Securities Alert – April 2015

Changes to Accredited Investor Prospectus Exemption

The Canadian Securities Administrators (‘CSA”) have announced the implementation of amendments to National Instrument 45-106 Prospectus Exemptions (“NI45-106”), which are scheduled to go into effect on May 5, 2015 (the “Amendments”).  The Amendments implement some significant changes to the application of the Accredited Investor (AI) and Minimum Amount (MA) exemptions.  Highlights of the changes are set out below.

AI Exemption.

1. Most individual accredited investors must complete and sign a new risk acknowledgement form – Form 45-106F9 Form for Individual Accredited Investors. This form describes in plain language the categories of individual accredited investors and some of the risks an investor is assuming by purchasing under the exemption.  Investors will be required to indicate on the form which category of accredited investor they satisfy.  A copy of the executed form must be kept by the issuer for eight (8) years after the distribution.
2. A sales person or finder, whether registered or not, involved in a trade to an individual investor under this exemption will also be required to complete a portion of the Form 45-106F9 in respect of that individual prior to the form being delivered to that individual.
3. Additional guidance is given on the steps issuers, agents and brokers should take to verify accredited investor status, including explaining the different tests and asking questions to obtain factual information from prospective investors about their income or assets before discussing the investment.  This guidance effectively requires issuers and agents to proactively confirm that persons claiming the AI exemption do in fact meet the requirements for the exemption. Issuers and agents will no longer be able to rely on a declaration (or a representation or warranty) by the individual that he or she is an accredited investor.  Rather, issuers and agents will be required to establish a factual base for making their own determination of whether investors are eligible for the AI exemption.
4. The definition of accredited investor in Ontario will be amended to allow fully managed accounts to purchase investment fund securities.
5. The definition of accredited investor will be amended to include family trusts.

MA Exemption. The Amendments also change the MA exemption (currently $150,000.00 in cash for any one transaction) so that it is only available for distributions to non-individuals.

Reporting. The enhanced reporting forms originally expected to be required for any distribution under an AI exemption have not been introduced with the Amendments and are still being considered by the CSA. For the moment, issuers remain obliged to report distributions under the AI or MA exemptions on Form 45-106F1 (or Form 45-106F6 in British Columbia) no later than ten (10) days after the distribution.

The Amendments will require issuers and advisers to update their documentation prior to the May 5, 2015 implementation date.  In addition, issuers and agents will likely have to update their policies and procedures to incorporate the distribution, collection and retention of risk acknowledgement forms, if applicable, and the revised due diligence required to confirm accredited investor status.

For more than 40 years, Perley-Robertson, Hill and McDougall has provided financing solutions to a wide variety of clients, including privately held companies, public companies, reporting issuers and companies listed on NASDAQ, the Toronto Stock Exchange, the TSX Venture Exchange and various OTC and private markets.  In addition to providing advice on securities registration and compliance, we have completed venture capital funding transactions, debt and/or equity private placements, initial public offerings, prospectus offerings, capital pool company listings and qualifying transactions, reverse takeovers and limited partnership fundings.  Whatever your financing requirements, we are confident we can find a cost efficient solution tailored to your needs.

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