Christopher L. Doerksen

On May 5, 2026, the Securities and Exchange Commission (“SEC”) proposed a significant change to the Exchange Act periodic reporting framework that would allow U.S. domestic reporting companies to elect semiannual interim reporting in place of the current mandatory quarterly Form 10-Q regime. Under the proposal, eligible Exchange Act reporting companies could choose to file one semiannual report on a new Form 10-S and one annual report on Form 10-K each fiscal year, rather than three quarterly reports on Form 10-Q and one annual report. More information on the proposal is available here.

As you may recall, the Holding Foreign Insiders Accountable Act (the HFIAA) was signed into law on December 18, 2025. In a nutshell, this means that directors and officers of foreign private issuers whose securities are registered under Section 12(b) or 12(g) of the Exchange Act of 1934 will be required to report beneficial ownership and transactions in company equity securities to the SEC. The first report is due on March 18, 2026. More detail about this requirement is available here. Since the adoption of the HFIAA, we have been receiving numerous questions. When should we start the process to get Edgar codes for our insiders? How long will it take to get codes? Will SEDI filers be exempt from reporting? Trust me, we have been considering the same questions ourselves and have spoken to the Staff of the SEC about this. Like you, we firmly believe SEDI filers should be exempt from Section 16(a) reporting under the exemption contained in the HFIAA and submitted a comment letter to the Staff of the SEC on that point. (A big thank you to our friends in Canada who double-checked our statements regarding SEDI requirements!) In 2023, there were more than 1,100 foreign private issuers reporting on Form 20-F or Form 40-F.  If the insiders of over a thousand companies need to get Edgar codes prior to March 18th, the strain on the Edgar Filer office at the SEC will be considerable. This is what we understand regarding the HFIAA rule-making process: The HFIAA requires the SEC to issue regulations implementing the HFIAA within 90 days. Regardless of the timing of the new rules (even if the SEC does not issue rules within 90 days), the Section 16(a) filing obligation begins on March 18th. The exemptive relief permitted under the HFIAA is not subject to the 90-day deadline. So, while the new implementing rules are being prepared, the exemptive relief rules are expected to be prepared in parallel and may not be issued at the same time. The SEC’s exemptive relief may be issued in tranches. So, if Canada is not included in the first exemptive order, it may be included in a subsequent exemptive order. As expected, the Staff of the SEC has been hearing from law firms and other parties regarding exemptive relief for “the usual suspects” – Canada, UK, and Europe. The Edgar filing office is expected to put out a notice/guidance about getting filing codes in order to comply with the HFIAA. This is what we recommend: Don’t wait. Start the process for getting EDGAR codes NOW! Currently, it has been taking up to two weeks to get EDGAR filing codes; we expect that time period to lengthen as we get closer to the filing deadline. Reach out to your contact at Dorsey and we will be happy to help get you started and explain the process to your insiders. Once the process for getting filing codes has been started, prepare a complete list of all company securities held by each insider, including holdings by spouses and in trusts. We have questionnaires that you can use to gather/confirm this information with your insiders. Review your insider trading policies to determine if any changes should be made prior to March 18th (assuming no exemptive relief is forthcoming). Since the time for reporting under Section 16 is two business days, which is shorter than filing deadlines for SEDI, consider adding a requirement for insiders to immediately report any transactions to the company to enable timely reporting. Determine which company personnel will be designated to assist with filings. Consider getting powers of attorney from your insiders granting these personnel the authority to make Section 16 filings on behalf of the insiders to facilitate making Section 16(a) filings on a timely basis. If not already completed, consider having each individual compete and manually sign an EDGAR filing attestation form that would allow the individual to sign EDGAR filings electronically. One final note, Dorsey will be hosting a webinar in the next two weeks regarding the process of getting Edgar filing codes as well as reviewing the basics of Section 16(a) reporting. We will follow-up with more details on the date and time.

Directors and officers of foreign private issuers take note: unless the SEC exempts you, you will be required to report beneficial ownership and transactions in your company’s registered equity securities to the SEC, and your first report is due on March 18, 2026. On December 18, 2025, President Trump signed into law the National Defense Authorization Act (NDAA), expanding reporting requirements under amended Section 16(a) of the Exchange Act of 1934 to directors and officers of foreign private issuers whose securities are registered under Section 12(b) or 12(g) of the Exchange Act of 1934. This includes, among others, issuers of securities traded on the NYSE, NYSE American or Nasdaq. More detail about this requirement is available here.

In a recent development for the reporting of mineral resources, it’s come to our attention that the SEC’s staff has taken the position that a mining company subject to the SEC’s disclosure standards under Subpart 1300 of Regulation S-K cannot report “total” mineral resources in a way that would aggregate inferred resources together with any other category of resources, even if figures for measured, indicated, inferred, and measured + indicated resources are otherwise separately disclosed as required by Subpart 1300. While we understand that Canadian regulators have taken a similar position under Canada’s National Instrument 43-101, the SEC has, for the most part, allowed Subpart 1300 issuers to supplement required disclosures with additional voluntary disclosures.  However, it appears that on this specific issue, the SEC does not view it as permissible to aggregate inferred resources with any other category of resources.  Issuers that are subject to Subpart 1300 and that have previously disclosed a “total” resources figure in their SEC filings that aggregates inferred resources with any other category of resources should discontinue this practice if they do not wish to receive an SEC comment letter on this issue.

In what will come as a relief to those Canadians and Canadian companies that own U.S. entities, on Friday, March 21, 2025, FinCEN announced an interim final rule that eliminates the requirement for U.S. entities to file beneficial ownership reports under the Corporate Transparency Act (CTA). U.S. entities will be exempt even if they are owned by a foreign person or foreign company.  As a result, only those foreign companies that directly register to do business in a U.S. jurisdiction will be required to file beneficial ownership reports under the CTA. More information is available in this eUpdate.

The NYSE American stock exchange requires a listed company to obtain shareholder approval prior to issuing shares pursuant to (i) stock-based compensation plans, (ii) certain acquisitions and change of control transactions, and (iii) certain other transactions that may result in the issuance of more than 20% of the previously outstanding shares (the “20% Rule”).  Effective March 6, 2025, the NYSE American amended the 20% Rule.  Previously, the 20% Rule contained an exemption for (x) a transaction that the NYSE American deems to be a “public offering” under a multi-factor test (the “Public Offering Exception”), and (y) any other transaction at a price not less than the greater of book or market value per share (the “Pricing Exception”).  In administering the Pricing Exception, the NYSE American has historically considered the market value per share to be the most recent closing price on the NYSE American prior to the signing of the binding agreement for the issuance.  Therefore, an issuer seeking to rely on the Pricing Exception was required to sell shares at a price not less than the greater of the latest closing price or book value per share, whichever was higher. Effective March 6, 2025, the Pricing Exception was amended in a manner that should make it easier for transactions to qualify for the Pricing Exception.  As amended, the Pricing Exemption no longer requires consideration of the issuer’s book value per share.  In addition, the market price requirement has been replaced with a “Minimum Price” requirement, where the Minimum Price is now defined as the lower of (i) the most recent closing price on the NYSE American prior to the signing of the binding agreement for the issuance, and (ii) average closing price on the NYSE American for the five trading days immediately preceding the signing of the binding agreement.  As a result, parties to a transaction will be able to take advantage of the Pricing Exception to permit an issuance of shares in excess of 20% of the outstanding shares, without shareholder approval, at a price that is lower than the most recent NYSE American closing price, as long as that price is not also lower than the average NYSE American closing price over the last five trading days.  This could be particularly useful to parties pricing a transaction during a time that the share price is increasing.  The amended rule also clarifies that the Pricing Exemption is available only for a cash transaction, and not an exchange offer. The amendments to the 20% Rule do not affect the Public Offering Exception, which remains a part of the 20% Rule, nor does it eliminate the ability of a foreign issuer to claim an exemption from the 20% Rule if it provides written certification from independent local counsel that shareholder approval is not required by its home country law.

Canadian companies with U.S. subsidiaries have been gearing up all year to file beneficial ownership reports with FinCEN pursuant to the Corporate Transparency Act, in advance of a January 1, 2025 deadline for entities that were formed prior to 2024. Many have already completed their analysis and either determined that they qualify for an exemption or filed their initial beneficial ownership reports. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the January 1, 2025 deadline. More information is available here. Companies that have not yet filed their initial beneficial ownership reports, and that are not exempt, now have a choice to make – they can either make the filing or continue monitoring developments and be ready to file should the injunction be lifted upon appeal.

Last month, I was invited to speak to the Canadian Securities Administrators, focusing on how U.S. securities exemptions, prospectus forms, and continuous disclosure requirements differ from their Canadian counterparts. One of the handouts was a side-by-side comparison of the different exemptions and forms, that we thought our readers might also appreciate. Here is an updated version you can download and print.

SEC rules prohibit taking “any action” to impede an individual from communicating directly with the SEC about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. Previously, the SEC has brought enforcement actions against, and secured large monetary settlements from, companies whose internal agreements and policies included broad confidentiality provisions that would restrict an employee from voluntarily being a whistleblower to the SEC. This month, the SEC announced a new round of settlements with seven different U.S. listed companies, who agreed to pay the SEC penalties totaling $3 million for violating these rules. What is notable about this new round of enforcement is that in each case, the SEC objected to language in internal employment agreements, separation agreements, and releases by the company that required the employee or former employee to waive their right to a monetary whistleblower award. The SEC took the position that restricting an employee’s receipt of a whistleblower award is itself an impermissible impediment on whistleblowing, even if the employee is otherwise permitted to be a whistleblower. In only three of the seven cases did the SEC also identify language that directly prohibited whistleblowing. Companies subject to U.S. jurisdiction should be aware of this SEC position, and should consider including in their agreements and policies, including employment agreements, separation agreements, and releases, language designed to ensure that personnel are both permitted to directly communicate with the SEC as a whistleblower and to receive a whistleblower award if applicable.

As discussed in our January 10, 2024 webinar, new SEC rules require resource extraction issuers that file reports with the SEC to file a Form SD within 270 days after each fiscal year end to report their payments to the U.S. federal government and foreign governments. An issuer’s initial filing deadline in 2024 will therefore depend upon its fiscal year end, with reports from many companies already due, and others’ deadlines fast approaching. For an issuer with a December 31 fiscal year end, the Form SD will be due no later than September 26, 2024. In informal discussions, the SEC’s staff has provided our firm with welcome guidance on a number of related questions, including: If using the SEC’s standards under Rule 13q-1 and Form SD, an issuer has no reportable payments for a particular fiscal year, the issuer will not be required to file a Form SD with the SEC for that fiscal year, but may voluntarily elect to do so. If an issuer is subject to Canada’s Extractive Sector Transparency Measures Act (ESTMA) with respect to a particular fiscal year, but applying ESTMA rules is not required to file an ESTMA report in Canada for that fiscal year, the issuer will also not be required to file a Form SD with the SEC for that fiscal year, but may voluntarily elect to do so.  While this guidance was limited to ESTMA, we anticipate the staff may take a similar position with respect to the other SEC approved alternative reporting regimes. An issuer is permitted to file a Form SD with reports from more than one reporting regime. For example, if an issuer has some projects subject to ESTMA reporting and other projects that are not subject to ESTMA or any other accepted alternate reporting regime, the issuer can file a Form SD with ESTMA reports for certain of its projects and apply the SEC’s reporting standards to the remainder of its projects. If the issuer chooses to use this approach, the type of reporting for each of its projects, or entity-level payments, should be clearly identified in the Form SD. If an issuer has a 100% owned subsidiary that is subject to the United Kingdom’s Reports on Payments to Government Regulations 2024 and files thereunder a report for the issuer’s fiscal year that covers all applicable projects of the issuer, the issuer should be able to rely on Form SD’s alternative reporting regime, attaching the UK report of the subsidiary and explaining these facts in the body of the Form SD. While this guidance was limited to the UK regime, we anticipate the staff may take a similar position with respect to the other SEC approved alternative reporting regimes.

Way back in 2017, one of our earliest posts discussed the legal and financial risks to both the issuer and the finder if an issuer pays a finder’s fee in connection with a sale of securities in the United States, and the person receiving the fee is not a U.S. registered broker-dealer. In many cases, this type of fee violates U.S. securities laws. However, this continues to occur from time to time, especially in deals where U.S. counsel is not consulted prior to the closing. For a brief summary of the risks of paying this type of finder’s fee, and an example of one issuer that declared bankruptcy as a result, read on. The Securities and Exchange Commission (SEC) has taken the position that a person receiving a finder’s fee with respect to a purchase of securities by a U.S. investor will, in many cases, be treated as having acted as a “broker” within the meaning of federal securities laws.[1] In those cases, the unregistered finder has violated the federal securities laws. Similarly, the issuer may have violated the federal securities laws (under an agency theory, or otherwise) by having paid such fee. In many states, state regulators take similar positions under applicable state law. The filing of post-closing notices of sale with the SEC and the states disclosing such a fee may result in federal and state regulatory enforcement actions to seek injunctions, monetary penalties or criminal sanctions against the issuer and/or finder. Perhaps more importantly, the payment of the fee may provide the relevant investor(s) with a right to rescind their investment, and create uncertainty about whether and the extent to which such rights should be reflected in the issuer’s financial statements. Such disclosures may adversely affect the issuer’s ability to raise funds, and may further increase the risk of such a rescission claim or regulatory enforcement action. One real life example is the case of Neogenix Oncology Inc. In a series of financings, Neogenix paid finder’s fees to unregistered persons.  In Q4 2011, the SEC initiated a regulatory inquiry.  Neogenix was soon dealing both with the SEC and its auditors.  Neogenix disclosed that its auditors were unwilling to review or audit Neogenix’s financial statements because of their uncertainty as to how to reflect any possible rescission rights. Without that review and audit, Neogenix was unable to timely complete and file with the SEC its quarterly report for Q3 2011, its annual report for FY 2011, and its quarterly reports for 2012. As a result, Neogenix was also unable to raise additional funds.  Several directors and employees departed, and in July 2012 Neogenix filed for bankruptcy protection under Chapter 11. [1] This blog post does not address the exemption available under federal securities law to “M&A brokers” with respect to certain transactions involving a transfer of control of a private company.    

On January 24, 2024, the SEC issued new guidance on when a special purpose acquisition company (SPAC) may run afoul of the U.S. Investment Company Act (the Act).  While this guidance was directed at SPACs that register or file reports with the SEC, it is also instructive for other types of shell companies, including Canadian capital pool companies, SPACs, and similar shell companies that do not file reports with the SEC. Why Care About the U.S. Investment Company Act? If a Canadian issuer is deemed to be an investment company that has failed to register under the Act, it is prohibited from engaging in any business in the U.S. or offering or selling any securities in the U.S., its contracts may be voidable to the extent they are subject to U.S. jurisdiction, commonly used securities exemptions such as Regulation S are unavailable to it, and if it violates the Act, persons associated with it may be held criminally liable. Registration is also not generally an option for Canadian issuers. The Act prohibits a non-U.S. entity from registering as an investment company absent special SEC action. Registration is also impractical for an operating company or a company that intends to become an operating company upon completing an acquisition. Accordingly, avoiding investment company status is important for any Canadian issuer that intends to have any connection with the United States. What is an Investment Company? Subject to certain exceptions, the Investment Company Act defines an investment company to include any issuer which: is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. federal government securities and cash items) on an unconsolidated basis. Operating companies typically avoid investment company status by having a different core business purpose – such as mining, drug development, or making widgets – and by having significant non-cash, non-investment assets. Shell companies that do not have significant non-cash, non-investment assets, and that do not have an operational business, are at greater risk of being deemed an investment company. What to Do? To avoid investment company status, capital pool companies, SPACs, and similar shell companies that have, or intend to have, any connection with the United States should review the SEC’s new guidance* and structure their assets and operations accordingly.  Assuming that the company has the intention to become an operating company as soon as possible through an acquisition of an operating company whose business would become the company’s primary business, it would be prudent for the company to: Describe itself and its intentions in a manner consistent with this purpose. Ensure that the company’s directors, officers, and employees are actively engaged and focused on seeking and completing the transaction that would result in the company being an operating company. Complete its acquisition as quickly as possible. In its new guidance, the SEC stated that “while the duration of a SPAC is not the sole determinant of its status under the Investment Company Act, a SPAC’s activities may become more difficult to distinguish from those of an investment company the longer the SPAC takes to achieve its stated business purpose.” The SEC noted that an exemption under the Act for a transient investment company can be available for up to 12 months, and that escrow accounts of certain blank check companies with a term limited to 18 months were not regulated under the Act, before saying that a “SPAC that operates beyond these timelines raises concerns that the SPAC may be an investment company, and these concerns increase as the departure from these timelines lengthen.” The SEC acknowledged that exchange listing rules contemplate potentially longer SPAC lifespans but said that those rules were adopted for a different regulatory purpose and do not address investment company status concerns. Pending the completion of its acquisition, avoid holding or investing in any assets that would be deemed “investment securities” under the Investment Company Act. This term is quite broad, and includes equity and debt securities, most government bonds, and several common types of term deposits.  For this reason, shell companies should pay very close attention to the types of accounts they create with their banks, and the types of investments they hold pending their transformative acquisition. Cash and U.S. federal government securities are not “investment securities”. Pending the completion of the acquisition, minimize the amount of time spent on managing investments, and do not emphasize to investors the quality or return on such investments. Ensure that its acquisition target is not an investment company, and that it will be an operating company and not an investment company upon completion of the acquisition. The analysis of whether a company is an investment company can be quite complex. The above is only an overview of factors that could be relevant for determining whether a capital pool company, SPAC, or similar shell company is an investment company. Companies should seek legal advice to determine their own status. *The SEC’s new guidance was included in the SEC’s final release adopting new rules for SPACs, beginning on page 360. See Final rule: Special Purpose Acquisition Companies, Shell Companies, and Projections (sec.gov)

As discussed in our eUpdate published today, the SEC on January 24, 2024 adopted final rules amending the disclosure and registration requirements applicable to special purpose acquisition companies (SPACs) and shell companies that register or file reports with the SEC. These amendments impose significant new requirements on SPAC IPOs, as well as de-SPAC and similar transactions for SEC reporting shell companies. The new SEC rules do not apply to Canadian capital pool companies, SPACs, or shell companies unless they register or file reports with the SEC. As part of the final rule package, the SEC also amended its guidance for all SEC reporting companies on how to make economic projections in SEC filings, as well as issuing guidance on when a SPAC may be considered an investment company. We will address this Investment Company Act guidance in a further post.

On October 10, 2023, the Securities and Exchange Commission approved amendments to the Regulation 13D-G reporting regime for persons who beneficially own more than 5% of a class of securities (“5% Owners”) that is registered under Section 12 of the Securities and Exchange Act of 1934, as amended.  The amendments accelerate the deadlines by which 5% Owners must file initial reports and amendments on Schedule 13D or 13G, mandate the use of machine-readable language in those reports, and provide for additional amendments and guidance.  The amendments apply to 5% Owners of all Section 12 registered securities, including 5% Owners of Canadian foreign private issuers and MJDS filers listed on Nasdaq, the New York Stock Exchange and the NYSE American. For more information, see our eUpdate.

As discussed in our Governance & Compliance Insider blog and a recent Dorsey eUpdate, all companies with securities listed on NYSE, NYSE American, or Nasdaq will be required to adopt and comply with updated clawback policies governing the recovery of erroneously awarded compensation by December 1, 2023, pursuant to rules proposed by each stock exchange and approved by the SEC under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  The new clawback requirements will apply to substantially all listed companies, including foreign private issuers and Canadian MJDS filers.

On December 14, 2022, the SEC adopted final rules amending Rule 10b5-1, a safe harbor from liability under the U.S. insider trading rules.  The safe harbor permits directors, executive officers and others, including issuers, to engage in securities transactions while in possession of material non-public information, by entering into a binding contract, instruction or plan adopted prior to effecting the transaction and at a time when the seller or buyer was not in possession of material non-public information about the issuer. The new rules include a number of measures intended to limit certain potentially abusive strategies permitted under the old rules and certain new disclosure requirements intended to enhance investors’ understanding of the use of Rule 10b5-1 by insiders as well as other related disclosures. The final rules will become effective February 27, 2023. Canadian issuers, particularly those that are cross-listed in the United States, should be aware that: Canadian compliant “automatic plans” may not meet the technical requirements of new Rule 10b5-1, and thus may not provide a safe harbor under the U.S. insider trading rules. The reach of the U.S. insider trading rules may extend further than anticipated; the SEC staff has demonstrated an expansive view of its jurisdictional authority, in circumstance in which it concludes there are good policy reasons to do so. The U.S. insider trading prohibitions do not apply only to U.S. listed companies or SEC registrants; transactions involving securities of issuers in the OTC markets would also be subject to the rules. Canadian issuers, as well as their directors, officers and shareholders, should review their existing insider trading policies and disclosure practices prior to the effective date, and determine what amendments or updates are appropriate in their circumstances. A summary of the new rules can be found here and a copy of the adopting release can be found here.

Did you know that the Canada-U.S. multijurisdictional disclosure system (MJDS) includes an SEC form that does not include any minimum market capitalization requirement, and can be used to complete a public offering of securities in the United States without triggering any ongoing SEC reporting requirements?  It’s true. Form F-7 allows certain TSX and TSXV-listed Canadian companies to extend a rights offering to its United States shareholders on a public offering basis, provided they satisfy certain form eligibility requirements.  U.S. information legends are included in the Canadian offering documents, which are filed with the SEC under cover of Form F-7, together with certain consents.  A Form F-7 is not normally reviewed by the SEC.  The shares issued to U.S. shareholders are “free trading” and are issued without any U.S. restrictive legend.  Exemptions from state registration requirements are available in most states.  A company does not need to satisfy any minimum market capitalization in order to use Form F-7, nor must it be an SEC reporting company.  Perhaps most surprisingly, filing a Form F-7 and completing the rights offering does not subject the company to ongoing SEC reporting requirements, so the form can be used by companies that wish to avoid the Sarbanes-Oxley Act and other ongoing SEC requirements. Form F-7 can be a useful tool in a Canadian company’s toolkit.

As many of our readers will have heard, the Canadian Securities Administrators (“CSA”) has announced the adoption of a new prospectus exemption for certain reporting issuers listed on a Canadian stock exchange (the “Listed Issuer Financing Exemption”), effective November 21, 2022.  To date, little attention has been given to the potential effect of the Listed Issuer Financing Exemption on the practices of Canadian listed companies raising funds from U.S. investors.  In this post, we discuss those implications and suggest methods for relying on the Listed Issuer Financing Exemption while still preserving the ability to raise funds from U.S. investors. Overview of the Listed Issuer Financing Exemption The Listed Issuer Financing Exemption will allow certain reporting issuers listed on a Canadian stock exchange to complete a public offering of securities in Canada for cash to raise up to C$5 million (up to C$10 million for larger companies), with no investor qualifications, no legends or hold periods on the securities sold in the public offering, and no prospectus (an “Offering”).  As such, the Listed Issuer Financing Exemption may become an important fundraising tool for Canadian public companies, especially those with smaller market capitalizations. Many Canadian law firms have published summaries of the Listed Issuer Financing Exemption and its requirements.  The most important requirements for our purposes are that the issuer publish a press release describing the Offering, and file and post on the issuer’s website a completed Form 45-106F19 which outlines certain brief information about the Offering (the “Offering Document”).  The intention of the CSA appears to have been to reduce the burdens on reporting issuers when conducting a relatively small Offering, as long as the issuer is current in its continuous disclosure requirements, meets certain other requirements, and publishes certain basic information about itself and the Offering. Overview of U.S. Private Placement Exemptions The U.S. federal securities laws do not provide an equivalent exemption to the Listed Issuer Financing Exemption.  Most Canadian public companies that offer and sell securities to U.S. investors as part of an Offering (a “U.S. Offering”) conduct the U.S. Offering either: In a fully underwritten offering, as resales by the underwriter to U.S. qualified institutional buyers in reliance upon Rule 144A under the U.S. Securities Act; or In non-brokered or agency offerings, as a sale by the issuer exclusively to U.S. accredited investors, without any general solicitation or general advertising, pursuant to Rule 506(b) of Regulation D under, or Section 4(a)(2) of, the U.S. Securities Act. Therefore, outside of underwritten Rule 144A offerings, most U.S. Offerings by Canadian public companies are undertaken on the basis that no general solicitation or general advertising has been made in the U.S. Offering. General solicitation and general advertising includes, without limitation: Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and Subject to limited exceptions, any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. As the internet became more prevalent, the SEC issued an interpretation confirming that the “use of an unrestricted, publicly available website to offer or sell securities constitutes a general solicitation and is not consistent with the prohibition on general solicitation and advertising … if the website contains an offer of securities”. Notwithstanding the foregoing, the SEC has published rules governing the purpose, content and use of press releases which, if complied with, provide a safe harbor under which a press release will not be deemed to be general solicitation or general advertising for a U.S. Offering. Rule 506(c) of Regulation D under the U.S. Securities Act is an alternative exemption that allows an issuer to make sales to U.S. accredited investors in an Offering in which general solicitation or general advertising is employed, but only if the issuer takes certain steps that the SEC deems to be “reasonable” in verifying the accuracy of the investor’s claim of being an accredited investor.  The SEC has provided some non-exclusive examples of steps that may be considered reasonable, include obtaining and reviewing an individual investor’s tax returns to establish net income, or obtaining a recent certification from the investor’s U.S. broker, lawyer or accountant.  To date, this exemption has been used relatively rarely, due to the significant additional burden on issuers and investors of satisfying this due diligence requirement, and the risk that asking for this information will scare off investors who consider it an invasion of privacy. Planning a U.S. Offering Under the Listed Issuer Financing Exemption An issuer that consults with its U.S. counsel in advance should be able to ensure its ability to proceed with a U.S. Offering as a part of a broader Offering under the new Listed Issuer Financing Exemption.  Whichever U.S. exemption will be used, the issuer’s forms of offering documents will need to be updated.  More importantly, issuers that intend to continue relying on the Rule 506(b) or Section 4(a)(2) exemptions must ensure that their use of the Listed Issuer Financing Exemption for the Offering will not involve any general solicitation or general advertising for purposes of the U.S. Offering.  Of particular concern are the purpose, content and use of the mandated press release, the method of using and posting the Offering Document on the issuer’s website, and the method by which U.S. investors are brought into the U.S. Offering.  Issuers that intend to allow general solicitation and rely on the Rule 506(c) exemption must prepare new due diligence procedures. To ensure compliance under the new rules, the following matters should be discussed with U.S. counsel in advance: The issuer’s eligibility for, and selection of, the U.S. securities exemption for the U.S. Offering; The purpose, content and use of the press release announcing the Offering – in many cases, the names of underwriters or agents participating in the Offering may not be included in the press release; The approach toward posting the Offering Document on the issuer’s website, including whether the issuer should employ geofencing or geoblocking technology, mandatory questionnaires or other means to prevent users in the United States from accessing the Offering Document on the website; The description of the U.S. Offering restrictions within the Offering Document and/or in a U.S. “wrap” around the Offering Document that is used for purposes of explaining the U.S. Offering; The portions of the subscription agreement to be completed by U.S. investors, or separate U.S. subscription agreement, if applicable; The response to any prospective U.S. investor that became interested in the U.S. Offering by viewing the press release or Offering Document, and how to reduce the risk of this occurring; In a Rule 506(c) offering, the method of verifying an investor’s status as an accredited investor; Any underwriters, agents or finders, or the payment of fees or commissions to U.S. persons or for soliciting U.S. investors; and Any applicable U.S. notice filing or state securities law requirements.

In 2022, many SEC reporting companies with mineral resource assets completed their inaugural SEC annual report on Form 10-K or 20-F subject to the SEC’s mining disclosure rules in subpart 1300 of Regulation S-K (“subpart 1300”), and filed their inaugural subpart 1300 technical report summaries, if applicable. As 2023’s annual reporting season approaches, we outline for our readers some important factors to consider in preparing for Year 2 of subpart 1300 compliance.  Depending on the situation, an issuer may need to begin its preparations well in advance of its fiscal year end (“FYE”), or risk being in default of its reporting requirements. Overview Subpart 1300 requires an issuer with material mining assets that is filing a new Form 10-K or 20-F (“Annual Report”) to report mineral resources and reserves as of the end of the fiscal year, with a comparison to prior year figures. Determinations of mineral resources and reserves must be based on information provided by a qualified person (“QP). If an individual property is material to the issuer and the issuer will be disclosing any mineral resources or reserves for that property, the issuer must file with the SEC a technical report summary by a QP that complies with subpart 1300. For most issuers subject to subpart 1300, the first Annual Report for a year ended on or after December 31, 2021, filed in 2022, was the first report required to comply with subpart 1300 and to be accompanied by a subpart 1300 compliant technical report summary, where applicable. Accordingly, for most issuers subject to subpart 1300, preparing for its first Annual Report for a fiscal year ended on or after December 31, 2022, to be filed in 2023, will be the first time the issuer has needed to assess the requirements for updating subpart 1300 disclosure. An updated technical report summary is not required every year. In conversations with the Staff of the SEC, they expected most technical report summaries would be good for 3-5 years before updating was required, although material changes at a project (for example, a significant and sustained cost increase) would require that it be updated sooner. As part of subpart 1300 disclosure in Year 2 (and each year in the future), issuers will be required, among other things, to: reassess, as at the FYE, which mineral properties are material to the issuer; have a QP determine, as at the FYE, for each material property that has a previously-filed subpart 1300 technical report summary, whether all material assumptions and information set forth in the technical report summary, including assumptions relating to modifying factors, price estimates, and scientific and technical information (e.g., sampling data, estimation assumptions and methods), remain current; have a QP assess, as at the FYE, whether any changes have occurred in mineral resources or reserves, and explain the changes if any (including the comparison discussion required by Item 1304(e) of the current year’s mineral resources or reserves against the prior year’s mineral resources or reserves); determine which QP will update prior estimates of mineral resources and reserves as of the new FYE or confirm that the estimates remain current as at the FYE; if there are material changes to the information in a technical report summary, prepare the new technical report summary if required. Subpart 1300 does not require the use of the same QP who prepared the initial technical report summary; however, in some cases a consent may be required from the previous QP. Year 2 Reporting Disclosure For Annual Reports where the mineral reserves and mineral resources remain unchanged as of the FYE, the Staff of the SEC has indicated that they expect to see a statement in the Annual Report that the QP has determined that all material assumptions and information, including those related to price estimates, remain current as of the FYE. Year 2 Backup Documentation Except with respect to an updated technical report summary, there is no specified backup procedure or documentation for updating or confirming estimates in Year 2. We recommend some form of backup memo or certification from the QPs relating to the Year 2 disclosure as part of an issuer’s disclosure controls and procedures. Procedures For New Material Properties If any new material property is identified, the issuer may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless the Annual Report is accompanied by a subpart 1300 compliant technical report summary. If a material property has an existing subpart 1300 technical report summary, but the QP is unable to determine that all material assumptions and information set forth in the report remain current as of the new FYE, the issuer similarly may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless the Annual Report is accompanied by a new or updated subpart 1300 compliant technical report summary. We recommend that issuers begin their assessment of these matters prior to the FYE, because the preparation of any required new or updated technical report summaries may take significant time. If an issuer is unable to finalize any required new or updated subpart 1300 technical report summary by the date of the Annual Report, the Annual Report must report that the property has no mineral resources or reserves. While this approach may be permissible under the Annual Report form requirements, it may result in an adverse reaction from investors and analysts.  Depending on the circumstances, it may also require the issuer to suspend sales under certain SEC registration statements if it may constitute or result in a material misstatement or omission. Procedures For New Properties That Are Not Material Whether or not a property is material, the issuer may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless those mineral resources or mineral reserves are determined in accordance with subpart 1300. For non-material properties that are discussed in the summary disclosure section, a technical report summary is not required but a QP must still conduct the required procedures to determine mineral resources or mineral reserves as of the FYE. Internal Controls Disclosure for Resource and Reserve Estimates in Year 2 We note that the language of Item 1305 relating to internal controls disclosure is open to significant interpretation by the reader.  In discussions with the Staff of the SEC, they noted the internal control disclosure was intended to be at the corporate level, not the project level.  In other words, are there board committees or members of senior management that are responsible for the oversight of mineral estimates?  What are the company’s procedures?  To see examples of this type of disclosure, keep in mind that oil and gas companies have been subject to this requirement for a number of years.

In Canada it’s considered no big deal to ask shareholders to approve a continuance or redomicile of a company from one province to another, or between Canadian provincial and federal jurisdictions. That’s also largely true from a U.S. securities perspective, but only because the continuance is being made within the same country. If a continuance or redomicile is made from one country to a different country, it’s a completely different story. Canadian counsel and their clients are sometimes surprised to hear that if a company continues from Canada to another country, or if a company continues into Canada, the failure to comply with U.S. securities laws may subject the company to rescission rights by all U.S. securityholders. The SEC takes the position that if a company subject to the jurisdiction of one country asks its shareholders to approve a continuance or redomicile into another country, the transaction involves the offer and sale of securities by the continued company to all of the existing shareholders. Under Section 5 of the U.S. Securities Act, these offers and sales must be made pursuant to an effective registration statement, filed and cleared with the SEC, unless an exemption is available. Regulation S may exempt the sales to persons outside the U.S. For U.S. securityholders, certain exemptions such as Section 3(a)(10) or Rule 802 may be available, but these exemptions require U.S. legal and structuring advice during the course of the transaction, because they require specific procedures, disclosures and filings that cannot be completed after the fact. Other, less demanding, exemptions may not be available if the company is publicly traded. If no exemption is complied with or available, then generally speaking, all U.S. securityholders will have an automatic right of rescission under the U.S. Securities Act for a period of one year. For a public company, this can raise meaningful disclosure considerations even if no U.S. securityholder makes a claim. The company may also be subject to enforcement actions by U.S. securities regulators.

In conjunction with the OTC Markets, Dorsey has updated its Guide to Joining the OTCQX or the OTCQB Markets for Canadian and other Foreign issuers. Canadian issuers who trade on a qualified foreign stock exchange (which include the Toronto Stock Exchange, TSX Venture Exchange, Canadian Securities Exchange and the NEO Exchange) and who meet certain financial criteria can trade in the United States on the OTCQX or the OTCQB by relying on their Canadian disclosure and without needing to register with the United States Securities and Exchange Commission. The OTCQX is for more established companies that meet higher financial standards while the OTCQB is for early-stage and developing companies. The OTCQX and OTCQB provide trading platforms in the United States that offer many of the benefits of traditional U.S. stock exchanges with less regulatory burden and lower reporting costs. Most Canadian issuers will require an approved sponsor to assist with joining the OTCQB and OTCQX. Dorsey is an approved sponsor and we have assisted over 150 issuers with their trading on the OTCQX or OTCQB. The Guide to Joining the OTCQX or the OTCQB Markets for Canadian and Other Foreign Issuers can be found here.

The OTC Markets has published proposed rule changes that would, effective September 23, 2021, require that in order to be quoted on the OTCQX International, a company must either be an SEC reporting company, file reports with the SEC under the Regulation A+ reporting system, or be exempt from SEC reporting requirements by virtue of Rule 12g3-2(b).  Companies relying on the Rule 12g3-2(b) exemption must annually certify to the OTC Markets that they continue to comply with that exemption.  Another alternative, which had allowed companies to be quoted on the OTCQX International if they are exempt from SEC reporting requirements for other reasons, is being eliminated.  Companies previously relying on that exemption may transfer to the OTCQB tier of the OTC Markets if they satisfy the OTCQB requirements. While many publicly traded Canadian companies comply with Rule 12g3-2(b), and therefore will be able to continue to be quoted on the OTCQX International, the proposed rule changes may adversely affect three groups of companies: Companies whose trading volumes in the United States are sufficiently high that during the course of their most recently completed fiscal year, less than 55% of worldwide trading occurred in the one or two countries constituting the primary non-U.S. trading market; Newly public companies who are seeking an OTC quotation during the same fiscal year in which they have first begun trading in Canada or another foreign country; and Companies that fail the SEC’s “foreign private issuer” test under Rule 3b-4, because a majority of their voting securities are beneficially held by U.S. residents and they have an additional strong nexus to the United States. These companies would not satisfy the requirement of Rule 12g3-2(b) to be a “foreign private issuer” with a “primary trading market” outside the United States, and therefore would not be eligible to apply to the OTCQX International or in the case of a company already quoted on the OTCQX International, to continue such quotation, unless they were SEC or Regulation A+ reporting companies.  They could, however, apply for quotation on the OTCQB and later upgrade to the OTCQX International if they gained or regained compliance with Rule 12g3-2(b).

One of the hottest going-public trends in 2020 and 2021 has been the rise of SPACs – Special Purpose Acquisition Companies – as a vehicle for private companies to go public. SPACs are shell companies that are formed, funded and taken public for the purpose of later acquiring an operating company. By merging with a SPAC, the private company effects a reverse takeover, inheriting the SPAC’s existing cash and taking over its management. SPAC mergers have quickly increased from being occasional to outpacing the number of traditional IPOs. A SPAC merger involves different players that can have different motivations than a traditional IPO. In a traditional IPO, a private company may slowly prepare to become a public company, augmenting staffing and systems over a period of years, before engaging with underwriters that will conduct an initial public offering of securities for the company. By comparison, in a SPAC merger, the SPAC typically has a limited window of time, usually 12-24 months, in which it can identify, negotiate and close a qualifying transaction. Failure to complete a transaction by the end of that period requires the SPAC to return capital to its investors. This limited timeframe puts great pressure on the private company to be ready to go public more quickly. In addition, the SEC imposes certain disabilities on successors to SPACs. On March 31, 2021, the SEC issued two new guidance documents highlighting these and other important issues that a private company should consider before going public by merging with a SPAC. First, the SEC’s Division of Corporation Finance issued a Staff Statement on Select Issues Pertaining to Special Purpose Acquisition Companies, which reminds private companies that if they go public through a SPAC merger, the combined public company will be subject to a number of special rules applicable to former shell companies, which include: Financial statements for the acquired business satisfying the SEC’s standards must be filed within four business days of the completion of the merger, as part of a larger filing that must include extensive additional information regarding the combined business, similar to the information that would be required in an SEC registration statement or prospectus (referred to as Form 10 information); The combined public company cannot use incorporation by reference in a Form S-1 registration statement for three years after the completion of the merger; The combined public company cannot use Form S-8 to register compensatory securities offerings until at least 60 days after the combined company has filed current Form 10 information; The combined public company will be an “ineligible issuer”, as defined by the SEC, which means that for three years following the completion of the merger, the issuer: Cannot qualify as a well-known seasoned issuer; May not use a free writing prospectus; May not use a term sheet free writing prospectus available to other ineligible issuers; May not conduct a roadshow that constitutes a free writing prospectus, including an electronic roadshow; and May not rely on the Rule 163A safe harbor, which protects certain pre-filing communications from being considered impermissible offers of securities; The combined public company will be subject to the Exchange Act’s requirements relating to adequate books and records, internal control over financial reporting and disclosure controls and procedures; and If the SPAC was listed on a national securities exchange, such as the New York Stock Exchange or NASDAQ, the exchange will require the combined public company to satisfy all quantitative and qualitative standards applicable to an initial listing in order to remain listed after the merger. Further, while not mentioned in the Staff Statement, Rule 144 is not available to permit resales of securities of a former shell company until one year after the resulting issuer has filed current Form 10 information, and thereafter, its availability is always conditioned upon the combined public company continuing to be an SEC reporting company that is current in its SEC filings. Concurrent with the Staff Statement, Paul Munter, the SEC’s Acting Chief Accountant, issued a public statement on Financial Reporting and Auditing Considerations of Companies Merging with SPACs. This statement highlights a number of things for private companies to consider before completing a SPAC merger, generally seeking to impress upon private companies that a SPAC merger should be approached with the same seriousness, planning and rigor as a traditional IPO: Marketing and Timing Considerations. While a private company may spend years preparing for a traditional IPO, SPAC mergers are often sought to be completed within a few months. It is, therefore, essential that target companies have a comprehensive plan in place to address the resulting demands of being a public company on an accelerated timeline. This includes preparing for robust financial reporting and filing requirements, as well as an evaluation of various functions, including people, processes and technology, that will need to be in place to meet SEC filing, audit, tax, governance and investor relations need post-merger. It is essential for the combined public company to have a capable, experienced management team that understands what the reporting and internal control requirements and expectations are of a public company and can effectively execute the company’s comprehensive plan on an accelerated basis; Financial Reporting Considerations. The combined public company should have sufficiently knowledgeable personnel, appropriate staffing and processes in place to produce high quality financial reporting that is in compliance with all SEC rules and regulations. Management should be prepared for various financial reporting challenges that may arise in the process of the SPAC merger, including complex accounting issues such as the determination of the appropriate accounting principles, identification of the combined company’s predecessor entity for financial statement purposes, the form and content of the required financial statements and pro forma information, which entity should be treated as the acquirer for accounting purposes, accounting for any earn-out or compensation arrangements, transitioning from private to public company accounting principles and potential acceleration of adoption of recent accounting standards; Internal Control Considerations. Management should understand the requirements relating to internal control over financial reporting and disclosure controls and procedures, including the timing of management’s first required reports on these topics, and any required auditor attestation of internal control over financial reporting; Corporate Governance and Audit Committee Considerations. Companies should understand the importance and role of the board and audit committee of each party to the SPAC merger, and the combined public company, including the range of skills, experience and independence of the board of the combined public company; and Auditor Considerations. The private company’s annual financial statements should be audited in accordance with the Public Company Accounting Oversight Board (PCAOB) standards by a public accounting firm registered with the PCAOB and compliant with both PCAOB and SEC independence requirements. This requires thoughtful consideration, and may require changes to previously prepared financial statements, the auditor or the audit team. Auditor independence, in particular, can be an issue in SPAC mergers. SPAC mergers provide an important alternative to a traditional IPO, but as discussed above, they should be approached with the same seriousness, planning and rigor as a traditional IPO.

Effective December 8, 2020, the SEC’s definition of an “accredited investor” that is eligible to purchase securities in a private placement will be expanded to cover additional categories of investors, including investment advisers, individuals with certain professional certifications, and certain family offices, Indian tribes, governmental bodies, LLCs, funds and others.  For more details, click here. To take advantage of the new, broader definition, Canadian issuers should reach out to their U.S. counsel to update their applicable subscription agreement and other investment forms.

2020 is shaping up to the be the biggest year ever for at-the-market (ATM) financing programs, and Canada-US cross-listed companies are getting their share of the financing.  In the last three months alone, at least 14 Canadian issuers that are listed on a NYSE or Nasdaq exchange have filed with the SEC for at-the-market (ATM) financing programs across a spectrum of industries, including mining, life sciences, technology, royalty and commodity trust issuers. Find out more about raising money through an ATM by: Reading our newly-published Guide to At-the-Market Programs for MJDS Issuers; Participating in one of our ATM webinars; or Calling your Dorsey contact.

We are seeing a significant increase in cases where a qualified person (QP) or related engineering firm has prepared a technical report or other required disclosure for a mining company, but then resisted, or outright refused, to provide the written consent that the mining company is required to obtain in order to be permitted to disclose the name of the QP and the conclusions of the QP in a prospectus that forms part of an SEC registration statement for a public offering or for the mining company’s annual report that is filed with the SEC.  This can be costly and damaging to the mining company, because it may put the company in a position where it cannot satisfy both the SEC consent requirements and the requirements of Canada’s National Instrument 43-101 (NI 43-101) without having another QP redo the first QP’s work. The incidence of QPs taking this position seems to be increasing as the SEC’s new mining disclosure rules under subpart 1300 come into effect.  For companies that file with the SEC on non-MJDS forms (Forms 10-K, S-1 and S-3 for domestic issuers, and Forms 20-F, F-1 and F-3 for foreign private issuers), the subpart 1300 rules will impose new requirements on QPs that will increase their exposure to potential liability.  The subpart 1300 rules will not apply to MJDS forms.  For the many Canadian mining companies that file with the SEC under the MJDS system (e.g., Forms 40-F and F-10), their QPs will not be subject to any increased exposure.  Nevertheless, we are seeing QPs taking a more cautious approach to consents as they become more aware of the potential liability to which they have always been subject as “experts”. To avoid the potential for unpleasantness at a later date, mining companies that may require an SEC consent from a QP should raise this requirement with the QP as part of the process of initially engaging the QP and consider building the QP’s obligation to provide any required consents into the express terms of any written agreement with the QP.

On April 29, 2020, the SEC issued new Compliance & Disclosure Interpretations (the “New C&DIs”) that clarified the compliance deadline for many mining companies that file with the SEC on non-MJDS forms such as Form 10-K or Form 20-F to comply with the SEC’s new mining disclosure rules in Subpart 1300 of Regulation S-K. The New C&DIs follow closely on the heels of the National Mining Association having submitted a letter on April 24, 2020, to the SEC’s Chairman, Jay Clayton, requesting a one-year delay in the Subpart 1300 compliance deadline in light of the COVID-19 pandemic. The SEC’s adopting release for Subpart 1300 on October 31, 2018, had required that mining companies begin complying with the new rules, including the filing of technical report summaries, beginning with the annual report filed for the company’s first fiscal year beginning on or after January 1, 2021 (in other words, in early 2022 for calendar year companies, and later in 2022 or very early 2023 for other companies). However, that timeline was to be accelerated for new registrants and also, apparently, for companies accessing the public markets, with compliance required beginning January 1, 2021, for any registration statement filed on or after that date. The treatment of shelf takedowns from existing registration statements after January 1, 2021, was not specifically addressed. The New C&DIs provide much-needed clarity regarding the Subpart 1300 compliance deadline for many mining companies: For non-calendar year companies, Subpart 1300 will not apply until the beginning of the company’s first fiscal year on or after January 1, 2021. For example, a company with a June 30 fiscal year end will not in any circumstance become subject to Subpart 1300 until July 1, 2021. If a company files a Securities Act registration statement after the beginning of its first fiscal year on or after January 1, 2021, and prior to its annual report for such fiscal year,[1] it is not required to comply with Subpart 1300 in the Securities Act registration statement if the form being used permits incorporation by reference of information from a prior annual report that was not subject to Subpart 1300, and such disclosure is not otherwise prohibited under the SEC’s rules. For example, if a calendar-year end company files a Form S-3 or Form F-3 during 2021, it may incorporate its annual report on Form 10-K or Form 20-F for the fiscal year ended December 31, 2020, even if that report contains disclosure in accordance with SEC Industry Guide 7. As a result of the New C&DIs, many mining companies that are working on implementing Subpart 1300 will not be required to comply with the new rules until the date in 2022 when they file their annual report for their first fiscal year beginning on or after January 1, 2021. The exception to this rule will be companies that file an initial Exchange Act registration statement or a Securities Act registration statement that does not permit incorporation by reference[2] after the start of their first fiscal year beginning on or after January 1, 2021. Those filings will trigger early compliance with Subpart 1300. The New C&DIs are available at sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#section155. The SEC’s adopting release for Subpart 1300 is available at sec.gov/rules/final/2018/33-10570.pdf. Links for Dorsey's prior Q&A and webinar regarding Subpart 1300 are available at dorsey.com/newsresources/publications/client-alerts/2019/02/new-mining-disclosure-rules-2019 and dorsey.com/newsresources/events/videos/2019/02/webinar-playback-sec-new-mining-rules, respectively.   [1] Technically, the New C&DIs refer to the date on which audited financial statements for such fiscal year are required to be included in the Securities Act registration statement. [2] For example, Forms F-1 and S-1, the SEC’s equivalents to a “long form” prospectus, do not permit incorporation by reference if the company (i) is a new registrant, (ii) has not yet filed its SEC annual report for its most recently completed fiscal year, (iii) is delinquent in its SEC reports, (iii) is or was, or has a predecessor that was, within the last three years, a blank check company, a shell company, or a registrant for an offering of penny stock, or (iv) is registering a business combination. Forms F-4 and S-4, which are used to register business combinations, also include restrictions on incorporation by reference, depending on the nature of the registrant and the company being acquired.