MCMILLAN B INCH MENDELSOHN
Securities & Finance - Client Alert
October 2006
Take-over Bid Legislation in Canada
1.
1.1
What laws, regulations etc. are relevant to the making of an offer to shareholders resident in Canada and on what
exemptions could the offeror rely?
Introduction
Take-over bids in Canada are subject to provincial securities law, applicable corporate law as well as the policies of
the Toronto Stock Exchange (the “TSX”) in instances when they are conducted through facilities of the TSX or the
issuer is listed on the TSX. A tender offer that is extended to Ontario security holders of a TSX listed company
would clearly fall within the definition of a takeover bid under Ontario securities law.
The TSX rules provide that where a take-over bid is made for the securities of a listed issuer, it is the responsibility
of the target issuer to ensure that a copy of the offering circular, directors circular and all other materials sent to the
shareholders in connection with the bid are filed with the TSX either concurrently with the sending of materials to
the shareholders or as quickly as possible thereafter. The TSX must be advised as soon as possible of any amendments
to the terms of the bid in order for the TSX to have sufficient time to establish appropriate trading and settlement
rules. The TSX rules also provide that any purchase through the facilities of the TSX, that is a take-over bid, must
be carried out in accordance with the TSX rules regardless of the location of the seller.
Caution: In addition to considering Ontario securities law, if applicable, the securities legislation of any other
Canadian province in which a take-over bid is made must be consulted as securities legislation in Canada is provincially
based. Please note that the securities legislation of Quebec should be consulted if shareholders are resident in
Quebec regardless of whether the bid is made to Quebec residents. The following addresses the securities
regime of the province of Ontario only.
Please note that on April 28, 2006 the Canadian Securities Regulators published, a proposed National Instrument
62-104 Take-over Bids and Issuer Bids and Companion Policy 62-104CP, (“NI 62-104”) which will create a
harmonized take-over bid and issuer bid regime across Canada. Proposed NI 62-104 alters some aspects of the
current rules in effect in Ontario on take-over bids. It is uncertain as to when proposed NI 62-104 will come into
effect in the Canadian jurisdictions.
1.2
What Constitutes a Take-Over Bid?
“A takeover bid” is defined in Section 89(1) of the Securities Act (Ontario) (“OSA”) as:
an offer to acquire outstanding voting or equity securities of a class made to any person or company who is in
Ontario or to any security holder of the offeree issuer whose last address as shown on the books of the offeree issuer
is in Ontario, where the securities subject to the offer to acquire, together with the offeror’s securities, constitute in
the aggregate 20 per cent or more of the outstanding securities of that class of securities at the date of the offer to
acquire.
The key elements of this definition are:
• the securities subject to the bid are of a class of outstanding voting or equity securities1;
1
Securities with a right to participate in residual dissolution/liquidation of issuer.
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MCMILLAN B INCH MENDELSOHN
• offer is made is to at least one security holder who is resident in Ontario or whose the last address on the books of
the issuer is in Ontario; and
• the securities subject to the bid, together with the offeror’s securities of the issuer whose securities are subject to
the bid, total 20% of the outstanding securities of that class of securities at the date of the bid.
It should be noted that there are several factors to consider in determining whether the specific elements of the
definition are satisfied such that a take-over bid under Ontario securities law has occurred. Factors to consider
include:
1.2.1
Determining if an “Offer to Acquire” has Actually Been Made?
An offer to acquire includes:
(a)
an offer to purchase, or a solicitation of an offer to sell, securities,
(b)
an acceptance of an offer to sell securities, whether or not such offer to sell has been solicited, or
(c)
any combination of (a) and (b).
In addition, a person accepting an offer to sell is deemed to be making an offer to acquire to the person who
made the offer to sell.
1.2.2
Calculating the number of securities of the offeror in determining whether the 20%
threshold is met?
In calculating if the 20% threshold is met, the securities of the target company that are held by the offeror,
and any person “acting jointly or in concert” with the offeror, must be included. The securities held include
not only securities owned, but also securities that are “beneficially” owned, or over which control or direction
is exercised, on the date that the offer to acquire is made.
1.2.3
Determining if the securities of the target company are beneficially owned by an offeror
or someone acting jointly or in concert with the offeror?
The calculation of beneficial ownership of securities extends beyond issued securities. Securities convertible
into the class or type of security that is subject to the bid are, in the following circumstances, included in
the calculation to determine the number of outstanding securities of the class or type subject to the bid
beneficially owned by the offeror or someone acting jointly or in concert with the offeror.
The offeror or person or company acting jointly or in concert with the offeror is deemed to be the beneficial
owner of securities, if the offeror, person or company:
(a)
is the beneficial owner of any security convertible within 60 days following such date into such security,
or
(b)
has the right or obligation, whether or not on conditions, to acquire within such 60 days beneficial
ownership of the security whether through the exercise of an option, warrant, right or subscription
privilege or otherwise.
Please note that in situations where one type of security is convertible into another convertible security that is,
itself, convertible into the class of security that is subject of the bid, the first security is deemed to be convertible
into the security that is subject of the bid.
1.2.4
Determining if two are more parties are “acting jointly or in concert” to make the offer?
It is considered to be a question of fact as to whether a person or company is acting jointly or in concert with
an offeror. The types of circumstances where two are more parties are deemed to be acting jointly or in concert
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include, but are not limited to:
(c)
where a person or company, as a result of any agreement, commitment or understanding, whether formal
or informal, with (i) the offeror or (ii) any person or company, itself, acting jointly or in concert with the
offeror, acquires securities of the issuer of the same class that are subject to the offeror to acquire;
(d)
where a person or company, as a result of any agreement, commitment or understanding, whether formal
or informal, with (i) the offeror or (ii) any person or company, itself, acting jointly or in concert with the
offeror, intends to exercise jointly or in concert with (i) the offeror or (ii) any person or company, itself,
acting jointly or in concert with the offeror any voting rights attaching to any securities of the target
company; or
(e)
every associate and affiliate of the offeror.
1.2.5
Determining if a registered dealer is “acting jointly or in concert” to make the offer?
A registered dealer is not considered to be acting jointly or in concert with the offeror in connection with the
bid if the registered dealer is (i) acting solely in an agency capacity for the offeror and (ii) not executing
principal transactions for its own account in the class of securities that is subject to the bid or performing
services beyond customary dealer’s functions.
Exempted Take-Over Bids
1.3
In certain circumstances a take-over bid may be exempted under Ontario securities law with respect to specific rules
governing, among other things, delivery of bids, the requirement for circulars by an offeror commencing a bid and
by the directors of the target in response to such an offer, minimum deposit periods, withdrawal rights, when
securities must be taken up and paid for, financing of bids, offering identical consideration, increasing consideration
and varying bids. Unless one of the following exceptions applies, an offer to acquire will generally be considered to
be a formal take-over bid and subject to the specific requirements referred to above and others as described in
section 1.4 below.
1.3.1
The De Minimis Non-Resident Takeover Exemption
In certain circumstances, the De Minimus Non-Resident Takeover Exemption is available. The exemption
states that a takeover bid is exempt from the Ontario formal takeover bid requirements if:
the number of holders, whose last address as shown on the books of the target is in Ontario, of securities of
the class subject to the bid is fewer than 50 and the securities held by such holders constitute, in the
aggregate, less than 2 per cent of the outstanding securities of that class, the bid is made in compliance
with the laws of a jurisdiction2 that is recognized for the purposes of this exemption clause by the Ontario
Securities Commission (the “OSC”), and all material relating to the bid that is sent by the offeror to holders
of securities of the class that is subject to the bid is concurrently sent to all holders of such securities whose
last address as shown on the books of the target is in Ontario and filed.
The conditions to the availability of the exemption therefore are:
1.
There are a maximum of 49 resident holders of target shares.
2.
Such holders hold a maximum of 2% (less one) of the target shares.
3.
The take-over bid is made in compliance with the laws of a jurisdiction recognized by the OSC.
4.
Ontario resident holders of securities receive all material relating to the takeover bid sent by the offeror
to holders of target shares.
In some cases, the OSC can be persuaded to extend this exemption to include moderately more than 50
resident security holders or moderately more than 2% maximum holdings.
2
BOR 62-904 sets out these jurisdictions which include bids made in compliance with the Securities Exchange Act of 1934
(US) and the City Code on Take-overs and Mergers (UK).
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1.3.2
Other Take-Over Exemptions
Other exceptions that would result in an offer to acquire being an exempted take-over bid are:
(a)
Stock Exchange Bid Exemption: A bid that is made through the facilities of a stock exchange recognized by
the OSC, must comply with the takeover bid regulations of the particular exchange. For the purposes of
this exemption, the TSX, the TSX Venture Exchange and the Bourse de Montreal have been recognized
by the OSC.
(b)
Maximum 5% Exemption: If the bid is for not more than 5 per cent of the outstanding securities of a class
of securities of the issuer and,
(c)
(i)
the total number of securities acquired by the offeror and any person or company acting jointly or
in concert within any period of 12 months in reliance upon this exemption does not, when aggregated
with acquisitions otherwise made by the offeror and any person or company acting jointly or in
concert with the offeror within the same 12 month period, constitute more than 5 per cent of the
outstanding securities of that class of the issuer at the beginning of the 12 month period, and
(ii)
if there is a published market for the securities acquired, the value of the consideration paid for any
of the securities acquired is not in excess of the market price at the date of acquisition (as determined
in accordance with OSC regulations) plus reasonable brokerage fees or commissions actually paid;
Private Agreement Exemption: There is an exemption for bids to which all of the following conditions apply,
(iii) purchases are made from not more than five persons or companies in the aggregate, including
persons or companies outside of Ontario,
(iv) the bid is not made generally to security holders of the class of securities that is the subject of the
bid, and
(v)
(d)
1.4
the consideration paid for any of the securities, including brokerage fees or commissions, does not
exceed 115 per cent of the market price of the securities at the date of the bid (as determined in
accordance with OSC regulations);
Private Issuer Exemption: If the target company is not a reporting issuer, there is not a published market in
respect of the securities that are the subject of the bid, and the number of holders of securities of that
class is not more than 50, exclusive of holders who are in the employment of the target or an affiliate of
the target, and exclusive of holders who were formerly in the employment of the target or an affiliate of
the target and who while in that employment were, and have continued after that employment to be,
security holders of the target.
Requirements for Formal Take-Over Bids
In the event that none of the exemptions outlined in section 1.3 above apply, then an offer to acquire will generally
be considered a “formal take-over bid” and subject to a number of requirements that do not apply to exempt takeover bids.
Caution: The requirements applying to “formal take-over bids” but not “exempt take-over bids” are detailed in
nature and should be reviewed with Canadian counsel.
The provisions that apply to formal take-over bids include, but are not limited to, the provisions set out below in
sections 1.4.1 to 1.4.11 below.
1.4.1
Delivery of the Bid
The bid is to be made to all holders of securities (including holders of securities convertible into securities of
that class prior to the expiry of the bid) of the class that is subject to the bid who are in Ontario, and delivered
by the offeror to all holders, whose last address as shown on the books of the target is in Ontario.
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1.4.2
Minimum Deposit Period
An offeror is required to allow at least 35 days from the date of the bid during which securities may be
deposited pursuant to the bid.
1.4.3
When Taking up Prohibited
An offeror cannot take up securities deposited pursuant to the bid until the expiration of 35 days from the
date of the bid.
1.4.4
Withdrawal Rights
Securities deposited pursuant to the bid may be withdrawn by a depositing security holder (a) at any time
where the securities have not been taken up by the offeror; (b) at any time before the expiration of 10 days
from the date of a notice of change or variation, subject to the exemptions listed immediately below; and (c) if
the securities have not been paid for by the offeror within three business days after having been taken up.
Please note that the right of withdrawal conferred by paragraph (b) above does not apply (i) where the securities
have been taken up by the offeror at the date of the notice; (ii) where a variation in the terms of a bid consists
solely of an increase in the consideration offered for the securities subject to the bid and the time for deposit is
not extended for a period greater than 10 days after the notice of change or variation has been delivered; and
(iii) where the variation in the terms of the bid consist solely of a waiver of a condition of an all-cash bid.
1.4.5
Proportionate Take-Up
Where a bid is made for less than all of the class of securities subject to the bid and where a greater number of
securities is deposited than the offeror is bound or willing to acquire under the bid, the securities shall be
taken up and paid for by the offeror proportionately (disregarding fractions) according to the number of
securities deposited by each depositing security holder.
1.4.6
When Securities Must Be Taken up and Paid For
The offeror is required to take up and pay for securities deposited under the bid, where all the terms and
conditions of the bid have been complied with or waived, not later than 10 days after the expiry of the bid,
subject to the following:
(e)
any securities that are taken up by the offeror shall be paid for by the offeror as soon as possible, and in
any event not more than three business days, after the taking up of the securities; and
(f)
any securities deposited pursuant to the bid subsequent to the date on which the offeror first takes up
securities deposited under the bid shall be taken up and paid for by the offeror within 10 days of the
deposit of the securities.
1.4.7
Financing of Bid
Where a take-over bid provides that the consideration is to be paid in cash or partly in cash, the offeror shall
make adequate arrangements prior to the bid to ensure that the required funds are available to effect payment
in full for all securities that the offeror has offered to acquire.3
1.4.8
Identical Consideration
Subject to the regulations, where a take-over bid is made, all holders of the same class of securities shall be
offered identical consideration.
1.4.9
Offeror’s Circular
An offeror is required to deliver a take-over bid circular prepared in accordance with requirements of the
Securities Act (Ontario) (as described below).
3
OSC Rule 62-503 provides that the financing arrangements required to be made by the offeror prior to a bid may be subject
to conditions if, at the time the bid is commenced, the offeror reasonably believes the possibility to be remote that, if the 5
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1.4.10
Variation In Terms Of Bid
Where there is a variation in the terms of a bid, including any extension of the period during which securities
may be deposited thereunder, a notice of the variation shall be delivered to every person or company to whom
the take-over bid circular was required to be delivered and whose securities were not taken up at the date of
the variation.
1.4.11
Directors’ Circular
A directors’ circular is required to be prepared and delivered by the board of directors of the target company
to every person and company to whom a take-over bid is required to be delivered not later than 15 days after
the date of the bid (as described below). The board of directors is required to either make a recommendation
to accept or reject the take-over bid and include their reasons or make a statement that they are unable or are
not making a recommendation and include their reasons for not making a recommendation.
Commencement of Take-Over Bid
1.5
A take-over bid may be commenced either by:
(a)
delivering the bid to the applicable security holders (prepaid first class mail, personal delivery or in such
other manner as may be approved by the OSC), or
(b)
publishing an advertisement containing a brief summary of the bid in at least one major daily newspaper
of general and regular paid circulation in Ontario, or by disseminating the advertisement in a prescribed
manner if certain conditions are met, including (1) filing the bid with the OSC and delivering the bid to
the target company’s principal offices on or before the date of first publication of the advertisement; (2)
the offeror requesting from the target company a list of Ontario security holders on or before the date of
first publication of the advertisement; and (3) delivering the bid to such security holders within two
business days of receipt by the offeror of the list of Ontario security holders referred to above.
Restrictions on Acquisitions During a Take-Over Bid
1.6
Commencing on the date that an offeror makes an announcement of its intention to make a bid and until its expiry,
an offeror is restricted from offering to acquire, making or entering into any agreement, commitment or understanding
to acquire beneficial ownership of any of securities of the class that is subject to the bid otherwise than pursuant to
the bid. For greater certainty, an agreement between an offeror and a securityholder is permitted to the effect that
the securityholder will tender its securities to a formal take-over bid made by the offeror in accordance with the
terms and conditions of the bid.
Permitted Purchases During a Take-Over Bid
1.7
Despite the restrictions set out in section 1.6 above, an offeror making a take-over bid may purchase, through
the facilities of a stock exchange recognized by the OSC for such purpose, securities of the class that are subject
to the bid and securities convertible into securities of that class commencing on the third business day following
the date of the bid until the expiry of the bid, if,
(a)
the intention to make such purchases is stated in the take-over bid circular;
(b)
the aggregate number of securities acquired under this subsection does not constitute more than five
percent of the outstanding securities of that class as at the date of the bid; and
(c)
the offeror issues and files a news release forthwith after the close of business of the exchange on each day
on which securities have been purchased disclosing the information prescribed by the regulations, which
included, but is not limited to, the number of and the highest price paid for the securities by the
purchaser that day as well as the aggregate number of and the average price paid for securities purchased
through the exchange during the currency of the bid.
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1.8
Restrictions on Permitted Purchases During a Take-Over Bid
Notwithstanding section 1.7 above, unless an exemption is obtained from the OSC, the following restrictions apply
to exchange purchases during a take-over bid:
(a)
the purchases must be made in the normal course on a permitted stock exchange;
(b)
any dealer acting for the offeror does not, in regard to the purchases, perform services beyond the dealer’s
customary broker’s functions and does not receive more than the usual fees or commissions charged for
comparable services performed by the broker in the normal course;
(c)
neither the offeror nor any person or company acting for the offeror solicits or arranges for the solicitation
of offers to sell securities of the class subject to the bid, except for the solicitation by the offeror or
members of the soliciting dealer group under the take-over bid; and
(d)
the seller or any person or company acting for the seller does not, to the knowledge of the offeror, solicit
or arrange for the solicitation of offers to purchase securities of the class subject to the bid.
Integration with Pre-Bid Private Transactions
1.9
In the case of a formal take-over bid if an offeror acquired, within the 90 day period immediately preceding the bid,
beneficial ownership of securities of the class subject to the bid pursuant to a transaction not generally available on
identical terms to holders of that class of securities,
a)
the offeror shall offer consideration for securities deposited under the bid that is at least equal to the
highest consideration that was paid (on a per security basis) under any of such prior transactions or the
offeror shall offer at least the cash equivalent of such consideration; and
b)
the offeror shall offer to acquire under the bid that percentage of securities of the class subject to the bid
that is at least equal to the highest percentage that the number of securities acquired from a seller in such
a prior transaction was of the total number of securities of that class beneficially owned by such seller at
the time of the prior transaction.
Exceptions:
1.10
The pre-bid integration rules are subject to the normal course exceptions discussed in section 1.11 below.
Restrictions on Post-Bid Acquisitions
An offeror shall not acquire beneficial ownership of securities of the class that was subject to the bid by way of a
transaction that is not generally available on identical terms to holders of that class of securities during the period
beginning with the expiry of the bid and ending at the end of the 20th business day thereafter, and whether or not
any securities are taken up under the bid.
Exceptions:
1.11
The post-bid integration rules are subject to the normal course exceptions discussed in section 1.11 below.
Exceptions for Normal Course Trades
The pre-bid and post-bid integration rules (set out in sections 1.9 and 1.10 above, respectively) do not apply to
trades effected in the normal course on a published market, so long as,
a)
any broker acting for the purchaser or seller does not perform services beyond the customary broker’s
function and does not receive more than reasonable fees or commissions;
b)
the purchaser or any person or company acting for the purchaser does not solicit or arrange for the
solicitation of offers to sell securities of the class subject to the bid; and
c)
the seller or any person or company acting for the seller does not solicit or arrange for the solicitation of
offers to buy securities of the class subject to the bid.
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1.12
Sales During Bid Prohibited
An offeror is not permitted, except pursuant to the bid, to sell or make or enter into any agreement, commitment
or understanding to sell any securities of the class subject to the bid on and from the day of the announcement of
the offeror’s intention to make the bid until its expiry.
Exception: An offeror, before the expiry of a bid, may make or enter into an arrangement, commitment or understanding
to sell securities that may be taken up by the offeror pursuant to a bid, after the expiry of the bid, if the intention to sell is
disclosed in the take-over bid circular.
2.
What documents, filings etc. are required in Canada (Ontario) and what information would have to be provided
by the offeror, target in this respect?
2.1
Take-Over Bid Circular
For a formal take-over bid, the offeror must deliver, with or as part of a take-over bid, a take-over bid circular. The
take-over bid circular must be delivered to all holders of securities (including holders of securities convertible into
securities of that class prior to the expiry of the bid) of the class that is subject to the bid who are in Ontario, and
whose last address as shown on the books of the target is in Ontario.
A take-over bid circular must include the content set out as prescribed in Form 32.
The OSC has stated that the standard of disclosure in a take-over bid circular is that an omitted fact is material if
there is a substantial likelihood that a reasonable shareholder would consider it important in deciding whether to
tender their shares.
The take-over bid circular must also include a statement describing the statutory civil remedy that is available to
Ontario security holder’s rights with respect to a misrepresentation in the circular.
Furthermore, where the take-over bid involves the exchange of shares, prospectus-type disclosure will be required
with respect to the offeror or issuer whose securities are being offered.
It may be possible to use a wrapper to qualify disclosure materials provided to non-Ontario securityholders as a
take-over bid circular for Ontario securities law purposes.
Notice of Change in Information or Variation in Bid
2.2
If there is a change in information that is included in a take-over bid circular or a variation in the terms of the
bid, then there is an obligation to deliver a notice of the change or variation. This obligation to deliver a notice
of change or variation to securityholders applies during the period of a takeover bid. The obligation also applies
after the expiry of a bid but prior to the expiry of all rights of an offeree to withdraw the target shares as
described in s. 1.4.4 above.
A notice of change in respect of a take-over must contain the following information:
1.
A description of the change in information contained in the circular or of the variation in the terms of the
take-over bid or the issuer bid, as the case may be.
2.
The date of the change in the information contained in the circular or the variation in terms of the bid.
3.
The date up to which securities may be deposited.
4.
The date by which securities deposited must be taken up by offeror.
5.
The rights of withdrawal that are available to security holders.
The notice of change must also include the Form 32 certificate amended to refer to the initial circular and all other
notices of change or variation.
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A notice of variation that is delivered within 10 days of the expiration of the deposit period under the original bid
will result in an extension to the deposit period. When an extension is required, the deposit period must be
extended so that target shares may be deposited for a period of 10 days after the notice of variation has been
delivered.
2.3
Director’s Circular
A directors’ circular is required to be prepared and delivered by the board of directors of the target company to
every person and company to whom a take-over bid is required to be delivered not later than 15 days after the date
of the bid. The board of directors is required to either make a recommendation to accept or reject the take-over bid
and include their reasons or make a statement that they are unable or are not making a recommendation and
include their reasons for not making a recommendation. The director’s may indicate in their circular that they are
still considering their position, and may advise security-holders not to tender their shares until they receive a final
recommendation from the directors. This final recommendation must be made at least seven days before the bid
expires.
The director’s circular must include the content required as prescribed in Form 34.
An individual officer or director may also issue their own circular containing their own independent recommendation
as prescribed in Form 35.
3.
What impact would such compliance have on the timetable for the offer?
As stated above, an offeror is required to allow at least 35 days from the date of the bid during which securities may
be deposited pursuant to the bid. Furthermore, variations to the bid within the last 10 days of the deposit period
will extend this minimum time period.
4.
What other securities filing requirements may arise in the context of a bid?
4.1
Early Warning System
Ontario maintains an “early warning system”, which is designed to ensure that the market is advised of accumulations
of significant blocks of securities. 4 Under the OSA, persons who make significant share acquisitions are required
to provide the market with notice of certain acquisitions in order to (a) identify who may influence control of the
issuer; (b) signal a potential take-over bid, and (c) provide information that may influence investment decisions.
The basic requirements of the early warning system in Ontario is fairly straightforward. If a person or company
acquires beneficial ownership of, or the power to exercise control or direction over, voting or equity securities of any
class of a reporting issuer (Canadian public company) that would constitute 10% or more of the outstanding
securities of that class, the person or company is required to issue a press release “forthwith” and file an early
warning report within two business days thereby advising the market of the ownership or control position. The
person or company is then required to issue a press release and file a report whenever its ownership or control
position increases by 2% or more of the outstanding shares of the class. To the extent that an offeror acquires
beneficial ownership of, or the power to exercise control or direction over, the securities of a reporting issuer, the
offeror would be required to file an early warning report and issue a press release under the early warning system.
National Instrument 62-103, The Early Warning System and Related Take-over Bid and Insider Reporting Issues
provide an exemption from these early warning requirements for eligible institutional investors (“EII”). An EII is
either a financial institution, a mutual fund that is not a reporting issuer, a pension fund or an investment manager
in relation to securities over which it exercises discretion without the consent of the beneficial owner. For EIIs who
qualify, an alternative monthly reporting system exists wherein within 10 days of the end of the month in which
the EII owns or controls 10% of a class or more; the EII’s holdings increase or decrease past thresholds of 2.5% in
4
Section 101 OSA.
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excess of 10% of outstanding securities of the class; ownership decreases past 10%; or there is a change in a material
fact contained in the most recent report of the EII a report is filed.
Where a formal bid has been made for the voting securities of a target Canadian public company, any third party
offeror that acquires voting securities of the target, which when added to their existing voting securities constitute
5% or more of the securities of the same class, is required to issue a press release in the prescribed form not later than
the opening of trading on the next business day and to file the press release on SEDAR forthwith. Thereafter, the
third party offeror, on acquiring an additional 2% or more of the target's voting securities, is required to file a press
release in the prescribed form not later than the opening of trading on the next business day and to file the press
release on SEDAR forthwith.
Insider Reporting Obligations
4.2
Under the OSA a person or company who is an ‘insider’ of a reporting issuer is obliged to report each change in its
holdings of securities of that issuer.5 A person or company is an insider of a reporting issuer if they fall into one of
the following categories:
a)
every director or senior officer of a reporting issuer,
b)
every director or senior officer of a company that is itself an insider or subsidiary of a reporting issuer,
c)
any person or company that has direct or indirect beneficial ownership of , or control or direction over, or
a combination of direct or indirect beneficial ownership of or control or direction over voting securities
of a reporting issuer carrying more than 10% of the voting rights attached to all the reporting issuer’s
outstanding securities excluding for the purpose of the calculation of the percentage held any securities
held by the person as underwriter an the course of a distribution.6
Therefore, if the offeror becomes an ‘insider’ of a reporting issuer the offeror would be required to disclose their
interest in the reporting issuer through the filing of insider reports. Initial insider reports are filed electronically
on SEDI within 10 days becoming an insider of a reporting issuer. If the insider does not own or have control over
any securities of the reporting issuer when it becomes an insider it must file the initial insider report within 10 days
after making its first trade in the securities of the reporting issuer. Thereafter an insider report must be filed within
10 days of the date on which any change in its holding occurs of the acquiring the securities. Before filing reports,
insiders or their agents must register as SEDI users and create insider profiles. Insiders are responsible for filing
accurate and timely information about their transactions, including the type of security; opening balance; date of
the transaction; type of transaction, such as a buy or sell; value or number of securities involved in the transaction;
the type of currency; and, closing balance.7
4.3
Control Persons
Control persons are subject to special resale restrictions and reporting obligations beyond those that apply to
insiders. Under the OSA, a public company is considered to be “controlled” by another person or company if such
person, company or companies beneficially hold a sufficient number of any securities of that issuer to affect materially
the control of that issuer. In addition, “any person, company or combination of persons or companies holding more
than 20% of the outstanding voting securities of an issuer is, in the absence of evidence to the contrary, deemed to
affect materially the control of that issuer.”8
Section 107 OSA.
Section 1(1) “insider” or “insider of a reporting issuer” OSA.
7
Shareholders may not need to file an insider report when they file an early warning report if they can use the exemption provided
in National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Report Issues (Part 9) for
eligible institutional investors.
8
Section 1 "distribution” (c) OSA.
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6
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Special restrictions are imposed on resales by control persons unless the control person files and receives a receipt
for a prospectus. Control persons must in most cases provide special notice to the market of any intended sale of
securities through the filing of Form 45-102F1 on SEDAR at least 7 days before the first trade of the securities that
is a part of the distribution. The form must be signed no earlier than one day before the form is filed. Form 45102F1 expires 30 days from the date that the form was first filed. The control person must also satisfy certain
requirements (no unusual effort to prepare the market or create a demand for the securities; no extraordinary
commissions paid, and the control person has no reason to believe that the issuer is in default of securities legislation).
Control persons must file insider trading reports within three days of each sale of securities.9
9
Section 2.8 National Instrument 45-102 Resale of Securities
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this
material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2006 McMillan Binch Mendelsohn
LLP
For further information please contact:
Barbara Hendrickson
416.865.7903
barbara.hendrickson@mcmbm.com
M CM ILLAN B INCH M ENDELSOHN
TORONTO | TEL: 416.865.7000 | FAX: 416.865.7048
MONTRÉAL | TEL: 514.987.5000 | FAX: 514.987.1213
www.mcmbm.com
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