Part A: Comments in response to questions in CSA Notice dated December 21, 2006

1: Certificate requirements (Questions 1 through 4){1}

1.1: Section 5.13 of Rule published for comment

Certificate of substantial beneficiary of the offering -- general comments

Thirty-eight commenters do not support the adoption of this certification requirement. Their reasons include the following:

In response to these comments, we removed the requirement to provide a certificate of a substantial beneficiary of the offering from the Rule. We also expanded on the guidance in section 2.6 of the Companion Policy regarding when a regulator will exercise its discretion to refuse receipt for a prospectus where it is not in the public interest to issue the receipt and when a regulator, other than in Ontario, will exercise its discretion to require any person or company to sign a prospectus certificate.

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Costs outweigh benefits.

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Certification is not limited to portions of prospectus dealing with the significant business. Such an unlimited certification requirement would place undue burden of due diligence on certifying party given that they would not necessarily have any particular knowledge of the business of the issuer.

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Adverse effect on acquisitions financed by prospectus offerings.

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Vendors would need to conduct due diligence to avoid liability, resulting in either an increase in the purchase price of the significant business or placing the issuer at a competitive disadvantage against competing offers not directly or indirectly contingent on prospectus financing. In some cases, a vendor would never be willing to sign a certificate for an arm's length purchaser, regardless of the purchase price.

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Could significantly mitigate one of the principal reasons issuers become reporting issuers (i.e. use of public offerings to finance acquisitions).

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In particular, prospectus financing of acquisitions by junior issuers, by oil & gas issuers, from foreign issuers, and from liquidators will be adversely affected.

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Requirement to provide certificate for control person of substantial beneficiary of the offering will provide additional disincentive for vendors to deal with issuers that require access to the Canadian capital markets in connection with a potential significant acquisition.

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Large vendors will often divest assets that are not material to them. For the purchaser, the assets may be highly material. Systems of internal controls and procedures for such assets and knowledge of large vendor's officers and directors would not be as detailed as for the purchaser.

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Person or company that controls issuer or significant business does not always have the best information. For example, requirement would capture passive investors (including pension funds, institutional investors and financial institutions).

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Not a requirement under U.S. securities law nor the laws of other jurisdictions.

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Prospectus liability should not be imposed without specific amendment being made to securities acts.

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In the event of proxy battle, a control block owner could prevent completion of a financing by refusing to sign a certificate.

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Liability for misrepresentation in prospectus more appropriately dealt with contractually through indemnities and warranties in standard purchase and sale agreements. These contractual provisions provide purchaser/issuer with recourse in the event of misleading information being provided about the significant business.

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Imposing vendor liability will not necessarily result in better disclosure by the purchaser.

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One year retroactive application is problematic. It could increase uncertainty for those investors who wish to take significant ownership positions in issuers. It also may have the result of capturing parties that have no knowledge of the current status of the issuer.

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Proposal may create barrier to accessing equity capital in Canada, reducing Canada's competitiveness in global capital markets.

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Proposal may result in double liability for substantial beneficiary of the offering. If substantial beneficiary of the offering owns part of the issuer, such person becomes responsible for the disclosure in two different ways: directly through its execution of the prospectus certificate, and indirectly, through its ownership of an interest in the issuer. This could discourage valid and useful inter-company financing strategies.

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Proposal may unfairly subject banks to the certificate requirements. Deemed beneficial ownership of securities owned by affiliates is problematic for financial institutions with diverse activities such as merchant banking, passive investment and hedging activities. Also, not clear which entity in the group would be required to provide a certificate.

1.2: Section 5.13 of Rule published for comment

Certificate of substantial beneficiary of the offering -- suggested changes

Eight commenters suggest specific changes to this requirement.

Though many commenters suggested specific changes, we removed the requirement entirely.

1.3: Section 5.13 of Rule published for comment

Certificate of substantial beneficiary of the offering -- alternatives

Six commenters suggest specific alternatives to the requirement.

We have the following responses to these comments:

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Policy concerns could be addressed under current "promoter" certification/liability provisions of Canadian securities legislation.

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We acknowledge this comment.

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We expanded subsection 2.6(1) of the Companion Policy, which provides guidance on when a regulator will exercise its discretion to refuse receipt for a prospectus where it is not in the public interest to issue the receipt.

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Use prospectus receipting powers to target situations that appear to have been constructed to avoid liability.

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Though current requirements relating to certification of prospectuses are problematic and need to be revised, such revisions should be made as part of overall review of liability provisions relating to prospectuses.

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A review of the liability provisions relating to prospectuses in provincial and territorial securities legislation is beyond the scope of the Rule.

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Amend the definitions contained in subsection 5.4(1) and 5.5(2) of the Rule to delineate the circumstances in connection with an income trust prospectus offering and a spin-off of a business by way of initial public offering.

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We kept the proposed definitions because it is not appropriate to delineate specific circumstances for income trust and other indirect prospectus offerings. The guidance in section 2.6 of the Companion Policy applies to all prospectus distributions.

2: Material contracts (Questions 5 and 6){2}

2.1: Section 1.1 of Rule published for comment

Material contracts -- definition

Three commenters suggest changes to the definition of "material contract". The definition provided is not useful. The definition should be broadened to permit some determination of materiality by the issuer or have some dollar value threshold attached. Provide guidance on how materiality is to be determined (e.g. by reference to the effect of the contract on market price or value of the securities of the issuer).

The definition of "material contract" is consistent with the current requirements for filing "other material contracts" in section 12.2 of NI 51-102. The concept of materiality under NI 51-102, determined by reference "to the issuer", is well understood.

2.2: Subparagraph 9.2(a)(iii) of Rule published for comment

Material contracts -- filing requirement -- general comments

Two commenters do not support this requirement. Investors should receive necessary information regarding an issuer's material contracts through the requirement to make full, true, and plain disclosure in its prospectus regarding such contracts. Investors do not need to review the actual contract and so there should be no requirement to file the contract. This requirement will only serve to aid competitive interests and may prove detrimental to issuers, particularly those in highly competitive and/or sensitive business sectors. CSA should undertake a cost-benefit analysis to determine if the imposition of such broader obligations is warranted.

We kept the proposed requirement, subject to the changes described in items 2.3 through 2.9, below.

After publishing for comment certain amendments to NI 51-102 on December 9, 2005, we received three comments supporting the requirement to file material contracts (see, Notice of Amendments to NI 51-102, Summary of Comments, published October 13, 2006). These comments included a statement that the information in a filed material contract is not only useful, but is essential in understanding and evaluating an issuer's financial disclosure.

The requirement to file material contracts is an existing prospectus and continuous disclosure requirement across Canada, and in other jurisdictions such as the United States.

2.3: Subparagraph 9.2(a)(iii) of Rule published for comment

Material contracts -- filing requirement -- suggested changes

One commenter suggests changes to this requirement. Only contracts entered into within the last financial year, or before the last financial year but still in effect should be required to be filed (similar to the limitation in subsection 12.2(1) of NI 51-102).

We made the suggested change. See section 9.3 of the Rule.

2.4: Clause 9.2(a)(iii)(B) of Rule published for comment

Material contracts -- redaction of information necessary to understanding the contract -- general comments

Three commenters do not support the limitation on redacting provisions that are necessary to understanding the contract. Their reasons include the following:

See our response to item 2.8, below.

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Disclosure of competitively sensitive information would be prejudicial to the issuer's business.

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Limitations may result in more disclosure being provided than is otherwise required under section 27.1 of Proposed Form 1.

2.5: Clause 9.2(a)(iii)(B) of Rule published for comment

Material contracts -- redaction of information necessary to understanding the contract -- suggested changes

One commenter requests that the Rule expressly permit an issuer to redact risk allocation provisions contained in commercial agreements that might be misinterpreted by participants in the secondary markets as statements of fact (e.g. a strict environmental warranty provided by a vendor to a purchaser is not necessarily a statement of facts by the vendor).

An issuer may redact these provisions if: (a) they are not "necessary to understanding the impact of the material contract on the business of the issuer"; and (b) the issuer has satisfied the other conditions in subsection 9.3(3) of the Rule.

2.6: Subsection 9.1(1) of Rule published for comment

Material contracts -- list of contracts that are not "contracts entered into in the ordinary course of business"

Two commenters support the effort to clarify the current regime. No other types of contracts should be added to the list.

We acknowledge these comments. We have not added any other types of material contracts to the list in subsection 9.3(2) of the Rule.

2.7: Subsection 9.1(1) of Rule published for comment

Material contracts -- list of contracts that are not "contracts entered into in the ordinary course of business" -- suggested changes

Eight commenters suggest specific changes to the list:

We have the following responses to these comments:

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Clarify that a materiality threshold applies to this list (if not, add one). Otherwise, agreements that may only have a trivial effect on the capitalization of the issuer will have to be filed.

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Only material contracts are required to be filed. Subsection 9.3(2) of the Rule provides an exemption from the requirement to file a material contract if it is entered into in the ordinary course of business unless the material contract is a type of contract listed in paragraphs 9.3(2)(a) through (f).

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In paragraph 9.1(1)(a):

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Limit the filing of contracts to which officers are parties to "Named Executive Officers" (as defined in Form 51-102F6). Otherwise, issuers will be required to file employment contracts for a significant number of individuals that are not required to be disclosed in an information circular.

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We removed "contracts of employment" from the type of contracts described in paragraph 9.3(2)(a) of the Rule. We also added subsection 3.6(3) of the Companion Policy to provide guidance on the types of contracts that may be contracts of employment.

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Exclude all employment contracts.

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Exclude contracts to which substantial beneficiaries of the offering are parties. These are entered into in the ordinary course of business by most issuers.

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We removed contracts to which substantial beneficiaries of the offerings are parties from the types of contracts described in paragraph 9.3(2)(a) of the Rule.

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Clarify the reference to "current" assets. If the intention is to confine to current assets for balance sheet purposes, there is no compelling reason to distinguish current from non-current assets for balance sheet purposes.

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We removed the term "the contracts are for the purchase or sale of current assets at fair value" from paragraph 9.3(2)(a) of the Rule. Material contracts with directors, officers and similar parties, unless they are contracts of employment, are not eligible for the ordinary course of business exemption.

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Exclude all contracts with directors, officers and similar parties at "fair value" (not just contracts for the purchase and sale of current assets at fair value).

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We removed the term "upon which the issuer's business depends to a material extent" from paragraph 9.3(2)(b) of the Rule. This term is redundant because an issuer must only file material contracts.

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In paragraph 9.1(1)(b):

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Clarify the meaning of the term "upon which the issuer's business depends to a material extent".

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We replaced the term "the major part" with "majority" in paragraph 9.3(2)(b) of the Rule. "Majority" means greater than 50%.

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Add a materiality standard to clarify the meaning of "major part" because there is no common understanding of the meaning of that term.

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We removed contracts calling for the acquisition or sale of any property, plant or equipment from the list in subsection 9.3(2) of the Rule. An issuer is not required to file these types of material contracts if they are in the ordinary course of business. However, under paragraph 9.3(2)(f) of the Rule, an issuer must file this type of material contract if it is a contract upon which its business is substantially dependent. We also added guidance in subsection 3.6(5) of the Companion Policy providing that a contract upon which an issuer's business is substantially dependent may include a contract calling for the acquisition or sale of substantially all of the issuer's property, plant and equipment, long-lived assets, or total assets.

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In paragraph 9.1(1)(c):

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Increase the "20%" threshold for certain issuers. For example, junior oil and gas companies will be required to disclose information that is not significant or useful to an investor.

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Clarify how an issuer is to account for a contract that contemplates non-cash consideration and whether fixed assets are to be valued at fair market value or book value.

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In paragraph 9.1(1)(d):

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Clarify that only "material" credit agreements are required to be filed.

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Exclude credit agreements. Otherwise, issuers will incur significant costs redacting these "ordinary course of business" agreements without a corresponding benefit to shareholders. Lenders will not want terms and margins publicly disclosed because they could reveal competitive information.

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Under paragraph 9.3(2)(d) of the Rule, only credit "and financing" agreements with terms that have a direct correlation with anticipated cash distributions are not eligible for the ordinary course of business exemption.

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Requirement to file "any credit agreement" is inconsistent with provision that only the financing covenants in "material" financing or credit agreements are prohibited from being redacted under paragraph 9.1(2)(g).

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Under paragraph 9.3(2)(e) of the Rule, only "external" management and administration agreements are not eligible for the ordinary course of business exemption.

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We added subsection 3.6(5) of the Companion Policy to provide guidance regarding the meaning of the term "on which the issuer's business is substantially dependent".

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In paragraph 9.1(1)(e):

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Exclude management or administration agreements. These are entered into in the ordinary course of business by most issuers. The term could encompass a wide range of agreements that are not of interest or importance to securityholders. Filing such agreements is unnecessary given current proposal to enhance executive compensation disclosure in Form 51-102F6.

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Clarify that only "material" management or administration agreements are required to be filed.

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In paragraph 9.1(1)(f), clarify the meaning of the term "on which the issuer's business is substantially dependent".

2.8: Subsection 9.1(2) of Rule published for comment

Material contracts -- list of provisions "necessary to understanding the contract" -- suggested changes

One commenter suggests the list is unnecessary. There are significant variations between types of contracts and the provisions that would be relevant to an understanding of the contract. If there is to be a requirement not to redact provisions, the determination of what terms fall into that category should be left to the issuer and its counsel.

The Rule has been redrafted to clarify the following:

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The filing requirement applies to material contracts entered into since the beginning of the last financial year ending before the date of the prospectus or before that financial year but that are still in effect at the time the prospectus is filed.

Three commenters suggest that the list be deleted from the Rule and moved to guidance in the companion policy. The list should set out examples of clauses potentially necessary to understanding the contract rather than specifically prescribing such clauses.

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Material contracts that are entered into in the ordinary course of business do not need to be filed unless these contracts are of a type described in paragraphs 9.3(2)(a) through (f) of the Rule. We changed this list from the list in subsection 9.1(1) of the Rule published for comment, as discussed in our response in item 2.7, above.

Four commenters suggest specific changes to the list:

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Add change of control clauses to the list.

The Rule also clarifies that an issuer may redact provisions in a material contract on the grounds that disclosure would be seriously prejudicial to the interests of the issuer or would violate confidentiality provisions. Under subsection 9.3(4) of the Rule, the list of provisions that may not be redacted has been limited to the following:

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Clarify that subsection 9.1(2) only applies to "material" provisions.

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In the lead in language:

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Delete the term "include the following" and replace it with the term "means" so that the list is definitive.

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Debt covenants and ratios in material financing or credit agreements.

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Add the term "information relating to the issuer or its securities" to make it consistent with clause 9.2(a)(iii)(B).

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Events of default or other terms relating to the termination of the material contract.

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In paragraphs 9.1(2)(a), (b), (f) and (g), clarify the use of the adjective "material" given that, presumably, subsection 9.1(2) is only applicable to "material contracts".

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Other terms necessary for understanding the impact of the material contract on the business of the issuer.

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In paragraph 9.1(2)(a), exclude the name of a material customer or material supplier under paragraph 9.1(2)(a).

We added subsection 3.6(8) of the Companion Policy to provide guidance on the meaning of "terms necessary for understanding the impact of the material contract on the business of the issuer".

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In paragraph 9.1(2)(b), clarify how to determine or calculate the applicable interest rate of an agreement. This may be difficult on account of complex formulas.

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In paragraph 9.1(2)(c), clarify meaning of "concession".

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In paragraph 9.1(2)(e), clarify what type of disclosure regarding related party transactions is contemplated.

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In paragraph 9.1(2)(f):

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Clarify meaning of "material contingency" clauses.

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Clarify meaning of "take-or-pay" clauses.

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In paragraph 9.1(2)(g),

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Clarify why financing agreements are included even though they are excluded in paragraph 9.1(1)(d).

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Clarify meaning of "financial covenants".

2.9 Subsection 3.6(3) of Companion Policy published for comment

Material contracts -- guidance on omission or redaction -- suggested changes

One commenter suggests that the guidance in subsection 3.6(3) of the Companion Policy be limited to those contracts entered into after the Rule comes into force. While new contracts can incorporate provisions that address the approach set out in the Companion Policy, contracts drafted prior to the introduction of the Rule do not have similar flexibility.

We added guidance in subsection 3.6(6) of the Companion Policy providing that a regulator or securities regulatory authority may consider granting an exemption to permit a provision of the type listed in subsection 9.3(4) of the Rule to be redacted in some cases.

3: Personal information form and authorization (Question 7){3}

3.1: Appendix A of Rule published for comment

Personal Information Form (PIF) -- general comments

One commenter believes there are no practical difficulties with requiring an issuer to deliver PIFs with the first preliminary prospectus filed by the issuer.

We acknowledge these comments.

Three commenters do not support the expanded PIF in the form set out in Appendix A. Their reasons include the following:

In response to concerns about the burden of preparing and delivering an expanded PIF, we changed the delivery requirement so that it only applies to individuals for whom an issuer has not previously delivered: (a) an expanded PIF; or (b) before March 17, 2008, an authorization to collect personal information.

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Completion of a PIF in the suggested form is a time-consuming exercise, which occasionally requires hours of work on the part of those involved to collect historical information that might otherwise be considered dated.

The information required to be included in the expanded PIF set out in Appendix A of the Rule is necessary for the regulators to determine whether to refuse receipt of a prospectus because the past conduct of the individual affords reasonable grounds for belief that the business of the issuer will not be conducted with integrity and in the best interests of its securityholders. The benefits of requiring the delivery of the information set out in Appendix A outweigh the burden of preparing and delivering the information.

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The burden is exacerbated in the case of U.S. residents because allegations of fraud is routinely alleged in proceedings under U.S. federal securities laws. Disclosure of such allegations of alleged fraud represents a significant additional burden.

To further facilitate the delivery of expanded PIFs, we also made the following changes to Schedule 1 of Appendix A of the Rule:

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No policy reason for establishing another filing for issuers to be obligated to obtain and file if the issuer is already a reporting issuer and is listed on a Canadian exchange (or filing an initial public offering with an application to be listed on a Canadian exchange).

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we added a statement in bold that the expanded PIF is a confidential document,

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we added instructions on how to deliver a completed Schedule 1 to the regulators, and

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PIFs should only be required for initial public offerings or where there is other good reason for the regulator to need them.

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we changed the statutory declaration requirement to a certification requirement.

3.2: Appendix A of Rule published for comment

PIF -- suggested changes

Two commenters suggest specific changes to the PIF set out in Appendix A:

We have the following responses to these comments:

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Do not require individuals to submit two forms of PIFs (the form set out in Schedule 1 of Appendix A and the Exchange Form (as defined in Appendix A)). Should rely on the submission of the Exchange Form.

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Individuals may deliver their Exchange Form, as permitted under Schedule 1 of Appendix A of the Rule, instead of an expanded PIF. However, these individuals must deliver a separate certificate and consent with the Exchange Form.

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Confirm that the exchanges may continue to have the discretion to amend their Exchange Forms from time to time with no implications as to how such changes may affect the PIF.

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We do not intend to change any authorized discretion of exchanges to amend their Exchange Forms. We will, however, monitor any changes to the Exchange Forms.

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We deleted the references to TSX and TSX Venture as divisions of TSX Inc. and TSX Venture Exchange Inc.

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Delete, as unnecessary, the references to TSX and TSX Venture as divisions of TSX Inc. and TSX Venture Exchange Inc., respectively.

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Shorten the requirement to disclose 10 years of residential address history in the PIF because it is onerous.

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We note that the Exchange Forms require ten years of residential address history.

3.3: Subparagraph 9.2(b)(ii) of Rule published for comment

PIF -- delivery requirement -- general comments

One commenter has no objection to the requirement provided that the form is interchangeable with the similar forms required by the Toronto Stock Exchange.

We acknowledge this comment. See our response to item 3.2, above.

3.4: Subparagraph 9.2(b)(ii) of Rule published for comment

PIF -- delivery requirement -- suggested changes

Seven commenters suggest specific changes to PIF delivery requirement:

We have the following responses to these comments:

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Do not require that PIF be filed every three years. This will impose a significant administrative and timing burden on issuers. Particularly for issuers and individuals actively engaged in prospectus offerings.

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See our response to item 3.1, above.

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Clarify that individual who holds multiple directorships does not have to file more than once every three years.

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See our response to item 3.1, above. Individuals who are existing directors of a reporting issuer must provide an expanded PIF if they become a director for another issuer that files a prospectus.

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Clarify if background checks will be undertaken by securities commissions, based on information in PIF and whether the receipt of a final prospectus may be delayed while securities regulatory authorities await the results of background inquiries undertaken in other jurisdictions.

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The regulator may conduct background checks based on the information in an expanded PIF. The regulator will not generally delay the receipt of a final prospectus while awaiting the results of a foreign background check unless it is in the public interest to do so.

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Do not require PIF from substantial beneficiaries of the offering.

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We removed the requirement for substantial beneficiaries of the offering to provide certificates. Accordingly, we also removed the requirement for substantial beneficiaries of the offering to provide an expanded PIF.

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Do not require PIF from promoters.

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We kept the proposed requirement to provide an expanded PIF for promoters. An expanded PIF for promoters is necessary for the regulators in determining whether to refuse to issue a receipt for the prospectus because the past conduct of the promoter affords reasonable grounds for belief that the business of the issuer will not be conducted with integrity and in the best interests of its securityholders.

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Clarify that there is no stated time limit on the age of a previously filed PIF or Exchange Form when filed with a statutory declaration.

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Add a transition provision indicating that the expanded PIF set out in Appendix A does not need to be delivered if a personal information form under the existing requirements (e.g. Form 41-501F2 Authorization of Indirect Collection of Personal Information) has been delivered in the three years previous to the applicable filing.

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See our response to item 3.1, above. There is no stated time limit on the age of a previously delivered expanded PIF provided that a certificate dated within 30 days of the preliminary prospectus is attached.

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See our response to item 3.1, above. Given the changes to the delivery requirement, a transition provision is unnecessary.

4: Over-allocation and Distribution of securities under a prospectus to an underwriter (Questions 8 and 9){4}

4.1: Section 11.2 of Rule published for comment

Over-allocation -- general comments

One commenter generally supports this proposal.

We acknowledge these comments.

Two commenters support the change in date of determination to the closing of the offering.

4.2: Section 11.3 of Rule published for comment

Distribution of securities under a prospectus to an underwriter -- general comments

Ten commenters do not support the adoption of this requirement. Their reasons include the following:

We changed the requirement to permit the prospectus to qualify compensation securities up to 10% of the base offering and the securities represented by the over-allotment option. See our response to item 4.3, below.

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Compensation should be a matter of negotiation between the issuer and its underwriter. Issuers try to limit compensation securities when possible and those with greater than 5% compensation securities tend to be less known issuers with less liquidity that require more work by the underwriters. Imposition of 5% threshold is unduly restrictive and unnecessary given competitive market among underwriters.

The requirement limiting the compensation securities distributed under a prospectus that may be issued to a person or company acting as an underwriter does not preclude compensation securities being issued to that person or company under an exemption from the prospectus requirement. Compensation securities issued under an exemption to the prospectus requirement are subject to applicable resale restrictions under NI 45-102. Issuers and their underwriters are free to negotiate the payment of compensation securities on this basis.

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Costs of proposal outweighs the benefits.

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In particular, small and mid size issuers will be adversely affected.

Under the extended definition of "distribution" in provincial and territorial securities legislation, "backdoor underwriting" occurs if securities acquired by a person or company acting as an underwriter under a prospectus are sold into the secondary market without the purchaser receiving a prospectus. The threshold in section 11.2 of the Rule is intended to reflect existing market practice.

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Restricted compensation securities issued to an underwriter increases the risks to underwriters and may deter underwriters from financing issuers.

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No evidence of "backdoor underwritings". If backdoor underwriting exists, the problem could be adequately addressed by a civil liability regime for secondary market disclosure.

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Underwriters do not typically give up the option value of compensation warrants (typically 18 to 24 months) to realize small spread which may exist between the trading price and the new issue price at the time a prospectus distribution is being completed.

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While investors who purchase securities issued from the exercise of compensation warrants may not have a right of rescission, the rights provided under civil law would protect these purchasers in the event that the prospectus does not contain full, true and plain disclosure.

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Not necessary if securities will be traded on a recognized market that imposes appropriate standards of trading oversight

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Issue of compensation securities more appropriately considered in context of regulation of securities dealers generally by their self-regulatory organization.

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Proposal may prohibit underwritten financings. If underwriter is unable to sell and distribute to the public the total amount of securities agreed to, the underwriter agrees to purchase the remaining securities directly from the issuer. If the securities an underwriter may purchase under the prospectus is limited to over-allotment options and compensation securities, this may limit prospectus offerings on an underwritten basis.

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May have unintended consequence of causing issuers to pay more compensation in cash.

4.3: Section 11.3 of Rule published for comment

Distribution of securities under a prospectus to an underwriter -- suggested changes and alternatives

Four commenters suggest specific changes to the requirement:

We have the following responses to these comments:

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Require a minimum hold period of 60 days rather than cap the percentage permitted.

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Compensation securities acquired under an exemption from the prospectus requirement are subject to the appropriate resale restrictions under NI 45-102. There is no policy reason justifying a different hold period.

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Calculate the percentage limit based on not only the base offering but the over-allocation position as well, to conform with market practice.

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We added the term "plus any securities that would be acquired upon the exercise of an over-allotment option" immediately after "base offering" in paragraph 11.2(b) of the Rule.

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Do not include any underlying securities issueable or transferable on the exercise of compensation securities in the limit. Otherwise, this results in double counting the same securities as effectively once the compensation security is exercised and the underlying security is issued, the compensation security will no longer exist.

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We replaced the term "together with any underlying securities issuable or transferable on the exercise of any these securities (if these securities are convertible or exchangeable securities)" with "on an as-if-converted basis" in paragraph 11.2(b) of the Rule. This clarifies that we did not intend for compensation securities that are convertible or exchangeable into an underlying security to be double-counted. This also clarifies how to calculate limits on compensation securities like warrants or other exchangeable or convertible securities.

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Clarify how to calculate limits for compensation securities in different forms, such as warrants or other exchangeable or convertible securities.

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Raise the limit to 10% to facilitate fund raising for smaller issuers. The TSX Venture provides for a limit of up to 25% and market practice is to allow up to 10%.

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We raised the limit to 10% on the understanding that this limit reflects existing market practice.

5: Waiting period (Question 10){5}

5.1: Section 1.1 of Rule published for comment

Minimum waiting period

Four commenters support the proposal not to have a minimum waiting period.

We acknowledge these comments.

One commenter notes that the review period set out in National Policy 43-201 effectively imposes a minimum waiting period.

6: Amendments to preliminary and final prospectus (Question 11){6}

6.1: Part 6 of Rule published for comment

Amendments to preliminary and final prospectus

Six commenters support the status quo with respect to the trigger to file amendments to preliminary and final prospectuses.

We acknowledge these comments. We are not proposing any changes to Part 6 of the Rule at this time.

One commenter suggests an alternative trigger for filing an amendment could be the filing of audited annual financial statements and MD&A. Such continuous disclosure documents are deemed to be incorporated by reference into a short form prospectus. The absence of a comparable requirement in long form prospectuses means that reporting issuers distributing securities under a long form prospectus are subject to a lower level of disclosure than those under a short form prospectus.

One commenter recommends requirements should be reviewed as part of an overall review of the liability provisions relating to prospectuses.

7: Bona fide estimate of range of offering price or number of securities being distributed (Question 12){7}

7.1: Section 1.7 of Form F1 published for comment

Pricing range -- general comments

Six commenters do not support the adoption of this requirement. Their reasons include the following:

In light of these comments, we limited the requirement to disclose, in a preliminary prospectus, the offering price or the number of securities being distributed, or an estimate of the range of the offering price or the number of securities being distributed, to those instances where the issuer has already publicly disclosed this information in a jurisdiction or a foreign jurisdiction. We also added subsection 4.2(2) of the Companion Policy to provide further guidance regarding our concerns about disclosure of this information on a selective basis.

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Disclosure is not necessary for follow-on offerings.

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No evidence of investor harm from non-disclosure.

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Disclosure should not apply to smaller issuers.

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In the United States, issuers typically do not include a price range in the registration statement containing a preliminary prospectus. Only the commercial copy of the preliminary prospectus filed and printed prior to the roadshow would contain the price range.

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As a result, issuers should only be required to include the range in an amended and restated preliminary prospectus that is being printed prior to the roadshow for consistency with the U.S. approach.

•

If price range is provided in an amendment instead of the preliminary, there may not be any benefit for investors. Issuers would have higher costs and more time (to print and re-circulate the amendment) without any tangible benefit to investors. CSA should undertake cost-benefit analysis to ensure added costs are justified.

Two commenters support the adoption of this requirement. Such information is important to investors making informed investment decisions and the initiative will be helpful to the marketplace. Disclosure in the preliminary prospectus in the consolidated capitalization table, earnings coverage ratios and pro forma financial information should be calculated and disclosed using the mid-point of the pricing range. Such information is helpful to investors in understanding the effects that the offering will have on the issuer. Pricing outside the disclosed ranges may be a material adverse change in respect of the issuer and may require an amendment to the preliminary prospectus be filed. Such potential will serve as an incentive to issuers to consider, with the help of their advisers, a realistic set of estimates regarding an offering's pricing terms.

7.2: Section 1.7 of Form F1 published for comment

Pricing range -- suggested changes and alternatives

Two commenters note that the guidance in section 4.2 of the Companion Policy states that the difference between the estimate and the actual offering price or number of securities being distributed is not [UND]generally[/UND] a material adverse change. The commenters suggest the following changes:

We replaced the term "generally" with "in itself".

We changed the requirement so that an issuer must only disclose a pricing range if it was disclosed before the filing of the preliminary prospectus. See our response to item 7.1, above.

•

Delete the term "generally" in section 4.2 of the Companion Policy and replace it with the term "in itself".

As per the guidance in subsection 4.2(1) of the Companion Policy, a difference between an estimate and the actual offering price or number of securities being distributed is not, in itself, a material adverse change for which the issuer must file an amended preliminary prospectus. However, a significant difference between the actual offering price and an estimate may indicate an underlying material change requiring the filing of an amended preliminary prospectus. A specific percentage is inappropriate in these cases because issuers are responsible for determining whether an underlying material change has occurred.

•

Require an amendment if the actual offering price is more than a specific percentage (e.g. 5% or 10%) outside of the high- or low-end of the estimated range.

Two commenters suggest that issuers should have a right but not the obligation to provide disclosure of an estimated range.

8: Two years' financial statement history (Question 13){8}

8.1: Item 32 of Form F1 published for comment

Two years' financial statement history

Six commenters support this requirement.

We acknowledge these comments.

Part B: Comments on other NI 41-101 matters

9: General

9.1: Rule published for comment

Harmonization -- general comments

Twelve commenters support the efforts to harmonize prospectus requirements across the country.

We acknowledge these comments.

9.2: Rule published for comment

Harmonization -- Ontario carve-outs -- general comments

Eight commenters do not support the Ontario carve outs. Their concerns include the following:

We acknowledge these comments.

•

Inconsistent with stated purpose of harmonizing and consolidating prospectus requirements.

•

Increases complexity and cost.

•

Non-level regulatory playing field among jurisdictions may result in investors in different jurisdictions having varying rights and opportunities.

•

Certain carve-outs may not even be effective. For example, persons who are obligated to sign certificates under the requirements in other jurisdictions may be liable in Ontario despite carve-out. To avoid application in Ontario, issuer would have to file one prospectus in Ontario and another in all other Canadian jurisdictions, which would run counter to the goal and stated purpose of streamlining the financing process.

Two commenters urge the Ontario Securities Commission to move quickly to obtain any rulemaking necessary to eliminate these carve-outs.

9.3: Rule published for comment

Harmonization -- Ontario carve-outs -- other comments

Two commenters suggest that the notes and explanations contained throughout the Rule that describes the situation in Ontario be retained.

We acknowledge these comments. The notes and explanations remain in the Ontario version of the Rule.

9.4: Rule

Exchange requirements

One commenter suggests that certain CSA members encourage their respective Exchanges to update their policies, manuals and forms to conform to the changes adopted in the Rule.

We acknowledge this comment. We have an ongoing dialogue with each of the Exchanges that includes discussions regarding any required updating of their policies, manuals and forms to reflect changes in provincial and territorial securities legislation.

9.5: Rule

Prospectus liability regime

One commenter suggests the CSA consider the appropriateness of amending the primary offering civil liability regime, which is based on certification, to more closely reflect the secondary market civil liability regime introduced in Ontario and certain other provinces.

We acknowledge this comment. Amending the primary offering civil liability regime is beyond the scope of the Rule.

9.6: Rule

Electronic roadshow materials and cross-border initial public offerings

One commenter notes an inconsistency between Canadian and U.S. securities law, which requires Canadian underwriters who want to utilize electronic roadshow materials to seek exemptive relief. Exemptive relief granted has required issuer and underwriters to provide purchasers with a contractual right of action equivalent to the statutory rights under section 130 of the Securities Act (Ontario) applicable to any misrepresentation in the roadshow materials. Exemption orders have not specified as of what date or time such liability attaches to the materials.

We acknowledge this comment. It is premature to propose rules regulating electronic roadshows based on the limited number of exemptive relief applications that have been filed to date. We will continue to monitor these types of applications and will consider proposing requirements codifying any relief granted, as appropriate.

Also, see our response to item 12.11, below.

Exemption orders do not contain any provision for updating or correcting the information to which liability attaches after the completion of the roadshow. Suggest that Rule should contain express provisions allowing for use of an electronic roadshow in cross-border initial public offerings. If contractual rights of action are required, the materials and the prospectus should be considered as a whole, which can be updated or corrected through amendments to the preliminary prospectus or through the final prospectus, as necessary.

10: Rule -- specific sections

10.1: Section 1.1 of Rule published for comment

Definitions

Two commenters suggest changes to the following definitions in Part 1:

We have the following responses to these comments:

•

"Derivative":

•

We kept the proposed definition of "derivative". This definition is identical to the one in existing NI 44-101. Disclosure of the material attributes of "derivatives" is required under section 10.4 of Form F1. There is no policy reason to exclude convertible debt, floating rate notes, exchangeable securities, or the securities listed in section 1.1 of NI 81-102 from these disclosure requirements. For investment funds, see our response in item 15.1, below.

•

conform to definition of "specified derivative" in section 1.1 of NI 81-102;

•

carve-out convertible debt, floating rate notes or exchangeable securities.

•

"Executive officer": carve-out chair or vice-chair who do not serve in full-time capacity.

•

"IPO venture issuer":

•

clarify whether reference to "U.S. marketplace" includes an issuer trading on the OTC Bulletin Board or the Nasdaq Small Cap Market;

•

We kept the proposed definition of "executive officer". This definition is used in a number of disclosure items under Form F1, including the interests of management and others in material transactions. We decided to require this disclosure irrespective of whether the chair or vice chair is serving in a full- or part-time capacity.

•

clarify whether reference to "a marketplace outside of Canada" includes issuers listed and posted for trading on the Regulated Unofficial Market of the Frankfurt Stock Exchange or the Unofficial Regulated Market of the Berlin-Bremen Stock Exchange;

•

In the definition of "IPO venture issuer":

•

reference to "OFEX" should be to its new name, "PLUS MARKET".

•

We kept the proposed reference to "U.S. marketplace". Under the Rule, "U.S. marketplace" has the same meaning as in NI 51-102. A U.S. marketplace means an exchange registered as a "national securities exchange" under section 6 of the 1934 Act, or the Nasdaq Stock Market". The SEC publishes the names of the registered national securities exchanges on its website. The Nasdaq Stock Market currently has three tiers of listed companies: The Nasdaq Global Select Market (formerly known as the Nasdaq National Market), The Nasdaq Global Market and The Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market). The OTC Bulletin Board is separate and distinct from the Nasdaq Stock Market. It does not currently fall into the definition of "U.S. marketplace".

•

"Junior issuer":

•

limit requirement to make adjustments for acquisitions to significant acquisitions or significant probable acquisitions of a business;

•

provide additional guidance on how these adjustments are to be made.

•

"Principal securityholder":

•

carve-out underwriters and those holding securities as collateral;

•

should be determined based on voting rights attached to "all voting securities" (not based on voting rights attached to any class of voting securities).

•

"Probable reverse takeover": change reference to "acquisition" to "probable reverse takeover".

•

We kept the proposed references to "listing or quoting on a marketplace outside of Canada". In item A-5 of CSA Staff Notice 51-311, CSA staff stated that they determined that trading on the Regulated Unofficial Market of the Frankfurt Stock Exchange (now known as the Open Market) or the Unofficial Regulated Market of the Brelin-Bremen Stock Exchange does not constitute listing or quotation.

•

"Special warrant":

•

in paragraph (a), add the term "by the issuer" after "other security";

•

in paragraph (b), add the term "from the issuer" after "material additional consideration";

•

clarify that the definition does not apply to secondary offerings.

•

We changed the reference to "the market known as OFEX" to "the PLUS markets operated by PLUS Markets Group plc". This is consistent with the amendments to the definition of "venture issuer" in NI 51-102 that will become effective on December 31, 2007.

•

We changed the definition of "junior issuer" to limit the requirement to make adjustments for acquisitions to significant acquisitions or significant probable acquisitions of a business and to provide additional guidance on how these adjustments are to be made.

•

We kept the proposed definition of "principal securityholder". Determination by class of voting security is consistent with the requirement under section 6.5 of 51-102F5 and section 15.1 of Rule 41-501. A carve out for underwriters is not appropriate especially given the limitation under section 11.2 of the Rule.

•

We removed the definition of "probable reverse takeover" from the Rule.

•

We kept the proposed definition of "special warrant". Paragraph (a) of the definition is identical to the definition in existing NI 44-101. We added paragraph (b) of the definition to clarify that special warrants include voluntary filings of a prospectus by the issuer to qualify the distribution of the other security.

10.2: Section 1.5 of Rule published for comment

Interpretation of "payments to be made"

One commenter asks how this provision would apply to payments where the amount is discretionary. Also, credit support for subordinated debt should be allowed to be given on a subordinated basis.

Full and unconditional credit support includes discretionary dividends to be made by the issuer of securities if the terms of the securities or an agreement governing rights of holders of the securities expressly provides that the holder of such securities will be entitled, once the discretionary dividend is declared, to receive payment from the credit supporter within 15 days of any failure by the issuer to pay the declared dividend. We added clarifying language to section 1.5 of the Rule.

The definition of "full and unconditional credit support" does not preclude indebtedness that may be secured by a subordinated guarantee.

10.3: Subsection 2.2(3) of Rule published for comment

Language

One commenter asks for clarification that, in Québec, the documents must be in French or two separate versions, one in French and one in English. Provision appears to imply that one document in both languages may have to be filed.

In Québec, the prospectus and documents required to be incorporated by reference must be in French or in French and English. They are usually filed as separate documents. Further clarification is unnecessary.

10.4: Section 4.2 of Rule published for comment

Audit of financial statements

One commenter suggests that pro forma financial statements be specifically carved out of these provisions as they are not audited.

We added subsection 4.1(3) to the Rule to clarify that pro forma financial statements are not subject to Part 4, including the audit requirement in section 4.2 of the Rule.

10.5: Section 4.4 of Rule published for comment

Approval of financial statements and related documents

One commenter suggests that subsection 4.4(1) should indicate what type of approval is required where the issuer does not have a board of directors.

We kept the proposed requirements.

Subsection 4.4(2) should also take into consideration delegation by other means other than by constating documents (e.g. through a contract or agreement).

With respect to subsection 4.4(1) of the Rule, the definition of "director" under provincial and territorial securities legislation includes a person acting in a capacity similar to that of a director of a company. This requirement is substantially similar to the requirement in Part 10 of Rule 41-501.

With respect to subsection 4.4(2) of the Rule, if there is delegation of authority it should be included in the constating documents.

10.6: Paragraph 5.5(2)(b) of Rule published for comment

Trust issuer

Eleven commenters express concerns about the application of this paragraph to a corporate trustee that is a regulated trust company. Typically, the declaration of trust delegates responsibility for executing prospectus certificates to an operating subsidiary. In performing its duties, the regulated trust company and its officer and directors would not be in a position to execute a prospectus certificate.

We added subsection 5.5(4) to the Rule to clarify that regulated trust company trustees that do not perform functions for the issuer similar to those performed by the directors of a company are not required to sign the certificate provided that two individuals who do perform these functions sign the certificate.

Eight commenters suggest the following changes to this requirement:

We added subsection 2.6(3) to the Companion Policy to provide guidance that a certificate signed by an agent or attorney of the trustee would not be acceptable in the absence of relief from the requirements of section 5.5 of the Rule. We also added subsection 2.6(4) of the Companion Policy to clarify that in a situation where a regulated trust company is a trustee but does not perform functions similar to those of corporate directors, the regulated trust company and its officers and directors are not required to sign a prospectus certificate if two other individuals who perform those functions do provide a certificate.

•

Add the term "or by any two individuals who perform functions similar to those performed by the directors of a company" to paragraph 5.5(1)(b).

•

Provide an exemption similar to that applicable to investment funds for trust issuers that meet the same criteria. All trusts should be permitted to delegate the authority to sign a trust certificate to another entity, such as a management company, by way of the declaration of trust or other agreement.

In light of these changes, the other suggested changes are unnecessary.

•

Provide a transition period. This will allow trust issuers to call a meeting of unitholders to reorganize the trust.

10.7: Section 5.8 of Rule published for comment

Reverse takeovers

Two commenters believe this requirement is onerous. The requirement is especially onerous for reverse takeovers involving large and sophisticated entities. Requiring each director and officer to sign a certificate does not serve any purpose other than to impose liability on those individuals and, typically, those individuals are protected from personal liability through corporate indemnities and directors' and officers' insurance. Accordingly, the commenter recommends that the requirement be for one authorized signatory to execute the certificate on behalf of the reverse takeover acquirer (similar to the approach taken with respect to promoters).

In response to this comment, we changed section 5.8 of the Rule to require, except in Ontario, the chief executive officer and the chief financial officer of the reverse takeover acquirer to sign a certificate. We also changed section 5.8 of the Rule to require, except in Ontario, two directors of the reverse takeover acquirer to sign a prospectus certificate on behalf of the board of directors of the reverse takeover acquirer.

10.8: Section 5.11 of Rule published for comment

Certificate of promoter

One commenter submits that the requirement in subsection 5.11(4) is overreaching because promoters may have control persons who are passive investors. The requirement may be appropriate in situations in which the regulator reasonably determines that a person or company is attempting to avoid prospectus liability merely through the insertion of a holding company. However, the existing definition of promoter may be broad enough to capture these situations. The commenter suggests subsection 5.11(4) be deleted and appropriate guidance and policy be set forth in the Companion Policy.

We removed subsection 5.11(4) of the Rule that was published for comment. We added guidance to subsection 2.6(1) of the Companion Policy to clarify that public interest concerns may also arise where it appears a person or company is organizing its business and affairs to avoid a requirement to sign a prospectus certificate or to avoid prospectus liability.

One commenter suggests that guidance be provided as to when regulators intend on requiring additional certificates from control persons under subsection 5.11(4).

10.9: Section 5.14 of Rule published for comment

Certificate of selling securityholders

One commenter suggests that guidance be provided as to when regulators intend on requiring additional certificates from control persons under this section.

We removed the requirement for control persons of selling securityholders to provide certificates under section 5.14 of the Rule published for comment.

Under section 5.13 of the Rule, a regulator, other than in Ontario, [UND]may[/UND] require a selling securityholder certificate. Regardless of whether they provide a certificate, selling securityholders are liable under provincial and territorial securities legislation. We added subsection 2.6(6) of the Companion Policy to provide further guidance on the circumstances under which a regulator may require a prospectus certificate from the selling securityholder.

10.10: Section 5.15 of Rule published for comment

Certificate of operating entity

One commenter believes this requirement is overly burdensome.

In response to this comment, we changed section 5.14 of the Rule to require the chief executive officer and the chief financial officer of the operating entity to sign a certificate. We also changed section 5.14 of the Rule to require two directors of the operating entity to sign a prospectus certificate on behalf of the board of directors of the operating entity.

Two commenters suggest that the requirement be for one authorized signatory to execute the certificate on behalf of the operating entity.

10.11: Section 5.16 of Rule published for comment

Certificate of other persons -- general comments

Two commenters do not support adopting this requirement.

We kept the proposed requirement. The requirement to provide a certificate for any person or company at the discretion of the regulator is an existing requirement under certain securities legislation. If the exercise of discretion results in receipt refusal, there is a right to a hearing.

•

Securities legislation in most provinces already provide regulators with the discretion to refuse to issue a receipt for a final prospectus if it is not in the public interest to do so.

•

Under this provision, regulators will have the power to require certification of a prospectus in ways that were entirely unintended.

•

Unlike the corresponding power to refuse receipt of a prospectus, there is no right to be heard in the event that a person required to certify a prospectus disagrees with the regulator.

•

Unfettered and discretionary nature of such certification requirements reduces transparency and certainty in public offerings.

10.12: Section 5.16 of Rule published for comment

Certificate of other persons -- alternative

One commenter suggests, in lieu of adopting the requirement, adding guidance to the Companion Policy that the regulator will not exercise this power unless it is in the public interest to do so.

We added subsection 2.6(2) of the Companion Policy to provide further guidance that the exercise of this discretion will generally be informed by pubic interest concerns, including those discussed in subsection 2.6(1) of the Companion Policy.

10.13: Section 6.2 of Rule published for comment

Required documents for filing an amendment

One commenter suggests that consent letters be required to be filed again with an amendment only where the original consent letters are no longer correct as of the date of the amendment.

We kept the proposed requirement. The nature of consent letters is such that they must be current as of the date of the amended prospectus.

10.14: Section 6.3 of Rule published for comment

Auditor's comfort letter

One commenter suggests deleting "relates to" and replacing it with "affects".

We added the term "materially affects or" immediately before "relates to" in section 6.3 of the Rule. This is identical to the language in section 5.3 of existing NI 44-101.

10.15: Section 6.6 of Rule published for comment

Amendment to a final prospectus -- general comment

One commenter notes that this provision may make a prospectus distribution illegal where a material change has occurred, even where the material change occurred on account of circumstances outside the control of the issuer and/or where the issuer is not aware of the material change while it is in the process of distribution. This may result in disproportionate and unfair impact on underwriters.

A material change is generally limited to "a change in the business, operations or capital of the issuer". We also note that section 4.2 of NP 51-201 provides guidance on materiality determinations and section 4.3 of NP 51-201 provides examples of potentially material information. Under this definition, as supplemented by this guidance, it is unlikely that a material change will occur without the issuer's knowledge.

10.16: Section 6.6 of Rule published for comment

Amendment to a final prospectus -- suggested change

One commenter suggests adding "by the issuer" after "are to be distributed" in subsection 6.6(2).

We kept the proposed requirement.

10.17: Section 7.2 of Rule published for comment

Non-fixed price offerings and reduction of offering price

One commenter notes that this section is tighter than under current rules as section 1.5 of NI 41-501 (sic) does not contain a requirement to distribute at a fixed price. The commenter asks how this may affect the issuance of debt securities on an accrued interest basis.

We kept the proposed requirement. This section is consistent with the current rules. Under section 11.1 of Rule 41-501, a person or company distributing securities under a prospectus must do so at a fixed price. We are not aware of any difficulties in complying with the current requirement in respect of debt securities issued on an accrued interest basis.

10.18: Section 8.2 of Rule published for comment

Minimum amount of funds

One commenter suggests that funds should be returned to subscribers without any interest.

We kept the proposed requirement. Section 8.3 of the Rule does not mandate the payment of interest. Precluding the payment of interest would restrict market practices without any offsetting benefits to investors.

10.19: Subparagraphs 9.3(a)(xi), (xii) and (xiii) of Rule published for comment

Undertaking in respect of continuous disclosure -- undertaking to file documents and material contracts -- undertaking in respect of restricted securities

One commenter suggests it would streamline the long form prospectus filing process if the filing of these undertakings was eliminated and the subject matter of the undertakings simply included as requirements imposed by the Rule or NI 51-102, as applicable.

We kept the proposed requirement. Undertakings are more effective in dealing with policy concerns regarding a specific class of issuer without imposing general requirements that should not apply to many issuers. Undertakings can also be adapted to the specific circumstances of a particular issuer.

10.20: Subparagraph 9.3(a)(xi) of Rule published for comment

Undertaking in respect of continuous disclosure

Two commenters believe that the requirement should only apply if an issuer is not required to consolidate results of the operating entity in an issuer's consolidated financial statements and disclosure.

We kept the proposed requirement. All income trust issuers must file this undertaking at the time of filing a final long form prospectus. However, the undertaking can specify that separate financial statements of the operating entity will only apply in instances when generally accepted accounting principles prohibit the consolidation of the operating entity and the income trust.

10.21: Subparagraph 9.3(a)(xiii) of Rule published for comment

Undertaking in respect of restricted securities

One commenter notes that this provision should also be subject to the same definition of "non-voting security" as set out in subsection 12.1(1) of the Rule.

We moved the definition of "non-voting security" to section 1.1 of the Rule.

10.22: Subparagraph 9.3(b)(ii) of Rule published for comment

Communication with exchange

One commenter believes that this requirement should only apply where application has been made to list securities on a Canadian exchange because it may be difficult to obtain such communication from exchanges outside of Canada.

We changed the requirement in subparagraph 9.2(b)(ii) of the Rule to limit it to Canadian exchanges.

10.23: Section 10.2 of Rule published for comment

Licenses, registrations and approvals

Two commenters express concerns about this requirement. Certain issuers will need to use funds held in trust to pay for any material licenses, registrations and approvals. Certain licenses, registrations and approvals may take many years to obtain (well beyond the time limit specified).

We changed the requirement in section 10.2 of the Rule so that it only applies if the proceeds of the distribution will be used to substantially fund a material undertaking that would constitute a material departure from the business or operations of the issuer and the issuer has not obtained all material licences, registrations and approvals necessary for the stated principal use of proceeds. We also added section 3.12 of the Companion Policy to provide further guidance on this requirement.

One commenter suggests that funds should be returned to subscribers without any interest.

Section 10.2 of the Rule does not mandate the payment of interest. Precluding the payment of interest would restrict market practices without any offsetting benefits to investors.

10.24: Subsection 11.1(2) of Rule published for comment

Over-Allocation and Underwriters -- Definitions

One commenter suggests replacing the term "closing of a distribution" with "completion of a distribution".

We kept the proposed requirement. There is no policy reason supporting the suggested change.

10.25: Section 12.1 of Rule published for comment

Restricted securities -- application and definitions

One commenter suggests the following drafting changes:

We have the following responses to these comments:

•

In the definition of "restricted security reorganization": carve out an increase in the restricted class of securities itself from the list of items that will be considered a restricted security reorganization (track subparagraph (b)(i) under definition of "reorganization" in OSC Rule 56-501).

•

We moved the definitions in Part 12 of the Rule to section 1.1 of the Rule.

•

In the definition of "restricted security reorganization", we added the term "other than a restricted security".

•

In the definition of "restricted voting security":

•

In the definition of "restricted voting security":

•

in paragraph (a), add "or regulation or policy" after "statute";

•

We added the term "or regulation", immediately after "statute". Restrictions should not be permitted or prescribed by policies.

•

the reference to securities that may be "voted" does not conform to the wording in paragraph 12.1(2)(b), which also references securities that are "owned".

•

We added the term "or owned" immediately after "that may be voted".

•

We kept the proposed language in paragraph 12.1(c) of the Rule. The term "governing" is used in paragraph 1.2(1)(c) of OSC Rule 56-501.

•

In paragraph 12.1(2)(c), replace the term "governing" with the term "applicable to".

10.26: Section 12.3 of Rule published for comment

Restricted securities -- prospectus filing eligibility

Two commenters express concerns about the shareholder approval requirement.

We kept the proposed requirements. The purpose of the Rule is to codify existing rules and harmonize requirements across jurisdictions in Canada. A re-examination of the underlying principles relating to shareholder approval for restricted securities is beyond the scope of the Rule.

•

Requirement to seek approval for prospectus distribution on class basis has undesirable impact on small companies that do not meet the definition of "private issuers" and were not reporting issuers at the time of the reorganization which created the restricted securities.

Relief from the requirements for certain issuers may be appropriate depending on specific facts and circumstances. Appropriate relief will be considered on a case-by-case basis.

•

Issuance of securities is a business decision which corporate law has always recognized as within the authority of the directors of the corporation.

•

Why should issuance of securities that have less rights than the currently issued and outstanding shares be subject to shareholder approval when the issuance of the same class of shares with the same rights is not?

10.27: Section 12.3 of Rule published for comment

Restricted securities -- prospectus filing eligibility

One commenter suggests the following drafting changes:

We have the following responses to these comments:

•

In paragraph 12.3(1)(a), the reference in the first line should be to prior majority approval of the "voting" securityholders.

•

We kept the proposed language. Prior majority approval should be obtained from any securityholders of the issuer required under applicable law even if applicable law requires majority approval by "non-voting" securityholders.

•

In paragraph 12.3(1)(a), the term "control person" should be defined.

•

In paragraph 12.3(1)(a) and subparagraph 12.3(1)(b)(i), the phrase "in accordance with applicable law" does not indicate whether it would include requirements imposed by stock exchanges outside applicable law.

•

We kept the proposed language. The term "control person" is defined under provincial and territorial securities legislation.

•

In subparagraph 12.3(1)(b)(iii), the term "or business reason" should be deleted.

•

We kept the proposed language. Requirements imposed by stock exchanges outside applicable law should not affect the approval by the securityholders of the issuer in accordance with applicable law.

•

Paragraphs 12.3(2)(a) and (c) should be limited by the term "to the extent known by the issuer after reasonable inquiry" (similar to paragraph 12.3(2)(b)).

•

We kept the proposed language. We see no policy reason to delete the term "or business reason".

•

We added the term "to the extent known to the issuer after reasonable inquiry" immediately after "or notice" in paragraph 12.3(2)(a) of the Rule and immediately after "the approval" in paragraph 12.3(2)(c) of the Rule.

10.28: Sections 13.1 and 13.2 of Rule published for comment

Legend for communications during the waiting period -- legend for communications following receipt for the final prospectus

One commenter notes the term "permitted or not prohibited" as used in these sections is vague and unclear. In this respect, the commenter also notes that it is also unclear as to exactly what type of information is permitted or not prohibited under paragraph 65(2)(a) of the Securities Act (Ontario).

We deleted the term "permitted or not prohibited". Though certain sections in some of our securities acts, including the one cited by the commenter, only specify what is "permissible" during the waiting period, the prospectus requirement and the broad definition of a "trade" under securities legislation mean that other activities that constitute a trade are prohibited. The deletion of the term "permitted or not prohibited" should not be read to mean that sections 13.1 and 13.2 of the Rule permit activities that are otherwise prohibited under securities legislation.

One commenter suggests adding the term "generally" immediately after the term "as that used" in subsections 13.1(2) and 13.2(2). This would clarify that the size of text used in headings is not contemplated under these requirements.

We made the suggested changes to subsections 13.1(2) and 13.2(2) of the Rule.

10.29: Section 17.2 of Rule published for comment

Lapse date

One commenter suggests the following changes:

We have the following responses to these comments:

•

In subsection 17.2(2),

•

the term "the distribution of" should be added after "with reference to";

•

We made the suggested changes to subsection 17.2(2) of the Rule.

•

the term "that has been qualified under a prospectus," should replace the term "that is being distributed under applicable securities legislation or the Instrument".

•

In paragraphs 17.2(4)(b) and (c) of the Rule, we added the term "final" immediately after "new".

•

In paragraphs 17.2(4)(b) and (c), the term "prospectus" should expressly state whether it is a "preliminary" or a "final" prospectus, given the interpretation of the term "prospectus" under subsection 1.2(1).

10.30: Subparagraph 19.3(2)(a)(ii) of Rule published for comment

Evidence of exemption

One commenter recommends that the letter and acknowledgement be required to be filed on SEDAR.

We kept the proposed requirement. Section 31.1 of Form F1 requires disclosure of all exemptions granted to the issuer which are to be evidenced by the issuance of a receipt for the prospectus. Section 39.1 of Form F2 includes a similar requirement.

10.31: Section 20.1 of Rule published for comment

Applicable rules

One commenter asks for clarification how the Rule would apply to a distribution that was qualified by a prospectus prior to the Rule becoming effective that has not been completed at the time the Rule comes into force or to provisions relating to custodianship of portfolio assets, etc.

We added subsection 20.1(2) to the Rule to clarify that securities legislation in effect at the date of the issuance of a receipt for a preliminary prospectus applies to a distribution qualified by the preliminary prospectus and a final prospectus in certain circumstances.

11: Form F1 -- specific sections

11.1: General Instruction (9) of Form F1 published for comment

Significance

One commenter asks for clarification of how significance will be determined.

We kept the proposed requirement.

To facilitate the disclosure of certain information required under Form F1, we do not generally require it to be updated to the prospectus date. Issuers should use their judgement, however, in determining whether a change in any information required to be provided as at a date before the prospectus date is significant and should be updated.

11.2: Sections 1.1 and 1.2 of Form F1 published for comment

Required statement and preliminary prospectus disclosure

One commenter suggests that the requirement should be to state language substantially similar to that which is set out (as opposed to requiring the exact language) to accommodate multi-national and/or cross border offerings.

We kept the proposed requirement. Though the prospectus must contain the stated language, this disclosure requirement does not preclude additional language necessary for multi-national or cross border distributions. Issuers should apply for exemptive relief to be evidenced by the receipt of the prospectus if the prospectus will include language that is inconsistent with the stated language.

11.3: Section 1.1 of Form F1 published for comment

Disclosure of underwriter compensation options

One commenter suggests adding a specific requirement to disclose underwriter compensation options (similar to the requirement under subsection 1.4(8) of Form 41-501F1 Information Required in a Prospectus (Form 41-501F1)).

Underwriter compensation options must be disclosed in the table required under subsection 1.11(6) of Form F1. We added an instruction to this subsection requiring disclosure of whether the prospectus qualifies the grant of all or part of the compensation securities and providing a cross-reference to the applicable section of the prospectus where information about the compensation securities is provided.

11.4: Subsection 1.4(2) of Form F1 published for comment

Distribution

One commenter believes that it is inappropriate for this subsection to apply to securities acquired in the secondary market. If an interim misrepresentation results, this section would impose damages or rescission rights against an issuer who had received no proceeds.

We kept the proposed requirement.

At closing, the purchasers under the prospectus have no way of knowing whether they are purchasing securities under the base offering or securities that may be backed by an over-allotment option.

Accordingly, all of these purchasers should be entitled to damages against an issuer in the event of a misrepresentation in the final prospectus.

11.5: Section 1.9 of Form F1 published for comment

Market for securities

One commenter asks for clarification of whether the requirement in subsection 1.9(1) is to disclose Canadian exchanges and quotation systems only.

The requirement to identify exchanges and quotation systems is not limited to Canadian exchanges and quotation systems. Further clarification is unnecessary.

One commenter suggests that the disclosure required under subsection 1.9(3) also be provided if no market for the securities currently exists (similar to subsection 1.7(3) of Form 41-501F1).

We added the term "exists or" immediately after "distributed under the prospectus" in subsection 1.9(3) of Form F1.

11.6: Section 1.11 of Form F1 published for comment

Underwriter(s)

One commenter suggests the following changes:

We have the following responses to these comments:

•

In the first column, disclosure of any option granted by the issuer or insider of the issuer, total securities under option and other compensation securities should be limited to those that are issuable "to underwriters";

•

We added the term "to underwriter" immediately after "insider of issuer", and the term "issuable to underwriters" immediately after "under option" and "compensation securities", in the first column in subsection 1.11(6) of Form F1.

•

In the second column, replace the term "held" with the term "available".

•

We replaced the term "held" with "available" in the second column in subsection 1.11(6) of Form F1.

11.7: Section 1.13 of Form F1 published for comment

Restricted securities

One commenter suggests that the issuer should be able to describe the restricted securities by the term used in the constating documents to the extent it differs from the required restricted security term, at least once in the prospectus (similar to subsection 2.3(2) of OSC Rule 56-501).

We kept the proposed requirement. The exemption provided under subsection 2.3(2) of Rule 56-501 is set out in subsection 12.2(3) of the Rule.

11.8: Section 3.1 of Form F1 published for comment

Summary of prospectus

One commenter notes that in most circumstances none of the information appearing in a typical summary of financial information can be accurately described as "audited". The commenter suggests the addition of an instruction to Item 3, illustrating how the requirement in subsection 3.1(2) may be satisfied. For example, by specifically noting that information has been extracted from the audited financial statements of the issuer.

We kept the proposed requirement. The extraction of information from "audited" financial statements and the appropriate labelling of this information is within the purview of the Canadian Institute of Chartered Accountants.

We changed paragraph 3.1(2)(a) of Form F1 to clarify that the "source" is information that appears elsewhere in the prospectus from which the financial information is based.

One commenter asks for clarification of the "source" of the financial information required to be disclosed in subsection 3.1(2).

We kept the proposed requirement. There is no provision that permits the incorporation by reference of information in a long form prospectus prepared in accordance with Form F1.

One commenter suggests that subsection 3.1(3) should also account for information that is included by reference in the prospectus.

11.9: Section 4.2 of Form F1 published for comment

Intercorporate relationships

One commenter suggests the following changes:

We have the following responses to these comments:

•

In paragraph 4.2(2)(c), add the term "formed or organized" to account for subsidiaries that may not be corporate entities.

•

We made the suggested change. We also added General Instruction (13) to Form F1 to clarify that any disclosure requirements regarding "subsidiaries" also applies to business organizations that are not companies.

•

In subsection 4.2(4), the carve-outs should also apply if, prior to filing the prospectus, there has been a restructuring or other transaction that would result in a subsidiary not being required to be disclosed if these thresholds are calculated as of a more recent date.

•

We kept the proposed requirement. The requirement to describe intercorporate relationships is harmonized with section 3.2 of Form 51-102F2 and is not overly onerous.

11.10: Subsections 5.1(2) and (3) of Form F1 published for comment

Describe the business

One commenter suggests the disclosure required by these subsections should be limited to the extent that it is material.

We added General Instruction (14) to Form F1 to clarify that any disclosure requirement substantially similar to a disclosure requirement in Form 51-102F2 may be omitted provided that: (a) the disclosure may be omitted under Form 51-102F2; and (b) the disclosure is not necessary to provide full, true and plain disclosure of all material facts relating to the securities being distributed.

11.11: Subsection 5.2(3) of Form F1 published for comment

Three-year history

One commenter believes that issuers should not be required to disclose such forward looking information unless defences for forward-looking disclosure are made available.

We kept the proposed requirement.

Disclosure of changes in the issuer's business that the issuer expects will occur during the current financial year is fundamentally important even if defences for this forward-looking information are not available.

This same requirement is in section 5.1 of Form 41-501F1 and section 4.1 of Form 51-102F2. Section 11.1 of Form 44-101F1 generally requires an issuer to incorporate by reference the disclosure in a Form 51-102F2 into a short form prospectus.

11.12: Sections 5.3, 5.4, and 5.5 of Form F1 published for comment

Issuers with asset-backed securities, issuers with mineral projects, and issuers with oil and gas operations

One commenter suggests the disclosure required by these sections should be limited to the extent that it is material.

See our response to item 11.10, above.

11.13: Subparagraph 6.2(b)(i) of Form F1 published for comment

Use of proceeds -- junior issuers

One commenter suggests adding the term "estimated" before the term "net proceeds".

We added the term "estimated" immediately before "net proceeds in subparagraph 6.2(b)(i) of Form F1.

11.14: Subparagraphs 6.2(b)(ii) of Form F1 published for comment

Use of proceeds -- junior issuers

One commenter notes that the disclosure as at the most recent month end will not be readily available if the prospectus is filed in the beginning of a month.

We kept the proposed requirement. Providing the disclosure as at the most recent month end is not overly onerous for junior issuers.

11.15: Paragraphs 6.3(1)(a) and (b) of Form F1 published for comment

Use of proceeds -- principal purposes -- generally

One commenter suggests that the term "will" be replaced with the term "are expected to".

We kept the proposed requirement. Proceeds should be used in the manner described in the prospectus. This is consistent with the requirements under section 7.3 of Form 41-501F1.

11.16: Subsection 6.5(1) of Form F1 published for comment

Use of proceeds -- principal purposes -- asset acquisition

One commenter asks for clarification of whether the disclosure contemplated by this section is meant to include securities where the assets consist of securities.

We kept the proposed requirement. There is no policy reason to distinguish securities from other assets.

11.17: Section 6.9 of Form F1 published for comment

Use of proceeds -- Unallocated funds in trust or escrow

One commenter suggests the disclosure required by this section should be limited to apply to the extent that it is applicable (it should not apply to most issuers).

We kept the proposed requirement. General Instruction (6) of Form F1 provides that issuers do not need to reference inapplicable items and, unless otherwise required, may omit negative answers.

11.18: Subsection 8.4(1) of Form F1 published for comment

Management's discussion and analysis -- disclosure of outstanding security data

One commenter suggests that this requirement not apply if the offering consists of securities that are not voting or equity securities.

We kept the proposed requirement. Investors need outstanding share data disclosure even if the securities being distributed are not voting or equity securities. Also, the requirement is the same as the one in section 5.4 of NI 51-102, which is consistent with our objective of harmonizing the prospectus and continuous disclosure regimes.

11.19: Subsection 8.8(1) of Form F1 published for comment

Management's discussion and analysis -- additional disclosure for issuers with significant equity investees

One commenter notes that there is no definition of the term "significant equity investees".

We added a definition of "equity investee" in the Instrument and we added subsection 4.4(3) of the Companion Policy to provide further guidance as to when an equity investee is "significant". With these changes, this disclosure requirement is the same as the requirement in section 5.7 of NI 51-102, as supplemented by the guidance in section 5.4 of 51-102CP.

11.20: Section 10.3 of Form F1 published for comment

Asset-backed securities

One commenter suggests that Instruction (2) be changed to permit the most recent information on pool assets to coincide with the most recently issued financial statements of the seller of the pool of assets.

We kept the proposed requirement. There is a benefit to having the most recent financial information available and providing the information as at a date that is within 90 days of the prospectus date is not overly onerous.

11.21: Section 10.5 of Form F1 published for comment

Special warrants, etc.

One commenter notes that the disclosure contemplated by this provision apparently creates a legal remedy for a holder of special warrants in certain circumstances and questions whether the CSA has the jurisdiction to create legal remedies through disclosure required in a prospectus form.

We have rulemaking authority to adopt this disclosure requirement. We also added section 2.4 of the Rule to clarify that an issuer must not file a prospectus to qualify the conversion of a special warrant into other securities of the issuer unless purchasers of the special warrants have been provided with a contractual right of rescission not only of the holder's exercise of its special warrant but also of the private placement transaction pursuant to which the special warrant was initially acquired.

11.22: Section 10.9 of Form F1 published for comment

Ratings

One commenter suggests that disclosure should only be required if the issuer has asked for and has received any other kind of rating, including a provisional rating (carve-out should not be limited to stability ratings). Issuers should not be responsible for disclosure of ratings which are unsolicited and/or of which they may not be aware.

We added the term "is aware that it" immediately before "has received any other kind of rating" in section 10.9 of Form F1.

11.23: Subsection 12.1(1) of Form F1 published for comment

Options to purchase securities

One commenter suggests that paragraphs (a) through (e) of this subsection should clearly state that the disclosure is required without naming the individuals (similar to section 12.1 of Form 41-501F1).

We kept the proposed requirement. The disclosure under paragraphs 12.1(1)(a) through (e) of Form F1 is required to be provided "as a group".

11.24: Section 13.1 of Form F1 published for comment

Prior sales

One commenter suggests the following changes:

We have the following responses to these comments:

•

Clarify that disclosure regarding prior sales of compensation securities, such as stock options, is not required.

•

Disclosure regarding compensation securities is required. If the disclosure in section 13.1 of Form F1 is duplicative, issuers may provide a cross-reference to the section of the prospectus where such disclosure is provided.

•

The disclosure should be required of the prices at which the securities have been sold and the number of securities sold at each price, not every trade.

•

In paragraph 13.1(b) of Form F1, we added the term "at that price" immediately after "issued". We also added a requirement to disclose the date on which the securities were issued in paragraph 13.1 (c) of Form F1. This effectively requires disclosure of every trade.

•

Paragraph 13.1(a) should include a reference to securities that are to be sold by the issuer or the selling securityholder (similar to section 13.1 of Form 41-501F1).

•

In paragraph 13.1(a) of Form F1, we added the term "or are to be issued by the issuer or selling securityholder" immediately after "issued".

11.25: Subsection 14.1(1) of Form F1 published for comment

Escrowed securities and securities subject to contractual restriction on transfer

One commenter suggests that contractual restrictions should only be required to be disclosed with respect to the securities offered by the prospectus and imposed by the issuer or selling securityholder. Disclosure of contractual restrictions on transfer should expressly carve-out certain restrictions, such as those existing under pledges made to lenders.

An issuer must disclose contractual restrictions on all of its issued and outstanding securities. However, securities subject to contractual restrictions as a result of pledges made to lenders are not required to be disclosed. We added Instruction (2) to Item 14 of Form F1 to clarify this requirement. We also made consequential amendments to Item 9 of Form 51-102F2.

11.26: Section 16.3 of Form F1 published for comment

Conflicts of interest

One commenter suggests that this disclosure be limited to existing or potential conflicts of interest which are known to the issuer.

We kept the proposed requirement. Issuers should be responsible for disclosing all potential conflicts of interests.

11.27: Section 16.4 of Form F1 published for comment

Management of junior issuers

One commenter suggests the age of each member of management should not be disclosed. Such information is confidential and disclosure is not appropriate under privacy and protection of personal information principles.

We kept the proposed requirement. Junior issuers often have a limited history of operations. Management of a junior issuer is a key factor in the future success or failure of the company. Information about management's background and experience is necessary information in making a reasoned judgement about their qualification. The disclosure of the age of management is permitted under privacy and protection of personal information principles as it is material and relevant information to a purchaser making an informed investment decision.

One commenter suggests the following changes to the instructions:

•

Clarify that disclosure is required only of "executive directors" and that including employees and contractors is beyond what is commonly understood to be the management group.

We removed instruction (2) to section 16.4 of Form F1.

•

Reference to "entrepreneur" should be deleted because this term in fact best describes the occupation of some individuals.

11.28: Item 19 of Form F1 published for comment

Audit committees and corporate governance

One commenter suggests that it is not appropriate to require this disclosure in a prospectus and to subject all of those signing a certificate to prospectus liability for such disclosure.

We kept the proposed requirement. The effectiveness of an issuer's audit committee and the nature of its corporate governance practices are fundamental to an investment decision. Accordingly, the requirement for this disclosure is appropriate. There is no policy reason to distinguish this disclosure from other required prospectus disclosure.

11.29: Section 20.6 of Form F1 published for comment

Stabilization

One commenter notes that the anticipated size of any over-allocation position and the effect on the price of securities may not be known at the time this disclosure is required to be included in the prospectus.

We kept the proposed requirement. The issuer, selling securityholder or underwriter should know the nature of the stabilization transactions at the time this disclosure is required to be disclosed in the prospectus.

11.30: Section 20.7 of Form F1 published for comment

Approvals

One commenter expresses concerns about this disclosure requirement. Certain issuers will need to use funds held in trust to pay for any material licenses, registrations and approvals. Certain licenses, registrations and approvals may take many years to obtain (well beyond the time limit specified).

We changed the disclosure requirement in section 20.7 of Form F1 to harmonize with the changes to the escrow requirement in section 10.2 of the Rule, as discussed in our response to item 10.23, above.

The commenter also suggests that funds should be returned to subscribers without any interest.

11.31: Section 20.10 of Form F1 published for comment

Conditional listing approval

One commenter notes that the term "conditional listing approval" is a Canadian term and asks how it will be applied to foreign markets.

We kept the proposed requirement. Disclosure is not required if a foreign exchange has not provided a "conditional listing approval" or something substantially similar. This requirement is substantially similar to the one in section 19.9 of Form 41-501F1 and section 5.8 of Form 44-101F1.

11.32: Section 21.1 of Form F1 published for comment

Risk factors

One commenter notes that it will be difficult for trust and partnership issuers to comply with the disclosure required by subsection 21.1(2) because issues relating to trust beneficiary and partnership liability is unclear in some jurisdictions.

We kept the proposed requirement.

Many trust and limited partnership issuers have provided this risk factor disclosure in their prospectuses and annual information forms.

One commenter notes that the requirement to disclose risks in order of seriousness under the instruction to this item is not appropriate. An assessment of order of importance is highly subjective and there may be consequences to being wrong. The commenter suggests the instruction be changed to guidance in the Companion Policy.

It is important for issuers to disclose risks in their order of seriousness to emphasize the relative seriousness of each risk. Issuers may include qualifying language for risks that may change over time or where the evaluation of a particular risk is highly subjective.

11.33: Section 22.1 of Form F1 published for comment

Promoters and substantial beneficiaries of the offering

One commenter suggests the following changes:

We have the following responses to these comments:

•

Do not require this disclosure for any person or company that has been a promoter of the issuer or subsidiary of the issuer in the third year before the date of the prospectus. Currently, disclosure is required only for a person or company who has been a promoter within the past two years.

•

We changed the requirement to only require disclosure for a person or company who has been a promoter within the past two years. We also made a consequential amendment to section 11.1 of Form 51-102F2.

•

Add Ontario carve-out to requirement for disclosure from substantial beneficiary of the offering because no certificate is required in Ontario.

•

We removed the requirement to provide this disclosure for substantial beneficiaries of the offering in all jurisdictions given our decision to remove the requirement for substantial beneficiaries of the offering to provide certificates.

•

Do not require disclosure for an asset acquired in the third year before the date of the prospectus under paragraph 22.1(1)(d). Currently, disclosure is required only for an asset acquired within the past two years.

•

We changed the requirement to only require disclosure for an asset acquired within the past two years. We also made a consequential amendment to section 11.1 of Form 51-102F2.

•

The disclosure in subparagraph 22.1(1)(d)(ii) should be required only to the extent that it is applicable.

•

We kept the proposed requirement. General Instruction (6) of Form F1 provides that issuers do not need to reference inapplicable items and, unless otherwise required, may omit negative answers.

•

The disclosure required under paragraph 22.1(4)(b) should expressly exclude penalties or sanctions imposed by securities regulatory authorities relating to late SEDI filings.

•

We added Instruction (3) to Item 22 of Form F1 clarifying that a late filing fee, such as a filing fee that applies to the late filing of an insider report, is not a "penalty or sanction" for the purposes of this Item.

11.34: Section 23.1 of Form F1 published for comment

Legal proceedings

One commenter suggests replacing the term "current assets" with the term "assets" because the term current assets is too limiting and changes daily.

We kept the proposed requirement. The amount of current assets is an indicator of the liquidity of an issuer and is a more relevant measure for purposes of disclosure regarding legal proceedings. This requirement is harmonized with section 12.1 of Form 51-102F2.

11.35: Section 23.2 of Form F1 published for comment

Regulatory actions

One commenter suggests that this disclosure should only be required to the extent it is material.

See our response to item 11.10, above.

11.36: Section 24.1 of Form F1 published for comment

Interests of management and others in material transactions

One commenter suggests replacing the term "will materially affect" with the term "is reasonably expected to materially affect" because an issuer will not be in a position to know what will materially affect the issuer or a subsidiary.

We made the suggested change. We also made consequential amendments to section 13.1 of Form 51-102F2.

11.37: Section 27.1 of Form F1 published for comment

Material contracts

One commenter suggests that the disclosure required by this section be limited to material contracts entered into in the two years immediately preceding the date of the preliminary prospectus.

We changed this requirement so that it only applies to material contracts required to be filed under section 9.3 of the Rule or that would be required to be filed under section 9.3 of the Rule but for the fact that it was previously filed. Section 9.3 of the Rule generally requires the filing of material contracts entered into since the beginning of the last financial year ending before the date of the prospectus or before then if the material contract is still in effect.

11.38: Section 31.1 of Form F1 published for comment

List of exemptions from instrument

One commenter suggests adding the term "or Form 41-101F2, as applicable," immediately after "Form 41-101F1".

We kept the proposed requirement. The additional language is unnecessary because an issuer using Form F1 will not require relief from the requirements of Form F2. Also, disclosure similar to that required in section 31.1 is required under section 39.1 of Form F2.

One commenter asks for clarification of whether an issuer would be required to list exemptions granted to other parties governed by the Rule, such as underwriters, custodians, substantial beneficiaries of the offering, etc.

The requirement applies to exemptions "granted to the issuer". No further clarification is necessary.

11.39: Item 32 of Form F1 published for comment

Financial statement disclosure for issuers