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Cross-Border and International Crowdfinance: Raising Capital in the United States

October 18, 2016

By: Alixe Cormick

Disclaimer

• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.

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• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.

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Outline of Discussion

• U.S. Equivalent Exemptions Issuers Can Use When

Crowdfunding in the U.S.

• OM Exemption & Reg A+ Comparison

U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.

Rule 506(c) Accredited Investor Exemption • Advertising allowed as of September 23, 2013 under U.S. accredited investor

exemption;

• All purchasers in the offering must be accredited investors,

• The issuer takes reasonable steps to verify their accredited investor status,

and

• Certain other conditions in Regulation D are satisfied.

• An “accredited investor” includes a natural person who:

• earned income that exceeded $200,000 (or $300,000 together with a

spouse) in each of the prior two years, and reasonably expects the same

for the current year, or

• has a net worth over $1 million, either alone or together with a spouse

(excluding the value of the person’s primary residence).

• Not available to “bad actors”.

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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.

Regulation A+ Exemption • New option for Canadian issuers who are not reporting issuers with the

U.S. Securities and Exchange Commission;

• Issuers can raise up to US$ 50M in 12 month period with a document

that looks like an offering memorandum;

• Whose eligible to use Regulation A: • Must be organized and have principal place of business, in U.S. or Canada;

• Must not be a reporting issuer under the 1934 Act;

• Must not be an investment company or blank check company;

• Must not be issuing fractional undivided interests in oil and gas rights, or a similar

interest in other mineral rights;

• Must not have its securities suspended or revoked under the 1934 Act;

• Must not be disqualified under the “bad actor” disqualification rules; and

• Must have filed all Reg. A+ exempt distribution reports during the past two years.

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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.

Regulation A+ Exemption (continued)

• Issuer can chose Tier 1 or Tier 2 regardless of amount to be raised;

• Tier 2 pre-empts state blue sky review (similar to Rule 506);

• Key disclosure document is “offering statement” on Form 1-A which

SEC must clear before offering;

• Form 1-A is a cross between a Canadian offering memorandum and S-

1 registration statement/prospectus;

• Tier 1 – reviewed unaudited financial statements (US GAAP or IFRS);

• Tier 2 - audited financial statements for last two full fiscal years, audited

under PCAOB standards (US GAAP or IFRS); and

• No integration with Regulation S offerings outside U.S.

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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.

Regulation A+ Advantages • Unlimited sales to non-accredited investors resident in U.S.;

• Ability to “test the water” before spending money preparing and filing

U.S. Offering documents;

• Blue sky exemption from state securities law;

• Can issue equity, debt or convertible debt;

• Continuous offering possible;

• Can file with SEC on confidential basis;

• IFRS can be used to present financial statements;

• If you are using the OM exemption in Canada you have 80% of what

you need Regulation A+ offering;

• Canadian reporting issuers and private issuers can use Regulation A+.

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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.

Regulation A+ Testing the Water • Pre-Sale marketing campaign to determine if any interest in securities;

• Can conduct a Rule 506(c) offering concurrently to accredited investors;

• No requirement to use a portal or marketing company at this stage;

• Marketing material and form of marketing open (should review with

legal counsel);

• Disclaimers required;

• No sales or firm commitments to purchase allowed;

• Tier II only campaigns advised to “test the water”.

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OM EXEMPTION & REGULATION A COMPARISON

Offering Memorandum

Exemption

Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M

12 Month Maximum

Offering Amount:

Unlimited $20 Million $50 Million

Eligible Issuers: AB, SK, ON, QU, NB, NS: Not

available to investment funds

(AB, NS, SK exceptions: non-

redeemable funds & reporting

issuer mutual funds).

U.S. & CDN non-SEC reporting

issuers. Not available to

investment companies; blank

check companies; issuers of

fractional undivided interests in oil,

gas, or other mineral rights; private

funds; or bad actors.

U.S. & Cdn non-SEC reporting

issuers. Not available to

investment companies; blank

check companies; issuers of

fractional undivided interests in oil,

gas, or other mineral rights; private

funds; or bad actors.

Eligible Securities: AB, SK, ON, QU, NB, NS:

Cannot sell securitized products,

specified derivatives and

structured finance products.

Cannot asset-backed securities. Cannot asset-backed securities.

State Blue Sky

Laws:

N/A Must pass a state coordinated

review.

Pre-empts state blue sky laws.

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OM EXEMPTION & REGULATION A COMPARISON #2

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Offering Memorandum

Exemption

Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M

Document

Requirements:

Audited financial statements and

Offering Memorandum in required

form. No pre-qualification by

regulator.

Review financial statements and

Offering Statement/Circular in

required form. Must be pre-qualified

by SEC.

Audited financial statements and

Offering Statement/Circular in

required form. Must be pre-qualified

by SEC.

Post-Filing

Requirements:

File exempt distribution report and

OM (10 days post).

AB, SK, QU, NB, NS: indefinite

continuous disclosure: (1) annual

audited financial statements; (2)

annual use of proceeds; (3)current

report(NB, NS, ON); and (4)

deemed market participant in ON

and NB.

Form 1-Z Exit Report and Consent

to Process (30 days post). State

exempt distribution reports and

filing fees.

Form 1-Z Exit Report and Consent

to Process (30 days post). State

exempt distribution reports and

filing fees.

Required filings for one year if less

than 300 registered Shrs otherwise

indefinite: (1) Form 1-K Annual

Report; (2) Form 1-SA Semi-

Annual Report; (3) Form 1-U

Current Report

OM EXEMPTION & REGULATION A COMPARISON #3

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Offering Memorandum

Exemption

Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M

Eligible Investors: BC, NFL: Anyone

AB, SK, ON, QU, NB, NS, MB,

PEI, NU, YK, NWT: Anyone but

cap of $10,000 on investment

unless FFBA, accredited investor

or eligible investor.

AB, SK, ON, QU, NB, NS:

eligible investor cap of $30,000

or $100,000 12 month total if

suitability advice obtained.

Anyone Anyone

Non-accredited investor limit at

10% of income/net worth per year.

Solicitation and

Advertising

May advertise over internet, TV,

print or in person. General

solicitation including on social

media permitted.

May advertise over internet, TV,

print or in person. General

solicitation including on social

media permitted.

May advertise over internet, TV,

print or in person. General

solicitation including on social

media permitted.

Thank-you and Good-Luck

Email: info@ncfacanada.org

Website: www.ncfacanada.org Twitter: @NCFACanada

Venture Law Corporation 618-688 West Hastings Street

Vancouver, BC V6B 1P1 Phone: 604-659-9188

Fax: 604-659-9178 Email: acormick@venturelawcorp.com

Website: www.venturelawcorp.com Blog: www.AlixeCormick.com

Twitter: @AlixeCormick Google+: AlixeCormick

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Resources

Canadian Amended Offering Memorandum Exemption

• Multilateral CSA Notice of Amendments to National Instrument 45-106 - Prospectus Exemptions Relating To The Offering Memorandum Exemption

• Changes to Companion Policy 45-106CP Prospectus Exemptions (Jan 7, 2016)

• Amendments to NI 45-106 Prospectus Exemptions

• National Instrument 45-106 Prospectus Exemptions

• Companion Policy to National Policy Instrument 45-106 Prospectus Exemptions

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Resources

U.S. Securities Rules

• Regulation D – Rule 506(c) • Eliminating the Prohibition Against General Solicitation and

General Advertising in Rule 506 and Rule 144A Offerings;

• Small Entity Compliance Guide;

• Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings

• Regulation A+ • Amended Conformed Version of Regulation A as Amended

• SEC Title III Crowdfunding Final Rules • Crowdfunding Rule

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