Timely Disclosure

Timely Disclosure

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

The Rise of Advance Notice Provisions in Canadian Corporate Bylaws


New Paper Discusses the Rise of Advance Notice Provisions in Canadian Corporate Bylaws

In recent years many Canadian firms have amended their corporate bylaws to include advance notice provisions (ANPs). ANPs provide for advance disclosure from shareholders who propose to nominate directors at a shareholders’ meeting. As recently as 2011, no Toronto Stock Exchange (TSX)-listed firm had adopted an ANP. Fast forward to today, and nearly half of all firms on the TSX have added an ANP in their bylaws.

What are ANPs and what accounts for their rapid adoption by Canadian public firms? A recent study and paper, An Empirical Analysis of Advance Notice Provisions in Corporate Bylaws: Evidence from Canada, by Anita Anand and Michele Dathan of the University of Toronto’s Faculty of Law and its School of Management, respectively, provides insight into the recent ANP trend. The authors analyze a sample of 1,156 TSX-listed firms to identify the shared characteristics and rationale among firms that have adopted ANPs.

What are ANPs?

ANPs are corporate bylaw provisions that stipulate advance disclosure requirements from shareholders who propose to nominate directors at a shareholders’ meeting. The disclosure must be circulated to all shareholders (typically at least 30 days in advance of the meeting), and pertain to information about the nominating shareholder and the proposed director or directors. The information required may include the nominating shareholder and proposed director’s name, occupation, residency, shareholdings in the company, descriptions of key agreements or arrangements between the nominating shareholder and proposed director, their relationship with competitors, as well as information that would be required in a dissident proxy circular.

What characterizes a firm likely to propose an ANP?

Continue Reading

2017 ISS and Glass Lewis Updates

vancouver-754204_1920Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2017 proxy season.

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


Audit Related. The voting guidelines regarding auditors, which currently recommend voting against ratifying auditors and withholding for individual directors on the audit committee if the non-audit related fees are greater than audit-related fees, have been updated slightly such that an against recommendation for a vote ratifying an auditor and a withhold recommendation for each director on the audit comment will be given if non-audit fees are greater than the aggregate of the audit fees, the audit related fees and tax compliance/preparation fees. This change recognizes that tax compliance and preparation services are more efficiently provided if completed by the auditor and brings the Canadian guidelines in line with ISS’ guidelines in other jurisdictions. However, unless issuers provide a breakdown of tax related services, all tax fess will be considered by ISS to be non-audit fees.

Board of Directors – Voting in Uncontested Elections. The ISS definition of independence for directors has been clarified to expressly indicate that the terms “currently”, “is” and “has” as they relate to transactional, professional, financial and charitable relationships are defined as having been provided at any time during the most recently completed fiscal year and/or having been identified at any time prior to or at the annual shareholders’ meeting.

Shareholder Rights and Defenses. ISS has revised its guidance relating to shareholder rights plans to take into account the recent amendments to the Canadian take-over bid regime.  Whereas the previous ISS policy called for votes against rights plans with a minimum permitted bid period of greater than 60 days, the updated policy calls for votes against rights plans with a minimum permitted bid period of greater than 105 days to correspond with the timelines provided for in the amendments to the Canadian take-over bid regime.

Director Compensation – TSX only. ISS will generally recommend withholding votes from the committee responsible for director compensation (or if no such committee exists, the board chair or whole board) where directors compensation practices pose a risk of compromising directors’ independence.  ISS has identified the following particular areas of concern: (a) excessive inducement grants for new directors absent a satisfactory rationale for such grants; and (b) performance based grants to non-employee directors which could pose a risk of aligning directors’ interests away from those of shareholders and towards those of management.


Director Overboarding Policy – TSX Issuers.  As indicated in its 2016 guidance, beginning in 2017 Glass Lewis will generally recommend voting against a director who serves as an executive officer of any public company while serving on a total of more than two public company boards and voting against any other director who serves on a total of more than five public company boards.

Glass Lewis has indicated that it would generally not recommend that shareholders vote against an overcommitted director at the company where they also serve as an executive.

However, Glass Lewis notes that it will not apply a bright-line test in arriving at these recommendations but will also take into account contextual factors.  Such contextual factors may include the size and location of the companies on which a director serves, the director’s board roles on the other companies, whether the director serves on the board of any large privately-held companies, the director’s tenure on the boards in question and the director’s attendance record at all companies.

Glass Lewis may also refrain from recommending against certain directors that otherwise qualify for “overboarding” if the company provides a rationale for the director’s continued service which allows shareholders to evaluate the scope of the director’s commitment and contributions to the board including their specialized knowledge of the company’s industry, strategy and key markets.

A more lenient threshold of up to nine boards continues to apply for directors of companies listed on the TSX Venture Exchange.

Shareholder Rights Plans.  Glass Lewis has revised its guidance relating to shareholder rights plans to take into account recent amendments to the Canadian take-over bid regime.  In its previous guidance, Glass Lewis advised that it would not support rights plans that require offers to remain open for more than 90 days.  Under its new guidance, Glass Lewis has confirmed that it will not support rights plans that require offers to remain open for more than 105 days to correspond with the timelines provided for in the amendments to the Canadian take-over bid regime.

Board Responsiveness to Failed Advisory Vote.  While acknowledging that advisory votes on executive compensation in Canada remain voluntary, where such a vote has been provided, Glass Lewis may recommend voting against members of a company’s compensation committee if the committee fails to address shareholder concerns following a company’s failure to secure majority approval in a say-on-pay proposal.

Equity Compensation Plans.  Glass Lewis has advised that it will generally not support full value award plans (such as RSUs or Performance Units) which would exceed a rolling maximum of 5% of the company’s issued and outstanding shares.

Canadianization of American Agreements


In light of recent events, it appears that our American friends are taking a greater interest in Canada. The following is a description of some issues that may arise in connection with US agreements being “Canadianized” for use in Canada. Due to the complexity surrounding these issues, and other issues that may arise in connection with Canadianizing an agreement, it is recommended that professional legal advice is sought for the specific US agreement.

Governing Law and Jurisdiction

Generally, it is recommended that an agreement to be performed in Canada should governed by the laws of a Canadian province and applicable Canadian federal laws. However, there are situations where it is advantageous to use US law, in which case there are a few practical issues to consider from a Canadian perspective. For example, if an action is started in Canada, then it may be necessary for the contracting party to provide at trial, expert evidence of the law of the particular state by engaging a US attorney as an expert witness. Further, without a US attorney it may be difficult for the Canadian contracting party to obtain the right legal advice at the contract stage of the agreement. Finally, there may be Canadian public policy provisions which may override the laws of the particular state.

Likewise, it may be problematic if the exclusive jurisdiction of the agreement is that of a US court. One useful approach is to provide for the non-exclusive jurisdiction of the US court, permitting either contracting party to commence an action in a Canadian court.


If one of the contracting parties is resident in the Province of Quebec it may be necessary to enter into French language version of the agreement. If the agreement is not translated, it is typical to include a French language clause set out in both languages stating that the agreement shall be drafted in English.

UN Convention

If the agreement involves an international sale of goods between the US and Canada, then the United Nations Convention on Contracts for the International Sale of Goods would apply as both countries are signatories to the convention. However, the convention can be excluded through an explicit provision in the agreement.

Tax and Interest

It is advisable to ensure that sections dealing with taxes account for the various types of taxes imposed in Canada. Typically, Canada imposes a federal value-added tax on property and services which varies between 5% and 10%.

Pursuant to the Interest Act (Canada), interest must be stated as an annual rate, even if it is calculated on a basis of a period less than a calendar year. While it is common in US agreements for interest to be charged at the maximum rate permitted by law, in Canada, that rate would be the rate set out under the Criminal Code (60% per annum), which is likely not the intention of the parties and may be void as a violation of public policy.

Update on TSX-V Policy 5.8 – Issuer Names, Issuer Name Changes, Share Consolidations and Splits

On November 1, 2016, the TSX Venture Exchange (Exchange) updated previous bulletins with regard to the adoption of four letter root symbols as stock tickers symbols. After obtaining regulatory approval for the amendments, the Exchange has now implemented amended Policy 5.8, which allows the Exchange to accommodate trading of four letter symbols.

The following amendments were also made to Policy 5.8:

  • pursuant to new section 3.5, all of an issuer’s listed securities must have the same root symbol. A suffix must also be attached to the root symbol to identify the specific class of shares, preferred shares, rights, warrants, debentures, units, subscription receipts, installment receipts and that the securities trade in U.S. dollars. The root symbol plus the suffix must not exceed eight characters including periods;
  • all applications for a CUSIP or ISIN number by Canadian companies must now be submitted through the CDS website; and
  • the record date for stock splits being conducted by a push-out must now be at least seven trading days in advance of the stock split. The issuer must also notify the Exchange at least seven trading days in advance of the proposed record date. The Exchange notification procedure involves filing:
    • The Share Consolidation/Split Filing Form (Form 5I); and
    • The applicable fee prescribed by Policy 1.3 – Schedule of Fees.

Lessons from Trump’s Victory: 10 Questions that every target of shareholder activism should be asking itself

In light of Donald Trump’s unorthodox campaign and unexpected victory, it may be worthwhile to consider whether there are any strategy lessons for those engaged in shareholder activism.  After all, a proxy contest is essentially a form of political campaign.

  1. Is angry rhetoric on the part of the activist more galvanizing than reasoned argument?
  2. In any proxy contest, management represents “the establishment” and is more constrained by securities disclosure rules and governance norms. Does this breed an inherent mistrust in management’s response?
  3. Is management best to respond with reasoned argument or with rhetoric of its own? In other words, does engaging in incendiary rhetoric aid management’s cause or damage its credibility?
  4. Is it easier for people to romanticize the past than to think clearly about the future? For example, a deposed founder making a comeback tends to focus on the company’s previous track record and a return to past glory.
  5. Does the desire for change – for its own sake and whatever it may bring – provide the activist with an inherent advantage?
  6. A shareholder engagement program is critical, but, in light of yet another high-profile polling “miss”, is shareholder feedback reliable?
  7. Does experience – in the form of director and executive tenure – hurt more than it helps?
  8. Are shareholders more likely to support a “celebrity” activist?
  9. Is there a divide between institutional and retail shareholders similar to the divide between urban and rural voters?
  10. Finally, does having a direct financial stake in the outcome temper the actions of shareholders in a proxy contest as compared to voting citizens in a political election?

It is likely that, in today’s current market environment, the answer to at least some of these questions is “yes”.  That’s the easy part.  The difficult part is figuring out what to do about it.

CSA Introduces Updated Cyber Security Guidance

computer-1591018_1920In light of the growing risk of cyberattacks on issuers, registrants and regulated entities (Market Participants), the Canadian Securities Administrators (CSA) recently published CSA Staff Notice 11-332 Cyber Security (Staff Notice) providing guidance to Market Participants on the subject.

Cybersecurity a Priority Area for the CSA

The Staff Notice identifies cybersecurity as a priority for the CSA, and states that the CSA has a central role to play in “assessing and promoting readiness and cyber resilience” of Market Participants.  To this point, enhancing cybersecurity is identified as a key initiative to facilitate fair and efficient markets and the reduction of risks to market integrity under the CSA’s 2016-2019 Business Plan (Business Plan).  This Business Plan includes tasks related to  improving collaboration and communication on cybersecurity issues with Market Participants and improving Market Participants’ understanding of the CSA’s cybersecurity activities, to which the Staff Notice speaks.

Previous CSA Notice on Cybersecurity

The CSA previously released guidance concerning cybersecurity in 2013 with Staff Notice 11-326 Cyber Security (2013 Notice).  The 2013 Notice provided general recommendations for the steps that Market Participants can take to manage cyber threats.  These recommended steps were to:

  • educate staff on the importance of cybersecurity and their role of ensuring such security;
  • follow industry best practices in regards to cybersecurity; and
  • conduct regular third party vulnerability and security tests and assessments against the Market Participants’ systems.

In addition to these steps, Market Participants were advised by the 2013 Notice to review their cybersecurity measures on a regular basis.

Continue Reading

Defensive Private Placements Under the New Take-Over Bids Regime


OSC and BCSC on Defensive Private Placements Under the New Take-Over Bids Regime

As discussed in our previous post, the first hostile take-over bid under the new Canadian take-over bid rules was launched by Hecla Mining Company (Hecla) in July 2016 for the purchase of all of the outstanding shares of Dolly Varden Silver Corporation (Dolly), a TSX Venture Exchange listed issuer. Since our initial post, this take-over bid has become of particular interest to capital market participants because applications were made by each of Hecla and Dolly to the Ontario Securities Commission (OSC) and the British Columbia Securities Commission (BCSC) related to the take-over bid and the subsequent private placement announced by Dolly. Many hoped that the OSC and BCSC (collectively, the Commissions) in deciding these applications would bring additional clarity on how regulators would review alleged defensive tactics in light of the new take-over bid rules.

A simultaneous hearing in front of the OSC and the BCSC was held on July 20 and 21, 2016 and while the applicable orders were rendered on July 22, 2016 by each of the Commissions, the highly anticipated joint reasons were not issued until October 24, 2016. In their reasons, the Commissions concluded that the question of whether a private placement is an abusive defensive tactic requiring regulator intervention is a fact-dependent balance between policy considerations and bona fide corporate objectives and outlined a two-step test for regulators to weigh the relevant factors.

Defensive Private Placements

The most anticipated portion of the Commissions’ reasons relates to Hecla’s application to cease-trade the private placement Dolly announced after Hecla announced its take-over bid. In its application, Hecla argued that the private placement should be cease-traded either as an abusive defensive tactic under National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202) or under the Commissions’ broader public interest mandate.

Continue Reading

New Crowdfunding Prospectus Exemption in Alberta


On October 31, 2016, the Alberta Securities Commission (ASC) adopted Multilateral Instrument 45-108 Crowdfunding (MI 45-108) which will allow small or medium sized businesses (Target Businesses) to raise more capital through crowdfunding offerings across multiple jurisdictions in Canada than is possible under ASC Rule 45-517 Prospectus Exemption for Start-up Businesses (ASC Rule 45-517) which was adopted by the ASC on July 29, 2016.  Both MI 45-108 and ASC Rule 45-517 (collectively, the Growth Initiatives) provide Target Businesses with an exemption from prospectus requirements.  The Growth Initiatives are in place of proposed MI 45-109 Prospectus Exemption for Start-up Businesses published by the ASC and the Nunavut Securities Office.

The Growth Initiatives are aimed at addressing Target Businesses’ need for a cost effective and simple way to raise capital in a difficult economic environment by raising small amounts of money from a large number of people, commonly referred to as crowdfunding.  The Growth Initiatives offer different avenues that Target Businesses can use to overcome the hurdle of attracting investment without the high transactional costs of completing a prospectus offering.

Continue Reading

OSC Unveils LaunchPad to Support Fintech Businesses


The Ontario Securities Commission (OSC) announced today its new initiative, OSC LaunchPad, described as the first dedicated team by a securities regulator in Canada to help fintech businesses navigate securities law requirements and accelerate time-to-market.

OSC LaunchPad will provide direct support to eligible new and early-stage fintech businesses through meetings with the OSC LaunchPad team on navigating the regulatory framework, flexibility around current regulatory obligations, or informal guidance at an early stage on potential securities regulation implications.  The OSC also indicated that it will consider time-limited registration or exemptive relief for fintech businesses to test their products, services and applications.

Eligible fintech businesses can apply for support through the OSC LaunchPad’s website.

The OSC is hosting an OSC LaunchPad Information Day on November 3, 2016. Registration is available through the OSC Launchpad webpage.

In addition, the OSC announced it will establish a fintech advisory committee to further understand the issues faced by start-ups in the space.

Canadian Issuers Continue To Have Success Against Activist Investors


As noted in the Globe and Mail’s recent article, “In Canada’s boardrooms, activist investors are striking out” (subscription to the Globe and Mail required), Canadian listed public companies have continued to have success against activist investors. In fact, since January 1, 2015, Canadian listed issuers have a perfect record against “professional” activists in formal proxy contests, having won all six such contests to make changes to the board which were initiated by hedge funds or institutional investors. This success may be driven, at least in part, by issuers’ increased emphasis on advance preparation, including shareholder engagement. If issuers are more attuned to the views of their shareholders, it stands to reason that they will be in a better position to assess the likelihood of successfully defending against an activist in a formal proxy contest and pre-emptively settle those situations that they do not believe they can win. This explanation, while compelling, may be incomplete. With that in mind, I offer the following five observations based on a review of the public record of unsuccessful contests recently initiated by “professional” activists.

Continue Reading