Canada: Canadian Securities Administrators Propose Amendments To Shelf Prospectus Regime For Well-Known Seasoned Issuers

Pilot Program

Proposed Amendments

Comments

Timing

A receipt needs to be issued before a WKSI base shelf prospectus can be used.

Upon filing the WKSI base shelf prospectus, a receipt is automatically deemed to be issued.

This modification would be in alignment with the current U.S. WKSI regime and would accelerate the overall process.

Seasoning Period

The eligible issuer must have been a reporting issuer in at least one jurisdiction in Canada for the previous 12 months.

The eligible issuer must have been a reporting issuer in at least one jurisdiction in Canada for the previous 3 years.

The seasoning period under the Proposed Amendments is significantly longer and differs from the U.S. regime, which only requires a one-year reporting history for an issuer to be eligible. The CSA has indicated that the rationale for the change was to address the concern that an issuer that has been a reporting issuer for only 12 months may not have a sufficient continuous disclosure record, market following or history of participation in the capital markets to justify participation in the WKSI regime.

Term

The WKSI base shelf prospectus is effective for up to 25 months from the date the receipt is issued.

The WKSI base shelf prospectus is effective for up to 37 months from the date of filing and deemed receipt.

This modification benefits eligible issuers.

Annual Confirmation

Not required.

Each year after the initial filing, on or before their annual filing date, issuers that have filed a WKSI base shelf prospectus will have to confirm that they remain WKSIs and are still eligible under the WKSI regime. Issuers can do so by including a statement in their annual information form or in an amendment to their WKSI base shelf prospectus.

If an issuer is no longer eligible, it will have to withdraw its WKSI base shelf prospectus and issue a press release announcing that it will not distribute securities under a prospectus supplement.

This modification would be in alignment with the current U.S. WKSI regime which includes an annual confirmation.

Amendments permitted

The Pilot Program is silent on amendments to the WKSI base shelf prospectus.

Amendments to WKSI base shelf prospectus are expressly permitted and do not require the issuance of a receipt.

The Proposed Amendments provide for amendments to WKSI base shelf prospectus and the process is simplified as a receipt will be deemed to have been issued once the required conditions for the amendments are met.

Calculation of equity threshold

The equity threshold under the Pilot Program is determined by the aggregate market value of securities held by non-affiliates using the price at which the securities were last sold in the principal market on a date within 60 days of the filing of a WKSI base shelf prospectus.

The public equity threshold will be based on the aggregate market value of the issuer's listed equity securities (excluding securities held by affiliates and reporting insiders of the issuer), using the simple average of the daily closing price of the securities on the applicable stock exchange over the preceding 20 trading days.

The public equity threshold remains the same at $500 million, but modifications were made to exclude reporting insiders (as such information is publicly available) and to use a 20-day simple average closing price of the issuer's securities, for consistency with other rules that refer to market price.

Issuer eligibility

The current Pilot Program excludes an issuer if within the last three years before filing, the issuer or any of its subsidiaries was the subject of any "penalties or sanctions", including restrictions on the use of any type of prospectus, or exemption, imposed by a court relating to securities legislation or by a securities regulatory authority.

The Proposed Amendments add new criteria to exclude an issuer if the issuer or any of its subsidiaries has been subject to an order, judgment, decree, sanction or administrative penalty imposed by, or has entered into a settlement agreement with or approved by, a court in Canada or a foreign jurisdiction or a securities regulatory authority or similar authority in a foreign jurisdiction related to a claim based in whole or in part on fraud, theft, deceit, misrepresentation, conspiracy, insider trading, unregistered activity or illegal distribution, within the last 3 years before filing.

This modification now describes with greater specificity the types of penalties and sanctions that would preclude an issuer from filing a WKSI base shelf prospectus.

Mining Operations

Under the current Pilot Program, if an issuer that files a WKSI base shelf prospectus has mining operations, its most recent audited financial statements must disclose prescribed revenue from mining operations, and the issuer must file any technical reports that would be required to be filed with a preliminary short form prospectus under National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101").

Under the Proposed Amendments, if an issuer that files a WKSI base shelf prospectus has a mineral project, its most recent audited financial statements must disclose prescribed revenue from mining operations, and the issuer must file any technical reports that would be required to be filed with a preliminary short form prospectus under NI 43-101.

This requirement is generally unchanged, except that the introductory language refers to "mineral project" rather than "mining operations", to align with NI 43-101.