Timely Disclosure

Timely Disclosure

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

Results of Gender Diversity and Term Limit Disclosure Review Released

Securities Regulatory Authorities Release Results of Gender Diversity and Term Limit Disclosure Review

Securities regulatory authorities in Ontario and nine other provinces and territories of Canada published CSA Multilateral Staff Notice 58-308 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices on September 28, 2016.  The staff notice summarizes a review of the gender diversity and term limit disclosure of 677 non-venture issuers (being those listed on the Toronto Stock Exchange with year-ends between December 31, 2015 and March 31, 2016).  As a result, these statistics do not include data regarding most banks.

Key findings of the gender diversity disclosure review include:

  • there are more women on boards than last year. Of the 215 issuers with over $1 billion market capitalization, 18% of board seats are held by women (up from 10% last year);
  • only 21% of issuers adopted a policy relating to the identification and nomination of women directors (up from 15% last year) and issuers with such a policy had higher average female board representation (18%) as compared to those with no policy (10%);
  • only 9% of issuers set a target for the representation of women on boards (up from 7% last year) and those issuers with targets had a greater number of women on their boards (25%) than those without a target (10%);
  • 66% of issuers disclosed that they consider the representation of women on their boards as part of their director identification and nominating process (up from 60% last year);
  • board and executive officer representation by women varied significantly by industry.

Key findings of the board renewal disclosure review include:

  • 20% of issuers adopted director term limits (up from 19% last year);
  • of those issuers with term limits, 48% set age limits, 23% had tenure limits and 29% had both;
  • the most common reason cited for not adopting board renewal mechanisms was that term limits reduce continuity or experience on the board.

This release follows Ontario Securities Commission Chair and CEO Maureen Jensen’s call for leadership on women on boards.  Chair Jensen highlighted the low number of women filling board vacancies.  She noted that “of the 521 board seats vacated during the year, just 15% were filled by women” and “without an improvement in the vacancy fill rate, we will never reach 30% female board representation”.

Proposed Amendments to CBCA

In addition, the Government of Canada released proposed amendments to the Canada Business Corporations Act which, among other things, would require that distributing CBCA corporations identify the gender composition of their boards and senior management and disclose their diversity policies or explain why none are in place.

Crowdfunding Prospectus Exemptions for B.C. Issuers

On May 6, 2016, the B.C. Securities Commission (Commission) adopted BC Instrument 72-505 Exemption from prospectus requirement for crowdfunding distributions to purchasers outside British Columbia (BCI 72-505).  BCI 72-505 creates an exemption from the prospectus requirement for B.C. issuers that distribute securities to purchasers resident outside of B.C. using Multilateral Instrument 45-108 Crowdfunding (MI 45-108), which has not been otherwise adopted in B.C.

To qualify for the prospectus exemption under BCI 72-505, the following conditions must be met:

  • the distribution must not be made to a purchaser resident in B.C.;
  • the purchaser must purchase the security as principal;
  • the purchaser must certify in the subscription agreement that the purchaser is not resident in B.C.;
  • the issuer must comply with the requirements of MI 45-108 in the jurisdiction where the purchaser is resident; and
  • if the issuer is concurrently offering securities to a purchaser resident in B.C. using British Columbia Instrument 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions (BCI 45-535), the issuer must provide the purchaser resident in B.C. with the same disclosure provided to purchasers in other jurisdictions under MI 45-108.

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Hemostemix Proxy Contest: Will Dissidents Succeed in Making a Clean Sweep of the Boardroom?

On August 22, 2016, a group of shareholders commenced a proxy contest to change the entire board of Hemostemix Inc. (Hemostemix), a widely-held, micro cap, clinical-stage biotechnology company (TSXV:HEM, OTCQX:HMTXF).

Hemostemix’s business activities focus on the development and planned future commercialization of ACP-01, a proprietary, blood-derived cell product designed to treat critical limb ischemia, a painful obstruction of the arteries that reduces blood flow to the extremities. Hemostemix had reached an agreement in 2014 with a contract research organization (CRO) to manage most aspects of the phase 2 clinical trial of ACP-01, but Hemostemix announced on June 28, 2016, that the CRO had terminated the agreement, and that phase 2 clinical trials would be placed on hold.

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Hostile Bid Launched Targeting Nordex Explosives Ltd.

Nordex Explosives Ltd. (Nordex), a Canadian explosives manufacturer listed on the TSX Venture Exchange, and Société Anonyme d’Explosifs et de Produits Chimiques (EPC) entered into a private placement and subsequent going private transaction on June 15, 2016. EPC was to purchase Nordex shares for $0.12 per share.

However, subsequent to Nordex’s announcement of the EPC offer, Omnia Holdings Limited, through its mining division BME (BME), issued a press release on July 14, 2016, stating its intention to make an offer to acquire all of the outstanding shares of Nordex at $0.20 per share. As a response to BME’s higher offer, on July 18, 2016, EPC increased its original offer from $0.12 to $0.18 per share.

Even though BME’s offer provided a higher premium to Nordex’s shareholders, Nordex’s Board of Directors (Nordex Board) favoured EPC’s offer as they concluded BME’s offer to be contingent upon too many conditions. Specifically, BME’s offer required two-thirds of all outstanding Nordex shares to be tendered and afforded BME with multiple avenues to cleanly walk away from the deal. As a result, the Nordex Board has taken the position that the EPC offer was in the best interest of Nordex’s shareholders as it offered greater deal certainty.

In response, BME filed a take-over bid circular on August 3, 2016 relating to a bid for all the outstanding shares of Nordex at a price of $0.22 per share. This BME offer represents a 57% premium to the closing price of Nordex shares on July 13, 2016 of $0.09 per share. The Nordex Board is currently reviewing the unsolicited offer and has urged its shareholders to take no action at this time.

Nordex will be holding an annual and special meeting of its shareholders on August 12, 2016, where its shareholders will have the opportunity to vote on the EPC offer. In order to be approved, the EPC offer will require a two-thirds majority shareholder vote.

We will continue to monitor the advancement of the BME hostile bid as we await the Nordex Board’s response in its directors’ circular and the results of the shareholder vote at the annual and special meeting of the shareholders regarding the EPC offer.

The AMF Decides Not to Offer Financial Compensation to Whistleblowers

On February 18, 2016, the Autorité des marchés financiers (AMF) announced that it will not offer financial rewards to whistleblowers who report violations of the laws administered by the AMF. This decision follows careful analysis of the measures implemented by the regulatory organizations of other jurisdictions. The AMF determined that financial rewards were not an important motivating factor for whistleblowers, and that an approach focused on protecting the confidentiality of the informants and the information they provide would achieve better results.

Results of the AMF’s Analysis

 The AMF compared the rewards-based whistleblower programs offered by the U.S. Securities and Exchange Commission and the Ontario Securities Commission with the non-rewards whistleblower programs of the U.K. Financial Conduct Authority and the Australian Securities and Investments Commission. After reviewing both quantitative and qualitative data related to these programs, the AMF found that financial incentives were not conducive to more accurate whistleblowing.

Emphasis Put on Confidentiality in Newly Launched Program

Following the February 18, 2016 announcement, the AMF launched its whistleblower program on June 20, 2016. The program again stressed that ensuring the confidentiality of the information received along with protecting whistleblowers against reprisal measures are key for informants to come forward. The AMF enacted such an orientation by setting up a secure whistleblower channel, hoping that informants will feel more secure divulging sensitive information. “Our specialized team is ready to guide whistleblowers throughout the process and ensure extra protection in the course of ensuing investigations and legal proceedings”, said Louis Morisset, AMF President and CEO.

The AMF also hopes that its anti-reprisal measures will prove effective in encouraging whistleblowers to report suspicious activities. Among other measures, the AMF is promoting immunity from civil prosecution to protect informants from liability arising from the information they report. The AMF believes such protection will lower the social and work-related consequences associated with whistleblowing.


In light of the Ontario Securities Commission’s recent decision allowing for the financial compensation of whistleblowers, we shall see what policy choice bears the most fruit. The AMF certainly hopes that its confidentiality-based approach will encourage more informants to come forward without fear of reprisal.

Market Intelligence? The Limits of Market Custom and Why Market Practice May not be Best Practice

The views expressed in this post, as in all of my posts, are mine alone and should not be taken to represent the views of Fasken Martineau DuMoulin LLP.

“That’s off market.”

As a deal lawyer, I’ve heard that phrase more times than I care to remember.  It’s supposed to be a knock-down argument.  We’re supposed to pack up our bags and go home, cease and desist from any further discussion of a deal term once our counterparty claims that it differs from what other contracting parties have customarily agreed upon.

Occasionally there’s even an element of rebuke in the claim that a term is “off market”.  The unspoken accusation is that, like neglectful schoolchildren, we simply haven’t done our homework (Tsk. Tsk.).  Basketball fans old enough to remember NBA hall-of-fame centre Dikembe Mutombo may recall the finger wag with which he habitually celebrated blocking a shot.[i]  “That’s off market” is a bit like one of Mutombo’s finger-wagging blocks: not only is the proposed deal term emphatically rejected; we’re encouraged to draw the conclusion that the proposal should never have been attempted. (Get that weak $#!+ outta here.)

I find this confounding.[ii]  Settling a dispute between contracting parties simply by reference to what other contracting parties have agreed upon in the past seems, on its face, a suspect approach to getting the right result.  We’re talking about a trend, right?  A market trend.[iii]  We’re supposed to follow the trend, without question?  I’m tempted to call that approach to contract negotiation “lemming-like”, except I’m afraid that doing so would be unfair to lemmings.[iv]

Of course, those who negotiate contracts by reference to market custom are unlikely to view the practice as mindless crowd-following with potentially undesirable consequences.  On the contrary, the intended significance of market custom is that it serves as a proxy of sorts for reasonableness.  The reasonableness of including or excluding a certain provision (or a certain form of provision) in a contract is supposed to be established by the fact that a whole bunch of other contracting parties in a broad range of circumstances have entered into contracts that include or exclude that provision (or form of provision).  By establishing reasonableness in this manner, market custom arguments tacitly appeal to our intuition that there is strength in numbers.  Surely all of those people could not have gotten things all wrong? If a majority (in some cases, a substantial majority) of other contracting parties have determined that this or that term should be included in a certain type of agreement, that’s probably sufficient evidence that it’s a reasonable result, no?

It all sounds rather plausible at first blush.  A substantial difficulty arises, however, because in attempting to establish reasonableness on the strength of brute numbers, market custom arguments become disconnected from an essential constituent element of reasonableness: namely, reason itself.  To say that X is ‘reasonable’ is to say, as the term itself suggests, that X is able to be justified by reason.  But, perversely, arguments based upon market custom increasingly surrender any supposed claim to reasonableness the more we focus on reasons and how they might influence the inclusion or exclusion of this or that term in a contract.

To see why this is so, it is helpful to remind ourselves that reasonableness depends largely on context.  Taking a crude but ready example, it is generally not reasonable to strike another person, though most would agree that it may be reasonable to do so in self-defence.  Similarly, depending upon context — in other words, depending upon the set of background facts and circumstances against which contractual negotiations take place — what might be considered reasonable in a contract negotiation will change.

Perhaps in the specific negotiation of concern to us, the Buyer (say, of a privately-owned operating gold mine) under an Asset Purchase Agreement is paying a bargain basement purchase price, representing a significant discount to what a DCF analysis would suggest is the fair price.  It would not be unreasonable in those circumstances for the Seller to expect the Buyer — indeed, the Buyer will be economically motivated (given the value it is getting and the reasonable expectation that there would be other interested purchasers at the discounted price) — to content itself with a less comprehensive set of contractual protections than might be customary.  Far from unreasonable, in fact, this makes perfect sense since the risk of value diminution in the asset, which the Buyer might otherwise feel compelled to minimize by contract, has already been minimized by the discounted price being paid (it may even have been accounted for in arriving at the discounted price).

Or maybe price paid is not the salient feature of our fact scenario, but rather the jurisdiction in which the operating mine is located.  Let’s say it’s located in an especially high-risk political environment, perhaps a country whose government has a history of expropriating assets or enforcing an investor-hostile foreign exchange regime with significant penalties for non-compliance.  In that case, barring a scenario like the one we just considered in which the risk has already been factored into a discounted purchase price (and in many cases the risk, albeit material, may be not be readily quantifiable such that this is not practicable), it would be entirely reasonable for the Buyer to expect, and for the Seller to expect to have to provide, additional contractual protections, over and above those customarily seen in asset purchase transactions, to reflect the amount of political risk the Buyer is prepared to take on, both during the period between signing and closing[v] and during the post-closing period[vi].

As the surrounding context changes, in other words, our reasons for insisting upon/against, or for accepting/rejecting, certain contractual provisions also change.

Arguments based on market custom, however, are typically insensitive to contextual distinctions and the variations they produce in what may be considered reasonable.  They typically tell us, not what other contracting parties in circumstances substantially similar to ours have agreed upon but, what has most commonly been agreed upon by a much larger population of contracting parties, many of which were negotiating in contexts quite different from our own.

“67% of all M&A purchase and sale agreements involving privately owned targets[vii]include (or exclude) such and such a provision.”  Before reacting to that sort of statement (Oh my!  Sounds like a decisive majority…), don’t we first need to know that those agreements were negotiated in circumstances substantially similar to our own such that they reflect a standard of reasonableness appropriate to us?  Of what relevance is it to us that most M&A purchase and sale agreements involving privately owned targets do not include specific indemnities for environmental costs, for example, if most of those agreements do not involve the sale of a mine (or another environmentally taxing asset or business)?

You may wonder at this point whether I’m merely identifying a problem with ‘market’ definition.  Perhaps we can adjust for the context insensitivity of market custom arguments simply by specifying the relevant market with greater precision.  Thus, instead of comparing our Asset Purchase Agreement to all M&A purchase and sale agreements involving a privately-owned target, we might further specify ‘the relevant market’ so that it includes only asset purchase agreements (adding deal structure context) for the purchase and sale of operating mines (adding industry and development stage context) located in high-risk political environments (adding geographic/political context) at a significant discount to fair value (adding pricing context).  That certainly provides a fair amount of context and gives us a higher degree of confidence that the agreements from which we are proposing to take guidance were struck in a set of circumstances comparable to our own.

Unfortunately, however, the addition of context sensitivity to a market custom argument comes at the expense of its persuasiveness, attenuating its claim to reasonableness.  That’s because the increased focus on context has the result of shrinking the relevant market.  There are, logically, fewer asset purchase agreements than M&A purchase agreements of any form whatsoever, and fewer still that relate to the sale of mining assets, and even fewer that relate to the sale of operating mines, and so on.  At some point, the addition of context circumscribes the universe of comparable agreements, or ‘the relevant market’, so tightly that a market custom argument loses much, if not all, of its strength in numbers.  But, of course, such arguments rely upon strength in numbers for their claim to reasonableness and, consequently, their persuasiveness.  Being told that 67% of agreements in the relevant market include (or exclude) this or that provision is far less compelling — it’s far less persuasive; it provides far less evidence of reasonableness — when ‘the relevant market’ comprises only three agreements than when it comprises 50.

This is obviously a quirky result.  It demonstrates that Continue Reading

First Hostile Takeover Bid Launched Under New Canadian Regime

As a follow up to our previous post “Time will tell if the timing’s right: CSA adopt the most sweeping changes to the Canadian take-over bid regime in a generation” we are reporting on the first hostile take-over bid of a Canadian reporting issuer launched under the new rules that came into effect on May 9, 2016.  On July 8, 2106, Hecla Mining Company filed a take-over bid circular relating to a bid for all of the outstanding shares of Dolly Varden Silver Corporation, a TSX Venture Exchange listed issuer.

We will be monitoring the advancement of Hecla’s hostile bid with the hope that some of the questions that have been raised by the recent amendments will be answered.  At this time, it appears that Hecla has applied to the BC Securities Commission to cease trade a private placement by Dolly Varden, announced following Hecla’s press release regarding its intention to make the hostile bid, on the grounds that the private placement is an inappropriate defensive tactic. It will be particularly interesting to see how the regulators will respond to this or any other alleged defensive tactics of Dolly Varden under the new rules.

Hecla’s hostile bid meets the requirements of the new regime for a 50% minimum tender requirement and a minimum bid period of 105 days, subject to the board of directors of Dolly Varden shortening such period. The board of directors of Dolly Varden is required to respond by filing a Directors’ Circular within 15 days of the bid commencement.

CSA Propose to Significantly Increase Obligations of Registrants in Canada

The best interest standard for registrants has been on the Canadian Securities Administrators’ (CSA) radar for the past few years. On October 25, 2012, the CSA published CSA Consultation Paper 33-403 The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients. On December 17, 2013, the CSA published CSA Staff Notice 33-316 Status Report on Consultation under CSA Consultation Paper 33-403: The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients. However, the CSA ended up concluding that more work was needed.

Recently, the CSA released Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisor, Dealers, and Representatives Towards Their Clients (Consultation Paper), which proposes to impose higher duties on all dealers, advisers, and representatives (Registrants), including those who are members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). The proposed changes concern two key areas: the Best Interest Standard and Targeted Reforms. The Consultation Paper also highlights the split at the CSA on how to improve the relationship between clients and Registrants.

Best Interest Standard

The introduction of a Best Interest Standard would mean that all obligations which the Registrant has to the client must be carried out with a view to the best interests of the client. Specifically, a regulatory best interest standard would require that a registered dealer or registered adviser deal fairly, honestly and in good faith with its clients and act in its clients’ best interests and exercise the degree of care, diligence and skill that a reasonably prudent person or company would exercise in the circumstances. In complying with the standard of care, Registrants would be guided by the following principles:

  1. Act in the best interests of the client
  2. Avoid or control conflicts of interest in a manner that prioritizes the client’s best interests
  3. Provide full, clear, meaningful and timely disclosure
  4. Interpret law and agreements with clients in a manner favourable to the client’s interest where reasonably conflicting interpretations arise
  5. Act with care

According to the Consultation Paper, any best interest standard would be formulated as a regulatory conduct standard and not as a restatement of a fiduciary duty.

CSA jurisdictions split on support for Best Interest Standard

The CSA is split on whether the Best Interest Standard is appropriate for Registrants. Ontario and New Brunswick strongly support the introduction of the Best Interest Standard. Conversely, British Columbia is opposed to such a strict regulatory standard. In the middle of the spectrum, there is Alberta, Quebec, Manitoba, and Nova Scotia, who are not entirely on board with the idea, but are willing to receive and review comments on the proposed new standard.

Ontario and New Brunswick believe that introducing the Best Interest Standard would materially enhance the effectiveness of the reforms and strengthen the foundation of the Registrant-client relationship. These two jurisdictions believe that the Best Interest Standard would have a number of benefits, such as guiding Registrants in the interpretation of specific obligations and addressing issues that arise out of novel situations.

Meanwhile, Alberta, Quebec, Manitoba, and Nova Scotia are consulting on the Best Interest Standard. However, these provinces have expressed strong reservations regarding the actual benefits of the introduction of an overarching Best Interest Standard above the Targeted Reforms and have fears that such a standard of conduct will lead to a host of unexpected issues.

Saskatchewan is interested in receiving and reviewing all comments on the proposed standard with a view to the fact that the new standard will have a significant regulatory impact.

British Columbia is firmly opposed to an over-arching Best Interest Standard, arguing that the proposed Target Reforms will do an adequate job of strengthening the standards of conduct and advancing investors’ best interests. British Columbia argues that imposing a Best Interest Standard will exacerbate one of the key concerns regarding investor protection, i.e., clients mistakenly believing Registrants are acting in their Best Interests in all situations when, in fact, certain fundamental conflicts between Registrants and their clients will continue to exist and be permitted. Furthermore, British Columbia believes that an overarching Best Interest Standard is vague and unclear and will lead to more uncertainty for Registrants.

If the Best Interest Standard is introduced, there is the obvious concern among Registrants, particularly in relation to litigation/civil liability in respect of negligence claims. In addition, Registrants would have to overhaul their businesses in order to comply with the new requirements, thereby increasing their compliance and training costs. These costs would likely have to be passed onto clients.

Targeted Reforms

The Targeted Reforms would require amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and have been introduced as a separate proposal from the Best Interests Standard. This will allow the Targeted Reforms to potentially be adopted even if the more stringent Best Interest Standard is rejected.

The Targeted Reforms would significantly increase the duties of Registrants in the following key areas:

  • Conflicts of Interest – General Obligations: Registrants would need to respond to material conflicts of interest in a manner that prioritizes the interests of the client ahead of the interests of the firm and/or representative. Disclosure of a conflict of interest to a client would need to be “prominent, specific and clear.”
  • Know Your Client (KYC) and Know Your Product (KYP): In terms of KYC, Registrants would be required to maintain up-to-date information regarding client needs and goals, financial circumstances, and risk appetites. In regards to KYP, Registrants would be required to understand the product strategy, features, structure, risks, and costs of each product offered by their firm, the differences between products, and the performance of the product, client account, and investment strategy after deduction of all associated fees, costs and charges.
  • Suitability: Registrants would be required to analyze investment strategy suitability, financial suitability, and product selection suitability in compliance with specific criteria every time they make a recommendation concerning or accept a client instruction to buy, sell, hold or exchange a security, or to make a purchase, sale, hold or exchange of a security for a managed account. Where an unsuitable investment is identified within an account, the Registrant would be required to take appropriate measures to ensure the client receives advice considering the client’s investment needs and objectives, risk profile, and other particular circumstances (for example, an appropriate measure or course of action may include contacting the client in a timely manner to recommend changes). Currently, suitability focuses on trades; Registrants are not required to conduct a suitability analysis for a recommendation or decision to hold or exchange securities.
  • Relationship disclosure: Registrants would be required to disclose the nature of the Registrant-client relationship in terms the client can easily grasp. Registrants would have increased disclosure obligations at the time a client opens an account. Registrants would be required to state whether they have a proprietary or mixed/non-proprietary product list.
  • Proficiency: Representatives would have to meet more stringent proficiency requirements, including standards that explicitly incorporate the knowledge elements required for compliance with the proposed targeted reforms, including that all representatives must generally understand the basic structure, features, product strategy, costs and risks of all types of securities, such as equities, fixed income, mutual funds, other investment funds, exempt products, and scholarship plan securities.
  • Titles: Registrants would be required to use prescribed business titles for all client-facing representatives.
  • Professional designations: Stricter rules would apply to the use of professional designations (i.e., credentials that are used to indicate that the individual has specialized knowledge or expertise in an area gained through education and/or experience).
  • Role of the Ultimate Designated Person (UDP) and Chief Compliance Officer (CCO): NI 31-103 would be amended to describe the duties and obligations of the UDP and CCO in greater detail.
  • Statutory Fiduciary Duty When Client Grants Discretionary Authority: Existing securities legislation in British Columbia, Saskatchewan, Ontario, Québec, Nova Scotia, Prince Edward Island, Nunavut, Yukon, and the Northwest Territories would be amended to introduce a statutory fiduciary duty for registrants when they manage the investment portfolio of a client through discretionary authority granted by the client.

In connection with the Best Interest Standard and the Targeted Reforms, the CSA set out specific consultation questions and are seeking input on both the proposals. Comments on the Consultation Paper may be submitted until August 26, 2016.

Proposed Amendments to TSX Company Manual

At the end of May 2016, the TSX published for comment proposed amendments to the TSX Company Manual (Company Manual) 1) introducing website disclosure requirements for TSX-listed issuers; and 2) amending disclosure requirements regarding securities-based compensation arrangements (Arrangement) including the introduction of Form 15 – Disclosure of Security-Based Compensation Arrangements.

Website disclosure

The TSX is proposing that listed issuers will be required to maintain a publicly accessible website posting current copies of:

  • Constating documents
  • Corporate policies that impact meetings of securityholders and voting (e.g., maj voting policy, advanced notice bylaw)
  • Securityholder rights plans
  • Security-based compensation arrangements
  • Certain corporate governance documents (e.g., codes of conduct and ethics, whistleblower policies, governance policies, enviro policies, board mandates, position descriptions)

Although the majority of these documents can be (or at least should be) found on SEDAR, as the TSX points out, it is not always obviously apparent where these documents are under an issuer’s SEDAR profile, and categorization may differ from issuer to issuer. Moreover, the TSX has further noted that not all of an issuer’s corporate governance policies would need to be on SEDAR under securities law requirements.

As for the webpage itself, the only requirement of the TSX is that the website containing the documents be “easily identifiable and accessible from the issuer’s home page or investor relations page”. Note to issuers that share a webpage with other issuers: each issuer should have a separate, dedicated webpage on the website.

The TSX notes that the amendments reduce an issuer’s annual disclosure obligations for majority voting policies, as annual disclosure of this policy in a circular will no longer required be. However, query whether in practice this will really reduce disclosure obligations, as issuers will still likely need to provide shareholders with full voting particulars in the circular; the TSX itself acknowledges this reality.

Lastly, and importantly for any issuers who are foreign issuers or listed on multiple exchanges, there is no carve out currently proposed for foreign issuers or deferral to the requirements of another exchange for inter-listed issuers.

Proposed amendments to Part 6 of the Company Manual re security based compensation arrangements and introduction of form 15

The disclosure requirements regarding securities-based compensation arrangements are currently found in various sub-sections of section 613 of the Company Manual and, until now, a comprehensive list of such requirements has not been available.

Enter the proposed Form 15 – Disclosure of Security-Based Compensation Arrangements. Essentially, the Form 15 provides a checklist of disclosure required in circulars in respect of securities-based compensation arrangements in one place. This should be helpful for issuers who would like to assess in the most efficient manner whether their disclosure meets TSX requirements.

Note, however, that the Form 15 is not just a straight ‘cut-and-paste’ of the existing requirements . As the TSX has expressed, the proposed modified requirements seek to 1) modernize disclosure rules to account for the fact that securities-based compensation arrangements have moved past the traditional form of ‘common stock option plan’; and 2) remove requirements that were duplicative, i.e., those that already exist under securities law disclosure rules.

For example, in respect of 1), the proposed amendments require the continued disclosure of the number of awards currently outstanding under an Arrangement; however, the disclosure requirement has been modified to further require that if the award includes a multiplier, the maximum payout under the multiplier must be used to calculate the number of listed securities issuable under the award. In respect of 2), the following disclosure will be no longer be required under the proposed amendments: (i) maximum securities available to insiders; (ii) maximum securities available to one person or company; (iii) method for determining exercise price; (iv) method for determining purchase price; (v) formula for calculating market appreciation of stock appreciation rights (SARs); (vi) ability to transform stock options into SARs involving issuance of securities from treasury; (vii) term; (viii) causes of cessation of entitlement and effect of employee termination; (ix) assignability; (x) procedure for amending; (xi) financial assistance; and (xii) entitlements previously granted but subject to security holder ratification.

Note also that most (but not all) of the proposed circular disclosure requirements are applicable both in cases of plan renewal (generally every three years for a rolling plan), and in years when shareholders will not be voting on the plan.

The TSX has posed a (very helpful) chart summarizing the current disclosure vis a vis the proposed disclosure (scroll about a third of the way down the page to access):

The comment period on both of these proposed amendments is open until June 27, 2016.

Canadian Securities Administrators Implement Harmonized Report of Exempt Distribution

On April 7, 2016, the Canadian Securities Administrators (CSA) published amendments (Amendments) to the reporting requirements in National Instrument 45-106 Prospectus Exemptions (NI 45-106).  The amendments were previously published for public comment on August 13, 2015.  Concurrently, the CSA published CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under 45-106 (CSA Notice 45-308) which provides helpful information for industry participants in navigating through the Amendments which come into force on June 30, 2016.


Current Reporting Forms

The reporting forms required to report an exempt distribution presently consist of two forms, being Form 45-106F6 British Columbia Report of Exempt Distribution (Form 45-106F6) which is used for distributions in British Columbia and Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) which is used for distributions in all other Canadian jurisdictions.  Issuers who meet an exemption under BC Instrument 45-533 may file a Form 45-106F1 in British Columbia instead of filing a Form 45-106F6.

As described below, the amendments replace Form 45-106F1 and Form 45-106F6 with a single, new Form 45-106F1 (New Form 45-106F1).

Current Filing Systems

Form 45-106F1 or Form 45-106F6, as applicable, are filed with the British Columbia Securities Commission (BCSC) through the BCSC eServices website and issuers are required to have a profile created on the BCSC eServices system before a filing can be completed.  Issuers who have a System for Electronic Document Analysis and Retrieval (SEDAR) profile automatically have a profile existing in BCSC eServices.  Issuers who do not have a SEDAR profile are required to submit a profile form to the BCSC to create their profile on BCSC eServices at least 24 hours before they can submit the reporting form.  BCSC eServices requires the filer to enter a few pieces of information from the Form 45-106F1/F6 into certain fields on the eServices submission page before attaching the reporting documents and completing the submission.  The Form 45-106F1 or Form 45-106F6 is typically populated in Word format, and then converted into PDF format before being uploaded to BCSC eServices.  In addition, the schedules to Form 45-106F1 and Form 45-106F6 are removed and filed as separate PDF documents.

Form 45-106F1 filings with the Ontario Securities Commission (OSC) are filed through the OSC’s Electronic Filing Portal (OSC Portal).  Unlike the BCSC eServices system, the OSC Portal does not require a profile to be created by an issuer in order to make a filing.  Also unlike the BCSC eServices system, where only a few pieces of information need to be entered into the submission page, the submission on the OSC Portal requires the filer to enter every piece of information in the entire Form 45-106F1 onto the submission page.  In addition, Schedule I to Form 45-106F1 must be completed in Excel format and uploaded to the submission page.  The Form 45-106F1 is typically originally populated in Word format, the Schedule I information is populated a second time in Excel format, and the filer populates the Form 45-106F1 in its entirety again electronically on the OSC Portal.  If the Form 45-106F1 is being filed only in Ontario, a filer may draft the Form 45-106F1 in the OSC Portal and the Excel version of Schedule I and forgo the creation of the Word version.

Currently, Form 45-106F1 filings in all other Canadian jurisdictions simply require the executed Form 45-106F1 to be mailed to the securities commission.  On May 24, 2016 the CSA will require the filing of Form 45-106F1 through SEDAR, subject to an exemption for foreign issuers outlined below.

Amendment Details

Investment Fund Filing Deadline

The amendments have changed the annual reporting deadline for investment funds to January 30 for the reporting of all distributions in the previous calendar year made using the exemptions in sections 2.3, 2.10 and 2.19 of NI 45-106.  Currently, investment funds have until 30 days after the end of the investments fund’s financial year.  The CSA have provided a transition period to allow investment fund issuers that file annually to file the current Form 45-106F1 or the New Form 45-106F1 for distributions that occur before January 1, 2017.

Format of Reporting Form

The amendments provide that all distributions on or after June 30, 2016 are to be reported using New Form 45-106F1 in all provinces and territories of Canada.  The New Form 45-106F1 replaces the current Form 45-106F1 and the current Form 45-106F6.  There are also two schedules to New Form 45-106F1, both of which are to be completed in Excel format.

Filing Systems

The New Form 45-106F1 will be filed with the BCSC through BCSC eServices, with the OSC through the OSC Portal and with all other jurisdictions through SEDAR (certain foreign issuers may still make paper filings, as provided below).  The New Form 45-106F1 can be drafted within the OSC Portal or within BCSC eServices and the filed version from the OSC Portal or BCSC eServices, along with the Excel versions of the two proposed schedules can be submitted to the other jurisdictions.

Exemption from Filing on SEDAR

Under National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR), a foreign issuer that falls within the definition of “foreign issuer (SEDAR)” is not required to use SEDAR and may continue to file paper copies in all jurisdictions other than Ontario and B.C. (both of which require the use of their electronic filing systems).  A foreign issuer can voluntarily elect to use SEDAR by filing a SEDAR Form 5 Notice of Election by Foreign Issuer(SEDAR).

Details Required in the New Form 45-106F1

The following is the list provided by the CSA in Annex 2 of CSA Notice 45-308: Continue Reading