On April 26, 2012, the Canadian Securities Administrators (CSA) released CSA Staff Notice 45-308 Guidance for Preparing and Filing Reports of Exempt Distribution Under National Instrument 45-106 (Notice) which highlighted issues staff had identified in their review of reports of exempt distribution filed pursuant to Form 45-106F1 (Form) and clarified certain requirements under the Form.
Background of Form 45-106F1
NI 45-106 contains a number of exemptions for issuers and registered dealers to sell securities without a prospectus if investors meet certain requirements. Where issuers or underwriters rely on such exemptions, these exempt distributions must be reported and filed in accordance with the Form.
Issues Identified and Related Guidance
The Notice outlines common issues that staff have identified during their review of Forms filed with them. The issues that were identified, and the appropriate corrective actions, are as follows:
- Failing to use the correct form - The British Columbia Securities Commission introduced a new form for a report of exempt distribution, Form 45-106F6 (F6) which is accepted only in British Columbia. Where a distribution occurs in British Columbia and any other province, F6 must be filed with the British Columbia Securities Commission and the Form must be filed in the other applicable jurisdictions;
- Failing to file the Form on time - The Form must generally be filed 10 days after a distribution, with some exemptions available for investment funds;
- Failing to pay the required fee at the time of filing;
- Failing to include a complete list of purchasers - Where a distribution is made in more than one jurisdiction, the issuer or underwriter must complete the Form by identifying all purchasers, including those that reside in the jurisdiction where the Form is being filed and those that do not;
- Failing to reconcile information in the Form - The information provided in response to items 5, 6 and 7 of the Form must reconcile with the information provided in Schedule I regarding the number of securities distributed, the total dollar value raised and the number of purchasers and/or exemptions used;
- Incorrectly identifying the number of purchasers - Item 7 of the Form requires the total number of investors to be reported and not the number of securities each purchaser purchased;
- Relying on unavailable exemptions - Not all exemptions are available in every province. Therefore when completing Schedule I, the issuer or underwriter may need to list multiple exemptions relied on for the same purchaser in circumstances where the distribution is made in more than one jurisdiction and the same exemption is not available in all jurisdictions;
- Failing to disclose all commissions and finder’s fees - Item 8 of the Form requires the disclosure of compensation received or to be received by any person in connection with the distribution, including commissions, discounts or other fees or payments of a similar nature, which result from a distribution, regardless of what the payment is called;
- Failing to provide complete information regarding convertible or exchangeable securities distributed - Where the security distributed is convertible or exchangeable into an underlying security, Item 6 must include a description of this underlying security, the terms of conversion or exercise and the expiry date;
- Improperly reporting distributions under the minimum amount exemption - If the exemption being relied on is section 2.10 Minimum amount investment of NI 45-106, the purchase price must be at least $150,000 (among other conditions). It is not permissible to distribute securities under this exemption to multiple purchasers acting in concert or as a “syndicate” in order to pool individual purchases and reach the $150,000 minimum; and
- Failing to certify the Form.