On January 14, 2008, the Ontario Securities Commission (the “Commission”) released its decision in AiT Advanced Information Technologies Corporation, Bernard Jude Ashe and Deborah Weinstein. Staff alleged that AiT Advanced Information Technologies Corporation (“AiT”) had breached section 75 of the Ontario Securities Act (the “Act”) and engaged in conduct contrary to the public interest by failing to disclose a merger transaction between it and 3M Company (“3M”) and that Bernard Jude Ashe (“Ashe”) and Deborah Weinstein (“Weinstein”) committed an offence pursuant to section 122(3) of the Act and engaged in conduct contrary to the public interest by authorizing, permitting or acquiescing in AiT’s failure to disclose the merger transaction as a material change.
As both AiT and Ashe had entered into settlement agreements with Staff which were approved by the Commission, the hearing dealt with only those allegations against Weinstein.
The Commission reviewed the meaning of “materiality” under the Act and confirmed the test as espoused in Re YBM Magnex et al.: “The test for materiality in the Act is objective and is one of market impact. An investor wants to know facts that would reasonably be expected to significantly affect the market price or value of securities.” The Commission also referred to the decision of the British Columbia Securities Commission (the “BCSC”) in Re Siddiqi which held that, in the circumstances of a transaction, it is necessary to look beyond the materiality of the transaction itself. The BCSC noted that in some circumstances the existence of negotiations could reasonably be expected to affect the stock price and would therefore be material. After determining that the negotiations between AiT and 3M were material in relation to AiT as a reporting issuer, the Commission considered the difference between material change and material fact in aid of its consideration of whether the negotiations constituted a material change.
In considering the distinction between material fact and material change, the Commission relied on expert reports and testimony adduced during the hearing. One such report noted that, in distinguishing material fact from material change, the Act recognized the need of issuers to keep developing transactions confidential during the course of negotiations. As such, although a negotiation may be material from an early stage and, for the purpose of insider trading laws, prohibit an individual from trading on “material facts”, this may occur well before the negotiations have reached a point of a commitment that can be characterized as a change in the issuer’s business, operations or capital and therefore a material change requiring public disclosure.
The Commission emphasized that there could be no “bright-line test” to determine whether a material change has occurred; rather that determination will depend on the circumstances and series of events occurring during the course of negotiations. It was not sufficient that the Board of Directors of AiT had agreed to pursue the potential transaction since putting the transaction into effect was not within the AiT Board’s control. A board decision to proceed “would not ordinarily be a material change in the business, operations or capital of an issuer at that point in time unless the board has reason to believe that the other party is also committed to completing the transaction …” Conversely, a signed, definitive agreement is not a prerequisite for finding that a material change has occurred. Rather, a material change will often have occurred at the point of a clear commitment by both parties to complete the transaction and/or when the parties can reasonably conclude that there is a substantial likelihood that the transaction will be completed.
Under this analytical framework, the Commission concluded that there was no material change in the business, operations or capital of AiT during the period in question, and as such the allegations against Weinstein were dismissed