CROWDFUNDING 101 BY BRIAN KOSCAK

Transcription

1 CROWDFUNDING 101 BY BRIAN KOSCAK November 2013

2 Table of Contents Crowdfunding Introduction... 1 Non-equity Crowdfunding... 1 Equity Crowdfunding... 1 Equity Crowdfunding in the United States... 3 JOBS ACT Title III (Crowdfunding)... 3 No-Action Letters (FundersClub and AngelList)... 3 JOBS ACT Title II (Rule 506(c) of Regulation D)... 4 Equity Crowdfunding in Canada... 5 Introduction... 5 Equity Crowdfunding Under the OM Exemption (All Canada other than BC and ON)... 5 British Columbia s Review of the OM-Form Exemption Order... 6 Example of Equity Crowdfunding in Canada... 6 Examples of Accredited Investor Crowdfunding in Canada... 6 Ontario s Proposed Equity Crowdfunding Exemption... 6 Saskatchewan s proposed equity Crowdfunding exemption... 7 Associations involved with Crowdfunding in Canada... 7 Exempt Market Dealers Association of Canada (EMDA)... 7 APPENDIX A : Summary of the Offering Memorandum Exemption (the OM exemption)... 8 British Columbia model... 8 Alberta model... 8 OM exemption requirements... 9 APPENDIX B : Ontario s Proposed Equity Crowdfunding Exemption APPENDIX C : General Order Saskatchewan Equity Crowdfunding Exemption (the Proposed Exemption) Investors Issuers Portal BIOGRAPHY: Brian Koscak... 16

3 pg 1 Crowdfunding 101 Introduction Crowdfunding is divided into non-equity and equity Crowdfunding platforms in Canada. Non- equity platforms, as it name implies, do not involves the issuance of securities and are not regulated by Canadian securities laws. In contrast, equity Crowdfunding platforms involve the issuance of securities on the internet and consist of peer-topeer lending and equity platforms. Non-equity Crowdfunding There are three types of non- equity Crowdfunding models that operate on Crowdfunding platforms in Canada - the Donation model, the Rewards model and the Pre-purchase model. A directory of various Non-Equity Crowdfunding platforms is publicly available on the website of the National Crowdfunding Association of Canada. 1 Donation model The Donation Model is where an individual or entity donates or makes a financial contribution to a project or cause without any expectation of receiving a financial return on that contribution. An individual is motivated to make a donation based on their personal desire to support a project or campaign that is in some way meaningful or important to them. The Donation Model has its roots in philanthropy and is commonly used by on-line charities. Reward or perk model The Reward or Perk Model is where an individual or entity makes a financial contribution to a project or cause in return for a reward or perk. The types of rewards or perks offered by a project sponsor or entrepreneur vary considerably and are often quite imaginative and interesting and may not necessary involve something tangible. For example, a film project could reward contributors with special recognition in the film credits or provide them with branded merchandise depending on the amount they contribute. Pre-purchase model The Pre-Purchase Model is where an individual or entity provides an up-front payment in exchange for a pre-purchase of a product. This model provides validation of a need or want for a product by providing a project sponsor or entrepreneur with up-front capital often at a discount to the anticipated retail price. Equity Crowdfunding Equity Crowdfunding consists of peer-to-peer (P2P) lending and equity Crowdfunding platforms. P2P lending P2P lending involves matching borrowers with lenders where individuals or entities lend money to an individual, company or project in return for the repayment of the principal amount of the loan plus interest on their original investment. P2P lending is considered a security under Canadian securities law, therefore, lenders are considered to be investors. Accordingly, any P2P portal would be a regulated entity under applicable Canadian securities law. Canadian securities laws do not have an express prospectus or registration exemption to permit the operation of an on-line P2P lending platform. Therefore, in order for a P2P lending platform to operate in Canada, it would have to obtain exemptive relief from the prospectus and registration requirements from 1 See

4 pg 2 the various Canadian securities regulatory authorities as one company did in This company operated a P2P lending platform for accredited investors only. This company has since changed its business model and is no longer engaged in P2P lending. We are not aware of any other P2P lending platform currently operating in Canada. Equity Crowdfunding Below is a discussion of equity Crowdfunding in the United States and Canada. 2 See the exemptive relief order provided to Communitylend Inc. on the website of the OSC at:

5 pg 3 Equity Crowdfunding in the United States JOBS ACT Title III (Crowdfunding) Title III of the JOBS Act is called the Capital Raising Online While Deterring Fraud and Unethical Non- Disclosure or CROWDFUNDing. The JOBS Act was passed by Congress in April Presently Title III or equity Crowdfunding is illegal in the United States until the regulations are finalized by the SEC and FINRA. The United States Securities and Exchange Commission (SEC) published a draft Crowdfunding Regulation on October 23, 2013 and the comment period ends on February 3, It is anticipated to be legal in In October 2013, the Financial Industry Regulatory Authority (FINRA) published for public comment a set of proposed rules referred to as the Funding Portal Rule and related forms for SEC-registered funding portals1 that become FINRA members pursuant to the Crowdfunding provisions of the JOBS Act. The comment period ends on February 3, Article *** See the Chapter on Crowdfunding in the United States by Douglas Ellenoff on page 189 in the European Crowdfunding Network s publication titled Review of Crowdfunding Regulation 2013 Interpretations of existing regulation concerning crowdfunding in Europe, North America and Israel (the ECN Global Crowdfunding Report) *** A copy of the ECN Global Crowdfunding Report is at: No-Action Letters (FundersClub and AngelList) In March 2013, the SEC issued "no-action" letters to each of FundersClub and AngelList (two U.S. venture capital/angel online funding platforms). SEC staff may issue a no-action letter to a requester that states SEC staff would not recommend that the Commission take enforcement action against the requester based on the facts and representations described in the individual's or entity's request. A no-action letter is based on a particular set of facts and circumstances involved and a discussion of the applicable laws and rules that are represented in the letter by the requester. 3 Two portals received an SEC no action letter which permits them to solicit accredited investors on-line without being registered as a U.S. broker-dealer. A copy of the FundersClub no-action letter is at: A copy of the AngelList no-action letter is at: 3 See SEC website at:

6 pg 4 JOBS ACT Title II (Rule 506(c) of Regulation D) Title II came into effect on September 23, 2013 (the Effective Date). As of the Effective Date, issuers/entrepreneurs and broker-dealers are now legally permitted to generally solicit and advertise the sale of securities in a Rule 506(c) offering under Regulation D in all forms of media (e.g., s, social media, cocktail parties, pitch competitions, news programs and radio) to the public provided that ultimately only accredited investors can subscribe for securities in connection with the offering. In order to rely on the exemption, the issuer must take reasonable steps to verify that an investor is an accredited investor, among other requirements. The onset of Title II is generally seen as yet another step in the evolution of equity Crowdfunding since it involves the sale of securities through the internet and social media, however, at this time, it is only available for wealthy U.S. investors (i.e., accredited investors).

7 pg 5 Equity Crowdfunding in Canada Introduction There is no express equity Crowdfunding prospectus and registration exemption in Canada but two proposed frameworks have been published by the Provinces of Ontario and Saskatchewan and are receiving serious consideration. However, some registered dealers in Canada have established websites where they sell securities to the public under what is called the offering memorandum (OM) exemption (the OM exemption) 4. The OM exemption is available in all jurisdictions in Canada, except Ontario, and has been in place for many years. Some Canadian securities regulators, such as British Columbia, believe this prospectus exemption provides an existing securities framework for equity Crowdfunding and a few existing registered dealers are taking advantage of it. 6 A summary of the OM exemption is attached at Appendix A. Canadian securities regulators are still considering whether equity Crowdfunding should occur under the OM exemption or a specific equity Crowdfunding exemption as proposed by Ontario and Saskatchewan. Below is an update on the various equity Crowdfunding initiatives across Canada. Equity Crowdfunding Under the OM Exemption (All Canada other than BC and ON) On December 20, 2012, the Canadian Securities Administrators (CSA) (other than British Columbia and Ontario) published Multilateral CSA Notice Exemptions from Certain Financial Statement-Related Requirements in the Offering Memorandum Exemption to Facilitate Access to Capital by Small Businesses. Each CSA member (other than British Columbia and Ontario) issued a harmonized interim local order (the OM-Form Exemption Order) that provides an exemption from certain financial requirements set out in the OM exemption. The OM-Form Relief Order remains in force until December 14, This is the CSA s attempt to provide for an equity Crowdfunding framework for Canada. Some market participants disagree with this approach since it does not represent a regulatory-lite approach. The OM-Form Exemption Order provides relief from the audited financial statement requirement and the requirement for issuers to prepare financial statements using Canadian GAAP applicable to publicly accountable enterprises provided that: the issuer and related issuers raise no more than $500,000; no investor invests more than $2,000 in any 12-month period; the issuer is not a reporting issuer, investment fund, mortgage investment entity or real estate issuer; 5 4 Section 2.9 of National Instrument For various policy reasons, Ontario has not adopted the OM exemption; however, it is currently under review. 6 Although some Canadian dealers (i.e., exempt market dealers) are selling securities over the internet on their websites to accredited investors, (e.g., wealthy individuals and large institutional and government investors), many do not view the accredited investor prospectus exemption which is available across Canada, as true equity Crowdfunding since it does not involve selling securities to the public. According to OSC statistics, accredited investors only comprise approximately 4% of the Ontario and Canadian population.

8 pg 6 the issuer does not distribute complex securities; and the OM contains a bold warning on the front page. The OM-Form Exemption Order is at: diaid=118783ce-4a0c a134972f37&filename= csa-notice-december pdf British Columbia s Review of the OM-Form Exemption Order In February 2013, the British Columbia Securities Commission (the BCSC) published a Notice and Request for comment on National Instrument Prospectus and Registration Exemptions Proposed Prospectus Exemption to Assist Capital Raising by Small Businesses (the BC Proposal). The BC Proposal is the same as the OM-Form Exemption Order except that it requires an issuer to identify the use of the exemption in a report of trade and it is not yet legal. Unlike the OM-Form Exemption Order it is only a request for comment and there has been no update from the BCSC on the results of its review. The BC Proposal can be found at: Example of Equity Crowdfunding in Canada SeedUps Canada (under OM exemption) See Examples of Accredited Investor Crowdfunding in Canada Exempt Capital Network (Calgary) (under AI exemption and by exempt market dealer) See Optimize Capital (Toronto) (under AI exemption and by an exempt market dealer) See Ontario s Proposed Equity Crowdfunding Exemption On December 14, 2012, the OSC published OSC Staff Consultation Paper Considerations for New Capital Raising Exemptions (the Consultation Paper). The OSC proposed a number of new capital raising exemptions in its Consultation Paper which included a proposed framework for equity Crowdfunding. Ontario s equity Crowdfunding proposal seeks to strike the right balance between investor protection and promoting fair and efficient capital markets. A description of the key elements of Ontario s proposed equity Crowdfunding exemption is set out in Appendix B On August 28, 2013, the OSC published OSC Notice Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising (the Progress Report) The OSC s progress report states, among other things, that it would continue to develop a regulatory framework for equity Crowdfunding and further refine the parameters outlined in its proposal. * * * See e-lert by Brian Koscak dated September 2013 titled OSC Update on Proposed Capital Raising Exemptions Handout which is available at: * * *

9 pg 7 Saskatchewan s proposed equity Crowdfunding exemption On July 9, 2013, the Saskatchewan Financial and Consumer Affairs Authority (the FCCA) released a concept proposal to consider a new equity Crowdfunding prospectus exemption for start-ups in Saskatchewan (the Proposal). The Proposal is for Saskatchewan only investors and issuers. On October 7, 2013, the FCCA published a proposed Saskatchewan-only equity Crowdfunding framework entitled General Order Saskatchewan Equity Crowdfunding Exemption (the Proposed Exemption) and requested public feedback by November 6, The FCAA states that the purpose of the Proposed Exemption is to help bridge the funding gap for start-ups and entrepreneurs while adequately protecting investors. If implemented, the FCAA stated the Proposed Exemption would have a three-year expiration or sunset clause. A summary of Saskatchewan s Proposed Exemption is at Appendix C. Associations involved with Crowdfunding in Canada Invest Crowdfund Canada (ICC) ICC s website is at: National Crowdfunding Association of Canada (NCFA Canada) NCFA Canada s website is at: Exempt Market Dealers Association of Canada (EMDA) The EMDA has changed its name in November 2013 to the Private Capital Markets Association of Canada or PMCA Canada. The EMDA is promoting exempt market dealers selling securities on the internet under any prospectus exemption. EMDA s website is at:

10 pg 8 APPENDIX A : Summary of the Offering Memorandum Exemption (the OM exemption) The OM exemption is available in all jurisdictions of Canada other than Ontario. The OSC is currently considering adopting the OM exemption as set out in its August 2013 progress report involving its review of new capital raising exemptions including equity Crowdfunding. There are two models for the OM exemption in Canada; the British Columbia model and the Alberta model. British Columbia model The British Columbia model is followed by British Columbia, New Brunswick, Nova Scotia and Newfoundland and Labrador. Under the British Columbia model, the prospectus requirement does not apply to a distribution by an issuer of a security of its own issue to a purchaser if: the purchaser purchases the security as principal; and at the same time or before the purchaser signs the agreement to purchase the security, the issuer: delivers a prescribed form of OM to the purchaser; obtains a signed and prescribed form of risk acknowledgement form from the purchaser; and satisfies other requirements as discussed below. Alberta model The Alberta model is followed by Alberta, Manitoba, Northwest Territories, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon. Under the Alberta model, the prospectus requirement does not apply to a distribution by an issuer of a security of its own issue to a purchaser if: the purchaser purchases the security as principal; the purchaser is an eligible investor 7 or the acquisition cost to the purchaser does not exceed $10,000; 7 An eligible investor means: a) a person whose (i) net assets, alone or with a spouse, in the case of an individual, exceed $400,000, (ii) net income before taxes exceeded $ in each of the two most recent calendar years and who reasonably expects to exceed that income level in the current calendar year, or net income before taxes, alone or (iii) with a spouse, in the case of an individual, exceeded $125,000 in each of the two most recent calendar years and who reasonably expects to exceed that income level in the current calendar year, b) a person of which a majority of the voting securities are beneficially owned by eligible investors or a majority of the directors are eligible investors, c) a general partnership of which all of the partners are eligible investors, d) a limited partnership of which the majority of the general partners are eligible investors, e) a trust or estate in which all of the beneficiaries or a majority of the trustees or executors are eligible investors, f) an accredited investor, g) a person described in section 2.5 [Family, friends and business associates], or h) a person that has obtained advice regarding the suitability of the investment and, if the person is resident in a jurisdiction of Canada, that advice has been obtained from an eligibility adviser. An eligibility adviser means (a) a person that is registered as an investment dealer and authorized to give advice with respect to the type of security being distributed, and (b) in Saskatchewan or Manitoba, also means a lawyer who is a practicing member in good standing with a law society of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or

11 pg 9 at the same time or before the purchaser signs the agreement to purchase the security, the issuer: delivers a prescribed form of OM to the purchaser; obtains a signed and prescribed form of risk acknowledgement form from the purchaser; and satisfies other requirements as discussed below, and if the issuer is an investment fund, the investment fund is: a non-redeemable investment fund, or a mutual fund that is a reporting issuer. OM exemption requirements Generally, reliance on the OM exemption is subject to the following requirements: Commission and finder s fee: Prescribed form of OM: Cancellation right and holding funds in trust: Statutory rights of action: No commission or finder s fee may be paid to any person, other than a registered dealer, in connection with a distribution to a purchaser in the Northwest Territories, Nunavut, and Yukon. An OM delivered in compliance with the OM exemption must be in compliance with the prescribed form requirements, as set out in Form F2 - Offering Memorandum for Non-Qualifying Issuers, which describes the form requirements for private issuers. If the securities legislation where the purchaser is resident does not provide a comparable right, an OM that is delivered to a purchaser must provide the purchaser with a contractual right to cancel the agreement to purchase the security by delivering a notice to the issuer not later than midnight on the second business day after the purchaser signs the agreement to purchase the security. Accordingly, the issuer must: (a) hold in trust all consideration received from the purchaser in connection with a distribution of a security until midnight on the second business day after the purchaser signs the agreement to purchase the security, and (b) return all consideration to the purchaser promptly if the purchaser exercises the right to cancel the agreement to purchase the security. If the securities legislation where the purchaser is resident does not provide statutory rights of action in the event of a misrepresentation in an OM delivered to a purchaser, the OM must contain a contractual right of action against the issuer for rescission or damages that: is available to the purchaser if the OM, or any information or documents incorporated or deemed to be incorporated by reference into the OM, contains a misrepresentation, without regard to whether the purchaser relied on the misrepresentation; is enforceable by the purchaser delivering a notice to the issuer: in the case of an action for rescission, within 180 days after the purchaser signs the agreement to purchase the security, or in the case of an action for damages, before the earlier of: association of chartered accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer or public accountant must not (i) have a professional, business or personal relationship with the issuer, or any of its directors, executive officers, founders, or control persons, and (ii) have acted for or been retained personally or otherwise as an employee, executive officer, director, associate or partner of a person that has acted for or been retained by the issuer or any of its directors, executive officers, founders or control persons within the previous 12 months.

12 pg days after the purchaser first has knowledge of the facts giving rise to the cause of action, or three years after the date the purchaser signs the agreement to purchase the security, is subject to the defence that the purchaser had knowledge of the misrepresentation, in the case of an action for damages, provides that the amount recoverable: must not exceed the price at which the security was offered, and does not include all or any part of the damages that the issuer proves does not represent the depreciation in value of the security resulting from the misrepresentation, and is in addition to, and does not detract from, any other right of the purchaser. Certificate: Risk acknowledgement form: Filing OM and any update with securities regulatory authority: The OM must contain a certificate that states the following: This offering memorandum does not contain a misrepresentation. Section 2.9 of NI also sets out who must sign the certificate which varies depending on the type of legal entity that is offering the securities. This certificate must be true (a) at the date the certificate is signed, and (b) at the date the OM is delivered to the purchaser. If a certificate ceases to be true after it is delivered to the purchaser, the issuer cannot accept an agreement to purchase the security from the purchaser unless: (a) the purchaser receives an update of the OM; (b) the update of the OM contains a newly dated certificate signed in compliance with section 2.9 of NI ; and (c) the purchaser resigns the agreement to purchase the security. A risk acknowledgement form must be in the required form and an issuer relying on it must retain the signed risk acknowledgment for eight years after the distribution. The issuer must file a copy of an OM delivered to a purchaser and any update of a previously filed OM with the securities regulatory authority on or before the 10 th day after the distribution under the OM or update of the OM.

13 pg 11 APPENDIX B : Ontario s Proposed Equity Crowdfunding Exemption The key features of Ontario s proposed equity Crowdfunding exemption are set out below. Element of the Proposal Qualification criteria: Explanatory notes The issuer, its parent (if applicable) and its principal operating subsidiary (if applicable) must be incorporated or organized under Canadian federal laws or the laws of a Canadian jurisdiction and the issuer must have its head office located in Canada. It applies to private and public companies except investment funds. Investment funds are also carved-out under the JOBS Act. Limit on offering size: The issuer cannot raise more than $1.5 million under this exemption in any 12 month period. The JOBS Act has limit of up to $1 million in a 12-month period. Limit on type of security: Only the following securities can be distributed under this exemption: common shares, non convertible preferred shares, non convertible debt securities that are linked only to a fixed or floating interest rate, and securities convertible into common shares or non convertible preferred shares. Investment limits: Limit on advertising: Information statement (the offering document): An investor cannot invest more than $2,500 in a single investment or more than $10,000 in total under this exemption in a calendar year. This is a bright-line test; there are no asset or income tests as exist under the JOBS Act. The issuer is not permitted to advertise an investment except through the funding portal or on the issuer s website. However, the issuer would be able to use social media to direct investors to the funding portal or the issuer s website. An investor must be provided an information statement at the time of distribution consisting of: Financing facts basic information about the offering; Issuer facts basic information about the issuer; and Registration facts basic information about the registrant. The OSC states that the information statement is intended to provide more stream-lined than the disclosure under the OM exemption and would be akin to summary in a long-form prospectus.

14 pg 12 Element of the Proposal Risk factor disclosure: Explanatory notes The information statement must include a discussion of the principal risks facing the issuer s business. This is required in the summary of a long-form prospectus and contemplated by the JOBS Act Risk acknowledgement form: Notwithstanding the risk factor disclosure in the information statement, a purchaser must also sign a stand-alone risk acknowledgement form where they confirm they: fall within the investment limitations under the crowdfunding exemption; understand they can lose all their money; can bear the loss of their entire investment; and understand the illiquid nature of the investment. Financial statements: Financial statements: must be audited if the issuer proposes to raise at least $500,000 or if the issuer is a reporting issuer; and may be unaudited if the issuer proposes to raise less than $500,000 and if the issuer is not a reporting issuer; only management-certified financial statements need to be included. Rights of action for misrepresentation: An information statement falls within definition of offering memorandum under the OSA. Therefore, investors have a statutory right of action as set out in section of the OSA. Issuers have certain defences and limitations under s of the OSA. For example, a company is not liable if a purchaser had knowledge of any misrepresentation and the amount recoverable shall not exceed the price at which the securities were offered without taking away any other right the purchaser may have at law. Withdrawal rights: Report of trade requirement: An investor has a two-day withdrawal right; effectively, a cooling-off period. A report of trade is required to be filed with the OSC for certain prospectus exemptions under Ontario securities law. It is contemplated that a report of trade will be required to be filed by an issuer with the OSC within 10 days of the trade which arguably will require a filing fee to be paid. Resale restrictions: Securities distributed under this exemption are subject to a restricted resale period. The securities will not be free-trading shares where the issuer is not a reporting issuer. They could only be sold under another prospectus exemption, such as the AI exemption. Ongoing disclosure requirement: Books and records requirement: Issuers must provide its securityholders with annual financial statements within 120 days from its fiscal year end. Issuers must maintain books and records that are available for inspection by purchasers and OSC staff.

15 pg 13 APPENDIX C : General Order Saskatchewan Equity Crowdfunding Exemption (the Proposed Exemption) The key features of Saskatchewan s Proposed Exemption are set out below. Investors Saskatchewan investors only: Investment limit per offering: Annual investment limit: Risk warning: Right to sue for a misrepresentation: Only available to investors who have an address in Saskatchewan. Maximum purchase of $1,500 per offering. None. Investors must confirm online that they have read and understood a prescribed form of document called Important Risk Warnings. Subject to certain limitation periods, investors have a right to sue for a misrepresentation in the issuer s advertising or sales materials or if a verbal statement was made in connection with the investment that contained a misrepresentation. Investors also have a right to cancel the subscription agreement and recover the purchase price if the investment is sold in breach of a decision of the FCAA or the Saskatchewan Securities Act. Issuers Saskatchewan issuers only: Type of issuer: Type of securities: Form filing: Maximizing offering size: Only available to issuers who have an address in Saskatchewan. Any type of issuer can use the Proposed Exemption except a reporting issuer or an investment fund. Any type of security can be issued except derivatives. The trade can only involve a trade by the issuer in its own securities facilitated by the portal. An issuer must file Form GO45-925F1 Issuer Information 10 days prior to beginning to trade. $150,000

16 pg 14 Minimum offering size: Annual limit: Offering period: Offering Document: No other concurrent offering: Background checks: No commissions: The minimum offering size must be set out in the offering document which must equal the amount needed to carry out the purpose for which the funds are sought. The minimum offering size may be reduced by any other amount available for the purpose set out in the offering document, as long as the offering document states that these other funds are unconditionally available to the issuer. The issuer and its promoters, directors, officers and control persons cannot use the Proposed Exemption more than two times per calendar year. No longer than six months. The issuer must use an offering document following Form GO45-925F3 Offering Document to be made available to investors through the portal and file the offering document 10 business days prior to beginning to trade. There can be no other concurrent offering by the issuer or other issuer for the same project. The FCAA will be doing background checks on individuals involved with the offering who must submit Form GO45-925F2 Individual Information Form. There can be no commissions or other amounts paid to the issuer or its promoters, directors, officers, control persons, employees or agents in respect to the trade. Report of trade: The issuer must file a report of trade in Form GO45-925F4 Report of Trades within 30 days after the offering closes. Filing fees: Resale restriction: Ongoing disclosure requirement: Portal requirement: None. Securities can only be resold under a prospectus exemption unless the issuer becomes a reporting issuer and if so, then subject to certain conditions. None. In order to rely on the exemption, all trades must be carried out through the portal and payment for the securities must be made through the portal. Portal Registration: Compensation: Filings: The portal is not required to be registered with the FCAA as a dealer provided if complies with certain filings, conditions and that it provides no advice to investors. The portal can receive a commission and earn a fee. Portal the portal must file Form GO45-925F5 Portal Information within 30 days of facilitating Crowdfunded trades. Key people each promoter, director, officer and control person of the portal must file a Form GO45-925F6 Portal Individual Information Form within 30 days of facilitating Crowdfunded trades. The FCAA will be doing background checks on individuals involved with the portal.

17 pg 15 Conditions: In order to rely on the Proposed Exemption, the portal must ensure that: It makes the Important Risk Warnings document and the offering document separately available to investors electronically online. It does not allow the investment until the investor confirms online that they have read and understood the offering document and the Important Risk Warnings. It does not release any funds until the minimum offering amount has been raised and, until that time, all funds received for the offering are held in trust for investors. When the offering is closed, the portal provides the issuer with the details of the investor (e.g., name address, etc.) within 15 days of the closing of the offering. Issuers and investors have an address in Saskatchewan.

18 pg 16 BIOGRAPHY: Brian Koscak Brian Koscak is a Partner at the law firm of & Blackwell LLP located in Toronto, Ontario and practices in the area of corporate and securities law. Brian is the Chairman of the Exempt Market Dealers Association of Canada, a national not-for-profit organization representing exempt market dealers, issuers and compliance professionals across Canada. Brian is also a member of the Ontario Securities Commission s Exempt Market Advisory Committee which is considering new ways to raise capital in Ontario, including through equity crowdfunding. Brian is one of Canada s leading authorities on equity crowdfunding. He has spoken at numerous conferences, events and webinars about developing a viable equity crowdfunding framework for Canada. He has had various articles published about equity crowdfunding and been mentioned in the media. Brian regularly consults with securities regulatory authorities in Canada about equity crowdfunding as well as advises a number of clients seeking to engage in equity crowdfunding, including exempt market dealers, funding portals and crowdfunding industry associations. Brian can be reached at or at bkoscak@casselsbrock.com. Brian also has a personal blog where he writes about various Canadian securities law matters at

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