Statutory Provision: Ontario Securities Act (OSA), Part XVIII – Continuous Disclosure

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  • Section 75 of the SA in conjunction with NP 51-201
  • Irregular and unpredictable intervals. A fire, a flood, a strike, a new product, a contract. That information has to get into the market place.

Steps:

  1. You must report material changes in your business, capital or operations (75(1))
  • Timing: You must report them at the right time (not too early, not too late)

o Difficult to determine b/c hard to determine on the margin

o Don’t want to disclose b/c it can be really harmful (e.g. Financial Post – would have to disclose its losses which could reduce its advertising revenues). HOWEVER, if it is a material change, you have no choice.

o Also NP 51-201 indicates that disclosure must be factual and balanced (must disclose unfavourable news just as quickly as favourable news)

  • Internal Changes or External if Impacting Differently: Material and internal, unless the external change (e.g. war in another country) affects your business, capital, operations in a way that it does not affect others (per NP 51-201)
  • CHANGES not FACTS and should be MATERIAL:

o Definition in 1(1): Affects business, capital or operations

o Examples in NP 51-201, 4.3^NP 51-201 recommends: Erring on the side of materiality and disclose (although keeping in mind risk of premature disclosure)

  • Actual AND Proposed Changes: Definition of Material Change in 1(1) and NP 51-201

o Actual: things that have occurred (e.g. judgment against you, fire) o Proposed:

  • (a) when board decides to do something (BEFORE they’ve actually done it)

• (why: fact decision is made is the info they want to get into the marketplace so that market is efficient, works, and is trading with best possible information)

  • (b) when management decides to do something and they believe BoD approval is probable.
  • To bring action for Failure by an issuer to make timely disclosure, must show: 1) Reporting issuer or any other issuer with a real and substantial connection to the jurisdiction whose securities are publicly traded, failed to make a timely disclosure; 2) The P acquired or disposed of a security of the issuer; 3) Acquisition or disposal occurred between the time when a disclosure was required and before the subsequent disclosure of the material change.
  1. Report in one of three ways: 1) Full Reporting; 2) Incomplete Disclosure, 3) Confidential Reporting (must apply to use this, and can only use if you meet conditions)
  • Conditions for confidential reporting:

o (a) unduly detrimental to disclose; or

o (b) as of right if mgmt makes a decision that is likely to be approved by board and no one is trading with the info, and then must disclose once it’s approved/or if it leaks

POLICY:

To bring action for Failure by an issuer to make timely disclosure, must show: 1) Reporting issuer or any other issuer with a real and substantial connection to the jurisdiction whose securities are publicly traded, failed to make a timely disclosure; 2) The P acquired or disposed of a security of the issuer; 3) Acquisition or disposal occurred between the time when a disclosure was required and before the subsequent disclosure of the material change.

  • Equal Access to Information and proper valuation: Intended to provide investors with up-to-date information which is equal to the access enjoyed by insiders and proper valuation results.
  • Tension: BUT HARD TO DECIDE WHEN YOU SHOULD DISCLOSE

POLICY Tension: Investor Information + Protection VS. Efficient capital markets

Efficient Capital Markets (don’t want premature or late disclosure, both are bad)

  • (a) Confidentiality/ Privacy issues: You cannot have a proper negotiation if public companies need to disclose that they’re in talks (lets the person buying negotiate a lower price b/c you look stupid if you don’t end up selling) – you cannot disclose every time you get a sense something material might happen (no one will sell or buy ever)

o e.g. Steve Jobs being ill – hard to draw line and decide when appropriate to disclose (it is relevant and material to company HOWEVER we are talking about someone who deserves privacy)

  • (b) Regulators Afraid of premature disclosure: do not want you to manipulate the market (e.g. say you’re buying at a premium just so price will go up).

o also rumours: if premature disclosue happens, you are in trouble – disappointed investor expectations

• They just want you reporting MATERIAL CHANGE UPON ITS OCCURRENCE, no sooner, no later and they’ll decide in hindsight.

Spectrum ^ at what point in these discussions is disclosure required?

  1. Statutory Provision: OSA, Part XVIII – Continuous Disclosure

s.75 (1) must report a material change; (2) within 10 days of change; (3) exception for confidentiality; (4)

keep reporting every 10 days; (5) requirement to disclose subsequently if someone purchases

  • S.75(1): What you must report – material change: Subject to subsection (3), where a material change occurs in the affairs of a reporting issuer, it shall forthwith issue and file a news release authorized by a senior officer disclosing the nature and substance of the change.
  • (2) Report of material change: Subject to subsection (3), the reporting issuer shall file a report of such material change in accordance with the regulations as soon as practicable and in any event within ten days of the date on which the change occurs.
  • (3) Exception – Confidentiality: A reporting issuer may, instead of complying with subsection (1), promptly file with the Commission the report required under subsection (2), marked as confidential, and its written reasons for doing so if,

o (a) the reporting issuer reasonably believes that a disclosure required under subsections (1) and (2) would be unduly detrimental to its interests; or

o (b) the material change consists of a decision made by the senior management of the reporting issuer to implement a change and the senior management,

  • (i) believes that confirmation by the board of directors of the decision to implement the change is probable, and
  • (ii) has no reason to believe that any person or company with knowledge of the material change has purchased or sold the reporting issuer’s securities or traded a related derivative.
  • (4) Idem – keep reporting every 10 days: Where a report has been filed with the Commission under subsection (3), the reporting issuer shall advise the Commission in writing where it believes the report should continue to remain confidential within ten days of the date of filing of the initial report and every ten days thereafter until the material change is generally disclosed in the manner referred to in subsection (1) or, if the material change consists of a decision of the type referred to in clause (3) (b), until that decision has been rejected by the board of directors of the issuer.
  • (5) Requirement to disclose subsequently – if someone purchases, have to disclose: A reporting issuer that has filed a report under subsection (3) shall promptly disclose the material change in the manner referred to in subsection (1) if the reporting issuer becomes aware or has reasonable grounds to believe that a person or company having knowledge of the material change is purchasing or selling securities of the reporting issuer or trading a related derivative.

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