Canada: Significant Changes To Canada's Exempt Market For Life Science Companies

Life Science companies in Canada are very interested in securities law related to access of capital from the exempt market (eg. accredited investors). As part of its ongoing review of the exempt market in Canada, the Canadian Securities Administration ("CSA") recently finalized and released important amendments to National Instrument 45-106 Prospectus and Registration Exemptions (to be retitled National Instrument 45-106 Prospectus Exemptions) as well as the Companion Policy to NI 45-106 (NI 45-106 and CP45-106) and other related instruments. This regulatory development will have a significant impact on life science issuers, registrants and investors alike. Some of the most popular prospectus exemptions in NI 45-106 are being overhauled and new prospectus exemptions introduced, including a version of the friends, family and business associates exemption in Ontario and a new exemption aimed at asset-backed commercial paper. These changes, which came into force on May 5, 2015, will have implications for life science issuers' subscription agreements, offering memoranda and compliance practices, among other things, while dealers and other registrants will need to understand the implications of the amendments on their ability to make recommendations to clients about exempt market securities.

The amendments are the result of the CSA's review of the exempt market in Canada and, in particular, whether the prospectus exemptions that were available in NI 45-106 remained relevant in light of economic developments and the perceived need for more protections for retail investors.

Overview of Key Changes

  1. Accredited investor exemption (AI Exemption)

    • Ontario joins the rest of the country in permitting fully managed accounts to purchase investment fund securities under the managed account category of the AI Exemption, without regard to the nature of the underlying account holder
    • The definition of accredited investor is being expanded to add a new higher-wealth category of individual accredited investor with net financial assets of more than $5 million (this is the same category of individual who qualifies as a "permitted client" for other purposes)
    • Certain family trusts will now qualify as accredited investors
    • Individual accredited investors with net financial assets of less than $5 million will be required to complete and sign a risk acknowledgement form before or at the same time of a purchase of securities under this exemption
  2. Minimum amount investment exemption (MA Exemption)

    • The MA exemption is no longer available to individual investors
  3. Friends, family and business associates exemption (Ontario) (FFBA Ontario Exemption)

    • A version of the friends, family and business associates exemption which is largely harmonized with the exemptions available in other jurisdictions in Canada, will now be available for use in Ontario
    • The FFBA Ontario Exemption is not available for use by investment fund issuers and, like the version of this exemption in Saskatchewan, will require the investor, the individual at the issuer with whom the investor has a relationship, and the issuer to complete and sign a risk acknowledgement form
    • The founder, control person and family exemption currently in NI 45-106 and available to Ontario market participants, including investment funds and their founders and control persons, as well as their families, will be repealed
  4. Short-term debt exemption (Short-term Debt Exemption)

    • The credit ratings required to distribute short-term debt, which is primarily commercial paper, under the Short-term Debt Exemption have been modified
  5. Short-term securitized products exemption (Securitized Products Exemption)

    • A new exemption has been introduced to allow for the prospectus-exempt distribution of short-term securitized products that meet certain conditions

The Implications of the New Amendments

NI 45-106 has particular impact on issuers – including investment fund issuers and investment fund managers. Not only are the exemptions changing, but the CSA's expectations on issuers' compliance with the prospectus exemptions have significantly increased, as illustrated by the additional detailed commentary provided by the CSA in CP45-106.

Update Subscription Agreements – As subscription agreements generally include references to the AI Exemption or MA Exemption, issuers should review and update these agreements to ensure that the new requirements are met, for example, by including a risk acknowledgement form for individual accredited investors, who don't meet the new net financial assets test noted above and to ensure that compliance with the new requirements is appropriately documented.

Update Offering Memoranda (OM) – If an OM is provided in connection with a prospectus exempt trade, the OM should be reviewed to ensure that the terms of the AI Exemption and MA Exemption, and the subscription instructions, reflect the updated rules. If an OM has been prepared to meet the "OM exemption" requirements set out in section 2.9 of NI 45-106 (the OM exemption is available in certain provinces, most notably British Columbia and is not affected by the amendments) the OM needs to be updated to include updated audited annual financial statements no later than 120 days after the financial year end of the issuer (that is, by April 30 for an issuer with a December 31 year-end). Issuers and fund managers who are in the process of updating their OM to include updated financial statements should also review the OM to ensure that the terms of the prospectus exemptions are correctly described.

Update Compliance Policies and Procedures – Issuers (and their managers in the case of investment fund issuers) should review, update and/or prepare compliance policies and procedures to reflect the amended rules and increased guidance in NI 45-106.

Registrants, particularly exempt market dealers, will need to ensure that dealing representatives, as well as executive and compliance staff understand the nature of the changed prospectus exemptions that issuers can use to issue securities to their clients, as well as the enhanced record-keeping and "know your client" expectations that these amendments will have on their dealings with clients.

Review Agreements with Selling Dealers – If an issuer wishes to rely on a selling dealer to help document the availability of a prospectus exemption (for example, that the investor meets one of the financial tests set out in the definition of "accredited investor"), that may need to be better reflected in the subscription agreement and/or a dealer agreement. This is particularly relevant given the CSA's enhanced guidance on their expectations in this area in CP45-106.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions