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Q: Threshold for early warning reporting in Canada?

A: In Canada, the threshold for early warning reporting is when an acquiror acquires beneficial ownership of, or control or direction over, voting or equity securities of any class of a reporting issuer, or securities convertible into voting or equity securities of any class of a reporting issuer, that, together with the acquiror's securities of that class, constitute 10% or more of the outstanding securities of that class. The acquiror must promptly issue and file a news release and file a report as per the requirements outlined in National Instrument 62-104 Takeover Bids and Issuer Bids, Part 5, Section 5.2.


National Instrument 62-104 Takeover Bids and Issuer Bids
Part 5 Reports and Announcements Of Acquisitions
Section 5.2

Early warning

(1) An acquiror who acquires beneficial ownership of, or control or direction over, voting or equity securities of any class of a reporting issuer, or securities convertible into voting or equity securities of any class of a reporting issuer, that, together with the acquiror’s securities of that class, constitute 10% or more of the outstanding securities of that class, must

(a) promptly, and, in any event, no later than the opening of trading on the business day following the acquisition, issue and file a news release containing the information required by section 3.1 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, and

(b) promptly, and, in any event, no later than 2 business days from the date of the acquisition, file a report containing the information required by section 3.1 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues.

(2) An acquiror who is required to make disclosure under subsection (1) must make further disclosure, in accordance with subsection (1), each time any of the following events occur:

(a) the acquiror or any person acting jointly or in concert with the acquiror, acquires or disposes beneficial ownership of, or acquires or ceases to have control or direction over, either of the following:

(i) securities in an amount equal to 2% or more of the outstanding securities of the class of securities that was the subject of the most recent report required to be filed by the acquiror under subsection (1) or under this subsection;

(ii) securities convertible into 2% or more of the outstanding securities referred to in subparagraph (i);

(b) there is a change in a material fact contained in the most recent report required to be filed under paragraph (1)(b) or under paragraph (a) of this subsection.

(3) An acquiror must issue and file a news release and file a report in accordance with subsection (1) if beneficial ownership of, or control or direction over, the outstanding securities of the class of securities that was the subject of the most recent report required to be filed by the acquiror under this section decreases to less than 10%.

(4) If an acquiror issues and files a news release and files a report under subsection (3), the requirements under subsection (2) do not apply unless subsection (1) applies in respect of a subsequent acquisition of beneficial ownership of, or control or direction over, voting or equity securities of any class of a reporting issuer, or securities convertible into voting or equity securities of any class of a reporting issuer, that, together with the acquiror’s securities of that class, constitute 10% or more of the outstanding securities of that class.


Exemptive Relief Orders

National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 4 Alternative Monthly Reporting System
Section 4.5

Filing Obligations under this Part

In order to rely on the exemption provided by section 4.1, an eligible institutional investor shall file a report

(a) within 10 days after the end of the month in which the eligible institutional investor elected to begin to file reports for the reporting issuer under this Part, if the securityholding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer at the end of the month is 10 percent or more;

(b) within 10 days after the end of the month in which the securityholding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer, as at the end of the month, increased to 10 percent or more;

(c) within 10 days after the end of the month in which the securityholding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer, as at the end of the month, increased or decreased past thresholds that are products of whole numbers multiplied by 2.5 percent of the outstanding securities of the class and that are in excess of 10 percent of the outstanding securities of the class; and

(d) within 10 days after the end of the month in which the securityholding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer, as at the end of the month, decreased to less than 10 percent.


Exemptive Relief Orders

National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 4 Alternative Monthly Reporting System
Section 4.4

Restrictions on Acquisitions

An eligible institutional investor that has become disqualified under section 4.2 from filing reports under this Part for a reporting issuer, if the securityholding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer is 10 percent or more, shall not acquire ownership of, or control over, any additional securities of the reporting issuer for the period

(a) starting at the time that the news release referred to in paragraph 4.3(1)(a) is required to be filed; and

(b) ending 10 days after the news release is filed.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 6 Issuer Actions
Section 6.1

Issuer Actions

(1) An entity is exempt from the early warning requirements and the obligation to report under Part 4 in connection with an increase in the securityholding percentage of the entity in a class of securities of a reporting issuer that arises without any action being taken by the entity and solely from a reduction in outstanding securities that occurs as a result of redemptions, retractions or other repurchases by the reporting issuer, that affect or are offered to all security holders of the relevant class.

(2) An entity is exempt from the early warning requirements and the obligation to report under Part 4 in connection with a decrease in the securityholding percentage of the entity in a class of securities of a reporting issuer that arises without any action being taken by the entity and solely from an increase in outstanding securities that occurs as a result of treasury issuances of securities by the reporting issuer.

(3) An entity may rely upon an exemption provided by this section in connection with a class of securities only until the entity undertakes any transaction that changes the securityholding percentage of the entity in that class of securities.

(4) An entity that undertakes a transaction described in subsection (3) shall comply with the early warning requirements or Part 4 in connection with the class of securities referred to in that subsection in a manner that reflects the changes in the securityholding percentage of the entity in that class of securities since the last news release or report made or filed under the early warning requirements or Part 4.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 4 Alternative Monthly Reporting System
Section 4.1

Exemption from the Early Warning Requirements

The early warning requirements do not apply to an eligible institutional investor for a reporting issuer if the eligible institutional investor

(a) is not disqualified by section 4.2 from filing reports under this Part for the reporting issuer; and

(b) either

(i) intends to file reports under this Part for the reporting issuer, if no reports are yet required to be filed; or

(ii) is not in arrears of filing reports under this Part for the reporting issuer, if a report has been required by this Part to be filed.


Exemptive Relief Orders

National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 4 Alternative Monthly Reporting System
Section 4.3

Reporting and Filing Requirements

(1) If an eligible institutional investor is relying on the exemption in section 4.1 for a reporting issuer and becomes disqualified under section 4.2 from filing, or no longer intends to file, reports under this Part for the reporting issuer, the eligible institutional investor shall

(a) immediately issue and file a news release; and

(b) within two business days after filing the news release, file a report.

(2) The news release and report required by subsection (1) shall contain the information required by Form 62-103F2 Required Disclosure by an Eligible Institutional Investor under Section 4.3.

(3) An eligible institutional investor that is required to file a report under subsection (1) for a reporting issuer is not exempt from the early warning requirements for that reporting issuer as of the date on which the news release required by subsection (1) is required to be filed.

(4) An eligible institutional investor that files reports under this Part for a reporting issuer and that controls securities of the reporting issuer that are owned by another entity shall

(a) on request by the entity, promptly advise the entity of the number of securities held on its behalf; and

(b) if the eligible institutional investor has reason to believe that the securityholding percentage of the entity in a class of voting or equity securities of the reporting issuer equals 10 percent or more, promptly advise the entity of the number of securities held on its behalf.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 9 Insider Reporting Exemption
Section 9.1

Insider Reporting Exemption; Early Warning Decrease Reports

(1) Subject to subsections (3.1) and (4), an eligible institutional investor is exempt from the insider reporting requirement for a reporting issuer if

(a) the eligible institutional investor has filed the report required under the early warning requirements or Part 4 for the reporting issuer in connection with the current securityholding percentage of the eligible institutional investor in the classes of voting and equity securities of the reporting issuer;

(a.1) the report referred to in paragraph (a) discloses, in addition to any other required disclosure,

(i) the eligible institutional investor’s interest in any related financial instrument involving a security of the reporting issuer that is not otherwise reflected in the current securityholding percentage of the eligible institutional investor; and

(ii) the material terms of the related financial instrument;

(b) the eligible institutional investor is not disqualified under section 4.2 from filing reports under Part 4;

(c) the eligible institutional investor does not have knowledge of any material fact or material change with respect to the reporting issuer that has not been generally disclosed;

(d) the eligible institutional investor does not receive in the ordinary course of its business and investment activities knowledge of any material fact or material change with respect to the reporting issuer that has not been generally disclosed;

(e) there are no directors or officers of the reporting issuer who were, or could reasonably be seen to have been, selected, nominated or designated by the eligible institutional investor or any joint actor; and

(f) the eligible institutional investor, either alone or together with any joint actors, does not possess effective control of the reporting issuer.

(2) An eligible institutional investor relying on the exemption in subsection (1) shall maintain records that include the information that, absent this section, would have been required to be included in a report filed under the insider reporting requirement.

(3.1) Despite subsection (1), an eligible institutional investor that is filing reports under the early warning requirements or Part 4 for a reporting issuer may rely upon the exemption contained in subsection (1) only if the eligible institutional investor treats a significant change in a related financial instrument position as a change in a material fact for the purposes of securities legislation pertaining to the early warning requirements or section 4.6 of this Instrument.

(4) Despite subsection (1), an eligible institutional investor that is an insider of a reporting issuer may not rely upon the exemption contained in subsection (1) if

(a) the eligible institutional investor, either alone or with a joint actor or joint actors, purchased in the previous month, directly or indirectly, 50 percent or more of all of the securities of a class that were reported sold on stock exchanges, over-the-counter markets or both in the previous month; or

(b) the eligible institutional investor, either alone or with a joint actor or joint actors, sold in the previous month, directly or indirectly, 50 percent or more of all of the securities of a class that were reported sold on stock exchanges, over-the-counter markets or both in the previous month.

(5) If an eligible institutional investor is exempt under subsection (1) from the insider reporting requirement for a reporting issuer, every director or senior officer of the eligible institutional investor who is an insider of the reporting issuer solely as a result of being director or senior officer of the eligible institutional investor is exempt from the insider reporting requirement for the reporting issuer.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 3 Early Warning Requirements
Section 3.1

Contents of News Releases and Reports

(1) A news release and report required under the early warning requirements shall contain the information required by Form 62-103F1 Required Disclosure under the Early Warning Requirements.

(2) Despite subsection (1), a news release required under the early warning requirements may omit the information otherwise required by Items 2.3, 3.3, 3.5 through 3.8, 4.2, 4.3, 6 and 9, and Item 7 to the extent that the information relates to those sections and items, of Form 62-103F1 Required Disclosure under the Early Warning Requirements, if

(a) the omitted information is included in the corresponding report required by the early warning requirements, and

(b) the news release indicates the name and telephone number of an individual to contact to obtain a copy of the report.

(3) The acquiror shall send a copy of the report referred to in paragraph (2)(a) promptly to any entity requesting it.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 2 General Reliance and Reporting Provisions
Section 2.1

Reliance on Reported Outstanding Shares

(1) Subject to subsection (2), in determining its securityholding percentage in a class of securities for the purposes of the early warning requirements or Part 4, an entity may rely upon information most recently provided by the issuer of the securities in a material change report or under section 5.4 of National Instrument 51-102 Continuous Disclosure Obligations, whichever contains the most recent relevant information.

(2) Subsection (1) does not apply if the entity has knowledge both

(a) that the information filed is inaccurate or has changed; and

(b) of the correct information.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 8 Relief For Pledgees
Section 8.2

Further Relief for de minimis Pledgees

Despite subsection 8.1(2), for securities that are controlled by a person or company as a pledgee, and any securities into which those securities are convertible, exercisable or exchangeable, in either case that are or were pledged, mortgaged or otherwise encumbered as collateral for a debt, under a written pledge agreement and in the ordinary course of the business of the person or company, the person or company is exempt from the applicable provisions, and those securities are not required to be taken into account for the purposes of securities legislation related to the applicable definitions, even if the person or company is legally entitled to dispose of the securities as pledgee for the purpose of applying proceeds of realization in repayment of the secured debt, if

(a) the principal amount of the debt, together with the principal amount of all other debts of or guaranteed by the same borrower to the person or company, does not exceed $2,000,000; and

(b) the pledged securities, and securities into which the pledged securities are convertible, exercisable or exchangeable, constitute less than 10 percent of a class of voting or equity securities.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 5 Aggregation Relief
Section 5.3

Reporting and Record Keeping

(1) In addition to the requirements of sections 5.1 and 5.2, in order to rely on section 5.1 or 5.2, an eligible institutional investor or an affiliate or associate shall indicate in any document released or filed under the applicable provisions or securities legislation related to the applicable definitions

(a) its reliance on either section 5.1 or 5.2;

(b) the identity of the business units or investment funds for which ownership and control of the securities has been disclosed; and

(c) the fact that securities owned or controlled by other business units or investment funds have not been, or may not have been, disclosed.

(2) An eligible institutional investor or affiliate or associate shall maintain records of the details concerning

(a) business units of the entity that are treated separately, by reason of section 5.1, for the purposes of compliance with the applicable provisions and securities legislation related to the applicable definitions; and

(b) investment funds whose ownership of, or control over, securities are treated separately, by reason of section 5.2, for the purposes of compliance with the applicable provisions and securities legislation related to the applicable definitions.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 3 Early Warning Requirements
Section 3.2

Filing Relief for Joint Actors

The early warning requirements and the acquisition announcement provisions do not apply to a joint actor of an acquiror in connection with the obligation to make a specific filing of a news release or report if

(a) the acquiror files a news release or report at the time that the joint actor would be required to file; and

(b) the news release or report filed discloses the information concerning the joint actor required by securities legislation.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 1 Definitions and Interpretation
Section 1.2

Deemed Effective Control

For the purposes of the definition of “effective control”, an entity that, either alone or together with one or more joint actors, owns or controls voting securities carrying more than 30 percent of the votes attached to all of the outstanding voting securities of a reporting issuer shall, in the absence of evidence to the contrary, be deemed to possess effective control over the reporting issuer.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 7 Underwriting Exemption
Section 7.1

Underwriting Exemption

An entity is exempt from the early warning requirements and the obligation to report under Part 4 in respect of securities owned by the entity in its capacity as underwriter or securities into which those securities are convertible, or exerciseable or exchangeable, during the underwriting period, if

(a) the entity is engaged in the business of an underwriter of securities; and

(b) the entity or the issuer of the securities has issued and filed a news release that

(i) announces the proposed underwriting, and

(ii) identifies the reporting issuer and the designation and number or principal amount of the securities underwritten.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 2 General Reliance and Reporting Provisions
Section 2.3

No Duplication of News Releases or Reports

(1) An entity that is required to issue a news release under both the early warning requirements and the acquisition announcement provisions is exempt from the requirement to issue the news release contained in the provision requiring the later release if

(a) the news release is filed under the provision with the earlier reporting requirement; and

(b) the facts required to be contained in the two news releases are identical.

(2) An entity that is required to file a report under the acquisition announcement provisions and either the early warning requirements or Part 4 is exempt from the requirement to file the report under the provision requiring the later report if

(a) the report is filed under the provision requiring the earlier report; and

(b) the facts required to be contained in the two reports are identical.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 1 Definitions and Interpretation
Section 1.1 Definitions

significant change in a related financial instrument position

“significant change in a related financial instrument position” means, in relation to an entity and a related financial instrument that involves, directly or indirectly, a security of a reporting issuer, any change in the entity’s interest in, or rights or obligations associated with, the related financial instrument if the change has a similar economic effect to an increase or decrease in the entity’s securityholding percentage in a class of voting or equity securities of the reporting issuer by 2.5 percent or more;


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 4 Alternative Monthly Reporting System
Section 4.8

Exemptions

The requirement to file a report under this Part does not apply to a joint actor with an eligible institutional investor in connection with a specific filing if

(a) the eligible institutional investor files a report under this Part at the time that the joint actor is required to file; and

(b) the report discloses the information concerning the joint actor required by this Instrument.


National Instrument 62-103 The Early Warning System and Related Takeover Bid and Insider Reporting Issues
Part 5 Aggregation Relief
Section 5.4

No Requirement to Satisfy Insider Reporting Requirement

If an eligible institutional investor, or an affiliate or associate of an eligible institutional investor, is relying on this Part so that it is not subject to the insider reporting requirement for a reporting issuer, then every director or senior officer of the eligible institutional investor, or of the affiliate or associate of an eligible institutional investor, who is an insider of the reporting issuer solely as a result of being a director or senior officer of the eligible institutional investor, or the affiliate or associate of an eligible institutional investor, is not subject to the insider reporting requirement for the reporting issuer.