With a current team of 16 professionals and offices in Edmonton, Calgary and Toronto, Midnight Integrated Financial Inc. (“Midnight”) and its subsidiaries provide private equity capital, commercial loans, litigation funding and other financial products and services to Canadian businesses.
Midnight completed the first round of its capital raise in August 2018 through the issuance of Senior Preferred Shares. Midnight is currently offering Second Preferred Shares (“Midnight Shares”) pursuant to exemptions from prospectus and registration requirements in securities laws. The Midnight Shares feature monthly dividends (1.0% pa), growth opportunities (up to 7.0% pa), and cashless subscription/early liquidity options that are intended to provide the opportunity for investors to use the capital gains exemption (CGE).
WHO MAY BE INTERESTED IN LEARNING ABOUT THE CGE OPPORTUNITY?
1. Every individual who has not used all of their CGE and who owns shares of a private corporation.
2. Every family trust that has beneficiaries of any age who have not used all of their CGE and that owns shares of a private corporation.
The CGE opportunity may be particularly relevant for shareholders of private corporations that are not qualified small business corporations (e.g., holding companies or operating companies with significant non-business or foreign assets), and in circumstances where a shareholder otherwise would receive dividends or salary (e.g., to cover a debit shareholder loan balance).
HOW DOES THE CGE OPPORTUNITY ARISE?
1. Cashless subscription option. Rather than paying cash for Midnight Shares, the investor will exchange shares (voting, non-voting, common or preferred) of any private corporation (Aco) for Midnight Shares in a transaction that is intended to be tax-deferred. A due diligence and processing fee of 5.0% (plus GST/HST) of the value of the Aco shares is payable for each cashless subscription.
2. Early Liquidity Option. Under the early liquidity option the investor will own the Midnight Shares for 24 months and then close the sale of the Midnight Shares to a Midnight affiliate. In these circumstances, the sale price will be 90% of the initial redemption amount of the Midnight Shares plus any growth that occurs during the ownership period.
3. Upfront deposit. If the investor uses the early liquidity option, the Midnight affiliate will pay 80% of the redemption amount of the Midnight Shares to the investor immediately, in cash, as an upfront deposit.
4. Aco share repurchase. Aco will be required to repurchase its shares from Midnight and will pay the repurchase price in cash. In some circumstances Aco may receive a tax refund because of this share repurchase. The investor could use the cash received from the Midnight affiliate as an upfront deposit to make a shareholder loan to Aco to help fund the repurchase of the Aco shares.
In 24 months, the Midnight affiliate will purchase the Midnight Shares and pay the balance of the purchase price in cash. Investors have the opportunity to use the CGE to shelter the gain realized from closing the sale of the Midnight Shares.
Overall, the investor should receive 80% of the value of the Aco shares immediately as an upfront deposit, 2.0% of the value of the Aco shares over 24 months as dividends on the Midnight Shares, and an additional 10-24% of the value of the Aco shares in 24 months when the sale of the Midnight Shares closes.