Canada EWR, AMR & SEDI Insider Reporting

Early Warning Reporting

The early warning system ensures that the marketplace is promptly informed of significant accumulations of securities of a reporting issuer that may influence control of that issuer. The requirements of the early warning system are set out in Part 5 of National Instrument 62-104 Take-Over Bids and Issuer Bids.

Under the early warning system, disclosure must be made when a person or company acquires ownership or control of 10 per cent or more of the outstanding securities of a class of voting or equity securities of an issuer. This reporting threshold drops to 5 per cent if the issuer becomes the target of a take-over bid. The full definitions of determining whether or not disclosure is required are established in NI 62-104.

If the initial reporting threshold is crossed, the acquiror must:

Issue and file a news release containing prescribed information before the opening of trading on the business day after the acquisition.
File an early warning report containing prescribed information within two business days of the acquisition.
Not acquire (or offer to acquire) beneficial ownership of, or control or direction over, any securities of the class in respect of which the early warning report was made (or securities convertible into that class) from the time the reporting requirement has been triggered until one business day after the early warning report is filed. This prohibition does not apply to persons who already hold 20 per cent or more of the securities of the particular class.

The same early warning disclosure requirement applies each time:

Such purchaser(s) acquires ownership of or the power to exercise control or direction over either:
An additional 2% or more of the outstanding securities of the same class referred to in the most recent previously filed early warning report.
Securities convertible into an additional 2% or more of the outstanding securities of the same class referred to in the most recent previously filed early warning report.
There is a 2% decrease in ownership.
A shareholder’s ownership interest falls below the reporting threshold.
There is a change in any material fact in the disclosure required in the most recent previously filed early warning report.

NB. The threshold for subsection 5.2(2) of NI 62-104 is measured based on a 2% change in the most recently disclosed holdings of the acquiror under paragraph 5.2(2)(a) of NI 62-104 or a change in a material fact under paragraph 5.2(2)(b) of NI 62-104. For example, if the last early warning report filed by the acquirer reflects a percentage of 11.5%, then the +/- 2% would be applied to this previously disclosed percentage (i.e., < 10% or >= 13.5%).

Alternative monthly reporting system

An alternative monthly reporting (AMR) system exists for certain types of entities who qualify as an “eligible institutional investor” (as defined in NI 62-103), which includes:

Financial institutions
Mutual funds that are not public in Canada
Regulated Canadian pension funds
Investment managers acting on behalf of investors on a fully discretionary basis
Certain kinds of entities that are eligible to make filings under the U.S. equivalent of AMR

The complete provisions of the AMR system can be found in NI 62-103.

The AMR system represents an exemption from reporting under the early warning system and provides a less onerous reporting system for institutional investors who have no current intention of acquiring control of the reporting issuer. It also applies to entities who are not soliciting proxies from security holders so as to contest director elections or a reorganization, amalgamation, merger, arrangement, or similar corporate action. These types of investors are permitted to report their holdings in reporting issuers at regular intervals, rather than on an immediate basis as is required under the early warning system.

Generally, an eligible institutional investor is required to file an AMR report within 10 days of the end of the month when any of the follow occurs:

It elects to begin filing under AMR, if it held 10% or more of the class at such time
It increases its holdings to 10% or more
Its holdings cross (either going above or falling below) the following thresholds: 12.5%, 15%, or 17.5%
Its ownership drops below 10%
There has been a material change in a prior to report

If an eligible institutional investor becomes disqualified from the AMR system, or elects to cease filing reports under the AMR system, it must:

Immediately issue and file a news release.
File a report within two business days after the news release.
Refrain from acquiring ownership of, or control or direction over, additional securities of the reporting issuer for a 10-day moratorium period (starting on the date the news release is filed).

NB. for paragraph 4.5(c) of NI 62-103 the filing requirement of an alternative monthly report is based on fixed intervals (i.e., 15%, 17.5%, etc.) based on the following wording in paragraph 4.5(c) which reads: “increased or decreased past thresholds that are products of whole number multiplied by 2.5 percent of the outstanding securities of the class…”. For example, an eligible institutional investor holding 16.6% and before month end acquires another 1%, reaching 17.6% at month end. Although the eligible institutional investor did not acquire 2.5% during the month, the eligible institutional investor reached the 2.5% fixed interval (i.e., > 17.5%) and an alternative monthly report filing would be required.

Beneficial Owner

SEDI Insider Reporting

All insiders, including insiders who are not reporting insiders, are subject to the provisions in Canadian securities legislation prohibiting improper insider trading.

Requirements for insider reporting are set out in full in National Instrument 55-104 Insider Reporting Requirements and Exemptions.

An insider is generally someone who has routine access to material undisclosed information concerning a reporting issuer and significant influence over the reporting issuer.

The actual persons who meet the definition of insider or reporting insider are contained in securities law:

An insider is defined in section 1(1) of Ontario’s Securities Act
A reporting insider is defined in NI 55-104

Contents

A reporting insider of a company is generally required to file insider reports that disclose:

Any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer
Any interest in, or right or obligation associated with, a related financial instrument involving a security of the reporting issues
Any change in any of the above information

Separate and supplementary insider reporting requirements exist for derivatives (which are outlined in Part 4 of NI 55-104). A reporting insider is generally required to file a report about a derivative transaction involving securities of the reporting issuer if:

The transaction directly or indirectly alters the insider’s economic interest in a security of the reporting issuer or economic exposure to the reporting issuer
The insider is not otherwise required to file an insider report about the transaction

A reporting insider who is required to file an insider report about a derivative transaction must disclose the existence and material terms of the transaction in the insider report.

Deadline

A reporting insider is generally required to file an initial insider report within 10 calendar days of becoming a reporting insider. Any subsequent insider reports reflecting changes in their holdings must be filed within five calendar days.

Canadian securities legislation contains a number of exemptions that allow reporting insiders to file reports on a deferred basis in circumstances where the policy rationale for “real time” reporting does not apply.

Early Warning Reporting

Alternative monthly reporting system

Beneficial Owner

SEDI Insider Reporting

Disclosure Form Notes