Amendments to Regulatory Regime for Distributions of Securities Outside of Canada
 
         The Canadian Securities Administrators has recently adopted amendments to National Instrument 45-102 Resale of Securities and changes to Companion Policy 45-102CP to National Instrument 45-102 Resale of Securities.
 
         Provided all necessary regulatory and ministerial approvals are obtained, it is anticipated that the Amendments will come into force on June 12, 2018. As such, the following is subject to any further changes which may be implemented prior to such approval.
 
         The amendments introduce a new prospectus exemption for the resale of securities (and underlying securities) of a foreign issuer if the issuer is not a reporting issuer in any jurisdiction of Canada, and the resale is on an exchange or a market outside of Canada or to a person or company outside of Canada.
 
         A foreign issuer is an issuer that is not incorporated or organized under the laws in Canada unless certain circumstances suggest that the issuer has more than a minimal connection to Canada (i.e., the issuer has a head office in Canada or the majority of it directors or executive officers ordinarily reside in Canada).
 
         In Alberta, the new exemption in section 2.15 and the existing exemption in section 2.14 will be located in the Alberta Securities Commission Blanket Order 45-519 Prospectus Exemptions for Resale Outside Canada (ASC Blanket Order          45-519). This is a step towards providing overall consistency in the approach to cross-border trading for both primary distributions outside Canada and the resale of securities outside Canada.
 
Reason for Change
 
         This change represents a modernization of the regulatory regime for the distributions of securities outside of Canada so that it permits Canadian issuers and investors to participate competitively in the global capital markets.
 
         The policy rationale for the changes to section 2.14 and 2.15 is to provide an exemption for resales outside of Canada for the securities of an issuer with a minimal exemption to Canada.       
 
         The guiding principle for section 2.14 is that it is not necessary to restrict the resale of securities over a foreign market or to a person or company outside Canada if the issuer has a minimal connection to Canada and there is little or no likelihood of a market for the securities to develop in Canada. The purpose of the ownership conditions is to measure whether the issuer has a minimal connection to Canada.
 
         Since NI 45-102 has come into effect, securities regulation and information accessibility has changed worldwide. Canadian investors are increasingly acquiring securities of foreign issuers to participate in global market growth by investing in a more diversified global portfolio. Foreign securities are acquired either through private placements or on foreign exchanges. Many foreign issuers, without connection to Canada, are finding they have exceeded the ownership conditions, including through Canadians purchasing their securities on foreign markets. Due to this, Canadian security holders of these foreign issuers would hold the securities for an indefinite period. As such, the section 2.15 was adopted to provided an alternative to the ownership condition assessing whether an issuer has a minimal connection to Canada. Section 2.15 provides that a security holder is exempted from the prospectus requirement for the resale of securities acquired under a prospectus exemption if the resale is on an exchange, or a market, outside of Canada or to a person or company outside of Canada and if the issuer of the securities is a foreign issuer. A foreign issuer is an issuer that is not incorporated or organized under the laws of Canada.

Hussein Ghandour is a 3rd year student at the University of Calgary's Faculty of Law. 

Do Unicorns Exist?
 
            A “unicorn” is a private company with a valuation of over $1Billion. As the moniker suggests, the chance that a company will ever achieve this type of valuation is mythical (almost). Some unicorns that you may have heard of include, UBER, Airbnb and Pinterest. Only a handful of Canadian companies have achieved unicorn status. However, a recent study may have called the status of some of these companies into question. 
 
            A study from National Bureau of Economic Research (NBER) suggests that many unicorn companies may, in fact, be greatly overvalued. It is difficult to accurately valuate growth companies and the problems are compounded as the complexity of their capital structure increases. Companies relying on venture capital often have many different types of shares because of the frequency in which they raise capital.
 
            Post-money valuation is a metric that is often employed when referring to VC backed companies. Post-money is calculated after the injection of new capital by multiplying the per-share price of the most recent financing by the total number of common shares (including options and convertible shares). The problem with using post-money valuation in in VC backed companies is that not all share classes are created equal, and therefore should not be assigned the same value. The NBER study estimates that the average unicorn is overvalued by 50%. 
 
            Valuation issues aside, there are private companies that are undoubtedly worth more than $1Billion and should rightfully be called unicorns. My current favourite is Magic Leap, which had yet to release a product but has earned itself a $6Billion dollar valuation and has raised over $1.4billion in equity.

​Canadian Business Update: Energy Infrastructure  
 
Recent news in Canada’s energy infrastructure sector has given cause for concern for many. From the overhaul of the National Energy Board, the many delays facing the Trans Mountain Pipeline expansion, to the lack of a Northern Gateway or Energy East pipeline, the future of Canadian energy transport seems bleak. Add on to that the moratorium on tanker traffic in Norther B.C., and the cancellation of several massive Liquefied Natural Gas Terminal projects in B.C., and we see an even worse outlook. With Canada’s massive reserves of hydrocarbons selling at a huge discount, largely due to transportation problems, it is time for action. There are a few key areas listed below where Canada can start to take action.
Trans Mountain
            The federal government approval of the Trans Mountain Expansion happened over a year ago, and continuing legal challenges mean that the project still faces an uphill battle. Opposition from the municipal and provincial level in B.C. continues to put obstacles in the way of the expansion. Municipal by-laws and provincial freezes on bitumen importation have meant that the legal system has gotten heavily involved in the project, even after it received federal government approval. Outages on the Keystone pipeline showed how vulnerable the Canadian energy transportation system is. Producers were forced to rely on rail transportation during that outage, and expanding the Trans Mountain pipe will only help to alleviate the reliance on railway’s marginal ability to transport crude.
LNG Projects
            While a few major LNG projects in B.C. were cancelled, one still remains on the table. A joint venture between Royal Dutch Shell, PetroChina, KOGAS, and Mitsubishi, is nearing a final investment decision. The near $40 Billion project would help to get Canada’s massive natural gas reserves to the lucrative Asian markets. The proposed project in Kitimat, B.C. would mean many constructions jobs, not only for the facility, but for expanded pipeline capacity to feed it as well.
Tanker Ban Challenge
            Canada’s Bill C-48, the Oil Tanker Moratorium Act proposed to impose a crude tanker moratorium on B.C.’s norther coast. The Bill was introduced in 2017, and aims to improve Canada’s marine safety. On March 22, 2018, the Lax Kw’alaams Indian Band launched a legal challenge to the moratorium. The Law Kw’alaams are launching the claim based on Aboriginal Rights and a Title Infringement Claim. If successful, it could mean that the tanker ban would not apply to traditional Lax Kw’alaams territory creating a potential gap in the legislation and allowing tanker traffic to in fact travel through some of B.C.’s norther coast. It is an important development to keep an eye on as Canada is in need for energy transportation solutions.
Conclusion
            While Canada is becoming a leader in carbon output reduction, it has also begun to suffocate one of its most valuable resources. The task of finding solutions to Canada’s energy transportation problems that are not only efficient, but that are in line with Canada’s carbon goals will be challenging. It is important to note that the time for transportation solutions is now. As foreign investment continues to flee Canada, we are fighting against the clock to keep Canada competitive and attractive to the global markets. 

Emerson Frostad is a 3rd year student at the University of Calgary's Faculty of Law. 

What is a Memorandum Of Understanding (MOU)?

A Memorandum Of Understanding is a written document that outlines the relationship between two or more parties. The parties concerned will often define the terms of that relationship, including the parties’ responsibilities and requirements. A MOU drafted for start-up co-founders will often include the objective and purpose of the founders’ project, their managerial roles, their initial monetary contributions, and so forth.

When should start-up co-founders ask for a MOU?
An MOU should generally be entered into by co-founders during the initial steps of their venture.  Founders considering a MOU should have a general objective for their project. At that stage, a MOU is preferable over a standard shareholder agreement, for two main reasons. First, drafting a MoU is almost always cheaper and faster than drafting a shareholder agreement. Also, a MOU is generally non-binding.

MOU: Binding vs Non-Binding
Memoranda of Understanding are generally non-binding. Why? First, when a MOU is considered, the founders may not know much about one another. As the start-up grows, new matters, which weren’t considered in the MOU, will inevitably arise such as the addition of an employee, an investment by a sophisticated investor, or a material change in the business operations. A MOU, if drafted before those events, might not be flexible enough to accommodate the new situation. Hence, MOU are generally non-binding and will often include a non-binding clause, like the following:
 “This Memorandum of Understanding is not intended to create any legally binding obligations on either Founder but, rather, is intended to facilitate the Project.”
 
MOUs: Binding In Some Circumstances
If the founders of a start-up are in desperate need of a binding agreement (under the pressure of investors, to legitimize the company, to conclude a deal, etc.), they should consider a binding MoU. That memorandum of understanding should be binding, but subject to a sunset clause. That sunset clause could be the execution of a deal, the addition of an investor, etc. Once that landmark is reached, the parties should be under the obligation to negotiate and execute a final agreement, such as a shareholders’ agreement. 

Boris Degas is a 3rd year student at the University of Calgary's Faculty of Law. He is working with the BLG Business Venture Clinic for the 2017/2018 academic year. 

Who owns the designs?  The Engineering Firm or the Client?

Intellectual property law in Alberta can get complicated when it comes to the designs of a project completed by an engineering firm for a client.  When it comes to ownership of the intellectual property, ownership will be assigned from the agreement. 

The ownership of drawings and related documents refers to the ownership of the drawings themselves, and is governed by the contract between the architect or engineer and the client. The ownership of copyright, on the other hand, refers to the ownership of the expression of the idea embodied in the drawings and the right to reproduce that expression. Architects or engineers who create the copyright work retain copyright in the work unless they expressly assign it to another.  It is important to look at the language of the contract, which can be an employee agreement or a master service agreement.

Typical language in a master service agreement between an engineering firm and the client:
“…will exclusively own any and all information generated from the performance of services under this Agreement including, but not limited to, confidential information, notes, documentation, reports, programs, software, systems, methods, products, analyses, professional opinions and conclusions, inventions or improvements.”

“…assigns all rights, title and interest it may have or may acquire in the proprietary Information, unconditionally, perpetually and throughout the world, to (the Client) and will not challenge (the Client)’s claims to ownership of the proprietary information.”

Both of these clauses assign the ownership of the copyright of the designs of the project to the client.  If the original contract assigns ownership of the information or all rights and interest to the Client, then the Client has the right to use the information or sell it to a third party.

In an employee and employer situation, the ownership of the designs would depend on the employment agreement.  Here is an example of a typical clause in an employment agreement:

“Employee agrees and hereby acknowledges that all rights in any work are assigned and belong to Company. The Employee specifically acknowledges and agrees that all right, title and interest in and to the product of all work, including copyright of computer software and related work, is assigned to Company.”

“All drawings, flow diagrams, sketches, specifications, computer programs and printouts, native computer data and other records, regardless of form, prepared by Employee under the provisions of this Agreement, shall be the property of Company and may be used by Company for any purpose.”

In both of these clauses ownership of the intellectual property belongs to the Company.  If a person wants to retain ownership of their intellectual property it is important to negotiate with the employer and specifically state that ownership remains with the employee and not the company.

If you are uncertain on whether you own the rights to the intellectual property even after reviewing the original contract, it is recommended to speak with a lawyer to know your rights.

Marty Birky is 2018 joint JD/MBA candidate at the University of Calgary. Marty is working at  the BLG Business Venture Clinic for the 2017/2018 year.