A new harmonized Form 45-106F1 Report of Exempt Distribution (the New Report) will come into effect on June 30, 2016 in all Canadian provinces and territories. Announced by the Canadian Securities Administrators (the CSA) on April 7, 2016 in CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution, the New Report is intended to reduce the compliance burden for issuers and underwriters, and to provide securities regulators with information necessary to facilitate more effective regulatory oversight of the exempt market.
Heightened disclosure requirements
The New Report will have heightened disclosure requirements. All issuers will be required to disclose, among other things:
- the type of securities being distributed using a new 3-letter code; and
- specific details about the prospectus exemption relied upon, including how each purchaser qualifies for certain exemptions, including the "accredited investor" exemption, for example.
In addition, all issuers, other than investment funds, will also be required to disclose:
- the number of employees of the issuer; and
- the primary industry of the issuer identified using the North American Industry Classification System (NAICS).
Non-reporting issuers, including Canadian private companies and unlisted foreign companies distributing securities into Canada other than "eligible foreign securities" to permitted clients, will also have to disclose information about directors, executive officers, promoters, and control persons of the issuer, including their names, titles and residential addresses.
Other enhanced disclosure requirements in the New Report include:
- Identifiers including Firm NRD numbers for underwriters, investment fund managers and registrants being compensated, SEDAR profile numbers, legal entity identifiers (or LEIs) for the issuer, CUSIP numbers, the issuer's, underwriter's and investment fund manager's websites, and any previous legal name(s) of the issuer (if the issuer's name changed in the preceding twelve month period).
- Issuer information for non-investment fund issuers who do not have a SEDAR profile, including the issuer's date of formation, financial year-end, jurisdictions where reporting, stock exchange listings, and size of the issuer's assets.
- Investment fund issuer information including the type of investment fund, net asset value (NAV), the date of the issuer's formation, financial year-end, the issuer's reporting jurisdiction end, and any stock exchange listings.
- Distribution information including the currency in which the distribution was made, the net proceeds to the investment fund (if applicable), and for reports filed in Saskatchewan, Ontario, Quebec, New Brunswick, and Nova Scotia, a list of offering materials required to be filed or delivered in connection with the distribution.
- Compensation information including whether or not the distribution was made through a funding portal, details about whether the person compensated is a registrant or insider of the issuer, and an indication as to whether any deferred compensation will or may be paid to a person in connection with the distribution.
How to report
In addition to amended disclosure obligations, the New Report changes the way post-trade reporting will be conducted:
- The New Report will apply in all CSA jurisdictions, including British Columbia. Form 45-106F6 British Columbia Report of Exempt Distribution will be repealed.
- The New Report is to be filed electronically through SEDAR in all CSA jurisdictions, except for British Columbia and Ontario where the New Report is to be filed through the applicable regulator's web-based filing system.
- Issuers making a distribution in more than one jurisdiction of Canada will not be required to, but may, file a single report in each Canadian jurisdiction where the distribution occurred, identifying all purchasers.
- Excel templates have been developed for the confidential schedules to the New Report.
As previously discussed, the CSA initially proposed an amended report of exempt distribution in early 2014, which was followed up with a further proposal for amendments to Form 45-106F1 in August 2015 (the August Proposal). While similar to the August Proposal, the New Report takes into consideration comments received by the CSA.
The August Proposal required that the number and total amount paid for voting securities of the issuer beneficially owned or directly or indirectly controlled by directors, executive officers, control persons and promoters be reported. This requirement has been abandoned in the New Report based on feedback received by the CSA. However, certain information about the directors, executive officers and promoters of the issuer (name, title, and location of residence) is still required to be disclosed in a confidential schedule to the New Report. This is required for all issuers who are not investment fund issuers, reporting issuers and their subsidiaries, foreign public issuers and their subsidiaries, or issuers distributing eligible foreign securities only to permitted clients. Such issuers (i.e., private companies for the most part) are also required to disclose the identities and residential addresses of control persons in a confidential schedule to the New Report. This marks a change from the August Proposal which contemplated that identities of control persons of certain issuers be disclosed publicly in the report, as is currently required in Form 45-106F6 (which is the form currently applicable in British Columbia). If a control person is not an individual, information about the control person's directors and executive officers will be required.
The New Report includes clarification with respect to the disclosure of beneficial ownership of purchased securities. Information about beneficial owners of fully managed accounts will not be required in the New Report. Only information about the trust company, trust corporation, or registered adviser will be required where such party is deemed to be purchasing the securities as principal on behalf of a fully managed account. In making this amendment, the CSA note that the prospectus exemption available for trust companies, trust corporations, or registered advisers deemed to be purchasing as principal does not require the issuer to gather information about the beneficial owner. The CSA can obtain the beneficial ownership information by other means, if necessary.
The New Report does not require that the filer provide the estimated amount of any deferred compensation in connection with the distribution, as was suggested in the August Proposal. Issuers are only required to indicate whether a person will or may receive any deferred compensation, and to provide a description of the terms of the deferred compensation.
Finally, the New Report provides revised instructions with respect to the conversion of currency and the exchange rate that should be used for distributions in a foreign currency. In particular, the instructions have been revised to account for the Bank of Canada's announcement that as of March 1, 2017, it will no longer publish both a noon rate and a closing rate, but rather one indicative exchange rate each day.
Effective date and transition period
The New Report and the associated amendments to National Instrument 45-106 Prospectus Exemptions are expected to come into force on June 30, 2016. The CSA has also published CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions which replaces the version of the notice issued on June 25, 2015.
Issuers, other than investment funds, are required to use the New Report for distributions that occur on or after June 30, 2016. If an issuer completes a distribution before such date, and the deadline to file the report occurs after June 30, 2016, the issuer must file the current version of Form 45-106F1. If an issuer completes multiple distributions on dates that occur within a 10-day period beginning before and ending after June 30, 2016, the issuer may use either the current report or the New Report.
The CSA has provided a transition period to allow investment fund issuers that file annually to file either the current report or the New Report for distributions occurring before January 1, 2017. For distributions on or after January 1, 2017, all investment fund issuers filing annually must file the New Report.
For further information, please see CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution (April 7, 2016); CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions(April 7, 2016); and Multilateral CSA Staff Notice 13-323 Frequently Asked Questions About Making Exempt Market Offering and Disclosure Filings on SEDAR (April 21, 2016).
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