OSC SME Institute: Current Trends in Prospectus Filings ... · The OSC SME Institute. Current...

The OSC SME Institute

Current Trends in Prospectus Filings:

What SME issuers need to know

Jeff Scanlon Jim WhyteJessie Gill David MendicinoLorraine Greer Ray HoEvelina Barsukov

February 21, 2019

DisclaimerThe views expressed in this presentation are the personal views of the presenting staff and do not necessarily represent the views of the Commission or other Commission staff.The presentation is provided for general information purposes only and does not constitute legal or accounting advice.Information has been summarized and paraphrased for presentation purposes and the examples have been provided for illustration purposes only. Responsibility for making sufficient and appropriate disclosure and complying with applicable securities laws remains with the company.Information in this presentation reflects the personal views of presenting staff in respect of securities laws and other relevant standards that are in effect as of the date hereof.The contents of this presentation should not be modified without the express written permission of the presenters.

THE OSC SME INSTITUTE 2

OSC SME Institute — Objectives• Help SMEs navigate regulatory waters

• Demystify disclosure requirements so issuers can focus on building their business

• Help SMEs reduce the cost of compliance

• Provide an opportunity for informal dialogue with OSC staff

THE OSC SME INSTITUTE

Disclosure requirements, including those for technical reporting,are a cornerstone of investor confidence

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Agenda


Topic SlideGeneral overview of types of prospectuses and offerings 5-14

Prospectus filing and review process 15-27

Prospectus procedural requirements, timing and fees 28-53

Hot button issues in prospectus reviews:

• Financial condition and sufficiency of proceeds 54-64

• Financial statement considerations 65-68

• Forward looking information 69-73

• Mining disclosure issues 74-86

• Dual class structures and restricted securities 87-94

Reducing regulatory burden – prospectus initiatives 95-99

Contact information 100-101

Questions 102

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General overview of types of prospectuses and offerings

General Overview

• Issuers must generally file a prospectus with securities regulatory authorities when offering securities to the public (Section 53 of the Securities Act (Ontario))

• Raising money in the “public markets” by way of a prospectus versus raising money in the “exempt market”

• A prospectus provides comprehensive and entity-specific disclosure, which is a key investor protection tool

• Staff conduct a review of the prospectus

• Issuer must receive a receipt from the Director before distributing securities

• Receipt refusal grounds set out in the Securities Act (Ontario)

Includes the right to refuse a receipt if it is not in the public interest to issue the receipt


Types of Prospectuses

• Various forms of prospectus offerings: Long form prospectus under National Instrument 41-101 General Prospectus

Requirements Short form prospectus under National Instrument 44-101 Short Form Prospectus

Distributions Base shelf prospectus under National Instrument 44-102 Shelf Distributions Post-Receipt Pricing (PREP) under National Instrument 44-103 Post-Receipt Pricing Multijurisdictional Disclosure System (MJDS) prospectus


Types of Prospectuses (cont’d)


Type Characteristics Who uses it?Long FormNI 41-101 General Prospectus Requirements and Form 41-101F1 Information Required in a Prospectus sets out in detail the information required

All disclosure contained within the prospectus

Used by a company completing an initial offering of its securities (commonly referred to as an Initial Public Offering, or IPO), or

A company that is not eligible to use a short form prospectus

Short FormNI 44-101 Short-form Prospectus Distributions sets out the eligibility criteria and disclosure requirements for this type of prospectus

Allows existing reporting issuers to incorporate by reference into a prospectus: Financial statements

& MD&A Annual information

form MCRs Circulars BARs

Used by a company that is already a reporting issuer in a Canadian jurisdiction

Must be qualified under NI 44-101 to file a short form prospectus

Generally quicker review time than for long form



Type Characteristics Who uses it?Base ShelfRequired disclosure is essentially the same as for a short form prospectus, modified in accordance with NI 44-102 Shelf Distributions

Certain information relating to the particular offering may be omitted from a base shelf prospectus

Full details of the offering to be provided in the supplement to the base shelf that is filed and delivered when the actual distribution of securities occurs

Eligible for use up to 25 months from issuance of final receipt

Form of prospectus used by a company that is already a reporting issuer

Allows companies to access the capital markets quickly and in a cost effective manner

Post-Receipt PricingNI 44-103 Post-Receipt Pricing sets out the criteria

Once pricing is determined, a supplemented PREP prospectus that contains all of the omitted information is filed with the OSC and provided to purchasers

A PREP prospectus can be based on a long form or short form prospectus

Allows issuers to file a final prospectus that omits pricing and certain related information

Any issuer can use this, not limited to issuers qualified to file a short form


• National Instrument 71-101 The Multijurisdictional Disclosure System

MJDS is a disclosure system that enables eligible cross-border securities offeringsto be governed by the disclosure requirements of the issuer’s home jurisdiction

MJDS intends to reduce the duplication of disclosure requirements and regulatoryfilings that arise when reporting issuers register securities offerings in foreigndomiciles.

Two types of MJDS offerings:

Southbound MJDS, used by eligible Canadian issuers to sell their securities intothe U.S.; and

Northbound MJDS, used by eligible U.S. issuers to sell their securities intoCanada.


General Overview of Types of Offerings

• There are generally 6 types of offerings:

1. Bought deal

2. Overnight marketed deal

3. Fully marketed underwritten deal

4. Best efforts agency offering

5. Special warrant offering

6. Non-offering prospectus

11THE OSC SME INSTITUTE

Types of Offerings

Bought deal

• Underwriters price the deal and sign a firm commitment to buy base amount of the offering 4 days prior to filing the preliminary prospectus

Overnight marketed deal

• Underwriters market the deal “overnight” after preliminary receipt is issued at the close of the market

• The next morning the underwriters price the deal and sign a firm commitment to buy a base amount of the offering

• An amended and restated preliminary prospectus is filed with size and pricing information provided


Types of Offerings (cont’d)

Fully marketed underwritten deal

• On eve of filing the final prospectus, the underwriters will price the deal and sign a firm commitment to buy base amount of the offering

Best efforts agency offering

• Two types – a minimum/maximum offering and a best efforts with no minimum

• Agents are not liable to buy any unsold securities

• If an offering includes a minimum, the minimum must be reached in order to close


Types of Offerings (cont’d)

Special warrant offering

• Prior to filing preliminary, special warrants are issued to investors pursuant to an exemption from the prospectus requirements

• The special warrants are convertible into underlying securities (i.e. common shares)

• Issuer is required to file a prospectus to qualify the distribution of underlying securities

Non-offering prospectus

• Purpose is primarily to become a reporting issuer

• Does not involve the selling of any securities to the public



Prospectus filing and review process

• Principal Regulator

• Prospectus Pre-filing and Waiver Applications

• Filing Preliminary Prospectus

• Review Process

• Filing Final Prospectus

16The OSC SME Institute

Prospectus Filing and Review Process

Prospectus Filing and Review Process

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Activity

Time period

OSC reviews preliminary prospectus and issues comments

Final Receipt Issued

Issuer files final prospectus

Issuer files preliminary prospectus

Issuer determines Principal Regulator

Issuer files pre-file and waiver applications if required


• Principal Regulator determination Issuer’s head office if it is located in a specified jurisdiction (BC, AB, SK, MB, ON, QC,

NB, NS)

Location of management, assets and operations, trading market, securityholders, underwriter, legal counsel, and transfer agent

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Principal Regulator

For more information, see:• National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions


Details of a Pre-File

• To seek relief from a requirement under securities law

• To consult with staff as to how securities legislation may be interpreted in particular circumstances

• Done prior to or concurrently with filing of a preliminary prospectus

• To avoid surprises during the comment period

• Length of time required depends on the complexity and the novelty of the issue


Start preliminary conversations with regulator if novel structure

Prospectus Pre-Filing and Applications

• Applications reviewed on a case-by-case basis

• The decision to grant exemptive relief depends on the facts and circumstances. Time and costs are not considered as reasons for non-compliance with prospectus requirements

• Consultation with other CSA jurisdictions for novel issues

• Description of relief disclosed in the prospectus


Filing Preliminary Prospectus

• Documents required to be filed

English and French translation of the prospectus (if applicable)

Qualification certificate (Short-Form prospectus)

Material incorporated by reference (Short-Form prospectus)

Documents affecting the rights of securityholders

Material contracts

Reports, valuations, and mining reports


Failure to file above documents will delay preliminary receipt

Filing Preliminary Prospectus (cont’d)

• Documents required to be delivered

Personal Information Forms and related authorizations

Auditors’ comfort letter

Issuer confirmation letter pursuant to section 7.2 of NP 11-202


Filing Preliminary Prospectus (cont’d)

• Substantive compliance with requirements

• Date of the prospectus and date of filing

• Time of filing and time of receipt

• Amendment to the preliminary prospectus – material adverse change


Comment Letters and Response Letters

• Timing of first comment letter

• Tips for responding make sure response comprehensively addresses staff’s comments

cite authoritative references where appropriate, especially when responding to technical accounting comments

cite relevant precedents or make analogies, especially when an issue may be considered novel or unique

provide proposed disclosure to be included in the prospectus to address staff’s comments, where appropriate


Long Form Prospectus:

10 business days

Short Form Prospectus:

3 business days


Filing Final Prospectus

• Documents required to be filed

English and French translation of the prospectus (if applicable)

Material incorporated by reference (Short-Form prospectus)

Documents affecting the rights of securityholders

Material contracts

Reports and valuations

Undertakings, submission to jurisdiction, and expert’s consents


Filing Final Prospectus (cont’d)

• Documents required to be delivered

Blackline to show changes from preliminary prospectus

Conditional approval letter from the exchange


Filing Final Prospectus (cont’d)

• Date of the prospectus and date of filing (90-Day deadline)

• Time of filing and time of receipt

• Amendment to the final prospectus – material change


Prospectus procedural requirements, timing and fees

Choosing your Principal Regulator (PR)


Specified jurisdictions: • British Columbia• Alberta• Saskatchewan• Manitoba• Ontario• Québec• New Brunswick • Nova Scotia

Determining your Principal Regulator (PR)Please consider the following connecting factors when choosing your PR for either a domestic or foreign issuer:


HEAD OFFICE Management Assets and

OperationsTrading Market

Securities Holders

Foreign Issuers Only (if the first five factors do not apply)

UnderwriterLegal Counsel

Transfer Agent

NP 11-202 s.3.4

SEDAR* Filing Types/Categories• To create a new non-investment fund prospectus filing:


Category of Filer• Other Issuer

Category of Filing• Securities Offerings

Filing Type• i.e. Long form, short form, etc.

Filing subtype/document type• i.e. preliminary, final, amendment, etc.

*System for Electronic Document Analysis and Retrieval

Refiling on SEDAR• If a prospectus is filed under the wrong Category of Filer, Category of Filing

or Filing type, it must be refiled under a new project number:


NEW project number

SAME project number & correct

type

Category of Filer• Investment Fund Issuers vs Other Issuers

Category of Filing• Continuous Disclosure vs Securities Offerings

Filing Type• Long Form vs CPC

Filing subtype/document type• preliminary, final, amendment, etc.

Project Number

No additional filing fees required

Filing in Quebec - French versions


ON + QC = French versions (prospectus & D.I.R.)

Documents Required to be Filed with a Preliminary Prospectus


Resource Issuers • 43-101 Technical Reports• Qualified Persons’ Consents

Other Documents

Short Form • Qualification Certificate

Long Form • Auditor’s Comfort Letter

Basic Filing• Cover Letter• Certificated Prospectus• 11-202 Confirmation Letter• Personal Information Forms with Consents

• Material Contract/Agreements• Docs Affecting Rights of Securityholders• Docs Incorporated by Ref. but not yet filed• Decisions Granting Relief

Filed – will be made public Delivered – non-public only

Preliminary Long Form Requirements


Documents Affecting the Rights of Securityholders

• All contracts that materially affect the rights of securityholder

NI 41-101, Part 9.1(a)(ii)

• Conformed signatures (i.e. “John Smith”)



Material Contracts

•Any material contract not previously filed

•Escrow agreement, if applicable

•No redactions

•Conformed signatures

NI 41-101, Part 9.1(a)(iii)


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Auditor’s Comfort Letter

•Must be filed whenever unsigned/undated auditor’s report to the AFS is included

•Must have correct prospectus reference

•Must refer to the related financial statements

•Must be signed and dated

NI 41-101, Part 9.1(b)(iii)+ Handbook of the Canadian Institute of Chartered Accountants


Preliminary Short Form Requirements


Notice of Intention

•10 business days prior to filing the SF prospectus

•Short Form Prospectus Issuer Status on SEDAR automatically changes to “Yes”

NI 44-101, Part 2.8



Qualification Certificate

• Must be signed by an executive officer

• Must be dated the same day as the prospectus

• Jurisdictions listed must match prospectus

NI 44-101, Part 4.1(a)(ii)



Documents Incorporated by Reference (D.I.R.)

• Must be filed in ALL applicable jurisdictions as of the date of the prospectus

• All DIR must be “public” on SEDAR

• Should include the Filing Date of these documents

• If also filing in Quebec, French versions of the DIR must be filed, unless an exemption has been granted by the AMF

NI 44-101, Part 4.1(a)(iii)

NP 11-202 Confirmation Letters


Type Section

Preliminary 7.2(2)

Preliminary Amendment 10.1(2)

Final 7.3(4)

Final Amendment 10.5(4)

SEDAR Document Type: “Confirmation re [Preliminary] Prospectus”

Preliminary prospectus - Red Herrings and Certificates

Long Form prospectus face page disclosure

Red Herring NI 41-101F1 (Item 1)

Long Form Certificate Language

NI 41-101F1

Type Item #Issuer 37.2Underwriter 37.3Amendments 37.4Non-offering 37.5



Short Form prospectus face page disclosure

Red Herring NI 44-101F1 (Item 1)

Short Form Certificate Language

NI 44-101F1Type Item #Issuer 21.2Underwriter 21.3Amendments 21.4



Shelf prospectus face page disclosure

Red Herring NI 44-101F1 (Item 1)NI 44-102 (Part 5, s. 5.5)

Shelf Certificate LanguageNI 44-102

Appendix A, Part 1(Forward Looking Form for

Continuous Distribution)

Type Item #Issuer 1.1Underwriter 1.2Amendments 1.4

Appendix B, Part 1 (Non-Forward Looking Form)

Issuer 1.1Underwriter 1.2Amendments 1.4



PREP prospectus face page disclosure

Red HerringNI 41-101F1 (Item 1) and NI 44-103 (Part 3.2)

NI 44-101F1 (Item 1) and NI 44-103 (Part 3.2)

PREP Certificate LanguagePost-Receipt Pricing (PREP)NI 44-103, Part 3 (Base PREP)

Part 4 (Supplemented PREP)

Type Part #Issuer 3.2(1), 7. (a) Underwriter 3.2(1), 7. (b) Amendments 3.6Issuer 4.5(2) 3. (a) Underwriter 4.5(2) 3. (b) Amendments 4.7


Personal Information Forms (PIFs)


Types of PIF

Form

CSA NI 41-101 Appendix A, Schedule 1 - Part A

TSX TSX Form 4

TSXV TSX Venture Form 2A

Aequitas NEO Aequitas NEO Form 3

Certificate & Consent

NI 41-101 (Appendix A Schedule 1

Part B)

NI 41-101, Part 9.1(b)(iii)

Common deficiencies with PIF filings


PIFDeficiencies

InitialledAttachments Insider’s

Name &DOB

MissingResponses

Incomplete

Issuer’s Name

Certificate and

Consent

Prospectus Receipt TimingOffering Type Prospectus Type Filing Time OSC Timing of issuance of receipt

Prospectuses generally

Preliminary or Final (long/short form)

Before 12:00 pm Same day

After 12:00 pm Generally before 12:00 pm on the next business day.

Bought deal

Preliminary (short form)

Before 3:00 pm Same day

Issuer should advise prospectus review officer by email before 12:00 pm on the day of filing that the preliminary prospectus will be filed by 3:00 pm that day

After 3:00 pm Before 12:00 pm on the next business day. Final (short form) Before 12:00 pm Same day

After 12:00 pm Before 12:00 pm on the next business day. Receipt is dated the next business day

Overnight marketed offering

Preliminary (short form)

Before 12:00 pm Issuer must advise prospectus review officer by email of plans to conduct an overnight marketed offering no later than morning on day of launch

OSC will make reasonable efforts to issue the receipt at or just after 4:00 pm same day

After 12:00 pm Must discuss with OSC whether accommodation is possible. No assurances can be made

Final (short form) Before 12:00 pm Same dayAfter 12:00 pm Before 12:00 pm on the next business day. Receipt is dated the next

business day


Prospectus Receipt Timing


Filing BEFORE

Filing AFTER

OSC Staff Notice 41-702

Receipt SAME Day

Receipt NEXT Day

Prospectus Timing – Bought Deal


[email protected]

Contact OSC BEFORE

Filing Deadline

Prospectus Timing – Overnight Marketed Deals


File the Prospectus and Contact OSC BEFORE

Best Efforts to Issue Receipt

OSC Staff Notice 41-702

Fees and Fee codes


Prospectus Type Fee code Fee amount

Short Form NI 44-101 (e.g., shelf, PREP, MJDS) AI4A30 $3,800

Long Form NI 41-101(e.g., PREP, CPC, MJDS, etc.) AI4A10 $3,800

Technical Report (each report) AI4A20 $2,500

No Payment = No Receipt

Contact Information


Contact Information

OSC Contact Centre [email protected] 416-593-8314 or 1-877-785-1555

Eden WilliamsManager, Regulatory Administration [email protected]

Chloe CuiBusiness Processes Supervisor [email protected]

Evelina BarsukovLorraine GreerProspectus Review Officers

[email protected]


Financial condition and sufficiency of proceeds


Receipt Refusal Provision

Subsection 61(2)(c) of the Securities Act (Ontario) provides that:

“The Director shall not issue a receipt for a prospectus or an amendment to a prospectus if it appears to the Director that,…

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…”


Sufficiency of Proceeds –Questions to Consider

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Can the issuer meet the next milestone in its development plan?

Does the issuer have enough money to meet working capital and debt requirements in the near term?


Does the issuer have enough money for exploration work?

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Best efforts without minimum subscription

Minimum subscription amount

Base shelf prospectus

Structure of Offering


Principal Purpose

• Investor protection concerns

• Integrity of capital markets

A principal purpose of the sufficiency of proceeds receipt refusal provision is to protect the integrity of the capital markets, which would be harmed if an issuer ceased operations due to insufficient funds shortly after completing a public securities offering.


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Staff Guidelines

Type of Issuer Resources to meet short-term liquidity requirements

Exploration stage issuer

• Sufficient to reach completion of the next phase of a project

Development stage issuer

• Sufficient to achieve the issuer’s next significant milestone

Research & development issuer

• Sufficient to achieve progress on the development of a key product

Issuer with active operations

• Ability to continue operations for the short term

Staff expectations vary depending on the type of issuer. Some guidelines are included below:


Choosing a Base Shelf Prospectus

• Issuer Benefits Cost effective way to raise capital for 25 month period

• Staff Concerns Insufficient funds for next 12 months


Base Shelf Prospectus

• Considerations Rationale for filing a base shelf prospectus Prospectus supplement in the near future Availability of other sources of financing Proposed nature and timing of the offerings Minimum subscription amount Use of proceeds from future offerings Concrete development milestones


Base Shelf Prospectus (Cont’d)• Possible outcomes Short form prospectus with minimum subscription Additional committed sources of financing Withdrawal of prospectus Other


Disclosure

• Use of proceeds Principal purposes Business objectives and milestones Liquidity concerns


Disclosure – Quick Reference Guide

• Subsection 61(2)(c) (“Refusal of Receipt” provision)• Item 6 of Form 41-101F1 Information Required in a Prospectus• Section 4.3 of Companion Policy 41-101CP• Item 4 of Form 44-101F1 Short Form Prospectus• Section 4.4 of Companion Policy 44-101CP • CSA Staff Notice 41-307 Corporate Finance Prospectus Guidance - Concerns

regarding an issuer’s financial condition and the sufficiency of proceeds from a prospectus offering.



Financial statement considerations


Financial History for IPO Prospectuses -Questions to Consider


What financial history is required in an IPO

prospectus? What legal entities make up the issuer’s entire

business?

Are there acquired businesses that would be regarded as being in the same primary business

of the issuer?

Does the financial history span across multiple

legal entities over the periods?

Table header goes here

Column Header 1 Column Header 2 Column Header 3

Row Header 1 Data Cell Data Cell






Required Financial Statements – IPO Prospectus (Long Form Prospectus)


IssuerAnnual• For each of the two/three (IPO Venture issuer/ non-venture issuer) most

recently completed financial years ended more than 90 days before the date of the prospectus:

• Statement of comprehensive income, statement of changes in equity, and statement of cash flows

• At the end of the two most recently completed financial years:

• Statement of financial position

Interim• For the most recent interim period ended after the most recent financial year and

more than 45 days before the date of the prospectus

• Statement of comprehensive income, statement of changes in equity and statement of cash flows for the year-to-date and three month period (if applicable) and related comparative information

• Statement of financial position as at the end of the interim period and as at the end of the most recently completed financial year

Audit Requirement• Any financial statements included in a long form prospectus must be

audited unless there is an exception

• Exceptions include: Interim financial statements Annual financial statements for the second most recently completed

financial years of a junior issuer (junior issuer is defined under National Instrument 41-101 – General Prospectus Requirements) if certain conditions are met



Forward looking information


What is Forward-looking Information (FLI)?

• Disclosure regarding: possible events possible financial performance

• Financial OutlookForward-looking financial information NOT presented in the format of historical financial statements. Examples include: projected EBITDA projected earnings per share (EPS) revenue targets operating ratios R&D spending projected operating costs

• Based on: future economic conditions future courses of action includes non-financial information such as: key performance indicators FOFI financial outlook targeted efficiencies metal price assumptions projected production levels

• FOFIForward-looking financial information presented in the format of historical financial statements.


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FLI - Questions to Consider

Is FLI identified?

Are the assumptionsreasonable and entity-specific?Are they disclosed?

Have risk factors that could cause actual results to vary been identified?

Is there a reasonable basis for the FLI?

Have users been cautioned that actual results may vary from FLI?


Example of Boilerplate Disclosure –Insufficient Support for FLI

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5-year growth targets without providing the underlying assumptions to support the FLI


2018 Actuals 2024 TargetsRevenue

$10 millionRevenue

$30 millionEBITDA

$2 millionEBITDA

$8 millionNumber of stores

36Number of stores

100

Example of Detailed Assumptions Underlying FLI


2018 Actuals

2019 Targets

2020 Targets

Assumptions

Revenue: $10 million

Revenue: $12 million

Revenue: $14.5 million

• The growth targets assume a growth rate of ~20%. The Company’s CAGR over the 2015-2018 period was 22%, and therefore, this growth is in line with historical growth realized by the Company.

• The Company has signed lease agreements to open 2 new store locations in 2019 and 3 new store locations in 2020. It is anticipated that each store will contribute approximately $1 million in revenue per year, which is consistent with other store openings in the first 2 years of operations.


Mining disclosure issues


Mineral Project Disclosure Required for a Prospectus• AIF-type disclosure of mineral project information, for each material

property (Form 41-101F1, Item 5.4).

• Short Form or Shelf prospectuses can refer back to an AIF for that information (NI 44-101, s. 2.2 (d)).

This is why the ideal technical report summary (Form 43-101F1, Item 1) is the AIF mineral project disclosure (Form 51-102F2, Item 5.4) -- you can just drop the summary straight into the AIF or a prospectus!

• This information in a Long Form prospectus always requires a supporting technical report (NI 43-101, 4.2 (1) (a)).

• Use of Proceeds is another section of the prospectus that is likely to entail mineral project disclosure.

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Use Of Proceeds• Use of Proceeds needs to describe "in reasonable detail" the principal

purpose of the financing (Form 41-101F1, Item 6.3 (1)).

• Use of Proceeds needs to state the business objectives and milestones using the proceeds of the offering or the funds available to the company (Form 41-101F1, Item 6.8).

• To the extent that this is scientific or technical information about a mineral project, that disclosure must be supported by technical disclosure in the prospectus, or be signed of by a qualified person (NI 43-101 s. 2.1).

• The qualified person signing off on the Use of Proceeds is an "expert" under the prospectus rule (NI 41-101, s. 10.1) – you need a consent.


Use Of Proceeds – Some Tips• Have a work program planned in advance, in consultation with a QP.

• If that work program goes beyond the recommendations in the technical report, be ready with a breakdown of costs that shows investors what they should expect from you.

• Think about schedule and milestones, and whether the proceeds get you to a milestone -- that is the expectation for companies at the exploration and development stage (CSA Staff Notice 41-307).

• Going for a shelf financing may not shield you from a review if there are potential grounds to refuse receipt.


Incomplete Technical Report• A current report must have all material information about the mineral property (NI 43-

101 s. 1.1; 6.1).

• The authors must certify that the report has all material information (NI 43-101, s. 8.1 (2) (i)).

• If your property has underground workings or a mill, or other infrastructure on site, the technical report must have a full description of those elements of the project.


Incomplete Technical Report:Some Objections, And Sharp Answers• Our project doesn't meet the definition of an "advanced property"!

The "advanced property" definition does not relieve you of the requirements in s. 1.1 or 6.1, or of the requirement that a QP has certified that the technical report contains all material information.

• The technical report simply supports the disclosure of a mineral resource!

Regardless of the triggering disclosure, the technical report has to be complete.

• This report updates an older report that has all the information!

No -- the new report superseded the old one when you filed it, and must be complete (43-101CP, 4.2 (8)).


Current Report

• Technical reports don't necessarily get stale purely by efflux of time -- but they do get stale if events overtake them (43-101CP, s. 4.2 (7)).

• Some ways a report might no longer be current: changing economic constraints (like stale price assumptions) significant new exploration results (good or bad) the recommended programs in the technical report are finished.


Preliminary Economic Assessments

• This can be a minefield: in 2012 a bunch of bought deals were derailed by non-compliant or potentially misleading PEA disclosure.

• The PEA (a "Scoping Study" in CRIRSCO-ese) is defined in NI 43-101 as any study with an economic analysis that does not meet the CIM definition of a preliminary or definitive feasibility study (NI 41-101, s. 1.1, 1.4).

• Some indicia: any study that puts inferred resources into the cash flow model any study with a large margin of error on costs any study that does not output mineral reserves any study with multiple development options.



• There is guidance on what we consider to be reasonable and non-misleading disclosure of a PEA in CSA Staff Notice 43-307.

• Things to avoid: claiming that a PEA with inferred resources has cost accuracy comparable to a

feasibility-level study implying (via a production decision) that a PEA effectively shows economic feasibility use of terms like "ore" or "mineable" mixing reserves and resources in a single cash flow model (even a "what-if") making best-case price or cost assumptions in a PEA.



• Another pitfall is putting economic projections in written disclosure, whether in a required filing or not. We regard this as disclosure of a PEA (43-101CP, s. 1.1 (4))

• We see this frequently in investor-relations materials like webpages, roadshow slides, or fact sheets.

• Avoid disclosing: production rates cost projections cash flow projections gross values (restricted by NI 43-101 s. 2.3 (1) (c)) third-party predictions like analyst or newsletter projections (CSA Policy 51-201, s.

5.2 (4)).


Independence Of Qualified Persons• The good news is that you probably don't need independence as often as

you think. The bad news is that when you do need it, there's no way around it.

• Routine disclosure can always be approved by an in-house QP -- it's only your technical reports that may require independent authors.

• Unless you are a "producing issuer" (defined in NI 43-101 s. 1.1) there will be disclosures -- typically the initial disclosure of a mineral inventory or an economic analysis -- that require author independence (NI 43-101, s. 5.3).

• When that's required, every author on the report has to be independent.


Reasonable Prospects ForEventual Economic Extraction• Or "RP3E" among the cool kids.

• This is a question of meeting the CIM definition of a mineral resource (NI 43-101 s. 1.3).

• At the stage of a resource estimate or PEA, this means: plausible price assumptions, plausible cost assumptions, and supportable product recoveries, which together make a reasonable cut-off grade.

• For an inferred resource, you may not need conceptual stope or pit limits, but you're not wrong if you use them. For higher categories, they're almost certainly needed.


Key staff notices for mining issuersDate Topic Reference

Jul 22, 2011 Mineral Brines OSC Staff Notice 43-704Mineral Brine Projects and NI 43-101

Aug 16, 2012 Preliminary Economic Assessments CSA Staff Notice 43-307Mining Technical Reports – Preliminary Economic Assessments

Nov 9, 2012 Emerging Markets OSC Staff Notice 51-720Issuer Guide for Companies Operating in Emerging Markets

Jun 13, 2013 Forward Looking Information CSA Staff Notice 51-721Forward Looking Information Disclosure

Jun 27, 2013 Technical Reports OSC Staff Notice 43-705Staff’s Review of Technical Reports by Ontario Mining Issuers

Dec 11, 2013 Non-GAAP Financial Measures OSC Staff Notice 52-722Staff’s Review of Non-GAAP Financial Measures

Feb 6, 2014 Mining MD&A OSC Staff Notice 51-722Review of Mining Issuers’ MD&A and Guidance

Apr 9, 2015 Website Investor Presentations CSA Staff Notice 43-309Review of Website Investor Presentations by Mining Issuers

Feb 25, 2016 Companion Policy 43-101CP CSA NoticeChanges to Companion Policy 43-101CP

Nov 29, 2018 Promotional Activities CSA Staff Notice 51-356Problematic Promotional Activities by Issuers



Dual class share structures and restricted securities


Dual Class Share Structures / Restricted Securities

• What is a Restricted Security? “restricted security”, for purposes of NI 41-101 and National Instrument 51-102

Continuous Disclosure Obligations (NI 51-102), means an equity security of an issuer that is not a preferred security of an issuer if any of the following apply: (a) there is another class of securities of the reporting issuer that, to a reasonable

person, appears to carry a greater number of votes per security relative to the equity security; [e.g. Multiple Voting Shares, or MVS]

(b) the conditions attached to the class of equity securities, the conditions attached to another class of securities of the reporting issuer, or the reporting issuer’s constating documents have provisions that nullify or, to a reasonable person, appear to significantly restrict the voting rights of the equity securities; or [e.g. limitation on election of directors]

(c) the reporting issuer has issued another class of equity securities that, to a reasonable person, appears to entitle the owners of securities of that other class to participate in the earnings or assets of the reporting issuer to a greater extent, on a per security basis, than the owners of the first class of equity securities; [e.g. Class B Common Shares that have greater dividend rights than Class A Common Shares]


Dual Class Share Structures / Restricted Securities (cont’d)• OSC Rule 56-501 Restricted Shares (Rule 56-501) Generally applies to distributions of restricted securities other than by way of

prospectus (e.g. private placements) Defines restricted securities on the basis of votes per security, however, Director can

deem common shares to be restricted shares based on similar factors set out in the definition of “restricted security” in NI 41-101

• What is a subject security? A security that results, or would result when issued, in an existing class of securities

being considered restricted securities Example: MVS would be subject securities, as they would result in the common

shares being restricted securities

• General principle: Common shares will be considered restricted securities where there is another class of security that has a disproportionality between that class’s voting and equity interest Voting control held by a person or group of persons notwithstanding that they hold a

minority equity interest


Impact of Restricted Securities on Prospectus Offerings• Prohibition on filing prospectus Subject to certain exemptions, an issuer cannot file a prospectus under which

restricted securities, subject securities, or securities convertible into, or exercisable or exchange for, restricted or subject securities, are distributed

• Exemptions Issuer was a “private issuer” before filing the prospectus (i.e. IPOing with a dual

class structure)

Distribution received prior majority approval of the securities of the issuer in accordance with applicable law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by affiliates of the issuer or control persons of the issuer

At time of any “restricted security reorganization” related to the securities to be distributed, the restricted security reorganization received the shareholder approval in the same manner noted above


Impact of Restricted Securities on Prospectus Offerings (cont’d)• Disclosure and nomenclature Prospectus will require additional disclosure regarding the restricted securities,

including the limitation of rights of restricted securityholders Cannot refer to securities as “common” if they are restricted securities Must use restricted security nomenclature; ‘restricted voting security’, ‘subordinate

voting security’, ‘non-voting security’

• Undertaking regarding blank cheque preferred shares Blank cheque preferred shares: authorized share capital that includes preferred

shares issuable in series, having such rights, restrictions and conditions as may be determined by the issuer’s board prior to the issuance

If issuer has a class of restricted shares issued and can issue blank cheque preferred shares, such issuance may further restrict rights of existing restricted shares

Staff will request undertaking to provide staff with reasonable prior notice in the event that issuer intends to issue a series of preferred shares that could further restrict existing restricted shares


Restricted Securities – Stock Exchange Requirements• Canadian stock exchanges have requirements regarding dual class

structures and restricted shares that are in addition to, and more onerous than, Canadian securities laws See TSX Venture Exchange Policy 3.5 Restricted Shares and Section 624 of TSX

Company Manual Staff understand that the Canadian Securities Exchange is applying requirements

similar to the TSX and TSXV, although no written policy is currently in place

• Examples of exchange requirements: Pro-rata distribution of multiple voting securities to all security holders of equity

shares in order to issue a class or series of multiple voting shares Imposition of take-over bid protections (also known as coattail provisions) which

provide holders of restricted shares with right to participate in a take-over bid for the subject securities

• Staff may request confirmation from issuer that exchange has approved the listing of restricted securities and applicable coattail provisions


Restricted Securities – Exemptive Relief Applications• Recent increase in applications seeking relief from the restricted security

requirements in NI 41-101, NI 51-102 and Rule 56-501 in connection with proportionate voting share (PVS) structures created for U.S. securities law purposes Proposed class of PVS for which the voting and economic rights are a multiple (e.g.

500 times) of the rights associated with the common shares, and PVS and common shares may be interconvertible at set ratio

Relief has been granted on the basis that there is no disproportionality between the voting and economic rights of the PVS – they are the same as the common shares

• Application for relief should be filed prior to, or concurrently with, filing of the preliminary prospectus for which the relief would initially be required Decision document required - relief cannot be evidenced by receipt for prospectus Ongoing relief also required from NI 51-102 and Rule 56-501 in connection with

ongoing continuous disclosure requirements and subsequent private placements of securities by the issuer.

Although NI 41-101 relief could be evidenced by receipt, issuer would need to apply (and pay fee) every time prospectus is filed


MI 61-101 Disclosure Requirements

• If Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) requires disclosure regarding a transaction, the disclosure must comply with the requirements of MI 61-101 and be included in a material change report (MCR) or other “disclosure document” relating to transaction that is filed on SEDAR Disclosure document would generally be an information circular or other document

sent to securityholders in connection with a meeting of holders of affected securities or, if these documents are not required, a material change report filed for the transaction.

• Inclusion of disclosure mandated by MI 61-101 for a transaction in prospectus alone does not satisfy disclosure requirements of MI 61-101

• If MCR or other disclosure document is not incorporated by reference into prospectus (for example, in a long form prospectus), staff may require that MI 61-101 disclosure be included in a prospectus on the basis that it is material information



Reducing regulatory burden –

Prospectus initiatives

Why focus on reducing regulatory burden?

• Changes brought on by: Shifts in market conditions Investor demographics Technological innovation Globalization

• Both over-regulation and under-regulation can dampen innovation and undermine the competitiveness of our capital markets

• The need for a cost-effective regulatory framework with proportionate regulation that supports innovation and competition – while maintaining appropriate investor protections – is critical


Consultation on options

• CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers Published for comment in April 2017

• Options identified in consultation paper Expanding the application of streamlined rules for smaller public companies Simplifying prospectus rules and process requirements Reducing ongoing disclosure requirements Eliminating overlap in regulatory requirements Identifying ways to enhance electronic delivery of documents


Stakeholder feedback and evaluation of options

• Comment period closed in July 2017 57 comment letters from stakeholders Stakeholder outreach and in-person consultations across Canada

• Need to prioritize and focus regulatory resources Most impact Generally supported Most achievable Within scope of securities regulation


New projects

• CSA Staff Notice 51-353 Update on CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers Published in March 2018

• Six new projects to be initiated in near-term1. Consideration of a potential alternative prospectus model *prospectus focused*2. Facilitating at-the-market offerings *prospectus focused*3. Revisiting the primary business requirements *prospectus focused*4. Revisiting certain continuous disclosure requirements 5. Removing or modifying the criteria to file a business acquisition report 6. Enhancing the electronic delivery of documents


Contact InformationContact Information

Jeff ScanlonSenior Legal CounselCorporate Finance Branch

416-597-7239 [email protected]

Jessie GillLegal CounselCorporate Finance Branch


James WhyteSenior GeologistCorporate Finance Branch


David MendicinoSenior Legal CounselOffice of Mergers and Acquisitions


Ray HoSenior Accountant Corporate Finance Branch



mailto:[email protected]





Contact Information

Contact Information

OSC Contact Centre [email protected] 416-593-8314 or 1-877-785-1555

Eden WilliamsManager, Regulatory AdministrationCorporate Finance Branch


Chloe CuiBusiness Processes SupervisorCorporate Finance Branch


Evelina BarsukovLorraine GreerProspectus Review OfficersCorporate Finance Branch

416-593-3694 416-593-2322 [email protected]






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