Filing the Final and Obtaining a Receipt and Changes Post-Filing

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  1. Filing the Final and Obtaining a Receipt and Changes Post-Filing

3.4.4.1 Final Receipt

  • This is when the OSC moves away from regulating disclosure and the quality of it, and ACTUALLY goes on to regulate the MERITS of the offering
  • This section gives them a mandate to review the offering. The Commission (lawyers and accountants) has the authority to say no to the public offering, even if you’ve disclosed everything. Even if investors are fully informed, the Commission has the authority to say no.

POLICY:

  • May not be a good thing for them to be refusing a receipt for the reasons typically used (e.g. because the company is too new, venture is too risky, etc.)
  • HOWEVER.. overall: Lastman is comforted by this provision, in that an objective third party is looking after the efficiency/integrity of the capital markets (someone with a greater interest than individual investors who think they know better)
  • See after case examples below:

OSA – Prospectus Distribution – Final Receipt (s.61)

s.61: (1) Issuance of receipt – PUBLIC INTEREST: Subject to subsection (2) of this section and subsection 63 (4), the Director shall issue a receipt for a prospectus filed under this Part unless it appears to the Director that it is not in the public interest to do so.

(2) Refusal of receipt: The Director shall not issue a receipt for a prospectus or an amendment to a prospectus under the following conditions

  1. the prospectus or any document required to be filed with it,
  • (i) does not comply in any substantial respect with any of the requirements of this Act or the regulations,
  • (ii) contains any statement, promise, estimate or forward-looking information that is misleading, false or deceptive, or
  • (iii) contains a misrepresentation;
  1. an unconscionable consideration has been paid or given or is intended to be paid or given for any services or promotional purposes or for the acquisition ofproperty;
  • Note: Clear statutory authority to eval prospectus on its merits (discretion of commission at play)
  1. the aggregate of, (i) the proceeds from the sale of the securities under the prospectus that are to be paid into the treasury of the issuer, and (ii) the other resources of the issuer, is insufficient to accomplish the purpose of the issue stated in the prospectus;
  • Have to include “use of proceeds” in prospectus, what you’re doing with $ and where it’s going, basically have to show that you have financing so that there’s less risk to the investor’s $ and they can make an appropriately informed decision
  1. the issuer cannot reasonably be expected to be financially responsible in the conduct of its business because of the financial condition of

(i) the issuer,

  • (ii) any of the issuer’s officers, directors, promoters, or control persons, or
  • (iii) the investment fund manager of the issuer or any of the investment fund manager’s officers, directors or control persons;
  1. the business of the issuer may not be conducted with integrity and in the best interests of the security holders of the issuer because of the past conduct of,
  • (i) the issuer,
  • (ii) any of the issuer’s officers, directors, promoters, or control persons, or
  • (iii) the investment fund manager of the issuer or any of the investment fund manager’s officers, directors or control persons;

o Notes: *so on that past exam, could mention that they may not ISSUE a receipt if they’re concerned about this (even if it’s just a rumour)

o *POLICY: is WAY beyond disclosure, is about regulating the merits of the offering, are not going to allow you access to the public markets if unhappy with your director or whoever’s conduct. Balance b/w investor protection/ confidence in the market and efficiency of the market (want to have IPOs, but not if it sacrifices investor protection and confidence)

  1. unacceptable professional discretion: a person or company that has prepared or certified any part of the prospectus, or that is named as having prepared or certified a report or valuation used in connection with the prospectus, is not acceptable; (same kind of deal, if they’re unhappy with an expert)
  2. an escrow or pooling agreement in the form that the Director considers necessary or advisable with respect to the securities has not been entered into; or
  • Note NP 46-201: Escrow for Initial Public Offerings:

o Remember IPO is first time that company is going public with shares (doesn’t apply to more mature companies returning to the market). Therefore, worried that all the investors will give the company their money, then the company will bail, sell all their shares in the secondary market and peace out. That doesn’t sound good.

o Therefore, have to enter into satisfactory escrow arrangement that provides that you are not entitled to sell more than 1/3rd of your shares every year for the first 3 years (termed escrow agreement). Balance of risk b/w new owners/old owners to ensure that you’re not buying into something where the founders don’t have any skin in the game

  1. adequate arrangements have not been made for the holding in trust of the proceeds payable to the issuer from the sale of the securities pending the distribution of the securities.

CASE EXAMPLES OF OSC REFUSAL

(3) Hearing: The Director shall not refuse to issue a receipt under subsection (1) or (2) without giving the person or company who filed the prospectus an opportunity to be heard

Rivalda

Failed to issue receipt for a junior mining company offering b/c felt directors were too inexperienced, even though they indicated and DISCLOSED that they were inexperienced

Lake Forest Fund

Deprenyl

Failed to issue receipt because they did not like the disclosed fee structure, thought too much money would go to the promoter.

Facts: Parkinson’s sufferer goes to US and finds a drug that helps the symptoms- therapy for late stage Parkinson’s. He took it and felt better. Decided to come back to Canada and form a private company (Deprenyl). Files Prelim prospectus to raise $ to get FDA approval. Was obvious in doc that they might never get approval, and then your $ is lost.

POLICY NOTES

Decision: OSC wouldn’t issue a receipt for final prospectus because success depended on FDA approval of a drug and thus too risky – company made this very clear on the face of the document that drug was not permitted in Canada and needed FDA approval – finally OSC approved – ended up getting FDA approval (but what would happen if no approval -see policy)

POLICY (keep in mind these are outliers, and overall, he loves the OSC, decisions are typically effective)

– This is a paternalistic approach: why not just force them to give the information to the public, but then LET THE PUBLIC DECIDE?

• Seems hard/sketchy in a situation where you have lawyers/accountants at the OSC telling people suffering from late stage Parkinson’s that they can’t get access to this great drug because the OSC thinks it’s too risky (even though disclosure is all there)

BUT COUNTER-ARGUMENT: Cost to society is that people will not invest markets if we don’t protect its integrity and if people lose all their $ on risky investments

  • need to take steps to protect the economy, even against people who think they know better. We need to protect our capital markets b/c if they suck, investors will go elsewhere and then we’re bankrupt.

His take on OSC:

  • Confident to have fate held in reasonable hands of reasonable people making decisions in the interest of the public good

o As long as they’re acting in the best interests of the public (which they do), then decisions are almost always right

o Decisions made by people that are thoughtful/caring, which comforts him as opposed to arbitrary code.

  • At the end of the day, not trying to protect one investor (not that myopic), but protect integrity of capital markets (sometimes means companies can’t go public, or can’t bring beneficial drugs to market, then that’s a price worth paying to protect integrity of capital markets b/c without that, we don’t have anything, no company can go public, no drug can come to market, etc. if we don’t have confidence in those markets) (cost-benefit analysis to keep markets efficient)

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