Listed below are recent initiatives and decisions of Canadian securities regulatory authorities (and one from the U.S. Securities and Exchange Commission) and Canadian courts that we believe will be of interest to mining companies and their public markets advisors. Please contact us if you would like additional information about any of these items.
Decisions of Courts and OSC in M&A Cases
- The Supreme Court of Canada issued its detailed reasons for overturning the decision of the Québec Court of Appeal in BCE Inc. Please see the article discussing the Supreme Court’s reasons in this issue of Mining Prospects.
- The Ontario Securities Commission (OSC) overturned a decision of the Toronto Stock Exchange (TSX), which had previously granted approval for HudBay Minerals Inc. to acquire Lundin Mining Corporation where the purchase price was to be paid through the issuance of a number of shares that would have exceeded 100 per cent of the then currently outstanding shares of HudBay. The result of the OSC’s decision was to require HudBay to seek shareholder approval for the proposed acquisition (this approval was not ultimately obtained). In addition to the implications of this decision on the TSX’s approach to significant share issuances for a TSX-listed issuer to acquire another public company (proposed changes to the TSX Company Manual in this regard are described below under "Canadian Stock Exchanges"), the detailed reasons of the OSC’s panel included concerns with the practice of providing shareholders with a fairness opinion prepared by a firm whose compensation may be tied to the success of the proposed transaction. Please see the article discussing the OSC’s decision in this issue of Mining Prospects.
- The Ontario Superior Court issued an interim injunction to stop a hostile take-over bid by Rusoro Mining Ltd. for the shares of Gold Reserve Inc. because Rusoro’s financial advisor had a conflict of interest (it had previously acted as financial advisor to Gold Reserve). This appears to be the first case in Canada to consider the existence and impact of potential conflicts of advisors (other than lawyers) in M&A transactions. Please see the article discussing the court’s decision in this issue of Mining Prospects.
- The OSC denied an application by Pala Investments Holdings Limited (Pala) to cease trade two shareholder rights plans implemented by NEO Material Technologies Inc. (NEO). The first plan had been previously approved by NEO’s shareholders. The second was a "tactical" plan adopted by NEO’s board in response to a partial bid launched by Pala, and specifically prohibited partial bids such as Pala’s. Prior to the expiry of Pala’s bid, NEO’s shareholders, other than Pala, overwhelmingly approved the second plan at a shareholder meeting. After such shareholder approval, the OSC denied Pala’s requested relief. As of the time of printing, full reasons for the OSC’s decision have yet to be released. The OSC has indicated that its reasons will expand upon the considerations it will apply when reviewing cease trade requests in respect of such plans.
- The Canadian Securities Administrators (CSA) have proposed changes to National Policy 58-201 Corporate Governance Principles, National Instrument 58-101 Disclosure of Corporate Governance Practices, and National Instrument 52-110 Audit Committees. These changes are designed to provide for a regulatory approach that is more principles-based and broader in scope. The specific disclosure requirements would be replaced with more general requirements, and the determination of independence (for purposes of determining which directors are eligible to serve as members of an audit committee) would be more principles-based. These changes could result in more discretion for board members in respect of certain fundamental matters of corporate governance.
- The U.S. Securities and Exchange Commission has proposed rule amendments that would allow shareholders meeting certain thresholds (including holding between one per cent and five per cent of the outstanding voting securities of an issuer, depending on the circumstances) to have their nominee for election as a director included in the issuer’s proxy materials.
Canadian Stock Exchanges
- The TSX published a notice providing guidance on amendments to shareholder rights plans adopted after a take-over bid has been announced or initiated. Among the items in the notice, the TSX reminds issuers that they must obtain TSX approval for a proposed amendment, and that in cases where a plan amendment is reasonably perceived to have been proposed in response to a take-over bid, the TSX will treat the amendment as a new plan.
- The TSX published proposed changes to its Company Manual that would require shareholder approval for issuances of shares in payment of the purchase price for an acquisition of another reporting issuer if the number of shares would exceed 50 per cent of the issuer’s then currently outstanding shares, on a non-diluted basis. The TSX Company Manual currently provides an exemption from shareholder approval for issuances of shares (no matter the number) to acquire a "public company," so the TSX is proposing to narrow this exemption to cap the number of shares (as a percentage of the outstanding shares on a non-diluted basis) that can be so issued without shareholder approval. The existing exemption has been brought under scrutiny in a number of recent transactions, including most recently the proposed acquisition by HudBay Minerals Inc. of Lundin Mining Corporation (as described above).
- The TSX has amended its Company Manual to provide for the listing of special purpose acquisition companies (SPACs). This issue of Mining Prospects includes a detailed discussion of the TSX’s rules related to SPACs, which are quite similar to capital pool companies on the TSX Venture Exchange, but have significantly higher market capitalization. SPACs have been permitted for some time in the United States, and have served as significant acquisition vehicles in the United States.
- The TSX issued a notice of temporary relief relating to the remedial review process that extends the maximum period an issuer has to remedy deficiencies that trigger a delisting review from 120 to 210 days. This relief will continue until September 30, 2009. The TSX also reminded issuers of the potential to issue securities under the financial hardship exemption of the TSX Company Manual. This exemption allows issuers who establish that they are in serious financial difficulty to proceed with offerings of listed securities in excess of otherwise applicable maximum percentages, and below the otherwise applicable maximum permitted discount to market price, without the need for shareholder approval if they can demonstrate significant benefit in alleviating the financial hardship. The TSX has also provided further guidance on what will be required in order to rely on the exemption.
Canadian Securities Administrators
- The CSA has launched a project to review National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). The project is being led by the British Columbia Securities Commission, and has been initiated in response to industry and regulatory concerns that have developed since the 2001 implementation of NI 43-101. The CSA has indicated that potential areas for consideration include: reducing the regulatory burden of consents of qualified persons (QPs), reducing the QPs’ liability and responsibility for issuer disclosure, reassessing technical report triggers, creating broader and more flexible rules for disclosing previous resource/reserve estimates, fixing perceived disclosure irregularities, introducing a separate form of technical report for advanced mineral projects, and updating accepted foreign professional associations.
- The CSA adopted new expanded requirements for executive compensation disclosure, through changes to National Instrument 51-102 Continuous Disclosure Obligations. Among the changes is the introduction of a requirement to include a discussion of: the objectives of an issuer’s compensation program, what the compensation is designed to reward, the elements of compensation packages provided, the rationale for such elements, and how the elements of the compensation package fit into the issuer’s overall compensation objectives.
- The Derivatives Act (Québec) has been proclaimed in force. This Act is the first comprehensive stand-alone derivatives legislation to be adopted in Canada, and regulates exchange-traded and over-the-counter derivatives. It is expected that this Act will serve as a template in the effort to provide for uniform derivatives legislation across Canada.