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:

The same early warning disclosure requirement applies each time:

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%).

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:

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:

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

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.

Also known as an entitlement holder. Any person who, directly or indirectly, through a contract or other arrangement, has (or shares in) one or both of the following in relation to a security:

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:

Contents

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

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:

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.