Securities Law & Instruments

Headnote

 

Subsection 74(1) – Application for exemption from prospectus requirement in connection with first trade of shares of issuer through exchange or market outside of Canada or to person or company outside of Canada – issuer not a reporting issuer in any jurisdiction in Canada – conditions of the exemption in section 2.14 of National Instrument 45-102 Resale of Securities not satisfied as residents of Canada own more than 10% of the total number of shares – relief granted subject to conditions, including at the date of the trade, the issuer is not a reporting issuer in any jurisdiction of Canada where that concept exists, the trade is made through an exchange or market outside of Canada or to a person or company outside of Canada and immediately following the private placements, the Canadian security holders will beneficially own, directly or indirectly, no more than 25% of the total issued and outstanding common shares.

 

Applicable Legislative Provisions

 

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).

National Instrument 45-102 Resale of Securities, s. 2.14.

 

July 4, 2017

 

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(THE “ACT”)

 

AND

 

IN THE MATTER OF

ELEVEN BIOTHERAPEUTICS, INC.

(the “Issuer”)

 

ORDER

 

Background

 

The Ontario Securities Commission (the “Commission”) has received an application from the Issuer for an exemption under Section 74(1) of the Securities Act (Ontario) (the “Act”) from the prospectus requirement set forth in Section 53 of the Act in connection with the first trades of: (i) the Private Placement Shares (as defined below) issued by the Issuer to the Ontario Investors (as defined below) in connection with the Ontario Private Placement (as defined below) and (ii) the Clairmark Shares (as defined below) (the “Requested Relief”).

 

Interpretation

 

Terms defined in the Act and in National Instrument 14-101 Definitions have the same meaning if used in this ruling, unless otherwise defined.

 

Representations

 

This order is based on the following facts represented by the Issuer:

 

1.             The Issuer was formed on February 25, 2008 and is a corporation formed with limited liability under the laws of the State of Delaware. The Issuer is a reporting issuer in the United States and its Common Shares are listed for trading on the NASDAQ Stock Market (the “NASDAQ”) under the symbol “EBIO”. The Issuer’s principal and executive offices are located at 245 First Street, Suite 180, Cambridge, Massachusetts.

 

2.             The authorized capital of the Issuer currently consists of 5,000,000 shares of preferred stock, of which none are issued and outstanding, and 200,000,000 common shares (the “Common Shares”), of which 24,700,746 are issued and outstanding. As of June 27, 2017, 3,582,328 Common Shares (the “Clairmark Shares”) representing approximately 14.5% of the issued and outstanding Common Shares are held by Clairmark Investments Ltd. (“Clairmark”), an affiliate of Leslie Dan, a Canadian Resident and a director of the Issuer.

 

3.             Clairmark acquired 3,582,328 Common Shares as consideration in a share purchase agreement dated September 20, 2016, by and among the Issuer, the shareholders of Viventia Bio Inc. (“Viventia”), and Clairmark pursuant to which Viventia was acquired by the Issuer. At the time of the transaction, Clairmark was the majority shareholder of Viventia and received its pro rata share of the consideration in the transaction.

 

4.             The Issuer is not a reporting issuer in any province or territory of Canada. The Issuer’s securities are not listed or posted for trading on any exchange or market in Canada or outside of Canada. The Issuer has no present intention of listing its Common Shares on any Canadian stock exchange or of becoming a reporting issuer under any Canadian securities legislation.

 

5.             Clairmark was amalgamated under the laws of Ontario on January 1, 2015. Clairmark’s registered and executive offices are located at 305 Milner Avenue, Suite #914, Toronto, Ontario M1B 3V4.

 

6.             Clairmark is not a reporting issuer in any province or territory of Canada. Clairmark’s securities are not listed or posted for trading on any exchange or market in Canada or outside of Canada. Clairmark has no present intention of listing its Common Shares on any Canadian stock exchange or of becoming a reporting issuer under any Canadian securities legislation.

 

7.             On or before September 30, 2017, the Issuer proposes to distribute Common Shares (the “Private Placement Shares”) in a prospectus-exempt offering in various jurisdictions (the “Private Placements”) including in Ontario (the “Ontario Private Placement”), in accordance with all applicable laws. Although the exact number of Common Shares to be issued in the Private Placements has not been determined, the aggregate gross proceeds of the Private Placements (including the Ontario Private Placement) are expected to be in the range US$20-US$25 million.

 

8.             Clairmark does not intend to subscribe for Common Shares under the Private Placements.

 

9.             It is anticipated that under the Ontario Private Placement, the opportunity to invest in the Common Shares will be extended to a very limited number of accredited investors (each an “accredited investor”) as defined in Section 73.3 of the Act (the Ontario Investors) who will also constitute “permitted clients” as defined in National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations.

 

10.          It is expected that Clairmark, together with the Ontario Investors, will own more than 10% of the outstanding Common Shares immediately following the Private Placements. It is expected that (i) Canadian residents, including Clairmark and the Ontario Investors, will own not more than 25% of the outstanding Common Shares and (ii) Canadian resident shareholders will represent not more than 25% of the total number of holders of Common Shares, immediately following the Private Placements.

 

11.          The Common Shares issued under the Ontario Private Placement will be distributed to the Ontario Investors pursuant to the accredited investor exemption in Section 73.3 of the Act and Clairmark acquired the Common Shares it currently holds pursuant to a prospectus exemption. Accordingly, in the absence of an order granting relief, the first trades in Restricted Shares will be deemed distributions pursuant to section 2.6 National Instrument 45-102 Resale of Securities (“NI 45-102”).

 

12.          On the date on which Common Shares were distributed to Clairmark and the date on which Common Shares will be distributed to the Ontario Investors, the Issuer was not and will not be a reporting issuer in any jurisdiction of Canada.

 

13.          Subsection 2.14(1) of NI 45-102 provides an exemption from the prospectus requirement for the first trade in securities of a non-reporting issuer distributed under a prospectus exemption. Specifically, subsection 2.14(1) states that the prospectus requirement does not apply to the first trade of a security distributed under an exemption from the prospectus requirement if:

 

(a)           the issuer of the security:

 

(i)            was not a reporting issuer in any jurisdiction of Canada at the distribution date; or

 

(ii)           is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

 

(b)           at the distribution date, after giving effect to the issue of the security and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security, residents of Canada:

 

(i)            did not own directly or indirectly more than 10 percent of the outstanding securities of the class or series; and


(ii)           did not represent in number more than 10 percent of the total number of owners directly or indirectly of securities of the class or series (subsection 14(b)(i) and (ii) are collectively referred to as the “10% De Minimis Condition”); and

 

(c)           the trade is made:

 

(i)            through an exchange, or a market, outside of Canada; or

 

(ii)           to a person or company outside of Canada.

 

14.          The prospectus exemption in subsection 2.14(1) of NI 45-102 will not be available to Clairmark and the Ontario Investors with respect to their first trade in the Restricted Shares, because on the date immediately following the Ontario Private Placement, Clairmark and the Ontario Investors will own more than 10% of the outstanding Common Shares, preventing the condition in subparagraph 2.14(1)(b)(i) from being satisfied. Other than the condition in subparagraph 2.14(1)(b)(i), the conditions of subsection 2.14(1) would be satisfied to allow the first trade of Restricted Shares by Clairmark and the Ontario Investors in compliance with the prospectus exemption.

 

15.          No market for the Common Shares exists in Canada and none is expected to develop as a result of or following the Private Placements. The Common Shares will be offered primarily outside of Canada with no more than 25% of the Common Shares being held by residents of Canada (including Clairmark and the Ontario Investors) immediately after giving effect to the Private Placements. The market for the Common Shares will be outside of Canada and primarily in the United States as a result of the NASDAQ listing. It is expected that any resale of Restricted Shares by Clairmark and the Ontario Investors will be effected through an exchange or market outside of Canada (including the facilities of the NASDAQ) or to a person or company outside of Canada.

 

16.          The Issuer has a de minimis connection to Canada. At the time of the Offering, it is expected that all of the officers and management of the Issuer will be located in Cambridge, Massachusetts. Currently, only one Canadian resident, Leslie Dan, serves as a director of the Issuer. The balance of the directors and all of the officers are not Canadian residents. Other than Clairmark, Canadian residents do not own more than 5% of the Applicant’s Common Shares.

 

17.          The Issuer will be subject to the reporting and disclosure obligations of the Securities Exchange Act of 1934 and the NASDAQ rules and regulations. Holders of Common Shares issued under the Ontario Private Placement will receive copies of all shareholder materials provided to all other holders of the Common Shares, in accordance with applicable law, and will also have general access to such materials on EDGAR.

 

18.          There is no market for Common Shares in Canada and no market is expected to develop, to the extent that any resale of the Private Placement Shares or the Clairmark Shares is expected to be made through an exchange or a market outside of Canada or to a person or company outside of Canada.

 

Order

 

The Commission is satisfied that the decision meets the test set out in subsection 74(1) of the Act.

 

The order of the Commission under subsection 74(1) of the Act is that the Requested Relief is granted provided that:

 

(a)           immediately following the Private Placements, including the Ontario Private Placements: (i) the Ontario Investors and Clairmark together will own, directly or indirectly, no more than 25% of the total issued and outstanding Common Shares and (ii) the Ontario Investors and Clairmark together will represent no more than 25% of the total number of holders directly or indirectly of Common Shares; and

 

(b)           any resale by Ontario Investors or Clairmark qualifies under subsection 2.14(1) of NI 45-102, other than the 10% De Minimis Condition.

 

DATED at Toronto, Ontario this 4 day of July, 2017.

 

“Tim Moseley”

Commissioner

Ontario Securities Commission

 

“Frances Kordyback”

Commissioner

Ontario Securities Commission