Timely Disclosure

Timely Disclosure

Updates and Commentary on Current issues in M&A, Corporate Finance and Capital Markets

New Investment Dealer Prospectus Exemption Suitable for Retail Investors

Retail investors in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick (Participating Jurisdictions) now have a new option by which they can participate in private placements. The securities regulators in the Participating Jurisdictions have adopted a prospectus exemption (Exemption) that allows issuers listed on a Canadian exchange to raise money by distributing securities to retail investors, subject to certain conditions, including that the investor has received suitability advice about the investment from a registered dealer.

Prior to the adoption of the Exemption, retail investors have had limited opportunity to invest in private placements as participation is generally limited to accredited investors, insiders and friends and family. The Exemption is designed to facilitate capital raising for listed issuers by increasing the investor base through allowing participation of retail investors in private placements, while maintaining appropriate investor protection. Securities issued using the Exemption will be subject to four month hold period.

In order for the Exemption to be used, the following conditions must be satisfied:

  • the issuer must be a reporting issuer in at least one Canadian jurisdiction;
  • the issuer must have a class of securities listed (the Listed Securities) on the TSX Venture Exchange, the Toronto Stock Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc;
  • the issuer’s public disclosure documents must be current;
  • the offering must consist of the Listed Securities, a unit consisting of a Listed Security and a warrant, or a security convertible into a Listed Security;
  • the issuer must issue a news release that includes a description of the offering and the use of proceeds, discloses any material facts about the issuer that have not been generally disclosed, and includes a statement that there is no material fact or material change about the issuer that has not been generally disclosed;
  • in British Columbia, Saskatchewan, Manitoba or New Brunswick the investor must be provided with a contractual right of action for rescission or damages in the event of a misrepresentation in the issuer’s public disclosure record, regardless of whether the investor relied on that misrepresentation (investors in Alberta already have a statutory right of action under Alberta securities laws);
  • in the subscription agreement, the issuer must represent that its public disclosure record does contain any misrepresentations and that there are no material facts or changes related to the issuer that have not been generally disclosed; and
  • the investor must obtain suitability advice from a registered dealer.

The adoption of the Exemption falls in line with a recent trend demonstrated by Canadian regulators to increase the investor pool available to issuers and decrease the costs associated with accessing these investors. However, it should be noted that the Exemption is available only in the Participating Jurisdictions and is not available in Ontario. Although this limits participation by investors resident in Ontario, issuers now have another option to access retail investors resident in the Participating Jurisdictions without incurring the costs associated with a prospectus offering.

The Suncor – Canadian Oil Sands Board Demonstrates that the Board’s Recommendation Truly is a Prized Asset

Earlier this week, Suncor Energy Inc. (Suncor) and Canadian Oil Sands Limited (COS) announced that they reached an agreement whereby COS agreed to support Suncor’s offer to acquire COS for $6.6 billion (including estimated debt of $2.4 billion), representing a 12% increase in the exchange ratio from the initial offer made by Suncor for COS in early October 2015.  Initially, the COS board of directors adamantly opposed the hostile bid. However, after several bid extensions over the course of a truly hostile takeover battle lasting more than 100 days, the COS board agreed to support a sweetened offer, substantially increasing the likelihood that Suncor’s bid will be successful.

Competition by other Bidders and Target Board Support Influence Success of a Bid

Drawing on findings from our 2015 Hostile Take-Over Bid Study (Fasken Study), our previous blog post suggested that Suncor might have an uphill battle in the absence of the COS board’s support.  In that regard, we have found that the Suncor bid for COS is progressing in a manner consistent with many of the findings in the Fasken Study. On the one hand, the data in the Fasken Study revealed that a first-mover bidder was successful in 2/3 of one-on-one battles where no competition emerged.  As no competing offer emerged to challenge Suncor’s bid, this suggested that the odds were significantly in favour of Suncor to begin with; however, securing board support would appear to be even more significant.  Over the study period, bidders who ultimately won the support of the target’s board were successful in all but one case, or 98% of the time; bidders succeeded only 22% of the time without the target board’s support. And results are even more dismal for bidders offering share consideration alone (as was the case with Suncor’s bid): if the bidder failed to secure the support of the target’s board, the odds of such a bid succeeding dropped to 5%.

Over the decade covered by the Fasken Study, there were a total of 34 hostile bids in which the bidder offered only share consideration.  In 20 of those bids the support of the target’s board was not obtained and the hostile bidder acquired control of the target on only one occasion.  In the 14 bids where the support of the target’s board was obtained, control of the target was acquired by the hostile bidder in every case.


Based on the results of the Fasken Study, one might have concluded that when no competing offers for COS emerged, Suncor was at an advantage; however, given that the Suncor offer was for share consideration, obtaining the support of the COS board was arguably of critical importance.  Without the support of the COS board, Suncor was unable to generate enough support from COS shareholders to satisfy its minimum tender condition of two-thirds of the COS shares (it was reported that less than 50% of the COS shares were tendered to the bid).  Now that the Suncor bid has the support of the COS board, we anticipate that the bid will be successful.

Given the current economic environment and increased volatility in commodity prices, we may see an increase in hostile takeover bids and M&A activity.  However, companies subject to a hostile takeover bid should recognize the leverage afforded to them by the board’s recommendation while bidders would be unwise to dismiss it.

Ontario Securities Commission Proposes Whistleblower Program

The Ontario Securities Commission (OSC) has proposed OSC Policy 15-601 Whistleblower Program (Policy), which is designed to encourage individuals (whistleblowers) to report to the OSC information regarding serious misconduct related to securities or derivatives, with the prospect of receiving monetary awards in certain circumstances (whistleblower awards).

Under the Policy, any whistleblower may submit information regarding serious breaches of Ontario securities law that is not already known to the OSC and that was obtained either from (i) the whistleblower’s independent knowledge derived from his/her experiences, communications and observations or (ii) the whistleblower’s critical analysis of publicly available information (original information). Original information excludes information that is:

  • subject to solicitor-client privilege,
  • obtained in connection with the provision of legal advice to a client or employer on whose behalf the whistleblower or his/her firm acts or provides services,
  • obtained from an allegation made in a judicial, administrative hearing or enforcement matter of a securities-related self-regulatory organization, a government report, hearing, audit or investigation, or news media (unless the whistleblower is the source), or
  • in violation of applicable criminal law.

In connection with the submission of original information, the whistleblower is required to sign a declaration acknowledging that it is an offence under certain securities laws to a make a statement to the OSC that is misleading or untrue or does not state a fact that is required to make any statement not misleading, and that the whistleblower may be prosecuted for providing false or untrue information to the OSC. While this provision is intended to discourage improper or spurious submissions by a whistleblower, the requirement for this declaration could have a cooling off effect in terms of the submission of legitimate claims by adding to the angst that a whistleblower might otherwise be experiencing.

A whistleblower may submit information to the OSC anonymously only if the whistleblower is represented by a lawyer who makes the submission on his/her behalf. However, before any whistleblower award will be paid to the whistleblower, the OSC will generally require disclosure of the identity of the whistleblower. The Policy expressly provides that, while the OSC will use reasonable efforts to keep the identity of a whistleblower confidential, the OSC cannot guarantee that a whistleblower’s identity will remain confidential if requested under the Freedom of Information and Personal Protection and Privacy Act (Ontario). While the Policy also provides that the OSC expects that employers who are the subject of a whistleblower report will not retaliate against a whistleblower, there is currently no statutory power for the OSC to enforce this provision of the Policy. Accordingly, the fact that a whistleblower must expend his/her own financial resources to employ a lawyer in order to maintain confidentiality, and the limits on the OSC’s ability to protect whistleblower confidentiality and prevent employer retaliation, could also deter the submission of original information by whistleblowers.

Once a whistleblower submits original information, the Policy allows the OSC to request additional information and assistance from the whistleblower, including:

  • explanations to evaluate and use the information provided,
  • a description and precise location for documents of which the whistleblower has knowledge but not possession,
  • additional information in the whistleblower’s possession,
  • testimony at any OSC proceeding, and
  • information relating to whether the whistleblower is eligible for a whistleblower award.

The whistleblower is also expected to maintain the confidentiality of the information submitted and the fact that he/she has made a report to the OSC, as well as of any information provided to the whistleblower by the OSC. Any failure to do any of the above may result in a whistleblower being ineligible for a whistleblower award or impact the quantum of any amount that is awarded (as discussed below).

The Policy provides that voluntarily submitted original information that will be eligible for a whistleblower award will relate to a serious violation of Ontario securities laws and will be of high quality (i.e., contain sufficient timely, specific and credible facts of the alleged violation of Ontario securities law) and be of meaningful assistance to the OSC in investigating the matter and outcome. The Policy provides that all of the above criteria generally are expected to be satisfied in order for a whistleblower to be eligible for a whistleblower award.

The Policy also states that whistleblowers generally Continue Reading

Proposed Amendments to Derivatives Data Reporting

The Ontario Securities Commission (OSC) has proposed amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC 91-507).   Among other matters, the proposed amendments to OSC 91-507:

  • Eliminate the derivatives data reporting obligations if (a) the transaction is between affiliated companies; (b) each counterparty is a  local counterparty; and (3)  none of the counterparties is a derivatives dealer or recognized or exempt clearing agency or an affiliate of a derivatives dealer or recognized or exempt clearing agency;
  • Reduce certain reporting obligations of local counterparties that engage in derivatives transactions with foreign affiliates where the reporting is done in compliance with certain equivalent trade reporting law provided none of the counterparties is a derivatives dealer or recognized or exempt clearing agency; and
  • Modify the requirements for public dissemination of transaction-level derivatives data to address certain anonymity concerns.

The OSC has issued the amendment for comment.  The comment period expires February 3, 2016.

Similar amendments were proposed by the securities regulators in Quebec and Manitoba to their derivatives data reporting rules.

For further updates on derivatives data reporting, please see our bulletin Update on Derivatives Data Reporting.

Is it Really Just a Matter of Time? The Canadian Oil Sands Board is Given More Time to Find an Alternative, but its Recommendation may be its Greatest Bargaining Chip

Most of the recent headlines concerning the unsolicited takeover bid by Suncor Energy Inc. (Suncor) for Canadian Oil Sands Ltd. (COS) surround the decision of the Alberta Securities Commission (ASC) to allow COS’s tactical shareholder rights plan to remain in place until January 4, 2016.  While that decision is noteworthy on its own, what may be lost in the discussion is that the COS board has additional time to use its recommendation as a bargaining chip.

The ASC’s Decision

Following Suncor’s bid on October 5, 2015, the COS board adopted a second rights plan on top of its existing shareholder-approved plan.  The new rights plan included a 120-day permitted bid period, essentially mirroring the proposed amendments to the take-over bid regime expected to be enacted next year (Proposed Amendments).  While the ASC has yet to release its reasons for decision, it is noteworthy that, while COS will have an additional 30 days to find an alternative (bringing the total time the Suncor bid must remain outstanding to 90 days), it is apparent that the ASC was unwilling to effectively order that COS be permitted to have the full 120 days that would be the norm under the proposed new regime (as discussed in our previous blog post “New Take-Over Bid Rules Seek to Level the Playing Field…But Will Bidders Still Play?”).  That said, the 90 day period is still on the lengthier side when compared to the vast majority of prior decisions.

The Value of Rights Plans is Undisputed…

Rights plans have proven to be advantageous to buy time for the board of the target company to consider alternatives and solicit competition. In that regard, our 2015 Hostile Take-Over Bid Study (Fasken Study) released earlier this year demonstrates that where a first-mover bid faced competition, that competition emerged after the 35 day statutory minimum bid period approximately two-thirds of the time. Moreover, competition was twice as likely to emerge when a target had a rights plan.

…But the Target Board’s Support is a Prized Asset, Particularly in a Share Exchange Bid

However, COS’ rights plan may be the least of Suncor’s worries given that the COS board continues to reject Suncor’s bid. Hostile bidders have a near perfect record when securing the board’s support and fare poorly without it. The Fasken Study illustrates that where a bidder ultimately won the support of the target board, the bid succeeded in all but one contest, or 98% of the time. In contrast, a hostile bid succeeded only 22% of the time in the absence of board support. As Suncor’s bid is a share exchange bid, the stakes are even higher.  Over the ten year study period, there were a total of 34 share exchange hostile bids in which the bidder offered only share consideration and only one of those 34 bids succeeded without the support of the target board. As a result of the ASC decision, the COS board not only has more time to find an alternative, it may be able to use the continuing auction dynamic to its advantage.


Until the Proposed Amendments are in force, target companies that are subject to a takeover bid should not assume they will have the benefit of the 120-day minimum bid period before they become the law.  Similarly, bidders should be aware that regulators may uphold tactical poison pills enacted by target boards without shareholder approval beyond the customary 60 days.  The ASC decision shows that ambiguity still exists despite the Proposed Amendments and additional guidance by regulators as to how long target issuers have to respond to a bid would be worthwhile.  But more than anything, target boards should be mindful that their recommendation is truly a prized asset for the bidder.

Clarity for Issuers on Securities Class Actions Issues from Supreme Court of Canada

On December 4, 2015, the Supreme Court of Canada issued its much-anticipated decisions in CIBC v. Green (“CIBC”), IMAX v. Silver (“IMAX”), and Celestica v. Millwright Regional Council of Ontario Pension Trust Fund (“Celestica”), dismissing the appeals in CIBC and IMAX, in part, and allowing the appeal in Celestica.  Accordingly, only the cases against CIBC and IMAX will proceed.

The Supreme Court combined each of the three decisions into a single ruling, reflecting the similarities between the three underlying cases.  Each of the three cases involved class action suits for secondary market misrepresentations, each of the three cases saw the plaintiffs plead both common law and statutory causes of action, and each of the three cases required the court to resolve competing interpretations of two pieces of Ontario legislation: s. 138.14 of the Ontario Securities Act (the “OSA”) and s. 28 of the Class Proceedings Act (the “CPA”).

The Supreme Court resolved the confusion stemming from the competing interpretations of the OSA and CPA in respect of limitation periods and provided guidance with respect to the use of the doctrines of nunc pro tunc and special circumstances to remedy the expiry of limitations.  Importantly, the Supreme Court also provided guidance with respect to the threshold test for leave and confirmed the availability of certain types of common law claims in securities class actions.

Practical Implications

The practical implications of the limitation period aspects of today’s Supreme Court decision for pending and future securities class actions in Ontario are limited given the statutory amendment referred to below which renders the specific issue considered in these appeals moot.  That said, parties in a wide range of cases may be guided by the court’s application of the nunc pro tunc and special circumstances doctrines.

Beyond the limitation period issues, the decision has important implications for other pending and future actions seeking leave in Ontario.  It is now clear that plaintiffs intending to seek leave under s. 138.8 of the OSA will be required to meet the threshold for leave established by the Supreme Court in the Quebec case, Theratechnologies.  The court also left the door open to the continued inclusion of common law claims in these circumstances.  However, the decision does not address the far more difficult questions that such claims give rise to, including how and whether reliance can be established on a class-wide basis.

Leave Test and Common Law Claims

As noted above, it is the Supreme Court’s decision regarding the leave test and the availability of common law claims with respect to the CIBC case that has important implications for other pending and future actions.

The Supreme Court first addressed the defendants’ challenge to the threshold that must be met by a plaintiff applying for leave under s. 138.8 of the OSA.  138.8(1)(b) stipulates that the court must be satisfied that “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”

In rendering its decision on this issue, the Supreme Court looked to Theratechnologies Inc., v. 121851 Canada Inc.,[1] in which the court recently interpreted s. 225.4 of Quebec’s Securities Act (the “QSA”).  There, the court stated that for an action to have a “reasonable possibility” of success, there must be a “reasonable or realistic chance that [an action] will succeed” and claimants must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim”.   Commenting that there is no difference between the language of s. 138.8 of the OSA and s. 225.4 of the QSA, the Supreme Court held that the threshold test articulated in Theratechnologies applies to the OSA as well.

The Supreme Court next addressed the defendants’ argument that none of the seven issues relating to the plaintiff’s common law misrepresentation claim should be certified and that the common law misrepresentation claim itself fails the preferability analysis required under s. 5(1)(d) of the CPA.  The Supreme Court rejected this argument, noting that s. 138.13 of the OSA provides that the statutory right of action is “in addition to” other rights, and that the preferability analysis under the CPA pertains to procedure, not substantive causes of action.

Interplay Between the OSA and CPA

Much of today’s decision focused on the resolution of competing interpretations of the OSA and CPA.

Each of the plaintiffs commenced class proceedings under Section 138.3 of the OSA, which permits claims for secondary market misrepresentation.  Such claims may be commenced only with leave of the court as per s. 138.8, and only if brought within three years after the date of the alleged misrepresentations, or six months after the issuance of a news release disclosing that leave has been granted, as stipulated by s. 138.14.  Section 28 of the CPA, meanwhile, suspends a limitation for “a cause of action asserted in a class proceeding” for members of a class “on the commencement of the class proceeding.”

Reading the two acts in concert resulted in confusion over the meaning of the word “asserted” in the CPA, and whether a statutory claim for secondary market misrepresentation could be considered “asserted” even before a court granted leave to do so.  Although the Ontario legislature has since amended s. 138.14 of the OSA to suspend the limitation period on the date a notice of motion for leave under section s 138.8 of the OSA is filed, thus clearing up the confusion, this amendment came too late to affect the instant cases.

In deciding the instant cases, the Ontario Court of Appeal determined that a representative plaintiff who merely pleads an intention to seek leave as per s. 138.3 of the OSA within the limitation period has met the requirements of the CPA and will not be statute-barred.  This decision, however, was contrary to a 2012 ruling by the Ontario Court of Appeal in Sharma v. Timminco Limited.

Today, the Supreme Court rejected the more recent interpretation.  It found that the OSA is clear that “[u]nless leave is granted, a statutory action may not be commenced. . . .” and subsequently ruled that “the limitation period cannot be suspended in favour of the class members under s. 28 CPA before leave is granted.”  Barring the further considerations discussed below, this ruling would have concluded all three proceedings as statute-barred.

Nunc Pro Tunc

The Supreme Court thereafter discussed nunc pro tunc, a doctrine which permits a court to, in essence, backdate its rulings, to determine whether it could remedy the limitations expiry.  The Supreme Court commented that courts have been willing to grant nunc pro tunc orders where leave is sought within the limitation period but not obtained until after the period expires, although cautioned that such orders should not be given where they would undermine the purpose of the limitation period or the legislation at issue.

Although split on the merits of applying nunc pro tunc to the instant cases, particularly with respect to CIBC, the Supreme Court ultimately decided in favour of the CIBC and IMAX plaintiffs.  The Supreme Court limited its decision with respect to IMAX to only the defendants who were parties to the original statement of claim.  Further, the Supreme Court noted that because no motion for leave was filed before the expiry of the limitation in Celestica, a nunc pro tunc order could not provide a remedy.

Special Circumstances

The Supreme Court concluded its limitations analysis by addressing the doctrine of special circumstances, which allows a court to adjust any unjust effects of limitation periods by allowing a plaintiff to add a cause of action or a party to the statement of claim after expiry.  The Supreme Court ruled that the doctrine was of no avail to any of the plaintiffs since it could not overcome the leave requirement of s. 138.8 of the OSA.

[1] For additional information about this decision, please see the following bulletin co-authored by Fasken Partner Pierre Y. Lefebvre, who with others represented Theratechnologies before the Supreme Court: Theratechnologies’ Victory Before the Supreme Court of Canada Is a Victory for All Corporations

2016 ISS and Glass Lewis Updates

Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2016 proxy season.

The following summary outlines the significant changes made by ISS (ISS Updates) and Glass Lewis (Glass Lewis Updates) to their respective Canadian proxy advisory guidelines.


Definition of “Overboarded”. While existing overboarding thresholds will remain in place for 2016, the ISS Updates provide that beginning as of February 1, 2017, ISS will generally recommend a withhold vote for a director of a Toronto Stock Exchange (TSX) listed issuer (i) who serves as a CEO of any public company while serving on a total of more than one (down from the current two) public company boards (other than the board of the company he or she is CEO of) and any other director who serves on a total of more than four (down from the current six) public company boards; and (ii) has attended less than 75% of the board and committee meetings within the past year without a valid reason.

Externally-Managed Issuers. ISS’ current guidelines do not have a recommendation regarding externally-managed issuers. The ISS Updates set out a framework on how ISS will vote on say-on-pay resolutions or on individual directors, committee members or boards when an issuer is externally-managed and has provided inadequate disclosure about the relevant management services agreements and how senior management is compensated. The factors ISS may consider including the following:

  • the size and scope of the management services agreement;
  • comparison of executive compensation with peers;
  • overall performance;
  • related party transactions;
  • independence of board and committee;
  • existence and the process for managing of conflicts of interest;
  • disclosure and independence in the selection of the management services provider;
  • risk mitigating factors in the management services agreement such as fee recoupment mechanisms;
  • historical compensation concerns; and
  • executives’ responsibilities.

Equity Compensation Plans. The ISS Updates set out a new model for evaluating equity compensation plans of TSX listed issuers. Previously, ISS would recommend an against vote for an equity based compensation plan which had certain features which were against ISS guidelines. The new model used by ISS is a “scorecard” model that will consider a variety of positive and negative factors of the compensation plan leading to a score which will determine ISS’ recommendation. The factors considered are in three categories: Plan Cost, Plan Features and Grant Practices.

  • The Plan Cost aspect will assess the total estimated cost of the benefit plan relative to the issuer’s peers.
  • The Plan Features aspect will assess whether:
    • the plan contains change of control provisions which do not meet ISS standards;
    • the plan allows for financial assistance for the exercise of equity grants;
    • public disclosure of the full text of the benefit plan is available to shareholders; and
    • there is reasonable share dilution compared to market best practices.
  • The Grant Practices aspect considers how grants have been made in the past by the issuer including:
    • reasonable three year burn rate compared to market best practices;
    • meaningful time vesting requirements for the CEO’s most recent grant;
    • issuance of performance-based grants to the CEO;
    • a clawback provision for equity awards; and
    • post exercise or settlement shareholding requirements.

If the combination of these factors, as determined by an overall score, indicates that the plan is not in shareholders’ interests, ISS will generally recommend that shareholders vote against the plan.

ISS will continue to recommend generally that shareholders’ vote against a plan with:

  • discretionary or insufficiently limited non-employee director participation;
  • plan amendment provisions which are not in line with ISS requirements; and
  • a history of repricing options without shareholder approval.

We understand that ISS will be providing additional guidance to clarify how benefit plans will be evaluated under the new scorecard approach described in the ISS Updates.


Director Overboarding Policy – TSX Issuers.  Continue Reading

Higher Taxes for Senior Executives and Stock Options in Canada

Senior executives in Canada will pay higher taxes when the new federal government implements the Liberal campaign platform.

The platform calls for the federal personal income tax rate to be reduced for taxable income between $44,701 and $89,400 and to be increased for taxable income over $200,000.  After adding provincial tax, the top combined personal rate in Ontario, Quebec and some other provinces will exceed 50%.

The Liberal platform will also dramatically increase tax on many types of stock options.  As background, here is a simplified summary of the existing tax regime for stock options:

  • Provided certain conditions are met, the grant of a stock option is not a taxable event.
  • In most cases, the employee is taxed as having received employment income on exercise of the option, equal to the amount by which the market value of the stock at that time exceeds the exercise price (Exercise Gain). Any subsequent increase or decrease in the value of the stock is treated as a capital gain or loss, with only 50% of net capital gains being taxed as income in the year of disposition.
  • If the option is not ‘in the money’ when granted and other conditions are met, a deduction is available so that only 50% of the Exercise Gain is taxable as employment income.
  • If the issuer of the stock is a Canadian-controlled private corporation, taxation of the Exercise Gain is deferred until disposition of the stock and, if the stock is held for at least two years after exercise, only 50% of the Exercise Gain is taxable even if the option was ‘in the money’ when granted.

The Liberal platform includes the following planned changes:

Conducting an overdue and wide-ranging review of the over $100 billion in increasingly complex tax expenditures that now exist, with the core objective being to look for opportunities to reduce tax benefits that unfairly help those with individual incomes in excess of $200,000 per year.

A starting point would be to set a cap on how much can be claimed through the stock option deduction.  …  Stock options are a useful compensation tool for start-up companies, and we would ensure that employees with up to $100,000 in annual stock option gains will be unaffected by any new cap.

No further details are available at this time, but this type of change would dramatically increase tax on stock options.  For example, assume that in 2016 an employee of a public company is granted the option to buy 100,000 shares at $50 per share, when the shares trade at less than $50 per share.  After the option vests, the shares trade at $55 per share and the employee exercises the option.  The employee would have an Exercise Gain of $500,000, of which only $250,000 would be taxed in the year of exercise under the existing regime.  The planned changes could tax $450,000 instead, resulting in almost twice as much tax.  There has been no indication yet of changes in the deduction rules for the employer.

The new Finance Minister, Bill Morneau, provided reassurance on November 20, 2015 regarding existing stock options. As reported in The Globe and Mail :

“Any decision we take on stock options will affect stock options issued from that date forward,” Mr. Morneau said Friday …

“Any stock options that have been issued prior to that date will be under that taxation regime that was in effect prior to that date,” Mr. Morneau said.

Employers may wish to consider changes to the timing of their usual award of stock options.  They will also need to monitor further developments and bear the changes in mind when determining compensation for senior executives and other employees.  Alternative incentive compensation plans are available that may compare more favourably with stock option plans than in the past.

Alberta and Nunavut Propose Exemption for Start-Up Companies

On October 19 2015, the Alberta Securities Commission and the Nunavut Securities Office jointly published for comment Proposed Multilateral Instrument 45-109 Prospectus Exemption for Start-up Businesses (Proposed Exemption). The Proposed Exemption is directed principally at small and early-stage non-reporting issuers and is designed to allow them to raise a defined amount of money in a cost effective manner while still providing appropriate investor protection. The Proposed Exemption is intended to eliminate certain costs arising from the use of the National Instrument 45 -106 Prospectus Exemptions , offering memorandum exemption and is designed to work with other start-up crowdfunding exemptions.

Proposed Exemption

The Proposed Exemption requires that an offering document and report of exempt distribution be prepared and filed by an issuer through SEDAR. The offering document must contain prescribed information and each investor must sign a risk acknowledgement form. The information required in the offering document under the Proposed Exemption is more streamlined than that required under the offering memorandum exemption and financial statements are not required, which will make the Proposed Exemption more accessible to early stage issuers as they will no longer be required to rely on the offering memorandum exemption for raising capital. The Proposed Exemption provides a prospectus exemption but not a registration exemption. A person or company operating a crowdfunding portal will generally be considered a dealer and must still comply with the registration requirements.

Investment Limits

The Proposed Exemption limits the amount of money investors can invest, which varies depending on whether a registered dealer is involved in the offering. If a registered dealer is not involved, an investor may invest, in a 12 month period, up to $1,500 in a single investment or up to $3,000 in the issuer and its affiliates, including issuers engaged in a common enterprise (Issuer Group). If a registered dealer is involved, purchasers may invest, in a 12 month period, up to $5,000 in a single investment and up to $10,000 per Issuer Group.

There is a $1,000,000 lifetime limit on the amount that may be raised in reliance on the Proposed Exemption. Once an issuer has raised $1,000,000, it is presumed that an issuer should have the capacity to prepare financial statements and comply with other disclosure requirements under the offering memorandum exemption, in which case it would no longer need to rely on the Proposed Exemption.

Apart from the Proposed Exemption and other start-up crowdfunding exemptions, Canadian and U.S. Regulators have recently introduced comprehensive crowdfunding exemptions which contemplate the use of a registered portal.

Next Steps

The crowdfunding rules found in the Proposed Exemption suggest that securities regulators are receptive to the financing needs of start-up businesses. The Proposed Exemption will be a welcome addition for many early stage companies who struggle to raise capital through traditional avenues.

Comments on the Proposed Exemption are due by December 18, 2015.

Comprehensive Crowdfunding Rules Published in Final Form

On November 5, 2015 securities regulatory authorities in Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia (Participating Jurisdictions) published in final form the long awaited crowdfunding regime: Multilateral Instrument 45-108 Crowdfunding (Crowdfunding Regime) which includes a crowdfunding prospectus exemption (Crowdfunding Exemption) and a registration framework for funding portals. The Crowdfunding Regime is set to come into force in the Participating Jurisdictions on January 25, 2016.

Purpose of the Crowdfunding Regime

For many small and medium sized business enterprises (SMEs), selling securities over the internet to a large number of investors has emerged recently in some jurisdictions as the new way of accessing capital.  Through the Crowdfunding Regime, the Participating Jurisdictions intend to leverage the use of the internet and social media to facilitate online capital raises for start-ups and SMEs and provide new investment opportunities through a single funding portal. The Crowdfunding Regime maintains certain investor protections and regulatory oversight in line with the Participating Jurisdictions’ mandate to protect investors.


As previously discussed in Timely Disclosure, in December 2013 the Ontario Securities Commission (OSC) initiated a consultation process to consider various prospectus exemptions to facilitate capital raising for SMEs. On March 20, 2014 the OSC published a notice and request for comment proposing four new capital raising prospectus exemptions in Ontario, including the proposed crowdfunding regime. The OSC received 70 written submissions during the four month comment period, and the Crowdfunding Regime was published in final form on November 5, 2015.

The Crowdfunding Exemption

The Crowdfunding Exemption permits both non-reporting and reporting issuers to issue securities to investors subject to certain conditions designed to protect investors. Some key conditions are:

Issuer Limits: Issuers may use the Crowdfunding Exemption to raise no more than $1.5 million during the 12 month period prior to the end of the current offering.  Other capital raising prospectus exemptions remain available to an issuer during this period.

Investor Limits: Non-accredited investors are limited to investing up to $2,500 per investment and $10,000 per calendar year; accredited investors are limited to investing $25,000 per investment and $50,000 per calendar year. There are no investment limits for permitted clients (being individuals with net financial assets of at least $5 million or corporations with net assets of at least $25 million).

Simple Securities: Issuers can offer only non-complex securities, including common shares and preference shares (and securities convertible into such shares), limited partnership units and flow-through shares.

Disclosure Document: Issuers must prepare an offering document that contains all of the information about the issuer and its business that an investor should know before purchasing the issuer’s securities. The disclosure will take the form of 45-108F1 Crowdfunding Offering Document (Crowdfunding Offering Document).

Canadian Issuer: The issuer must be incorporated or organized under the laws of a Canadian jurisdiction and must have its head office in Canada, and a majority of its directors must be resident in Canada.

Financial Statements: Non-reporting issuers that distribute securities in reliance of the Crowdfunding Exemption must have their financial statements: (i) audited or reviewed by a public accounting firm if the cumulative amount raised under the Crowdfunding Exemption is between $250,000 and $750,000; and (ii) audited if the cumulative amount raised under the Crowdfunding Exemption is over $750,000.

Funding Portal: Issuers may distribute securities only through a funding portal that is registered as an investment dealer, exempt market dealer or restricted dealer. The Crowdfunding Offering Document and other permitted materials must be posted solely on the funding portal’s online platform.  Funding portals are restricted from offering securities of a related issuer and must fulfill certain gatekeeping responsibilities including reviewing the issuer’s Crowdfunding Offering Document prior to allowing an issuer access to the portal. In addition, the funding portal must obtain background checks on the issuer and its directors, executive officers and promoters.

Advertising and Solicitation: all relevant information about the issuer’s crowdfunding offering must be made available on the funding portal’s online platform and not on any other website. An issuer may, however, inform potential investors of its proposal to offer its securities under the Crowdfunding Exemption and refer potential investors to its online platform.

Hold Period: securities issued in reliance of the Crowdfunding Exemption will be subject to a four-month hold period if the issuer is a reporting issuer and to an indefinite hold period in the case of a non-reporting issuer.

Other North American Crowdfunding Developments


Following a consultation period held early last year, the securities regulators of British Columbia, Manitoba, New Brunswick, Nova Scotia, Québec and Saskatchewan announced on May 14, 2015 that they have implemented changes to their securities legislation to provide for registration and prospectus exemptions for start-ups and early-stage companies that wish to raise capital through crowdfunding (Start-up Exemption). The notable difference between the Start-up Exemption and the Crowdfunding Exemption is that the Start-up Exemption is available only to non-reporting issuers.  In addition, the offering limit under the Start-up Exemption is $500,000 versus $1.5 million under the Crowdfunding Exemption. There is no portal requirement under the Start-up Exemption.

The Alberta and Nunavut regulatory authorities have also published for comment a prospectus exemption to facilitate capital raising of up to $1 million for start-ups and early stage businesses. The exemption is being designed to work with the above noted start-up and crowdfunding exemptions.

United States

Finally, the United States Securities and Exchange Commission’s (SEC) much anticipated crowdfunding exemption was adopted on October 30, 2015.  The exemption, titled “Regulation Crowdfunding”, limits an issuer’s capital raise to an aggregate of US$1 million through crowdfunded offerings in a 12-month period and, in that same period, limits investors across all crowdfunding offerings to: (i) the greater of US$2,000 or 5% of the lesser of their annual income or net worth if either is less than US$100,000; or (ii) if both their annual income and net worth are equal to or more than US$100,000, 10% of the lesser of their annual income or net worth (not to exceed US$100,000 for any individual). Regulation Crowdfunding may not be used by companies who already report to the SEC, or by non-US incorporated companies. It is expected to become effective in May 2016.