What must be filed with a material change – Securities Regulation

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“Material change” in issuer’s business. NP 51-201, 4.3

o Changes in corp structure (changes in controlling share ownership, major reorgs/ M&A; take-over bids)

o Changes in capital structure (sale of additional sec; planned repurchases of sec; planned stock splits/ consolidation/ share exchange/ stock dividend; changes in dividend payments/ policies; poss initiation of proxy fight; material modification in rights of sec holders) o Changes in financial results (sig increase/ decrease in earnings; unexpected changes in financial results; shifts in financial circumstances – cash flow red; changes in value/ composition of corp’s assets)

o Changes in business and operations (development that affects corp’s resources, tech, products or markets; sig change in capital investment plans; major labour disputes; sig new/ losses of contracts; changes to BOD; developments in material legal proceedings; de-listing of corp’s sec)

o Acquisitions and dispositions o Changes in credit arrangements

4.2(2) of Policy encourages issuers to err on the side of disclosing the information if there is any doubt.

  1. What must be filed with a material change (3 Report Options)
  2. Complete Public Disclosure

1) File a press release per s.75 OSA, NI 51-201 s.2.1; 2) File a material change report (Form 51-102F3)

  • 1) File a press release immediately disclosing the nature and substance of the change

o NP 51-201, 2.1: “A company’s press release should contain enough detail to enable the media and investors to understand the substance and importance of the change it is disclosing. Avoid including unnecessary details, exaggerated reports or promotional commentary”. o Obligation: to be factual and balanced (BUT no more said by Securities Commission)

  • 2) File a material change report (Form 51-102F3) disclosing in greater detail the nature and substance of the change, within 10 days of the change.

o Example: a fire occurs. It is material. File press release immediately. File material change report within 10 days.

  1. Incomplete Public Disclosure

Still Form 51-102F3. This is the same, except leave out a fact and persuade the commission (via report) that a particular fact should not be disclosed. Here, only part of the material change is not disclosed. Prof has never seen this used.

  1. Confidential Disclosure / Reporting

s. 7.1(1) and (2) of National Instrument 51-102: Material Change Reports

Do not have to follow usual procedure of disclosing material change (per s.7.1(1)) if, per s.7.1(2) it would be

  1. unduly detrimental or (b) as a right, and the reporting issuer immediately files Form 51-102F3 Material Change Report marked so to indicate it is confidential as well as written reasons for non-disclosure
Statute (OSA s.7.1(1)) Description
S.7.1(1) Publication of Material Change:

Subject to subsection (2), if a material change occurs in the affairs of a reporting issuer, the reporting issuer must

  • (a) immediately issue and file a news release authorized by an executive officer disclosing the nature and substance of the change; and
  • (b) as soon as practicable, and in any event within 10 days of the date on which the change occurs, file a Form 51-102F3 Material Change Report with respect to the material change.
Statute (OSA s.7.1(1)) Description
(2) Subsection (1) does not apply if,
(a) Unduly Detrimental: in the opinion of the reporting issuer, and if that opinion is arrived at in a reasonable manner, the disclosure required by subsection (1) would be unduly detrimental to the interests of the reporting issuer; or
  • 2.2 of NP 51-201: Comparative: Detriment outweighing benefits of disclosure (undue economic detriment). Might happen where disclosure would interfere with a company’s pursuit of a specific objective or strategy, with ongoing negotiations, or ability to complete a transaction. If that harm outweighs the general benefits to the market of immediate disclosure, then withholding disclosure is justified.
  • WHY THIS IS A PROBLEM: You are admitting that it’s material and discloseable, and you’re obligated to disclose: so if your request is denied, you’re screwed and you have to disclose. You’ve removed any judgment from you or your client. This hardly ever applies, so may as well stay away from it.
  • POLICY Tensions:

o Investor protection: should be able to assume all material changes have been published and can be pissed about making inv decision w/o that info vs

o Efficient Markets/Having People Play: There are circumstances where disclosure may be unduly detrimental, doing long-term harm to all investors potentially, making commission surrogate for investors

Basically, just keep in mind that application of this is difficult (of whether it’s a material material change) e.g. the Harold Ballard heart condition – disclosable or not?

(b) As of right: the material change consists

of a decision to implement a change made by senior management of the reporting issuer who believe that confirmation of the decision by the board of directors is probable, and senior management of the reporting issuer has no reason to believe that persons with knowledge of the material change have made use of that knowledge in purchasing or selling securities of the reporting issuer,

  • Where senior management has decided to do something, will give you confidential disclosure as of right until board has approved it and when they

have, you ’re into regular disclosure

  • Why do they allow a material change not to be reported to the world yet? ^Preserve right of directors to make decisions: Forces directors to do it, if you’ve announced it, taking decision away from the directors


  • (a) board has approved decision
  • or as punishment when: (b) if you let it leak and people are trading with it
  • No sympathy b/c should have protected info, b/w innocent parties, have to protect investors in marketplace. Have to let them know that no one is trading with that knowledge.
  • The point of this confidential disclosure request to the commission (vs just not disclosing if you decide it is confidential):

o So that commission knows insiders aren’t trading, they can monitor the stock, make sure people aren’t trading with the information

o If regulator sees trading, corp has to disclose fact – seems to have looked

  • Tension b/w investor protection and efficient capital markets: don’t want people using info to exploit, but don’t want to create situation where management can pre-empt board and this is the compromise.
  • Once approved by board, under obligation to disclose ^ issue press release and file material change report
and the reporting issuer immediately files Form 51-102F3 Material Change Report marked so to indicate it is confidential as well as written reasons for non-disclosure
  • Must advise commission every 10 days until disclosed
  • If board says no – therefore, nothing to release

o and the reporting issuer immediately files the report required under paragraph (1)(b) marked so as to indicate that it is confidential, together with written reasons for non-disclosure.

  • Material change in affairs of company but you do not file a press release or a report, and you seek a confidential ruling from the securities commission
Statute (OSA s.7.1(1)) Description
saying this has happened, but I can’t disclose it for this reason
  1. Best Practices Re: Disclosure (per NP 51-201)
  2. Establish a corp disclosure policy and oversee its implementation
  3. Have board/ audit committee review disclosure
  4. Authorize limited # of company spokespersons
  5. Adopt a “no comment” policy to rumours ^ otherwise inconsistent response may be interpreted as tipping

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