Financial Statements in a Long Form Prospectus for Probable Acquisitions: Item 35.6 of NI 41-101F1 and Part 8 of NI 51-102

ABC is a Reporting, Non-Venture Issuer and Plans to Acquire XYZ: What Financial Statements of XYZ are Required in ABC’s Prospectus?

Notes:

  1. Section 8 references are to Part 8 of NI 51-102 Continuous Disclosure Obligations.
  2. Item 35 references are to Form 41-101F1 (Significant Acquisitions).
  3. For pro forma adjustments and disclosure of assumptions, see section 8.4(7).
  4. Prospectus dates refer to the preliminary prospectus and the final prospectus, i.e., timing calculations should be done for each. See Section 5.5(2) of CP41-101.
  5. Additional financial information may be needed for the prospectus to contain full, true and plan disclosure. See Section 5.7 of CP41-101.

Scenario:

  1. ABC is a reporting, non-venture issuer and plans to acquire XYZ.
  2. A reasonable person would believe that the likelihood of ABC completing the acquisition is high. (
  3. The acquisition date is treated as the prospectus date under the financial statements rules. (Item 35.6(3)(a))
  4. If the acquisition occurred on the prospectus date, it would be significant (Item 35.6(1)).
Prospectus Filing DateXYZ’s Statements of Comprehensive Income, Changes in Equity and Cash Flows XYZ’s Statements of Financial PositionXYZ’s Interim Financial StatementsPro Forma Statement of Financial PositionPro Forma Income StatementPro Forma EPS
> 45 days after the end of XYZ’s most recent interim period2 years
s. 8.4(1)(a)(i)

–> the most recently completed financial year ended on or before the prospectus date, and
–> the prior financial year
2 years
s. 8.4(1)(b)
s. 8.4(3) and 8.9

–> the most recently completed interim period (or a longer period) that ended on or before the prospectus date, and

–> for a comparable period in the preceding financial year, unless
(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation
s. 8.4(5)(a)(i)

–> as at the date of ABC’s most recent Statement of Financial Position
s. 8.4(5)(b)(i)

–> for ABC’s most recently completed
(a) financial year, and
(b) interim period that ended immediately before the prospectus date
s. 8.4(5)(c)

–> based on the pro forma income statement
< 45 days after the end of XYZ’s most recent interim period

–> and provided that XYZ’s business is not a material departure from ABC’s business

s. 8.4(4)(a) and s. 8.4(4)(c)(i)(A)
same as abovesame as aboves. 8.4(4) [and s. 8.9?*]

Optionally, instead of the above, interim financial statements

–> for the second most recently completed interim period that ended on or before the prospectus date, and
–> for a comparable period in the preceding financial year, unless*
(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation]

*Lexata note: the exception in section 8.9 does not explicitly apply to interim financial statements under s. 8.4(4), but it seems sensible to read it in
s. 8.4(6)(a)

Optionally, instead of the above,

–> as at the date of ABC’s second most recent Statement of Financial Position
s. 8.4(6)(b)

Optionally, instead of the above,

–> for ABC’s
(a) most recently completed financial year, and
(b) second most recently completed interim period that ended before the prospectus date
s. 8.4(5)(c)

–> based on the pro forma income statement
> 45 days after the end of XYZ’s most recent interim period

–> and provided that XYZ’s business is not a material departure from ABC’s business

–> and also provided that ABC has already filed a document containing XYZ’s financial statements and those statements
1. are what would have been required in a prospectus, and
2. covered XYZ’s second most recently completed interim period that ended before the prospectus date (or were even more recent)

s. 8.4(4)(a) and (c)(ii)
same as abovesame as abovesame as immediately above

same as immediately abovesame as immediately abovesame as immediately above

ABC is a Reporting, Venture Issuer and Plans to Acquire XYZ: What Financial Statements of XYZ are Required in ABC’s Prospectus?

Notes:

  1. Section 8 references are to Part 8 of NI 51-102 Continuous Disclosure Obligations.
  2. Item 35 references are to Form 41-101F1 (Significant Acquisitions).
  3. Prospectus dates refer to the preliminary prospectus and the final prospectus, i.e., timing calculations should be done for each. See Section 5.5(2) of CP41-101.
  4. Additional financial information may be needed for the prospectus to contain full, true and plan disclosure. See Section 5.7 of CP41-101.

Scenario:

  1. ABC is a reporting, venture issuer and plans to acquire XYZ.
  2. The acquisition date is treated as the prospectus date under the financial statements rules. (Item 35.6(3)(a))
  3. If the acquisition occurred on the prospectus date, it would be significant (Item 35.6(1)).
Prospectus Filing DateXYZ’s Statements of Comprehensive Income, Changes in Equity and Cash Flows XYZ’s Statements of Financial PositionXYZ’s Interim Financial Statements
> 60 days after the end of XYZ’s most recent interim period2 years
s. 8.4(1)(a)(i)

–> the most recently completed financial year ended on or before the prospectus date, and
–> the prior financial year
2 years
s. 8.4(1)(b)
s. 8.4(3) and 8.9

–> for the most recently completed interim period (or a longer period) that ended on or before the prospectus date, and

–> for a comparable period in the preceding financial year, unless
(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation.
< 60 days after the end of XYZ’s most recent interim period

–> and provided that XYZ’s business is not a material departure from ABC’s business

s. 8.4(4)(a) and (c)(i)(B)
same as abovesame as aboves. 8.4(4) [and s. 8.9?*]

Optionally, instead of the above, interim financial statements

–> for the second most recently completed interim period that ended on or before the prospectus date, and
–> for a comparable period in the preceding financial year, unless*
(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation

* Lexata note: the exception in s. 8.9 does not explicitly apply to interim financial statements under section 8.4(4), but it seems sensible to read it in

> 60 days after the end of XYZ’s most recent interim period

—> and provided that XYZ’s business is not a material departure from ABC’s business

—> and also provided that ABC has already filed a document containing XYZ’s financial statements and those statements
1. are what would have been required in a prospectus, and
2. covered XYZ’s second most recently completed interim period that ended before the prospectus date (or were even more recent)

s. 8.4(4)(a) and (c)(ii)
same as abovesame as above

same as immediately above

ABC is a Non-Reporting, Non-Venture Issuer and Plans to Acquire XYZ: What Financial Statements of XYZ are Required in ABC’s Prospectus?

Notes:

  1. Section 8 references are to Part 8 of NI 51-102 Continuous Disclosure Obligations.
  2. Item 35 references are to Form 41-101F1 (Significant Acquisitions).
  3. For pro forma adjustments and disclosure of assumptions, see section 8.4(7).
  4. Prospectus dates refer to the preliminary prospectus and the final prospectus, i.e., timing calculations should be done for each. See Section 5.5(2) of CP41-101.
  5. Additional financial information may be needed for the prospectus to contain full, true and plan disclosure. See Section 5.7 of CP41-101.

Scenario:

  1. ABC is a non-reporting issuer and plans to acquire XYZ.
  2. ABC is not an IPO venture issuer.
  3. The acquisition date is treated as the prospectus date under the financial statements rules. (Item 35.6(3)(b))
  4. If the acquisition occurred on the prospectus date, it would be significant (Item 35.6(1)).
XYZ’s Statements of Comprehensive Income, Changes in Equity and Cash Flows XYZ’s Statements of Financial PositionXYZ’s Interim Financial StatementsPro Forma Statement of Financial PositionPro Forma Income StatementPro Forma EPS
2 years
s. 8.4(1)(a)(i)

–> the most recently completed financial year ended on or before the prospectus date, and
–> the prior financial year
2 years
s. 8.4(1)(b)
s. 8.4(3) and 8.9

–> for the most recently completed interim period (or a longer period) that ended on or before the prospectus date, and

–> for a comparable period in the preceding financial year, unless

(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation
s. 8.4(5)(a)(i)

–> as at the date of ABC’s most recent Statement of Financial Position
s. 8.4(5)(b)(i)

–> for ABC’s most recently completed
(a) financial year, and
(b) interim period that ended immediately before the prospectus date
s. 8.4(5)(c)

–> based on the pro forma income statement

XYZ is an IPO Venture Issuer and Plans to Acquire XYZ: What Financial Statements of XYZ are Required in ABC’s Prospectus?

Notes:

  1. Section 8 references are to Part 8 of NI 51-102 Continuous Disclosure Obligations.
  2. Item 35 references are to Form 41-101F1 (Significant Acquisitions).
  3. Prospectus dates refer to the preliminary prospectus and the final prospectus, i.e., timing calculations should be done for each. See Section 5.5(2) of CP41-101.
  4. Additional financial information may be needed for the prospectus to contain full, true and plan disclosure. See Section 5.7 of CP41-101.

Scenario:

  1. ABC is an IPO venture issuer and plans to acquire XYZ.
  2. The acquisition date is treated as the prospectus date under the financial statements rules. (Item 35.6(3)(b))
  3. If the acquisition occurred on the prospectus date, it would be significant (Item 35.6(1)).
XYZ’s Statements of Comprehensive Income, Changes in Equity and Cash Flows XYZ’s Statements of Financial PositionXYZ’s Interim Financial Statements
2 years
s. 8.4(1)(a)(i)

–> the most recently completed financial year ended on or before the prospectus date, and
–> the prior financial year
2 years
s. 8.4(1)(b)
s. 8.4(3) and 8.9

–> for the most recently completed interim period (or a longer period) that ended on or before the prospectus date, and

–> for a comparable period in the preceding financial year, unless
(a) to a reasonable person it is impractical to present the earlier period on a basis consistent with the most recent period,
(b) the available earlier period information is presented, and
(c) the notes to the statements disclose the lack of consistent presentation


Scope of The Above Charts

Assumptions

  1. ABC and XYZ have the same financial year end. (Section 8.4(7)(c))
  2. Neither ABC nor XYZ changed its financial year end during any of the relevant periods. (Section 8.8)
  3. IFRS rules do not require ABC or XYZ to include additional information such as an Opening Statement of Financial Position or a Statement of Financial Position as at the beginning of a financial year.
  4. XYZ does not use Canadian GAAP Applicable to Private Enterprises. (Section 8.4(3.1))
  5. ABC has filed and/or included in the prospectus financial statements for at least one annual or interim period. (Sections 8.4(5)(a)(ii) and (5)(b)(ii))
  6. XYZ has completed at least one financial year. (Section 8.4(1)(a)(ii))
  7. XYZ constitutes a “business.” (Part 8 of CP51-102)

Excluded Topics*

  1. short form prospectuses
  2. oil and gas acquisitions
  3. reverse takeovers
  4. multiple acquisitions by ABC (e.g. acquisitions of related businesses or separate businesses or multiple investments in XYZ)
  5. audit requirements
  6. more recent financial information that has been filed or published in a news release (see Items 32.6 and 35.8 and the companion policy CP41-101, s. 5.2))
  7. acquisitions accounted for using the equity method (see s. 8.6)

*Lexata plans to add these topics to the charts soon.


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