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In December 2006, the Canadian Securities Administrators (CSA) published for comment proposed amendments to several national instruments and forms that would implement new requirements for forward-looking information, including future-oriented financial information (FOFI) and so-called "financial outlooks" such as earnings guidance. The proposed amendments, which are intended to improve the quality and consistency of forward-looking information, will apply to all forward-looking information (other than oral statements) regardless of where it is presented and how it is made available to the public. All requirements for forward-looking information will be placed in one regulatory instrument, National Instrument 51-102 - Continuous Disclosure (NI 51-102). Although National Policy 48 - Future-Oriented Financial Information (NP 48) will be rescinded, the proposed amendments to NI 51-102 will substantially maintain the requirements for FOFI currently contained in NP 48-extending their applicability to other types of future-oriented information, such as earnings guidance and other financial outlooks-except that the proposals will not require an auditor's report to accompany any FOFI.

The CSA last attempted to re-formulate NP 48 as a national rule in July 1997 with the publication of proposed National Instrument 52-101. The proposed rule, which never came into force, was to apply, as did NP 48, only to the dissemination of FOFI in specified offering and other disclosure documents in connection with the distribution of securities or a transaction involving an issuer. The broader scope of the current regulatory initiative likely reflects the growth over the last ten years in the practice of providing financial outlooks or guidance to the secondary market. The notice that accompanies the proposed amendments states that, while recognizing the value of forward-looking information in many circumstances, the CSA also recognize "the serious possibility that such information may mislead investors unless it is appropriately prepared and presented with full disclosure of the underlying assumptions and the associated risks".

The following is a summary of the proposed amendments.

PROPOSED AMENDMENTS TO NI 51-102 AND COMPANION POLICY 51-102CP

1. Definitions: "Forward-looking information" will be defined as "disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action and includes future-oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented as a forecast or a projection." This definition is identical to the definition of the term currently contained in the Securities Act (Ontario).

The term "financial outlook" will be defined to mean "forward-looking information about prospective results of operations, financial position and/or cash flows, based on assumptions about future economic conditions and courses of action, and not presented in the format of a historical balance sheet, income statement or cash flow statement; examples include expected revenues, net income, earnings per share and R&D spending; a financial outlook relating to earnings is commonly referred to as 'earnings guidance'."

The term "future-oriented financial information" or "FOFI" will be defined to mean "forward-looking information about prospective results of operations, financial position and/or cash flows, based on assumptions about future economic performance and courses of action, and presented in the format of a historical balance sheet, income statement or cash flow statement."

2. Application: The proposed requirements will apply to forward-looking information that is "released" by a reporting issuer other than forward-looking information contained in oral statements. Companion Policy 51-102CP - Continuous Disclosure Obligations (CP 51-102) will be amended to indicate that reporting issuers should consider broadly the various instances of forward-looking information made available to the public in considering the scope of forward-looking information that is "released". Examples include:

• information that an issuer files with securities regulators
• information contained in a press release of an issuer
• information published on an issuer's website
• information published in marketing or similar materials prepared or publicly distributed by an issuer.
• Preparation and disclosure upon initial publication: Reporting issuers will be required to have a reasonable basis for forward-looking information. CP 51-102 will indicate that, when interpreting "reasonable basis", issuers should consider both the reasonableness of the assumptions underlying the information and the process followed in preparing and reviewing such information.

Material forward-looking information will be required to include disclosure that:

1. identifies the forward-looking information as such;
2. cautions users that results will vary and identifies material risk factors that could cause actual results to differ materially from the information;
3. states the material factors or assumptions used to develop the information; and
4. identifies the issuer's policy for updating the information if it includes procedures in addition to those described under the heading "Updating" below.

The proposed disclosure requirements are based, in part, on the "safe harbour" provision contained in the December 31, 2005 amendments to the Securities Act (Ontario) which introduced statutory civil liability for misrepresentations in secondary market disclosures.

CP 51-102 will be amended to indicate that a "reasonable investor" test should be used to determine whether forward-looking information is "material": i.e., if a reasonable investor's decision whether or not to buy, sell or hold the issuer's securities would be influenced or changed if the information were omitted or misstated, then the information is likely material. Further, CP 51-102 will indicate that the required disclosure should be presented in a manner that allows an investor who reads the document containing the forward-looking information to be able to readily (i) understand that such information is provided in the document, (ii) understand the forward-looking information, and (iii) inform himself or herself of the material underlying assumptions and material associated risk factors.

In preparing FOFI or a financial outlook, a reporting issuer will be required to:

1. use assumptions that individually, and as a whole, are reasonable and appropriate;
2. limit the period covered by the FOFI or financial outlook to one for which such information can be reasonably estimated (CP 51-102 will provide that in most cases such period will not extend beyond the end of the issuer's next fiscal year);
3. use accounting policies that the issuer expects to use in preparing its historical financial statements for such period;
4. identify the date on which management approved the FOFI or financial outlook; and
5. explain the purpose for the FOFI or financial outlook and caution that such information may not be appropriate for other purposes.

4. Updating: Reporting issuers will be required to discuss in their MD&A disclosure events and circumstances that occurred during the MD&A period that are reasonably likely to cause actual results to differ materially from previously released forward-looking information, including financial outlooks, for a period that is not yet complete. Issuers will also be required to discuss the expected differences. CP 51-102 will also instruct issuers to consider whether the events and circumstances that trigger such MD&A disclosure might also trigger the material change reporting requirements under NI 51-102.

5. Comparison to actual: Reporting issuers will be required to disclose in their MD&A material differences between their actual results and any previously released FOFI or financial outlooks for the period to which the MD&A relates. The disclosure should cover differences for material individual items included in the FOFI or financial outlook, including assumptions. For example, if the actual dollar amount of revenue approximates forecasted revenue but the sales mix or sales volume differs materially from what the issuer expected, the differences should be explained.

6. Withdrawal: Reporting issuers will be required to disclose in their MD&A a decision made during the MD&A period to withdraw previously released forward-looking information and discuss the events and circumstances that led to such decision, including any underlying assumptions that are no longer valid. CP 51-102 will also instruct issuers to consider whether the events and circumstances that trigger such MD&A disclosure might also trigger the material change reporting requirements under NI 51-102.

7. No audit report on FOFI in an offering document: The CSA are proposing to remove the requirement, now in NP 48, that an auditor's report must accompany any FOFI included in a prospectus or other offering document.

8. Exemption for oil and gas and mining issuers: The proposed requirements for FOFI, financial outlooks and disclosure in MD&A relating to updating, comparison to actual and withdrawal will not apply to disclosure that is subject to the requirements in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities or National Instrument 43-101 - Standards of Disclosure for Mineral Projects or the conditions of any exemption from those instruments.

OTHER PROPOSED AMENDMENTS

Form 51-102F1 - Management's Discussion & Analysis will be amended to reflect that the requirements for forward-looking information will be in NI 51-102 itself.

In addition, the following forms will be amended to require that forward-looking information included in an offering document (prospectus, rights offering circular and offering memorandum) comply with the preparation and disclosure requirements set out in NI 51-102:

• Form 44-101F1 - Short Form Prospectus
• Form 45-101F - Information Required in a Rights Offering Circular
• Form 45-106F2 - Offering Memorandum for Non-Qualifying Issuers
• Form 45-106F3 - Offering Memorandum for Qualifying Issuers

The comment period for the proposed amendments is open until March 1, 2007. To access a copy of the proposed amendments, please click here.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

© Ogilvy Renault LLP 2007 - All Rights Reserved

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