Proportionate Voting Shares.

10. The principal terms of the Common Shares and the Proportionate Voting Shares are summarized below.

(a) Subject to the FPI Protective Restriction (as defined below), the Proportionate Voting Shares may, at any time, at the option of the holder, be converted into Common Shares on the following basis: one Proportionate Voting Share for 100 Common Shares, with fractional Proportionate Voting Shares convertible into Common Shares on the same ratio (the Conversion Ratio).

(b) Unless a registration event occurs under United States securities laws (in which case, all Proportionate Voting Shares may be converted to Common Shares at the Conversion Ratio), the Filer shall not affect any conversion of Proportionate Voting Shares, and the holders of Proportionate Voting Shares shall not have the right to convert their shares, to the extent that after giving effect to such issuance after conversions, the aggregate number of Common Shares and Proportionate Voting Shares held of record, directly or indirectly, by residents of the United States would exceed forty percent (40%) of the aggregate number of Common Shares and Proportionate Voting Shares issued and outstanding (the FPI Protective Restriction).

(c) In the event of the liquidation, dissolution or winding-up of the Filer, the holders of Common Shares and Proportionate Voting Shares will be entitled to participate in the distribution of the remaining property and assets of the Filer on a pro rata basis based on (i) the number of Common Shares and (ii) the number of Proportionate Voting Shares (on an as converted basis, assuming conversion of all shares of Proportionate Voting Shares into Common Shares at the applicable Conversion Ratio) issued and outstanding on the record date.

(d) Each Proportionate Voting Share (including any fractions thereof) will be entitled to dividends, out of any cash or other assets legally available therefor, pari passu (on an as converted basis, assuming conversion of all shares of Proportionate Voting Shares into Common Shares at the applicable Conversion Ratio) as to dividends to be received by the holders of Common Shares if, as and when declared by the board of directors of the Filer.

(e) No fractional Common Shares shall be issued upon the conversion of any Proportionate Voting Shares and the number of Common Shares to be issued shall be rounded down to the nearest whole Common Share without compensation therefor.

(f) The Common Shares carry one vote per share at all meetings of the shareholders and the Proportionate Voting Shares (including any fractions thereof) carry one vote for each Common Share into which such Proportionate Voting Share could then be converted (i.e. 100 votes per Proportionate Voting Share) for all matters coming before the shareholders. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as converted basis (after aggregating all Common Shares into which Proportionate Voting Shares could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

(g) The holders of Common Shares and Proportionate Voting Shares are entitled to receive notice of any meeting of shareholders of the Filer and to attend, vote and speak at such meetings, except those meetings at which holders of a specific class of shares are entitled to vote separately as a class under the BCBCA.

11. No right or special right attaching to the Common Shares or Proportionate Voting Shares, as applicable, may be prejudiced or interfered with unless authorized by (i) written consent of all of the holders of shares to which such rights or special rights attach or (ii) by not less than 2/3 of the votes cast at a meeting of holders of such shares duly held for that purpose. In addition, the Filer shall not amend, alter or repeal the preferences, special rights or other powers of the Proportionate Voting Share or any other provision of the Filer's articles that would adversely affect the rights of the holders of Proportionate Voting Shares without the written consent of all of the holders of the then outstanding Proportionate Voting Shares or by the affirmative vote at a meeting of holders of Proportionate Voting Shares separately as a class by way of a special separate resolution.

12. The Filer may, by ordinary resolution, subdivide or consolidate all or any of its unissued, or fully paid and issued, Shares; provided; however, that if, at any time or from time-to-time, the Filer effects a subdivision or consolidation of the Common Shares, the Conversion Ratio shall be amended so that the holders of Proportionate Voting Shares shall thereafter be entitled to received, upon conversion of Proportionate Voting Shares, the number of Common Shares to which a holder of Common Shares deliverable upon conversion would have been entitled to receive on such subdivision or consolidation.

13. No subdivision or consolidation of the Common Shares or Proportionate Voting Shares may be carried out unless, at the same time, the shares of the other class are subdivided or consolidated in the same manner and on the same basis, so as to preserve the relative rights of the holders of each such class of shares.

14. In connection with the IPO, all holders of Proportionate Voting Shares executed a coattail agreement (the Coattail Agreement), pursuant to which such holders of Proportionate Voting Shares agreed, inter alia, not to tender their shares in the event of a take-over bid unless the offer was also extended to holders of Common Shares.

15. Pursuant to the Coattail Agreement, the holders of Proportionate Voting Shares shall not sell any Proportionate Voting Shares pursuant to a take-over bid under circumstances in which applicable securities laws would have required the same offer to be made to holders of Common Shares if the sale by the shareholders had been a sale of the Common Shares underlying such Proportionate Voting Shares rather than such Proportionate Voting Shares, but otherwise on the same terms. However, the foregoing shall not prevent a sale by any holder of Proportionate Voting Shares if concurrently an offer is made to purchase Common Shares that:

(a) offers a price per Common Share at least as high as the highest price per share paid or required to be paid pursuant to the take-over bid for the Proportionate Voting Shares;

(b) provides that the percentage of outstanding Common Shares to be taken up (exclusive of shares owned immediately prior to the offer by the offeror or persons acting jointly or in concert with the offeror) is at least as high as the percentage of outstanding Proportionate Voting Shares to be sold (exclusive of Proportionate Voting Shares owned immediately prior to the offer by the offeror and persons acting jointly or in concert with the offeror);

(c) has no condition attached other than the right not to take up and pay for Common Shares tendered if no shares are purchased pursuant to the offer for Common Shares; and

(d) is in all other material respects identical to the offer for Proportionate Voting Shares.

16. Each of the Common Shares and Proportionate Voting Shares are "equity shares" (per OSC Rule 56-501) and "equity securities" (per NI 41-101 and NI 51-102).

17. The Common Shares may be considered "restricted securities" as defined in NI 41-101 and NI 51-102, and "restricted shares", as defined in OSC Rule 56-501, as the Proportionate Voting Shares carry a greater number of votes per security relative to the Common Shares.

18. The Share Exchange Transaction, including the amendment to the Filer's articles creating the Proportionate Voting Shares was approved by the sole shareholder of the Filer.

19. The Share Exchange Transaction was also subject to the approval of the shareholders of NFL, which was obtained by unanimous consent resolution of the shareholders of NFL. An information circular (the NFL Circular) containing disclosure with respect to restricted securities and restricted shares was sent to shareholders of NFL. In addition to approving the Share Exchange Transaction, shareholders of NFL unanimously approved the amendment to the Filer's articles creating the Proportionate Voting Shares, the offering of Common Shares in connection with the IPO, as well as any future distributions of Common Shares or Proportionate Voting Shares pursuant to a prospectus or on any prospectus exempt basis.

20. The NFL Circular was also sent to holders of Series I Notes and Series II Notes (each as defined below) and such securityholders executed a unanimous consent resolution approving, inter alia, the amendment to the Filer's articles creating the Proportionate Voting Shares, the offering of Common Shares in connection with the IPO, as well as any future distributions of Common Shares or Proportionate Voting Shares pursuant to a prospectus or on any prospectus exempt basis.

21. Pursuant to the Share Exchange Agreement, the Proportionate Voting Shares received by former shareholders of NFL were issued on a compressed basis, being 100 old NFL shares for each Proportionate Voting Share. The Proportionate Voting Shares were issued by the Filer in order to meet the definition of "foreign private issuer" as defined in Rule 405 in the United States Securities Act of 1933, as amended.

22. In connection with the Share Exchange Agreement, the Filer issued an aggregate of 14,653,108 Common Shares and 273,468.05 Proportionate Voting Shares to the former shareholders of NFL. The Filer also assumed and will honour the aggregate principal amounts of US$999,990.20 of Series I secured convertible promissory notes of NFL (the Series I Notes) and US$295,000 of Series II secured convertible promissory notes of NFL (the Series II Notes), which are convertible into Common Shares upon the completion of the IPO and listing on the CSE at a conversion price equal to the greater of (i) 80% of the offering price under the IPO (in the case of the Series I Notes) or the offering price of the IPO (in the case of the Series II Notes), and (ii) $0.10 per Common Share.

23. On June 11, 2021, the Filer issued an aggregate principal amount of $230,000 and US$15,000 of Series III secured convertible promissory notes (the Series III Notes), which are convertible into Common Shares at any time following 121 days after the issue date, but prior to the maturity date of such Series III Notes, into Common Shares at a conversion price equal to the greater of (i) the offering price of the IPO, and (ii) $0.10 per Common Share.

24. Other than 100 Common Shares issued to the CFO of the Filer upon incorporation, from the date of incorporation until immediately prior to completion of the IPO, the Filer has only issued shares to the former shareholders of NFL.

25. Upon completion of the IPO, all of the issued and outstanding Proportionate Voting Shares will continue to be held or controlled, directly or indirectly, by the former shareholders of NFL.

26. Section 12.2 of NI 41-101 requires that an issuer must not refer to a security in a prospectus by a term or a defined term that includes the word "common" unless the security is an equity security to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of securities owned, that are not less, per security, than the voting rights attached to any other outstanding security of the issuer.

27. Section 12.3 of NI 41-101 requires that an issuer must not file a prospectus under which restricted securities, subject securities or securities that are, directly or indirectly, convertible into, or exercisable or exchangeable for, restricted securities or subject securities, are distributed unless:

(a) the distribution has received prior majority approval of the securityholders of the issuer in accordance with applicable law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by affiliates of the issuer or control persons of the issuer, or

(b) at the time of any restricted security reorganization related to the securities to be distributed:

(i) the restricted security reorganization received prior majority approval of the securityholders of the issuer in accordance with applicable law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by affiliates of the issuer or control persons of the issuer,

(ii) the issuer was a reporting issuer in at least one jurisdiction, and

(iii) no purposes or business reasons for the creation of restricted securities were disclosed that are inconsistent with the purpose of the distribution.

28. Sections 1.13 and 10.6 of Form 41-101F1 and sections 1.12 and 7.7 of Form 44-101F1 require that an issuer provide certain restricted security disclosure.

29. Section 2.2 of OSC Rule 56-501 requires dealer and adviser documentation to include the appropriate restricted share term if restricted shares and the appropriate restricted share term or a code reference to restricted shares or the appropriate restricted share term are included in a trading record published by the CSE or other exchange listed in OSC Rule 56-501.

30. Section 2.3 of OSC Rule 56-501 requires that a rights offering circular or offering memorandum for a stock distribution prepared for a reporting issuer comply with certain requirements including, among others, that restricted shares may not be referred to by a term or a defined term that includes "common", "preference" or "preferred" and that such shares shall be referred to using a term or a defined term that includes the appropriate restricted share term.

31. Section 3.2 of OSC Rule 56-501 provides that the prospectus exemptions under Ontario securities law are not available for a stock distribution of securities of a reporting issuer unless either the stock distribution received minority approval of shareholders or all the conditions set out in subsection 3.2(2) are satisfied and the information circular relating to the shareholders' meeting held to obtain such minority approval for the stock distribution included prescribed disclosure.

32. Section 10.1 of NI 51-102 requires a reporting issuer that has outstanding restricted securities, or securities that are directly or indirectly convertible into or exercisable or exchangeable for restricted securities or securities that will, when issued, result in an existing class of outstanding securities being considered restricted securities, to provide specific disclosure with respect to such securities in its information circular, a document required by NI 51-102 to be delivered upon request by a reporting issuer to any of its securityholders, an annual information form prepared by the reporting issuer as well as any other documents that it sends to its securityholders.

33. Section 10.2 of NI 51-102 sets out the procedure to be followed with respect to the dissemination of disclosure documents to holders of restricted securities.

34. Pursuant to the Restricted Security Rules, a "restricted security" means an equity security of a reporting issuer if any of the following apply:

(a) there is another class of securities of the reporting issuer that, to a reasonable person, appears to carry a greater number of votes per security relative to the equity security,

(b) the conditions attached to the class of equity securities, the conditions attached to another class of securities of the reporting issuer, or the reporting issuer's constating documents have provisions that nullify or, to a reasonable person, appear to significantly restrict the voting rights of the equity securities, or

(c) the reporting issuer has issued another class of equity securities that, to a reasonable person, appears to entitle the owners of securities of that other class to participate in the earnings or assets of the reporting issuer to a greater extent, on a per security basis, than the owners of the first class of equity securities.

35. As the Proportionate Voting Shares will entitle the holders thereof to multiple votes per Proportionate Voting Share held, it will technically represent a class of securities to which multiple votes are attached. The multiple votes attaching to the Proportionate Voting Shares would, absent the Exemption Sought, have the following consequences in respect of the technical status of the Common Shares:

(a) pursuant to NI 41-101 and NI 44-101, the Filer would be unable to use the word "common" to refer to the Common Shares in any prospectus and the Filer would be required to provide the specific disclosure required by NI 41-101 and NI 44-101 because the Proportionate Voting Shares would represent a security to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of securities owned, that are more, per security, than the voting rights attached to the Common Shares,

(b) the Common Shares would be considered "restricted shares" pursuant to OSC Rule 56-501 and the Filer would be subject to the dealer and advisor documentary disclosure obligations and distribution restrictions in OSC Rule 56-501 because the Proportionate Voting Shares would represent a security to which is attached voting rights exercisable in all circumstances, irrespective of the number of percentage of shares owned, that are more, on a per share basis, than the voting rights attaching to the Common Shares of the Filer and the Filer would be unable to use the word "common" to refer to the Common Shares in a rights offering circular or offering memorandum for a stock distribution, and

(c) the Common Shares could be considered "restricted securities" pursuant to paragraph (a) of the definition of the term in NI 51-102 and the Filer would be required to provide the specific disclosure required by NI 51-102 in respect of the Common Shares because the Proportionate Voting Shares would represent another class of securities of the Filer that, to a reasonable person, appears to carry a greater number of votes per security relative to the Common Shares.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) in connection with the Prospectus Disclosure Exemption and the Prospectus Eligibility Exemption as they apply to any prospectus, at the time the Filer relies on the Exemption Sought:

(i) the representations in paragraphs 8-15, above, continue to apply;

(ii) the Filer has no restricted securities (as defined in section 1.1 of NI 41-101) issued and outstanding other than the Common Shares; and

(iii) any prospectus includes disclosure consistent with the representations in paragraphs 8-15 above;

(b) in connection with the OSC Rule 56-501 Disclosure Exemption as it applies to the OSC Rule 56-501 Documents, at the time the Filer relies on the Exemption Sought:

(i) the representations in paragraphs 8-15, above, continue to apply; and

(ii) the Filer has no restricted shares (as defined in section 1.1 of OSC Rule 56-501) issued and outstanding other than the Common Shares;

(c) in connection with the OSC Rule 56-501 Withdrawal Exemption, at the time the Filer relies on the Exemption Sought:

(i) the representations in paragraphs 8-15, above, continue to apply; and

(ii) the Filer has no restricted shares (as defined in section 1.1 of OSC Rule 56-501) issued and outstanding other than the Common Shares;

(d) in connection with the CD Disclosure Exemption as it applies to the CD Documents, at the time the Filer relies on the Exemption Sought:

(i) the representations in paragraphs 8-15, above, continue to apply; and

(ii) the Filer has no restricted securities (as defined in subsection 1.1(1) of NI 51-102) issued and outstanding other than the Common Shares.