44-101CP - Short Form Prospectus Distributions [Proposed CP - Lapsed]

COMPANION POLICY

TO NATIONAL INSTRUMENT 44-101

SHORT FORM PROSPECTUS DISTRIBUTIONS

TABLE OF CONTENTS

PART               TITLE                                                                                                  

PART 1             INTRODUCTION AND DEFINITIONS

1.1        Introduction and Purpose                                                                 
1.2        Interrelationship With Local Securities Legislation                                 
1.3        Interrelationship with MRRS                                                                
1.4        Interrelationship with Selective Review                                                  
1.5        Interrelationship With Shelf Distributions (National Instrument 44-102)                                                               
1.6        Interrelationship With PREP Procedures (National Instrument 44-103)                                                               
1.7        Definitions                                                                                          

PART 2             QUALIFICATION TO FILE A PROSPECTUS IN THE FORM OF A SHORT FORM PROSPECTUS                                                                          

2.1        Basic Qualification Criteria                                                                  

2.2        Alternative Eligibility Criteria: Issuers that have not been Reporting Issuers for 12 Months in any Jurisdiction (Sections 2.3, 2.5, 2.6, 2.7, and 2.8 of National Instrument 44-101)                                                                
2.3        Calculation of the Aggregate Market Value of an Issuer’s Equity Securities (Section 2.9 of National Instrument 44-101)                                                                             
2.4        Alternative Qualification Criteria for Substantial Issuers (Section 2.3 of National Instrument 44-101)                                                                                                
2.5        Alternative Qualification Criteria for Issuers of Guaranteed Debt Securities, Preferred Shares and Cash Settled Derivatives (Sections 2.5 and 2.6 of National Instrument 44-101)                                                               
2.6        Alternative Qualification Criteria for Asset-Backed Securities (Section 2.7 of National Instrument 44-101)                                                                                            
2.7        Reorganizations (Section 2.8 of National Instrument 44-101)                                                                                            
2.8        Adoption by Successor Issuer of a Participant’s AIF Following a Reorganization (Section 2.10 of National Instrument 44-101)                                                                

PART 3             AIF

3.1        Initial AIF Review Procedures (Section 3.1 of National Instrument 44-101)                                                               
3.2        Renewal AIF Filing and Review Procedures (Section 3.2 of National Instrument 44-101)                                  
3.3        Supporting Documents (Section 3.3 of National Instrument 44-101)                                                                             

PART 4             DISCLOSURE IN A SHORT FORM PROSPECTUS OF FINANCIAL STATEMENTS FOR ACQUISITIONS AND MULTIPLE ACQUISITIONS

4.1        Financial Statement Disclosure of Significant Acquisitions and Multiple Acquisitions                                                
4.2        Acquisition of a Business                                                                  
4.3        Probable Acquisitions                                                                       
4.4        Timing of Significance Tests                                                              
4.5        Application of Investment Test for Significance of an Acquisition                                                                                  
4.6        Application of Income Test for Significance of an Acquisition                                                                                       
4.7        Exemptions from Parts 4 and 5 of National Instrument 44-101                                                                             

PART 5             OTHER FINANCIAL STATEMENT MATTERS

5.1        Foreign GAAP                                                                                  
5.2        Foreign Auditors and Foreign GAAS                                                  
5.3        Third Quarter Financial Statements (Section 6.5 of National Instrument 44-101)                                                                                    

PART 6             FILING AND RECEIPTING OF SHORT FORM PROSPECTUS

6.1        Confidential Material Change Reports                                                 
6.2        Supporting Documents                                                                      
6.3        Experts’ Consent                                                                              
6.4        Material Contracts                                                                            
6.5        Amendments and Incorporation by Reference of Subsequently Filed Material Change Reports                                      
6.6        Short Form Prospectus Review                                                          
6.7        “Waiting Period”                                                                               
6.8        Refusal to Issue Prospectus Receipt                                                  
6.9        Registration Requirements                                                                

PART 7             CONTENT OF AIF

7.1        Issuers of Asset-backed Securities                                                    
7.2        Non-corporate Issuers                                                                        

PART 8             CONTENT OF SHORT FORM PROSPECTUS

8.1        Prospectus Liability                                                                          
8.2        Style of Prospectus                                                                          
8.3        Firm Commitment Underwritings                                                        
8.4        Minimum Distribution                                                                        
8.5        Distribution of Asset-backed Securities                                              
8.6        Distribution of Specified Derivatives                                                    
8.7        Underlying Securities                                                                        
8.8        Financial Statements                                                                        

PART 9             CIRCULARS

9.1        Fee for Documents                                                                                                  

PART 10           CERTIFICATES

10.1      Non-corporate Issuers                                                                       
10.2      Promoters of Issuers of Asset-backed Securities                                  

APPENDIX A                 Overview of Business Acquisitions Decisions Chart

COMPANION POLICY 44-101CP
TO NATIONAL INSTRUMENT 44-101
SHORT FORM PROSPECTUS DISTRIBUTIONS

PART 1             INTRODUCTION AND DEFINITIONS

1.1                    Introduction and Purpose  - National Instrument 44-101 replaces National Policy Statement No. 47 Prompt Offering Qualification System ("NP47") and sets out the substantive test for an issuer to qualify to file a prospectus in the form of a short form prospectus.  The purpose of National Instrument 44-101 is the same as NP47's: to shorten the time period in which, and streamline the procedures by which, qualified issuers and their selling securityholders can obtain access to the Canadian capital markets through a prospectus offering.

British Columbia, Alberta, Ontario, Manitoba and Nova Scotia have adopted National Instrument 44-101 by way of rule.  Saskatchewan has adopted it by way of regulation.  Quebec has adopted it by way of policy.  All other jurisdictions have adopted National Instrument 44-101 by way of related blanket ruling or order.  Each jurisdiction implements National Instrument 44-101 by one or more instruments forming part of the law of that jurisdiction (referred to as the "implementing law of the jurisdiction").  Depending on the jurisdiction, the implementing law of the jurisdiction can take the form of regulation, rule, ruling or order.

This Companion Policy to National Instrument 44-101 (also referred to as "this Policy") provides information relating to the manner in which the provisions of the National Instrument are intended to be interpreted or applied by the Canadian securities regulatory authorities, as well as the exercise of discretion under National Instrument 44-101.  Terms used and not defined in the Companion Policy that are defined or interpreted in the National Instrument or a definition instrument in force in the jurisdiction should be read in accordance with the National Instrument or definition instrument, unless the context otherwise requires.

To the extent that any provision of this Policy is inconsistent or conflicts with the applicable provisions of National Instrument 44-101 in those jurisdictions that have adopted National Instrument 44-101 by way of related blanket ruling or order, the provisions of National Instrument 44-101 prevail over the provisions of this Policy.

1.2                    Interrelationship With Local Securities Legislation  - National Instrument 44-101, while being the primary instrument regulating short form prospectus distributions, is not exhaustive.  Issuers are reminded to refer to the implementing law of the jurisdiction and other securities legislation of the local jurisdiction for additional requirements that may be applicable to the issuer's short form prospectus distribution.

1.3                    Interrelationship with MRRS  - National Policy 43-201 Mutual Reliance Review System for Prospectuses and AIFs describes the practical application of the mutual reliance review system relating to the filing and review of prospectuses, including mutual fund and shelf prospectuses, amendments to prospectuses, annual information forms and related materials.  While use of MRRS is optional, MRRS represents the only means by which an issuer can enjoy the benefits of co-ordinated review by the Canadian securities regulatory authorities in the various jurisdictions in which the issuer has filed a short form prospectus or an AIF.  Under the MRRS, one Canadian securities regulatory authority or regulator as defined in National Instrument 14-101 Definitions, as applicable, acts as the principal regulator for all materials relating to a filer.

The provisions of this Policy relating to clearance of a short form prospectus apply only to filings in a single jurisdiction and filings for which the issuer has not elected to use MRRS.

1.4                    Interrelationship with Selective Review  - The Canadian securities regulatory authorities in Ontario, British Columbia and Alberta have adopted a system of selective review of certain documents, including initial AIFs, renewal AIFs, short form prospectuses and amendments to short form prospectuses.  Under the selective review system, these documents are subject to an initial screening to determine whether they will be reviewed and, if reviewed, whether they will be subject to a full review, an issue oriented review or an issuer review.  Application of the selective review system, taken together with MRRS, may result in certain initial AIFs, renewal AIFs, short form prospectuses and amendments to short form prospectuses not being reviewed.

1.5                    Interrelationship With Shelf Distributions (National Instrument 44-102)  - Issuers qualified under National Instrument 44-101 to file a prospectus in the form of a short form prospectus and their securityholders can distribute securities under a short form prospectus using the shelf distribution procedures under National Instrument 44-102 Shelf Distributions.  The Companion Policy to National Instrument 44-102 Shelf Distributions explains that the distribution of securities under the shelf system is governed by the requirements and procedures of National Instrument 44-101 and securities legislation, except as supplemented or varied by National Instrument 44-102.  Therefore, issuers qualified to file a prospectus in the form of a short form prospectus and selling securityholders of those issuers that wish to distribute securities under the shelf system should have regard to National Instrument 44-101 and this Policy first, and then refer to National Instrument 44-102 and the accompanying policy for any additional requirements.

1.6                    Interrelationship With PREP Procedures (National Instrument 44-103)  - National Instrument 44-103 Post-Receipt Pricing contains the post receipt pricing procedures (the "PREP procedures").  All issuers and selling securityholders can use the PREP procedures of National Instrument 44-103 to distribute securities.  Issuers and selling securityholders that wish to distribute securities under a prospectus in the form of a short form prospectus using the PREP procedures should have regard to National Instrument 44-101 and this Policy first, and then refer to National Instrument 44-103 and the accompanying policy for any additional requirements.

1.7                    Definitions

(1)        Approved rating - Cash settled derivatives are covenant-based instruments that may be rated on a similar basis to debt securities.  In addition to the creditworthiness of the issuer, other factors such as the continued subsistence of the underlying interest or the volatility of the price, value or level of the underlying interest may be reflected in the rating analysis for cash settled derivatives.  These additional factors may be described by a rating agency by way of a superscript or other notation to a rating.  The inclusion of such notations for covenant-based instruments that otherwise fall within one of the categories of an approved rating does not detract from the rating being considered to be an approved rating for the purposes of National Instrument 44-101.

A rating agency may also restrict its rating to securities of an issuer that are denominated in local currency.  This restriction may be denoted, for example, by the designation "LC".  The inclusion of such a designation in a rating that would otherwise fall within one of the categories of an approved rating does not detract from the rating being considered to be an approved rating for the purposes of National Instrument 44-101.

(2)        Asset-backed security - The definition of "asset-backed security" is virtually identical to the definition adopted in the October, 1992 amendments to Form S-3 of the 1933 Act, permitting issuers of "investment grade" asset-backed securities access to the U.S. short-form registration statement and related procedures.

The definition is designed to be flexible to accommodate future developments in asset-backed securities.  For example, it does not include a list of "eligible" assets that can be securitized.  Instead, the definition is broad, referring to "receivables or other financial assets" that by their terms convert into cash within a finite time period.  These would include, among other things, notes, leases, instalment contracts and interest rate swaps, as well as other financial assets, such as loans, credit card receivables, accounts receivable and franchise or servicing arrangements.  The reference to "and any rights or other assets..." in the definition is sufficiently broad to include "ancillary" or "incidental" assets, such as guarantees, letters of credit, financial insurance or other instruments provided as a credit enhancement for the securities of the issuer or which support the underlying assets in the pool, as well as cash arising upon collection of the underlying assets that may be reinvested in short-term debt obligations.

The term, a "discrete pool" of assets, can refer to a single group of assets as a "pool" or to multiple groups of assets as a "pool".  For example, a group or pool of credit card receivables and a pool of mortgage receivables can, together, constitute a "discrete pool" of assets.  The reference to a "discrete pool" of assets is qualified by the phrase "fixed or revolving" to clarify that the definition covers "revolving" credit arrangements, such as credit card and short-term trade receivables, where balances owing revolve due to periodic payments and write-offs.

While typically a pool of securitized assets will consist of financial assets owed by more than one obligor, the definition does not currently include a limit on the percentage of the pool of securitized assets that can be represented by one or more financial assets owing by the same or related obligors (sometimes referred to as an "asset concentration test").

(3)        Principal Obligor - The term "principal obligor" is defined to mean, for an asset-backed security, a person or company that is obligated to make payments, has guaranteed payments, or has provided alternative credit support for payments, on financial assets that represent a third or more of the aggregate amount owing on all of the financial assets underlying the asset-backed security.  This term applies to a person or company that is obligated by the terms of the asset, eg. a receivable, to make payments.  It does not include a person or company acting as "servicer" that collects payments from an obligor and remits payments to the issuer.  Nor does the term include a seller, ie. a person or company that has sold the financial assets comprising the pool to the issuer.  Sellers of financial assets have assigned to the issuer the right to receive payments on the financial assets; they are not the ones contractually obligated to make payments on the financial assets.

(4)        Probable Acquisition of a Business and Probable Acquisition of Related Business - See section 4.3.

(5)        Regulator - The regulator for each jurisdiction is listed in Appendix D to National Instrument 14-101 Definitions.  In practice, that person has often delegated his or her powers to act under National Instrument 44-101 to another staff member of the same Canadian securities regulatory authority or, under the relevant statutory framework, another person is permitted to exercise those powers.  Generally, the person exercising the powers of the regulator for the purposes of National Instrument 44-101 holds, as of the date of this Policy, the following position in each jurisdiction:

Further delegation may take place among staff or under securities legislation.

(6)        Successor Issuer - The definition of "successor issuer" requires that the issuer exist "as a result of a reorganization".  In the case of an amalgamation, the amalgamated corporation is regarded by the Canadian securities regulatory authorities as existing "as a result of" the amalgamation.  Also, if a corporation is incorporated for the sole purpose of facilitating a reorganization, the Canadian securities regulatory authorities regard the new corporation as "existing as a result of a reorganization"  despite the fact that the corporation may have been incorporated before the reorganization.  The definition of "successor issuer" also contains an exclusion applicable to divestitures.  For example, an issuer may carry out a reorganization that results in the distribution to securityholders of a portion of its business or the transfer of a portion of its business to another issuer.  In that case, the entity that carries on the portion of the business that was "spun-off" is not a successor issuer within the meaning of the definition.

PART 2             QUALIFICATION TO FILE A PROSPECTUS IN THE FORM OF A SHORT FORM PROSPECTUS

2.1                    Basic Qualification Criteria

(1)        Reporting Issuers in Local Jurisdiction that have been Reporting Issuers for 12 Months in a Jurisdiction other than the Local Jurisdiction (Clause 1(a)(ii) of section 2.2 of National Instrument 44-101) - Clause 1(a)(ii) of section 2.2 of National Instrument 44-101 provides that a reporting issuer in the local jurisdiction that is, and has been for the 12 calendar months preceding the date of the filing of its most recent AIF, a reporting issuer under Canadian securities legislation in at least one jurisdiction, other than the local jurisdiction, satisfies the reporting issuer criterion for being qualified to file a prospectus in the form of a short form prospectus if it has filed in the local jurisdiction all continuous disclosure documents that it was required to file during the 12 calendar months preceding the date of the filing of its most recent AIF under the Canadian securities legislation of any jurisdiction in which it has been a reporting issuer.  An issuer that has already filed with the Canadian securities regulatory authority of the local jurisdiction some or all of the continuous disclosure documents contemplated in this clause is not required to file those documents again.

(2)        Issuers not Reporting Issuers in Local Jurisdiction that are and have been Reporting Issuers for 12 Months in a Jurisdiction other than the Local Jurisdiction (Subparagraph 1(b) of section 2.2 of National Instrument 44-101) - Subparagraph 1(b) of section 2.2 of National Instrument 44-101 provides that an issuer that is not a reporting issuer in the local jurisdiction may be qualified to file a prospectus in the form of a short form prospectus if the issuer is, and has been for the 12 calendar months preceding the date of the filing of its most recent AIF, a reporting issuer under Canadian securities legislation in at least one jurisdiction, other than the local jurisdiction, and if (i) the securities regulatory authority is unable to deem the issuer to be, or designate the issuer as, a reporting issuer, (ii) the issuer has filed in the local jurisdiction all continuous disclosure documents that it was required to file during the 12 calendar months preceding the date of the filing of its most recent AIF under the Canadian securities legislation of any jurisdiction in which it has been a reporting issuer, and (iii) the issuer has provided an undertaking to the securities regulatory authority that it will file all continuous disclosure documents that it would be required to file under securities legislation if it were a reporting issuer from the time of the filing of its most recent AIF until the issuer becomes a reporting issuer.  As of the coming into force date of this Policy, only the provinces of Alberta, British Columbia, Quebec, Nova Scotia and Saskatchewan have the statutory power to deem an issuer to be, or to designate an issuer as, a reporting issuer.

2.2                    Alternative Eligibility Criteria: Issuers that have not been Reporting Issuers for 12 Months in any Jurisdiction (Sections 2.3, 2.5, 2.6, 2.7, and 2.8 of National Instrument 44-101)  - Issuers that have not been reporting issuers for 12 months in any jurisdiction may nonetheless be qualified to file a prospectus in the form of a short form prospectus under the following alternative qualification criteria of National Instrument 44-101:

1.         Section 2.3, which applies to issuers with a public float of $300,000,000 or more.

2.         Section 2.5, which applies to issuers of non-convertible debt securities, non-convertible preferred shares or cash settled derivatives, if another person or company that satisfies prescribed criteria fully and unconditionally guarantees or provides alternative credit support for the payments to be made by the issuer of the securities as stipulated in the terms of the securities or in an agreement governing the rights of holders of the securities.

3.         Section 2.6, which applies to issuers of convertible debt securities or convertible preferred shares, if the securities are convertible into securities of a credit supporter that satisfies prescribed criteria and fully and unconditionally guarantees or provides alternative credit support for the payments to be made by the issuer of the securities as stipulated in the terms of the securities or in an agreement governing the rights of holders of the securities.

4.         Section 2.7, which applies to issuers of asset-backed securities.

5.         Section 2.8, which applies to successor issuers following reorganizations.

Under sections 2.5, 2.6 and 2.7 of National Instrument 44-101, an issuer is not required to be a reporting issuer in any jurisdiction in order to  qualify to file a prospectus in the form of a short form prospectus.  Under section 2.8 of National Instrument 44-101, a successor issuer must be a reporting issuer in at least one jurisdiction.  However, it is not necessary for it to have been one for 12 months, as the successor issuer may rely on the reporting history of one of the participants in the reorganization.  Paragraph 1 of section 2.3 requires the issuer to be a reporting issuer or, if the issuer is not a reporting issuer in the local jurisdiction, it must be a reporting issuer under Canadian securities legislation in a jurisdiction other than the local jurisdiction, and satisfy the criterion in subparagraph 5 of paragraph 1(b) of section 2.2 of National Instrument 44-101.

2.3                    Calculation of the Aggregate Market Value of an Issuer's Equity Securities (Section 2.9 of National Instrument 44-101)

(1)        Section 2.9 of National Instrument 44-101 sets out how to determine whether an issuer satisfies the market value criteria contained in Part 2 of National Instrument 44-101.  Subsection 2.9(2) requires certain securities to be excluded when calculating the total number of equity securities outstanding, and subsection 2.9(3) requires a subset of those excluded securities to be included nonetheless, despite subsection 2.9(2).  The following examples are provided to assist issuers and their advisers in determining which securities are to be excluded in accordance with subsections 2.9(2) and (3):

Example (1):

A portfolio manager manages a pension fund.  The pension fund holds 11% of the equity securities of the issuer.

Result:  These equity securities must be excluded in calculating the market value of the issuer's equity securities.

Example (2):

A portfolio manager (not an affiliate of the issuer) manages three mutual funds each of which holds 3% of the equity securities of the issuer.  An affiliate of the portfolio manager (not an affiliate of the issuer) manages two mutual funds each of which holds 3% of the equity securities of the issuer.

Result:  The aggregated equity securities (15%) do not have to be excluded in calculating the market value of the issuer's equity securities.

Example (3):

The facts are the same as in Example (2) above, except that the portfolio manager is an affiliate of the issuer.

Result:  The aggregated equity securities must be excluded in calculating the market value of the issuer's equity securities.

Example (4):

A portfolio manager (not an affiliate of the issuer) manages three non-redeemable investment funds (A, B and C).  A holds 12% of the equity securities of the issuer.  B and C each hold 6% of the equity securities of the issuer.

Result:  The equity securities of the issuer held by A must be excluded in calculating the market value of the issuer's equity securities but the equity securities held by B and C (12% in the aggregate) need not be excluded in calculating the market value of the issuer's equity securities.

(2)        Instalment receipts that evidence the beneficial ownership of outstanding equity securities (subject to an encumbrance to secure the obligation of the instalment receipt holder to pay future instalments) and other similar receipts that evidence beneficial ownership of outstanding equity securities are not, themselves, equity securities.  Consequently, the market value of such a receipt may not be included in the market value calculation of an issuer's outstanding equity securities (subject to the exception in paragraph 2.9(1)(b) of the National Instrument).  The market value of the equity securities evidenced by the receipt, may however, be included, subject to subsections 2.9(2) and 2.9(3) of National Instrument 44-101.

The exclusions set out in subsection 2.9(2) of National Instrument 44-101 refer to equity securities of an issuer that are beneficially owned, or over which control or direction is exercised by persons or companies that, alone or together with their respective affiliates and associated parties, ben eficially own or exercise control or direction over more than 10 percent of the outstanding equity securities of the issuer.  Instalment receipt transactions typically involve a custodian holding a security interest in the securities the beneficial ownership of which is evidenced by instalment receipts.  The Canadian securities regulatory authorities do not regard the custodian, by virtue of holding a security interest, as exercising "control or direction" over the securities for the purposes of subsection 2.9(2) of National Instrument 44-101 if the custodian is not entitled to exercise any voting rights attached to the securities or dispose of the securities without the beneficial owner's consent.

2.4                    Alternative Qualification Criteria for Substantial Issuers (Section 2.3 of National Instrument 44-101)  -  Subparagraph 1(b) of section 2.3 of National Instrument 44-101 requires substantial issuers, that are not reporting issuers in the local jurisdiction, to be reporting issuers under Canadian securities legislation in a jurisdiction, other than the local jurisdiction, and to satisfy the criterion in subparagraph 5 of paragraph 1(b) of section 2.2.  That criterion requires the issuer to have provided an undertaking to the securities regulatory authority that it will file all continuous disclosure documents that it would be required to file under securities legislation if it were a reporting issuer from the time of the filing of its most recent AIF until the issuer becomes a reporting issuer.

2.5                    Alternative Qualification Criteria for Issuers of Guaranteed Debt Securities, Preferred Shares and Cash Settled Derivatives (Sections 2.5 and 2.6 of National Instrument 44-101)  - Sections 2.5 and 2.6 of National Instrument 44-101 allow an issuer to qualify to file a prospectus in the form of a short form prospectus based on a full and unconditional guarantee or alterative credit support.  The Canadian securities regulatory authorities are of the view that a person or company that provides the full and unconditional guarantee or alternative credit support is not, simply by providing that guarantee or alternative credit support, issuing a security.

2.6                    Alternative Qualification Criteria for Asset-Backed Securities (Section 2.7 of National Instrument 44-101)

(1)        In order to be qualified to file a prospectus in the form of a short form prospectus under section 2.7 of National Instrument 44-101, an issuer must have been established in connection with a distribution of asset-backed securities.  Ordinarily, asset-backed securities are issued by special purpose issuers established for the sole purpose of purchasing financial assets with the proceeds of one or more distributions of these securities.  This ensures that the credit and performance attributes of the asset-backed securities are dependant on the underlying financial assets, rather than upon concerns relating to ancillary business activities and their attendant risks.  Qualification to file a prospectus in the form of a short form prospectus under this section has been limited to special purpose issuers to avoid the possibility that an otherwise ineligible issuer would structure securities falling within the definition of "asset-backed security".

(2)        The qualification criteria for a distribution of asset-backed securities under a prospectus in the form of a short form prospectus are intended to provide sufficient flexibility to accommodate future developments.  To qualify under section 2.7 of National Instrument 44-101, the securities to be distributed must satisfy the following two criteria:

1.         First, the payment obligations on the securities must be serviced primarily by the cash flows of a pool of discrete liquidating assets such as accounts receivable, instalment sales contracts, leases or other assets that by their terms convert into cash within a specified or determinable period of time.

2.         Second, the securities must (i) receive an approved rating on a provisional basis, (ii) not have been the subject of an announcement regarding a downgrade to a rating that is not an approved rating, and (iii) not have received a provisional or final rating lower than an approved rating from any approved rating organization.

The qualification criteria do not distinguish between pass-through (i.e., equity) and pay-through (i.e., debt) asset-backed securities.  Consequently, both pay-through and pass-through securities, as well as residual or subordinate interests, may be distributed under a prospectus in the form of a short form prospectus if all other applicable requirements are met.

2.7                    Reorganizations (Section 2.8 of National Instrument 44-101)

(1)        Section 2.8 of National Instrument 44-101 provides alternative qualification criteria for a successor issuer to qualify to file a prospectus in the form of a short form prospectus even though it has not been a reporting issuer in any jurisdiction for 12 months.  It may qualify if, among other things, it is a reporting issuer under Canadian securities legislation and, at the time of the reorganization, at least one of the participants in the reorganization satisfied the 12 month reporting issuer criterion in paragraph 1 of section 2.2 of National Instrument 44-101.

(2)        An issuer that was previously qualified to file a prospectus in the form of a short form prospectus under the basic qualification criteria set out in section 2.2 of National Instrument 44-101, including the $75,000,000 market value requirement, and is the subject of a reorganization that results in that issuer becoming a wholly-owned subsidiary of another entity, will not be qualified to file a prospectus in the form of a short form prospectus under section 2.2.  This is because it cannot satisfy the $75,000,000 market value requirement.  It may continue to be qualified to file a prospectus in the form of a short form prospectus under section 2.4 or section 2.5 of National Instrument 44-101 (approved rating or guaranteed securities) or section 2.7 of National Instrument 44-101 (asset-backed securities).

(3)        An entity that carries on the portion of the business that was "spun-off" is not a successor issuer within the meaning of the definition.  The Canadian securities regulatory authorities have, from time to time, granted relief allowing the "spun-off" entity to file a prospectus in the form of a short form prospectus even though it may not otherwise satisfy certain of the qualification criteria.  In those situations where the Canadian securities regulatory authorities have granted relief, there has been substantial audited segmented disclosure of the "spun-off" entity in the market place for at least one year before the reorganization.  In addition, the Canadian securities regulatory authorities will generally look at whether the spun-off entity is described in the AIF and MD&A of the parent company. Applications for relief will be considered on a case by case basis.

(4)        Market participants are also reminded that if an issuer files a prospectus or other offering document following a material reorganization, take-over bid or acquisition of assets, the prospectus or offering document is required to contain, either directly or, if permitted, through incorporation by reference, appropriate disclosure concerning the reorganization, take-over bid or acquisition of assets and its effect on the issuer in order for the prospectus or other offering document to contain full, true and plain disclosure of all material facts.

2.8                    Adoption by Successor Issuer of a Participant's AIF Following a Reorganization (Section 2.10 of National Instrument 44-101)  - Section 2.10 of National Instrument 44-101 enables a successor issuer to adopt as its own AIF the AIF of a participant in the reorganization, if the AIF was a current AIF of the participant at the time of the reorganization.  By adopting the AIF of a participant, the successor issuer is deemed under section 2.10 to have a current AIF for the purposes of securities legislation.  It is not relevant whether the participant that filed the AIF continues to exist after the reorganization.  If the participant continues to exist after the reorganization, the adoption by the successor issuer of the current AIF of the participant does not preclude the participant from having the AIF in order to, itself, qualify to file a prospectus in the form of a short form prospectus.  Under section 2.10 of National Instrument 44-101, a successor issuer may choose to adopt the current AIF of more than one participant in the reorganization that gave rise to the successor issuer.  This may be appropriate in circumstances where the successor issuer succeeded to the businesses of two participants where each participant had a current AIF.  A successor issuer may always file its own AIF in order to have a current AIF.  The first AIF filed by a successor issuer will be an initial AIF.

PART 3             AIF

3.1                    Initial AIF Review Procedures (Section 3.1 of National Instrument 44-101)

(1)        An AIF filed by either an issuer that has not previously had an AIF accepted for filing in the local jurisdiction or an issuer that previously had a current AIF in the local jurisdiction and no longer has one is treated as an initial AIF for the purpose of review by the POP regulator.

(2)        An initial AIF and supporting documents will be reviewed by the Canadian securities regulatory authorities, including the CVMQ, in accordance with the procedures described in MRRS if the issuer has elected to use MRRS.  Compliance by issuers with the MRRS procedures, although not mandatory, will generally result in the most expeditious treatment of initial AIFs on a national basis.  If an issuer does not elect MRRS, the review of the initial AIF will not be co-ordinated among the various jurisdictions in which the issuer has filed the AIF, nor is the review subject to any particular timeframe.

(3)        An issuer filing in more than one jurisdiction should file the initial AIF, together with any supporting materials, as nearly as may be practicable, contemporaneously in each of the jurisdictions in which the issuer wishes to become qualified to file a prospectus in the form of a short form prospectus.  Contemporaneous filing is automatic for issuers using SEDAR.  An issuer should file the AIF in each jurisdiction identical in form and content, including the date, except that French language documents filed in Quebec need not be filed in the other jurisdictions, except as required under subsections 3.1(3) and (4) of National Instrument 44-101.  The review of documents filed in Quebec in the French language, apart from substantive comments applying to both English and French language versions, will ordinarily be dealt with between Quebec and the issuer or the issuer's agent in Quebec directly.

3.2                    Renewal AIF Filing and Review Procedures (Section 3.2 of National Instrument 44-101)

(1)        An issuer that has a current AIF for its second most recently completed financial year and wishes to have a current AIF for its most recently completed financial year must file a renewal AIF in accordance with section 3.2 of National Instrument 44-101.

(2)        An issuer that does not have a current AIF in the local jurisdiction, yet has a current AIF in another jurisdiction, and wishes to file a short form prospectus in the local jurisdiction may file, as an initial AIF under section 3.1 of National Instrument 44-101 in the local jurisdiction, either (i) the new AIF that it is filing as a renewal AIF in the other jurisdiction, or (ii) the AIF that is a current AIF in the other jurisdiction.  The issuer should notify all the other jurisdictions in which it already has a current AIF that it is filing an initial AIF in a new jurisdiction.

(3)        An issuer filing in more than one jurisdiction should file a renewal AIF, together with any supporting materials, as nearly as may be practicable, contemporaneously in each of the jurisdictions in which the issuer wishes to remain qualified to file a prospectus in the form of a short form prospectus.  Contemporaneous filing is automatic for issuers using SEDAR.  An issuer should file an AIF in each jurisdiction identical in form and content, including the date, except that French language documents filed in Quebec need not be filed in the other jurisdictions, except as otherwise provided in subsections 3.2(6) and (7) of National Instrument 44-101.

(4)        A renewal AIF, if selected for review, will be reviewed by the Canadian securities regulatory authorities in accordance with section 3.2 of National Instrument 44-101 and the procedures described in MRRS, if the issuer has elected to use MRRS.

(5)        This subsection applies to an issuer that files a renewal AIF in multiple jurisdictions and has not elected to use MRRS and to an issuer that files a renewal AIF in only one jurisdiction.  If an issuer's renewal AIF has been selected for review and the issuer files a preliminary short form prospectus, both the issuer's preliminary short form prospectus and its renewal AIF will be reviewed at the same time.  In these circumstances, comments arising in the course of the review of the renewal AIF will be taken into account during the review of the preliminary short form prospectus.  The notice that the review of the renewal AIF has been completed will be issued before, or concurrently with, the issuance of the receipt for the short form prospectus.  A receipt for the short form prospectus will not be issued until the review of the renewal AIF has been completed.  No particular timeframe applies to this review.

3.3                    Supporting Documents (Section 3.3 of National Instrument 44-101)

(1)        Any material incorporated by reference in an AIF is required under paragraph 3.3(1)(a) of National Instrument 44-101 to be filed with the AIF unless it has been previously filed.  When an issuer using SEDAR files a previously unfiled document with its AIF, the issuer should ensure that the document is filed under the appropriate SEDAR filing type and document type specifically applicable to the document, rather than generic type "Documents Incorporated by Reference".  For example, an issuer that has incorporated by reference an information circular in its AIF and has not previously filed the circular should file the circular under the "Management Proxy Materials" filing subtype and the "Management proxy/information circular" document type.

(2)        There is no regulatory requirement for auditor involvement with respect to the preparation of an AIF.  No solicitor's, auditor's, accountant's, engineer's, appraiser's or other consent is required to be filed with an AIF.  However, reporting issuers may choose to involve their auditors.  The auditing profession's standards may require limited auditor involvement in certain circumstances.  Section 8.3 of National Instrument 44-101 requires the filing of consents of experts with a short form prospectus.  In order to be able to provide the necessary consent letter on a short form prospectus, an auditor will be obliged to comply with applicable requirements of the Handbook and of Canadian securities legislation of the jurisdictions in which the AIF is filed.

PART 4             DISCLOSURE IN A SHORT FORM PROSPECTUS OF FINANCIAL STATEMENTS FOR ACQUISITIONS AND MULTIPLE ACQUISITIONS⁶

^{6               This Part has been revised to refer expressly to the business acquisition financial statement disclosure requirements for multiple acquisitions in Part 5 of National Instrument 44-101.}

4.1                    Financial Statement Disclosure of Significant Acquisitions and Multiple Acquisitions  - Attached as Appendix A to this Policy is a chart describing the obligations for financial statement disclosure of significant acquisitions and multiple acquisitions.

4.2                    Acquisition of a Business  - Part 4 of National Instrument 44-101 requires an issuer that has made a significant acquisition or is proposing to make a significant probable acquisition to include in its short form prospectus certain financial statements of each business acquired or to be acquired.  Part 5 of National Instrument 44-101 has similar requirements for an issuer that has made or is proposing to make multiple acquisitions that are not otherwise significant.  For this purpose, the term "business" should be evaluated in light of the facts and circumstances involved.  The Canadian securities regulatory authorities consider that a separate entity, a subsidiary or a division will normally be a business and that in certain circumstances a lesser component of a person or company may also constitute a business, whether or not the subject of the acquisition previously had financial information.  Continuity of business operations is considered in determining whether an acquisition constitutes the acquisition of a business.  Other factors that will be considered include

(a)        whether the nature of the revenue producing activity or potential revenue producing activity will remain generally the same after the acquisition; and

(b)        whether any of the physical facilities, employees, marketing, systems, sales forces, customers, operating rights, production techniques or trade names are acquired by the issuer instead of remaining with the vendor after the acquisition.

4.3                    Probable Acquisitions

(1)        The definitions of "probable acquisition of a business" and "probable acquisition of related businesses" in National Instrument 44-101 both include the phrase "where a reasonable person would believe that the likelihood of the acquisition being completed is high".  The Canadian securities regulatory authorities will interpret this phrase having regard to section 3290 of the Handbook "Contingencies".  It is the view of the Canadian securities regulatory authorities that the following factors may be relevant in determining whether the likelihood of an acquisition being completed is high

(a)        whether the acquisition has been publicly announced;

(b)        whether the acquisition is the subject of an executed agreement; and

(c)        the nature of conditions to the completion of the acquisition including any material third party consents required.

(2)        The test of whether a proposed acquisition is a "probable acquisition of a business" or "probable acquisition of related businesses" is an objective, rather than subjective, test in that the question turns on what a "reasonable person" would believe.  It is not sufficient for an officer of an issuer to determine that he or she personally believes that the likelihood of the acquisition being completed is or is not high.  The officer must form an opinion as to what a reasonable person would believe in the circumstances.  In the event of a dispute as to whether an acquisition is a probable acquisition, an objective test requires the adjudicator to decide whether a reasonable person would believe in the circumstances that the likelihood of an acquisition being completed was high.  By contrast, if the definition relied on a subjective test, the adjudicator would assess an individual's credibility and decide whether the personal opinion of the individual as to whether the likelihood of the acquisition being completed was high was an honestly held opinion.  Formulating the definition using an objective test rather than a subjective test strengthens the basis upon which the regulator may object to an issuer's application of the definition in particular circumstances.

4.4                    Timing of Significance Tests  - Subsection 1.2(1) of the National Instrument sets out the three tests for whether an acquisition of a business by an issuer is a "significant acquisition".  The first test measures the assets of the acquired business against the assets of the issuer.  The second test measures the issuer's investments in and advances to the acquired business against the assets of the issuer.  The third test measures the income from continuing operations of the acquired business against the income from continuing operations of the issuer.  If any one of these three tests is satisfied at the 20 percent level, the acquisition is considered "significant" to the issuer.  The three tests for significance of an acquisition are applied at two points in time: first, at the time of acquisition and, again, at the time of filing the preliminary short form prospectus.  The earlier date is consistent with the timing of the application of the SEC's application of its test for significance of an acquisition and provides issuers with the certainty that if an acquisition is not significant at the time it is made it will not become significant for the purpose of the test.  The three tests are applied again at a later date only if the acquisition was significant at the time of the earlier date.  The second date is important, in the Commission's view, to recognize the potential growth of issuers between the date of acquisition and the date of a short form prospectus offering and the corresponding potential decline in significance of any acquisition made.  In order for an acquisition to be significant it must satisfy one of the three 20 percent tests on both dates.⁷

^{7               This section is new.}

4.5                    Application of Investment Test for Significance of an Acquisition  - Subsection 1.2(1) of the National Instrument sets out when an acquisition of a business by an issuer is a "significant acquisition".  One of the tests is whether the issuer's consolidated investments in and advances to the business or related businesses exceeds 20 percent of the consolidated total assets of the issuer as at the date of the most recent year end balance sheet of the issuer, before giving effect to the acquisition.  In applying this test, the "investments in" the business should be determined using the total cost of the purchase, as determined by generally accepted accounting principles, which includes consideration paid and the costs of the acquisition.  For the purposes of this test, any new debt incurred by the issuer in the acquisition should also be included as an investment by the issuer in the business.⁸

^{8               This section is new.}

4.6                    Application of Income Test for Significance of an Acquisition  - The third test of an acquisition's significance is whether the issuer's proportionate share of consolidated income from continuing operations of the business exceeds 20 percent of the income of the issuer from continuing operations for the 12 months ended on the later of most recently completed financial year of the issuer or interim period of the issuer.  The Canadian securities regulatory authorities are of the view that in applying this test, the income from continuing operations of the business should be determined using the generally accepted accounting principles applied by the issuer.  Subsections 1.3(1) and 1.3(2) of National Instrument 44-101 permit the issuer to use the average income of its three most recently completed fiscal years or 12 months periods, respectively, if the income from continuing operations for the most recently completed fiscal year is positive and at least 20 percent lower than the average for the three most recently completed years.  The averaging option is not available if the issuer has incurred a loss from continuing operations during its most recently completed year or more recent 12 month period.  If the averaging option is available to the issuer but it incurred a loss from continuing operations in the second and/or third most recently completed fiscal years or 12 month periods, subsection 1.3(3) of National Instrument 44-101 states that for purposes of calculating the average consolidated income from continuing operations for the three fiscal years or 12 month periods, the loss must be treated as zero in the numerator and as one in the denominator.  If the issuer or the business has incurred a loss in the most recently completed fiscal year or 12 month period, the income test outlined in paragraph 1.2(1)3 of National Instrument 44-101 shall be applied using the absolute dollar amount of any income or loss.⁹

^{9               This section is new.}

4.7                    Exemptions from Parts 4 and 5 of National Instrument 44-101

(1)        The Canadian securities regulatory authorities are of the view that relief from the financial statement requirements of Parts 4 and 5 of National Instrument 44-101 should be granted only in unusual circumstances not related to cost or the time involved in preparing and auditing the financial statements.

(2)        If relief is granted from the requirements of Parts 4 and 5 of National Instrument 44-101, conditions will likely be imposed, such as a requirement to include audited divisional or partial income statements or divisional statements of cash flow, financial statements accompanied by audit reports containing a reservation of opinion or an audited statement of net operating income for a business.

(3)        Relief may be granted in appropriate circumstances to permit the auditor's report on financial statements of a business acquisition to contain a reservation relating to opening inventory if there is a subsequent audited period of at least six months on which the auditor's report contains no reservation and the business is not seasonal.

(4)        Considerations relevant to a request for exemption from the requirement to include interim financial statements for the comparable period in the immediately preceding financial year may include the fact that an acquired business was, before the filing of the short form prospectus, a private entity that did not prepare interim financial statements.

(5)        Considerations relevant to a request for exemption from the requirement to include three years of financial statement disclosure may include the fact that the business has been bankrupt, has undergone a change in its management or has undergone a fundamental change in the nature of its business or operations affecting a majority of its operations within the last three years.

PART 5             OTHER FINANCIAL STATEMENT MATTERS¹⁰

^{10             This Part has been revised for greater ease of reference}.

5.1                    Foreign GAAP

(1)        Subsection 6.1(2) of National Instrument 44-101 provides that if a person or company is incorporated or organized in a foreign jurisdiction, the financial statements of the person or company included in the prospectus shall be prepared in accordance with either Canadian GAAP or foreign GAAP.  Foreign GAAP is defined in National Instrument 44-101 to mean a body of generally accepted accounting principles, other than Canadian GAAP, that are as comprehensive as Canadian GAAP.

(2)        The Canadian securities regulatory authorities are of the view that foreign GAAP will be as comprehensive as Canadian GAAP if it covers substantially the same core subject matter as Canadian GAAP, including recognition and measurement principles and disclosure requirements.

(3)        National Instrument 44-101 permits foreign GAAP to be used only if the notes to the financial statements explain and quantify the effect of material differences between the foreign GAAP and Canadian GAAP that relate to measurements and provide disclosure consistent with Canadian GAAP requirements.  The Canadian securities regulatory authorities expect that in most cases the reconciliation will be adequate to ensure clear and understandable disclosure for investors in Canada, unless the differences are so pervasive as to render the financial statements misleading.

5.2                    Foreign Auditors and Foreign GAAS

(1)        Section 6.2 of National Instrument 44-101 requires financial statements in a short form prospectus to be accompanied by an auditor's report without reservation of opinion, subject to exceptions provided in National Instrument 44-101.  An auditor's report, by definition, is prepared in accordance with generally accepted auditing standards.  National Instrument 44-101 provides foreign issuers with flexibility as to their choice of auditor for purposes of a short form prospectus filing in that the generally accepted auditing standards applied to their financial statements may be other than those applied in Canada, if those auditing standards are substantially equivalent to Canadian auditing standards.

(2)        Issuers should recognize that Canadian securities legislation in some jurisdictions requires the regulator not to issue a receipt for a prospectus if it appears to the regulator that a person or company who has prepared any part of the prospectus or is named as having prepared or certified a report used in or in connection with a prospectus is not acceptable to the regulator.  Therefore, under section 6.3 of National Instrument 44-101, the foreign auditor's report must be accompanied by a statement that the auditing standards applied are substantially equivalent to Canadian GAAS.  The statement must also disclose any material differences in the form and content of the foreign auditor's report.

(3)        The Canadian securities regulatory authorities are of the view that in order for auditing standards to be substantially equivalent to Canadian GAAS, they must require underlying work that is comparable in scope, nature and timing to the work required in connection with an audit in accordance with Canadian GAAS.  For instance, auditing standards of foreign jurisdictions such as the United States are known to the Canadian securities regulatory authorities to be substantially equivalent to the standards of the CICA.  Foreign issuers using auditors from foreign jurisdictions with audit standards and supervision that are less well known to the Canadian securities regulatory authorities are encouraged to consult with staff of the Canadian securities regulatory authorities in advance of filing a preliminary prospectus to resolve uncertainty as to whether the Canadian securities regulatory authorities will consider a particular auditor or auditing standards to be acceptable.

(4)        In making a determination whether the foreign auditing standards applied are substantially equivalent to Canadian GAAS, auditors are referred, in particular to the general standard of Canadian GAAS as set out in section 5100 of the Handbook and its reference to an auditor's "objective state of mind".  This standard, when read together with the objectivity standard for auditors contained in the standards of professional conduct applicable to Canadian auditors in each jurisdiction, emphasizes the importance of the independence of the auditor.  In the view of the Canadian securities regulatory authorities, auditor independence is an essential element of Canadian GAAS which would need to be reflected, among other things, in the foreign GAAS applied in order for the foreign GAAS applied and Canadian GAAS to be considered substantially equivalent.¹¹

^{11             This subsection is new.}

(5)        Subparagraph 4 of paragraph 8.2(1)(a) of National Instrument 44-101 requires an issuer, if a financial statement included in a prospectus has been prepared in accordance with foreign GAAP or includes a foreign auditor's report, to file a letter from the auditor that discusses the auditor's expertise to audit the reconciliation of foreign GAAP to Canadian GAAP and, in the case of foreign GAAS other than U.S. GAAS, to make the determination that the auditing standards applied are substantially equivalent to Canadian GAAS.  While this provision requires that this comfort letter be filed no later than the time the short form prospectus is filed, issuers are strongly encouraged to file this letter before filing the final short form prospectus to minimize any delay in issuing a receipt for the final prospectus.¹²

^{12             This section has been modified to reflect the amendments made to the requirement in the National Instrument for a comfort letter regarding a foreign auditor's report.}

5.3                    Third Quarter Financial Statements (Section 6.5 of National Instrument 44-101)  -  In the case where an issuer files a short form prospectus before its directors have approved the comparative audited annual financial statements for its most recently completed financial year and before the time period for filing the statements under securities legislation has expired, section 6.5 of National Instrument 44-101 permits an issuer to include the interim financial statements for the third quarter of the most recently completed financial year, instead of the financial statements for the entire most recently completed financial year.  The Canadian securities regulatory authorities are of the view that directors of issuers should endeavour to consider and approve financial statements in a timely manner and should not delay the approval and release of the statements for the purpose of avoiding their inclusion in a prospectus.  Issuers are also reminded of their obligation to disclose all material facts relating to the securities to be distributed.  For example, if the fourth quarter results are or are expected by the issuer to be materially different from the results of the fourth quarter in previous years, or would have a material impact on the results for the financial year as a whole, or are otherwise materially different from the market's expectations, the issuer is expected to discuss the fourth quarter results in its short form prospectus.

PART 6             FILING AND RECEIPTING OF SHORT FORM PROSPECTUS

6.1                    Confidential Material Change Reports  - Confidential material change reports cannot be incorporated by reference into a short form prospectus.  Accordingly, an issuer may not file a confidential material change report during a distribution.  However, if circumstances arise that cause an issuer to file a confidential material change report during the distribution period of securities under a short form prospectus, the issuer should cease all activities related to the distribution until

(a)        the material change is generally disclosed and an amendment to the short form prospectus is filed, if required; or

(b)        the decision to implement the material change has been rejected and the issuer has so notified the regulator of each jurisdiction where the confidential material change report was filed.

6.2                    Supporting Documents

(1)        Material that is filed in a jurisdiction will be made available for public inspection in that jurisdiction, subject to the provisions of securities legislation in the local jurisdiction regarding confidentiality of filed material.  Material that is delivered to a regulator, but not filed, is not required under securities legislation to be made available for public inspection.  However, the regulator may choose to make such material available for inspection by the public.

(2)        Any material incorporated by reference in a preliminary short form prospectus or a short form prospectus is required under section 7.1 and 7.2 of National Instrument 44-101 to be filed with the preliminary short form prospectus or short form prospectus unless previously filed.  When an issuer using SEDAR files a previously unfiled document with its short form prospectus, the issuer should ensure that the document is filed under the SEDAR category of filing and filing subtype specifically applicable to the document, rather than the generic type "Other".  For example, an issuer that has incorporated by reference an interim financial statement in its short form prospectus and has not previously filed the statement should file that statement under the "Continuous Disclosure" category of filing, and the "Interim Financial Statements" filing subtype.

6.3                    Experts' Consent  - Issuers are reminded that securities legislation in Alberta prescribes a form of consent for experts.

6.4                    Material Contracts

(1)        Section 8.6 of National Instrument 44-101 requires an issuer to make available all material contracts referred to in a short form prospectus.  The Canadian securities regulatory authorities recognize that certain material contracts or portions thereof may contain sensitive operational or financial information, disclosure of which would be competitively disadvantageous or otherwise detrimental to the issuer.  The regulator will consider granting relief from the requirement to make these contracts available for public inspection if disclosure would be unduly detrimental to the issuer and the disclosure would not be necessary in the public interest.

(2)        Under subsections 8.1(2) and 8.2(3) of National Instrument 44-101, issuers are not required to file or deliver all material contracts in Ontario, but are only required to deliver to the regulator those that create or materially affect the rights or obligations of the holders of the securities being distributed.  However, issuers are reminded that in connection with the prospectus review process, the regulator in Ontario may request an issuer to deliver to it copies of other material contracts.

6.5                    Amendments and Incorporation by Reference of Subsequently Filed Material Change Reports  - The requirement in securities legislation for the filing of an amendment to a preliminary prospectus and prospectus is not satisfied by the incorporation by reference in a preliminary short form prospectus or a short form prospectus of a subsequently filed material change report.

6.6                    Short Form Prospectus Review  - No timeframe applies to the review of a short form prospectus of an issuer filed in multiple jurisdictions, if the issuer has not elected to use MRRS.  Nor does a timeframe apply to a review of a short form prospectus filed in only one jurisdiction.

6.7                    "Waiting Period"  - If the securities legislation of the local jurisdiction contains the concept of a "waiting period" such that the securities legislation requires that there be a specified period of time between the issuance of a receipt for a preliminary short form prospectus and the issuance of a receipt for a short form prospectus, the implementing law of the jurisdiction removes that requirement as it would otherwise apply to a distribution under National Instrument 44-101.

6.8                    Refusal to Issue Prospectus Receipt  - The regulator has the discretion under securities legislation to refuse, in the public interest, to issue a receipt for a prospectus.  Despite acceptance by a regulator of an issuer's AIF, if, at the time the issuer files a preliminary short form prospectus, a regulator has concerns about the adequacy or timeliness of the disclosure in the AIF and the disclosure is not supplemented in the short form prospectus, the regulator may refuse to issue a receipt for the short form prospectus.

6.9                    Registration Requirements  - Issuers filing a preliminary short form prospectus or short form prospectus and other market participants are reminded to ensure that members of underwriting syndicates are in compliance with registration requirements under Canadian securities legislation in each jurisdiction in which syndicate members are participating in the distribution of securities under short form prospectus.

PART 7             CONTENT OF AIF

7.1                    Issuers of Asset-backed Securities

(1)        Item 4.2 of Form 44-101F1 AIF specifies additional disclosure applicable to issuers of asset-backed securities that were distributed under a prospectus.  Form 44-101F1 leaves to issuer of asset-backed securities the determination of which other prescribed disclosure is applicable and ought to be included in the AIF.  Applicable disclosure for a special purpose issuer of asset-backed securities generally pertains to the nature, performance and servicing of the underlying pool of financial assets.  The nature and extent of required disclosure may vary depending on the type and attributes of the underlying pool.

The following factors should be considered by an issuer of asset-backed securities in preparing its AIF:

1.         The extent of disclosure respecting an issuer will depend on the extent of the issuer's on-going involvement in the conversion of the assets comprising the pool to cash and the distribution of cash to securityholders; this involvement may, in turn, vary dramatically depending on the type, quality and attributes of the assets comprising the pool and on the overall structure of the transaction.

2.         Requested disclosure respecting the business and affairs of the issuer should be interpreted to apply to the financial assets underlying the asset-backed securities.

3.         Financial information respecting the pool of assets to be described and analyzed in the AIF will consist of information commonly set out in servicing reports prepared to describe the performance of the pool and the specific allocations of income, loss and cash flows applicable to outstanding asset-backed securities made during the relevant period.

(2)        Item 4.2(b)(i) of Form 44-101F1 AIF requires issuers of asset-backed securities that were distributed by way of prospectus to include information relating to the composition of the underlying pool of financial assets, the cash flows from which service the asset-backed securities.  Disclosure respecting the composition of the pool will vary depending upon the nature and number of the underlying financial assets.  For example, in a geographically dispersed pool of financial assets, it may be appropriate to provide summary disclosure based on the location of obligors.  In the context of a revolving pool, it may be appropriate to provide details relating to aggregate outstanding balances during a year in order to illustrate historical fluctuations in asset origination due, for example, to seasonality.  In pools of consumer debt obligations, it may be appropriate to provide a breakdown within ranges of amounts owing by obligors in order to illustrate limits on available credit extended.

7.2                    Non-corporate Issuers  - Item 8 of Form 44-101F1 AIF requires disclosure concerning the directors and officers of an issuer.  An issuer that is not a corporation must refer to the definitions in securities legislation of "director" and "officer".  The definition of "officer" may include any individual acting in a capacity similar to that of an officer of a company.  Similarly, the definition of "director" typically includes a person acting in a capacity similar to that of a director of a company.  Therefore, non-corporate issuers must make a determination in light of the particular circumstances which individuals or persons are acting in such capacities for the purposes of complying with Item 8 of Form 44-101F1.

PART 8             CONTENT OF SHORT FORM PROSPECTUS

8.1                    Prospectus Liability  - Nothing in the short form prospectus regime established by National Instrument 44-101 is intended to provide relief from liability arising under the provisions of Canadian securities legislation of any jurisdiction in which a short form prospectus is filed if the short form prospectus contains an untrue statement of a material fact or omits to state a material fact that is required to be stated therein or that is necessary to make a statement not misleading in light of the circumstances in which it was made.

8.2                    Style of Prospectus  - Canadian securities legislation requires that a prospectus contain "full, true and plain" disclosure.  To that end, issuers and their advisors are reminded that they should ensure that disclosure documents are easy to read, and encourage issuers to adopt the following plain language principles in preparing a prospectus in the form of a short form prospectus:

• use short sentences
• use definite, concrete, everyday language
• use the active voice
• avoid superfluous words
• organize the document into clear, concise sections, paragraphs and sentences
• avoid legal or business jargon
• use strong verbs
• use personal pronouns to speak directly to the reader
• avoid reliance on glossaries and defined terms unless it facilitates understanding of the disclosure
• avoid vague boilerplate wording
• avoid abstractions by using more concrete terms or examples
• avoid excessive detail
• avoid multiple negatives.

If technical or business terms are required, clear and concise explanations should be used.  The Canadian securities regulatory authorities are of the view that question and answer and bullet point formats are consistent with the disclosure requirements of National Instrument 44-101.

8.3                    Firm Commitment Underwritings  - If an underwriter has agreed to purchase a specified number or principal amount of the securities to be distributed at a specified price, Item 1.8(4) of Form 44-101F2 requires the short form prospectus to contain a statement that the securities are to be taken up by the underwriter, if at all, on or before a date not later than 42 days after the date of the receipt for the short form prospectus.  If the Canadian securities legislation of a jurisdiction requires that a prospectus indicate that the securities must be taken up by the underwriter within a period that is different than the period provided under National Instrument 44-101, the implementing law of a jurisdiction exempts issuers from that requirement if they comply with National Instrument 44-101.

8.4                    Minimum Distribution  - If a minimum amount of funds is required by an issuer and the securities are proposed to be distributed on a best efforts basis, Item 6.5 of Form 44-101F2 requires that the short form prospectus state that the distribution will not continue for a period of more than 90 days after the date of receipt for the short form prospectus if subscriptions representing the minimum amount of funds are not obtained within that period unless each of the persons and companies who subscribed within that period has consented to the continuation.  If the Canadian securities legislation of a jurisdiction requires that a distribution may not continue for more than a specified period if subscriptions representing the minimum amount of funds are not obtained within that period and the specified period is different than the period provided under National Instrument 44-101, the implementing law of a jurisdiction exempts issuers from that requirement if they comply with National Instrument 44-101.

8.5                    Distribution of Asset-backed Securities

(1)        Item 8.3 of Form 44-101F2 specifies additional disclosure applicable for distributions of asset-backed securities.  Applicable disclosure for a special purpose issuer of asset-backed securities generally pertains to the nature, performance and servicing of the underlying pool of financial assets, the structure of the securities and dedicated cash flows and any third party or internal support arrangements established to protect holders of the asset-backed securities from losses associated with non-performance of the financial assets or disruptions in payment.  The nature and extent of required disclosure may vary depending on the type and attributes of the underlying pool and the contractual arrangements through which holders of the asset-backed securities take their interest in such assets.

(2)        The following factors should be considered by an issuer of asset-backed securities in preparing its short form prospectus:

1.         The extent of disclosure respecting an issuer will depend on the extent of the issuer's on-going involvement in the conversion of the assets comprising the pool to cash and the distribution of cash to securityholders;  this involvement may, in turn, vary dramatically depending on the type, quality and attributes of the assets comprising the pool and on the overall structure of the transaction.

2.         Requested disclosure respecting the business and affairs of the issuer should be interpreted to apply to the financial assets underlying the asset-backed securities.

3.         Disclosure respecting the originator or the seller of the underlying financial assets will be relevant to investors in the asset-backed securities particularly in circumstances where the originator or seller has an on-going relationship with the financial assets comprising the pool.  For example, if asset-backed securities are serviced with the cash flows from a revolving pool of receivables, an evaluation of the nature and reliability of the future origination or the future sales of underlying assets by the seller to or through the issuer may be a critical aspect of an investor's investment decision.  To address this, the focus of disclosure respecting an originator or seller of the underlying financial assets should deal with whether there are current circumstances that indicate that the originator or seller will not generate adequate assets in the future to avoid an early liquidation of the pool and, correspondingly, an early payment of the asset-backed securities.  Summary historical financial information respecting the originator or seller will ordinarily be adequate to satisfy the disclosure requirements applicable to the originator or seller in circumstances where the originator or seller has an ongoing relationship with the assets comprising the pool.

(3)        Item 8.3(d)(i) of Form 44-101F2 requires issuers of asset-backed securities to describe any person or company who originated, sold or deposited a material portion of the financial assets comprising the pool, irrespective of whether the person or company has an on-going relationship with the assets comprising the pool.  The Canadian securities regulatory authorities consider 33J% of dollar value of the financial assets comprising the pool to be a material portion in this context.

8.6                    Distribution of Specified Derivatives  - Item 8.4 of Form 44-101F2 specifies additional disclosure applicable to distributions of specified derivatives.  This prescribed disclosure is formulated in general terms for issuers to customize appropriately in particular circumstances.

8.7                    Underlying Securities  - Issuers are reminded that if securities being distributed are convertible into or exchangeable for other securities, a description of the material attributes of the underlying securities may be necessary to meet the requirement of securities legislation that a prospectus contain full, true and plain disclosure of all material facts relating to the securities.

8.8                    Financial Statements

(1)        Item 12.1 of Form 44-101F2 specifies which financial statements of an issuer are required to be incorporated by reference into an issuer's short form prospectus.  The issuer's most recent comparative interim financial statements and the most recent comparative year end financial statements, together with the accompanying report of the auditor, if they have been approved by the board of directors of the issuer, are required to be incorporated by reference under subparagraphs 3(b) and 4(b) of Item 12.1, even if they have not yet been filed.  The Canadian securities regulatory authorities are of the view that directors of issuers should endeavour to consider and approve financial statements in a timely manner and should not delay the approval and release of the statements for the purpose of avoiding their inclusion in a short form prospectus.  Issuers are also reminded of their obligation to disclose all material facts relating to the securities to be distributed.  For example, if there have been significant variations in an issuer's financial results, the issuer is expected to discuss the variations in its short form prospectus.

(2)        Documents incorporated by reference in a preliminary short form prospectus are required under section 7.1 of National Instrument 44-101 to be filed with the preliminary short form prospectus if they have not previously been filed.  Section 7.2 of National Instrument 44-101 contains a similar provision for a short form prospectus.  This may result in financial statements that have been incorporated by reference under Item 12.1 of Form 44-101F2 being filed earlier than would otherwise be the case under the continuous disclosure requirements of securities legislation.  The implementing law of each jurisdiction provides relief, if necessary, from the requirement of securities legislation to send these statements concurrently to securityholders and, in British Columbia, to file written confirmation of having sent these statements.  The conditions to the relief require the issuer to send the financial statements to securityholders within the time periods and in accordance with the other provisions of continuous disclosure requirements of securities legislation and, in British Columbia, to file written confirmation of sending to securityholders.

PART 9             CIRCULARS

9.1                    Fee for Documents  - The CSA are of the view that issuers that charge non-securityholders that request copies of the documents referred to in paragraph (a) of section 11.3 of National Instrument 44-101 should not charge an amount more than the issuer's reasonable cost of sending the documents.  If the issuer's practice is to charge non-securityholders for the documents, a statement to that effect should be included in the information circular.

PART 10           CERTIFICATES

10.1                  Non-corporate Issuers

(1)        Item 20.1(a) of Form 44-101F2 requires an issuer to include a certificate in the prescribed form signed by the chief executive officer and the chief financial officer or, if no such officers have been appointed, a person acting on behalf of the issuer in a capacity similar to a chief executive officer and a person acting on behalf of the issuer in a capacity similar to a chief financial officer.  For a non-corporate issuer that is a trust and has a trust company acting as its trustee, this officers' certificate is frequently signed by authorized signing officers of the trust company that perform functions on behalf of the trust similar to those of a chief executive officer and a chief financial officer.  In some cases, these functions are delegated to and performed by other persons (e.g.  employees of a management company).  If the declaration of trust governing the issuer delegated the trustee's signing authority, the officers' certificate may be signed by the persons to whom authority is delegated under the declaration of trust to sign documents on behalf of the trustee or on behalf of the trust, provided that those persons are acting in a capacity similar to a chief executive officer or chief financial officer of the issuer.

(2)        Item 20.1(b) of Form 44-101F2 requires an issuer to include a certificate in the prescribed form signed on behalf of the board of directors, by two directors of the issuer, other than the persons referred to in Item 20.1(a), duly authorized to sign.  Issuers that are not companies are directed to the definition of "director" in securities legislation to determine the appropriate signatories to the certificate.  The definition of "director" in securities legislation typically includes a person acting in a capacity similar to that of a director of a company.  Issuers that are not companies are also directed to the definition of "person" in securities legislation. 

10.2                  Promoters of Issuers of Asset-backed Securities

(1)        Canadian securities legislation contains definitions of "promoter" and requires, in certain circumstances, a promoter of an issuer to assume statutory liability for prospectus disclosure.  Asset-backed securities are commonly issued by a "special purpose" entity, established for the sole purpose of facilitating one or more asset-backed offerings.  The Canadian securities regulatory authorities are of the opinion that special purpose issuers of asset-backed securities will have a promoter because someone will typically have taken the initiative in founding, organizing or substantially reorganizing the business of the issuer.  The Canadian securities regulatory authorities interpret the business of such issuers to include the business of issuing asset-backed securities and entering into the supporting contractual arrangements.

(2)        For example, in the context of a securitization program under which assets of one or more related entities are financed by issuing asset-backed securities (sometimes called a "single seller program"), an entity transferring or originating a significant portion of such assets, an entity initially agreeing to provide on-going collection, administrative or similar services to the issuer, and the entity for whose primary economic benefit the asset-backed program is established, will each be a promoter of the issuer if it took the initiative in founding, organizing or substantially reorganizing the business of the issuer.  Persons or companies contracting with the issuer to provide credit enhancements, liquidity facilities or hedging arrangements or to be a replacement servicer of assets, and investors who acquire subordinated investments issued by the issuer, will not typically be promoters of the issuer solely by virtue of such involvement.

(3)        In the context of a securitization program established to finance assets acquired from numerous unrelated entities (sometimes called a "multi-seller program"), the person or company (frequently a bank or an investment bank) establishing and administering the program in consideration for the payment of an on-going fee, for example, will be a promoter of the issuer if it took the initiative in founding, organizing or substantially reorganizing the business of the issuer.  Individual sellers of the assets into a multi-seller program are not ordinarily considered to be promoters of the issuer, despite the economic benefits accruing to such persons or companies from utilizing the program.  As with single-seller programs, other persons or companies contracting with the issuer to provide services or other benefits to the issuer of the asset-backed securities will not typically be promoters of the issuer solely by virtue of such involvement.

(4)        While the Canadian securities regulatory authorities have included this discussion of promoters as guidance to issuers of asset-backed securities, the question of whether a particular person or company is a "promoter" of an issuer is ultimately a question of fact to be determined in light of the particular circumstances.

Appendix A

Overview of Business Acquisitions Decision Chart

^{1               This decision chart provides general guidance and should be read in conjunction with National Instrument 44-101 and Companion Policy 44-101CP.}

^{2               If an acquisition of related businesses constitutes a significant acquisition when the results of the related businesses are combined, the required financial statements shall be provided for each of the related businesses.}