Top 10 Securities Law Developments that General Counsel

Top 10 Securities Law Developments that General Counsel Need to Know Now

Mindy B. GilbertRobert S. MurphyJames R. Reid

September 11, 2013


1. Selling Your Deal Under the New Prospectus Marketing Rules

2. Getting Your Deal Bought: Developments in Bought Deals

3. Regulators in the Boardroom

4. Proxy Voting Infrastructure: Change in the Works?

5. The Underground Scene: Mining Disclosure Update

6. What Was Missing: 2013 CSA Continuous Disclosure Review Program

7. Social Media: To Tweet or not to Tweet

8. Aequitas: Evolution of the Stock Exchange?

9. Expanding the Exempt Market: Targeting SME Capital Formation

10. Earlier Warning Reporting: More, Sooner


OverviewNew rules governing the pre-marketing and marketing of prospectus offerings

Effective August 13, 2013

Apply to all issuers other than investment funds

A more prescriptive, rules-based regime

Some Good, Some BadThe Good

• More certainty – codification of current practices

• More flexibility – new categories of materials

The Bad

• More procedures – review and file materials

• More potential liability – materials form part of prospectus

What's New?The new rules include:

• new categories of permitted marketing materials

• new filing requirements for marketing materials

• ground rules for conducting roadshows

• regulation of the period after the waiting period

Also clarification on bought deal practice – to be addressed by Rob in next segment

Former Marketing RegimeThe "prospectus requirement"

No marketing until final prospectus receipt

Exception permits use of preliminary prospectus to solicit interest during the "waiting period"

May also use a notice with very limited disclosure (identify security and price)

Policy rationale: equal access; investor protection; deter insider and tippee trading

Disclosure and LiabilityUnder new rules, with limited exceptions, all marketing materials used in a public offering will be:

• publicly filed; and

• form part of the prospectus

Policy rationales continue to apply:

• equal access to material information

• clearer avenue for investors to sue

• less risk of selective disclosure

New Permitted MaterialsTwo new categories of written communication:

• "standard term sheets"

• "marketing materials"

All information must be disclosed in or derived from the filed prospectus (with limited exceptions including for "comparables")

Must include prescribed legend referring to the prospectus

"Standard Term Sheet" Content is very limited – generally what you would expect to see in a typical term sheet

May include a brief description (maximum three lines) of:

• the issuer's business

• the securities offered

• use of proceeds

Need not be filed and no other conditions to its use

"Marketing Materials" Broadly defined: Any written communication provided to potential investors regarding a prospectus offering that contains material facts

Excludes: the prospectus; standard term sheets; and green sheets (circulated only internally)

Includes: materials shown to an investor, even if the investor is not permitted to retain a copy

Two versions: "template" and "limited use"

"Marketing Materials" (cont'd) Conditions to use:

• prior written approval of issuer and lead UW

• public filing on or prior to the day it is used

• incorporated/included in the final prospectus

• copy of preliminary prospectus must be provided with marketing materials

"Marketing Materials" (cont'd) Content requirements:

• all information (excluding comparables) must be disclosed in or derived from the filed prospectus

• required disclosure about comparables (basis for inclusion, source and risks)

• prospectus legends must be included

• subsequent prospectus modifications may trigger requirement to file blacklined materials

Road Show RequirementsNot previously regulated – practices developed to comply with exemption for marketing in the waiting period

Under new rules road show materials are "marketing materials" – must comply with content and filing requirements

Also now procedural rules and guidance on oral statements

After the Waiting PeriodRequirements apply equally to the post-receipt period

Application to shelf take-down practice:

• must provide with marketing materials a copy of the final base prospectus and any applicable supplement filed

• information permitted to be disclosed in or derived from a subsequently filed supplement

For Your ChecklistPractice points:

• issuers and their legal counsel need to review all draft materials to be used in marketing

• update bought deal letters and underwriting agreements – issuers to approve prior to use

• "scare" letters provided to boards and management should address new rules

• auditor comfort; translation

2. Getting Your Deal Bought: Developmentsin Bought Deals

Getting Your Deal Bought:Bought Deal Developments

CSA finalized new prospectus rules in August• New marketing regime• New prospectus rules for bought deals

– Affect amendments to and contents of bought deal letter

"Bought deals" also exist in the exempt market• Increased prevalence of private placement bought deals

recently• Ontario court in Stetson confirmed the binding nature of

a typical bought deal letter

Bought Deals: A Refresher• For prospectus offerings, general rule is no soliciting until receipt issued for preliminary prospectus

• Bought deal is exemption from these rules for short-form issuers

• Permits "pre-marketing" of a deal • Requirements continue to be:

– Enforceable agreement with underwriter to purchase securities– Issue news release immediately– Copy of preliminary prospectus delivered to persons solicited

Bought Deals: Revised Rules• Revised bought deal rules codify much of the current market practice around bought deals

• Have also introduced new rules regarding upsizing and amending the terms of a bought deal

• A "bought deal agreement" is now specifically defined– No "market-out" clause– No syndication condition, except with prescribed "confirmation

clause"– No upsizing option

Is it a Bought Deal Agreement?• Market out clause

– Premised on state of financial markets that prevents securities from being "marketed profitably" by underwriters

– However, watch for expanded "disaster out" clause that has crept into bought deal letters

• Confirmation clause– New process for confirmation period where syndication would be

permitted– It is uncertain whether the confirmation process will gain widespread

acceptance

Amending your Bought Deal • Amendments to bought deal agreements now regulated• Will affect practice on increasing deal size

– Maximum increase is 100%, must be same price, security and timing

• Will also affect "troubled" bought deal transactions– Specific requirements to reduce the size of a bought deal– Change in the type of securities

• Specific provision to replace with a full underwriting agreement

Exempt Market Bought Deals

• Recent increase in the use of the "bought deal private placement"

• Similar to normal brokered private placement in terms of timing, except bankers commit at engagement letter stage

• In private market, exemption from prohibition on pre-marketing not required

Is a Bought Deal Letter Binding?• Recently the Ontario Superior Court considered whether a bought deal letter was binding– Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc.

• Issuer entered into bought deal agreement for private placement with underwriter– Underwriter could not syndicate deal– Underwriter could not sell shares, went radio silent– Issuer arranged for alternate financing with other investment for

reduced proceeds

Stetson – Court's view• The issues at court were:

– Was the bought deal letter an "agreement to agree" and therefore not enforceable?

– Was the financial crisis' impact on the oil & gas industry sufficient to trigger the any of the "outs" contained in the bought deal letter

• Court concluded: – Bought deal letter was binding

• Letter structured to be binding• Behaviour of parties indicated both considered binding

– The "outs" were not triggered• Underwriter had not provided notice of exercise of outs at closing• Could not prove that it had formed an opinion that "outs" were

triggered at closing

Dealing with Bought Deals• Be mindful of bought deal letters received from underwriters

• Stetson confirms agreements are binding, but for prospectus offerings…– No market out clauses– Only one day confirmation prescribed by new rules

• New restrictions on amendments to bought deal agreements – Four day restriction will be difficult for bankers

• Bankers will want to sell positions as soon as possible– Consider drafting marketing materials in advance, and approving with

bought deal


Regulators in the Boardroom

• Effective 2013: TSX requirements for the election of directors

• June 2013: OSC consultation paper dealing with potential gender diversity disclosure requirements

• All shareholders to elect each director annually and individually

• Disclosure of majority voting policy (or lack thereof)

• Disclosure of directors who did not receive a majority of the votes cast

• Summer 2013: TSX issued guidance on the application of the new rules

New TSX Rules:How to Elect a Director

Issues with the New Rules

• Inter-listed Issuers Waivers:•Principal/Home Market: 75% value/volume outside Canada

•Known Jurisdiction of Incorporation: demonstrate compliance

•Unknown Jurisdiction of Incorporation: describe regime

• International Issuer Initial Listing on TSX•Exempt from requirements for at least 6 months

Issues with the New Rules (cont'd)

• Director Recommendations Contrary to Fiduciary Duty

• OK to blame the TSX

• Disclosure of Results

• Detailed disclosure of number or percentage for or against

• Right to Elect All Directors

• No impact on existing rights

OSC Consultation Paper: Gender Diversity

• Published on July 30, 2013

• Comment period ends September 27

• Proposed disclosure requirements on gender diversity policies and other considerations

Some Statistics

• 2011: 10.3% of directors of public companies in Canada were women

• zero increase from 2009

• 2012: women held 18% of senior officer positions

• 15% of those positions in public companies

• 36% of public companies had no women senior officers in 2012

Existing Regimes

• In Canada: • No guidelines in existing corporate governance policies

• Other Jurisdictions:• Suggestions or recommendations but few with quotas

• Penalties/fines

• Special treatment

Proposed Regime

• Disclosure of:•Policy on the representation of women

•Director selection process and board evaluation process

•Certain quantitative information

• No proposed guidelines for a gender diversity policy:• Considering "comply or explain"

What Should Be Done?

• Ensure transparent disclosure of voting results

• Consider role of diversity in director selection and management advancement


OverviewOn August 15, 2013, CSA Consultation Paper 54-401 - Review of the Proxy Voting Infrastructure was released

Follows recent commentary expressing a lack of confidence in the integrity of proxy voting

Seeks to outline a proposed approach to address these concerns and obtain feedback

Comment period ends November 13, 2013

Key IssuesCSA Paper focuses on the need to address two issues:

1. Accurate vote reconciliation. The process of reconciling proxy votes and voting instructions against the securities entitlements in the system

2. End-to-end vote confirmation system. A communication to shareholders that their proxy votes and voting instructions have been properly transmitted, received and tabulated

Other IssuesOther issues noted include:

• Impact of the OBO/NOBO concept on the reliability of proxy votes

• Inability of investment managers to vote clients' shares held in discretionary accounts

• Accountability of service providers such as Broadridge

What Makes it so Complicated?Four factors identified in the CSA Paper:

1. The Intermediated Holding System

• pooling of securities; investors do not own shares but instead have "securities entitlements"

2. Share Lending

• voting rights transferred but lender may still be the "owner" in the intermediary's records

What Makes it so Complicated? (cont'd)3. Use of Voting Agents

• voting authority often delegated to an advisor but investor still solicited for voting instructions

4. The OBO/NOBO Concept

• OBOs do not disclose their identity, contact information and security holdings

Who Navigates this Complexity?97% of intermediaries have contracted with Broadridge to perform the required functions

The basic steps to conduct a vote:

• generate voter list

• deliver proxy materials

• collecting voting instructions

Issue 1: Vote ReconciliationTwo principal challenges noted by the CSA:

1. Valid Votes Discarded

• validly submitted proxy votes may be discarded if they cannot be properly matched

2. One Share Voted More Than Once

How to ensure the same share is not voted by:

• a lender and a borrower

• a seller and a purchaser with a restricted proxy

Issue 2: End-to-End Vote ConfirmationInvestors want confirmation that their vote was received by the issuer and entered as instructed

Absence of confirmation creates doubt as to whether the investor's voting instructions have been properly carried out

The closer the vote, the greater the anxiety

Proposed Solutions?The CSA is mostly still asking questions, but says:

• more accurate vote reconciliation may in the long term require changes to record date and proxy cut-off dates and technology investments

• Broadridge has started to develop end-to-end vote confirmation functionality

Expect more dialogue and eventually reforms as the CSA formulates a regulatory response


The Underground Scene:Mining Disclosure Update• Recent statements on mining disclosure by

Canadian securities regulators• OSC: Report on Staff's Review of Technical Reports by

Ontario Mining Issuers• BCSC: 2012 Mining Report• CSA: Mining Technical Reports – Preliminary Economic

Assessments• CSA: 2013 Continuous Disclosure Review Program

OSC: Review of Technical Reports• OSC reviewed technical reports of 50 Ontario

mining issuers• Over 50% of sample were TSX listed• Almost 60% were at "resource" stage• "Unacceptable level of compliance" with Form 43-101F1

– 80% reviewed were non-compliant– Half of these were regarded as "minor non-compliance"

• 40% of reports had a "major non-compliance" issue

OSC Review:Significant Non-compliance• Areas of most frequent non-compliance • Mineral resource estimates

– 25% failed to disclose adequately key assumptions, parameters and methods used to determine the mineral resource

• Environmental studies, permitting, social/community impact– For advanced properties, one-third did not have adequate disclosure

• Economic Analysis– At PEA stage, 40% of reports did not address taxation matters

properly in the economic analysis– 37% had some other deficiency

OSC Review:More non-compliance• Other areas of frequent non-compliance• Capital and operating costs

– For advanced properties, 26% failed to provide summary information of capital and operating costs

• Interpretation and conclusions– 36% did not discuss project specific significant risks or uncertainties

that could affect the information in report

• Technical compliance issues

BCSC:2012 Mining Report• BCSC conducted mining technical reviews on

issuer's entire disclosure record– Up to 20 separate disclosure documents for an issuer

• Results of Reviews– Required filings 65% compliant with mining rule– Voluntary filings 50% compliant with mining rule

• Targeted review of 82 issuers – 34 placed in default– 13 required correction of disclosure– 31 issued clarifying news releases

BCSC Report: Common Deficiencies

• Common deficiencies found in Targeted Review• Non-compliant disclosure of reserves and resources• Not using proper cautionary language and description of context when required by Mining Rule

• Failure to file current or compliant technical report• Disclosure not timely, factual or balanced

BCSC Report:Compliance Deficiencies

• Metal Pricing Assumptions– Assumptions must be stated in report – Sensitivities must show positive and negative variances

• Resource Estimation– Technical report must discuss how reasonable prospects of economic

extraction were established– Must use appropriate geological model for deposit type, with

reasonable constraints on mineralization– QP must have relevant experience

BCSC and CSA:Mining Studies and PEAs • Mining Studies (pre-feasibility or feasibility studies)

– BCSC issued caution about disclosing commencement of mining studies prior to establishing resources

• Preliminary Economic Assessments (PEAs)– CSA highlighted concerns in separate Staff Notice– PEAs can use inferred resources, while a pre-feasibility or feasibility

study may not use inferred resources– Can be helpful for issuer when assessing the viability of change to

existing or proposed operation different from mining study– CSA may force restatement or announcement if being used as mining

study

CSA:2013 CD Review Program • The 2013 CSA CD Review Program reiterated

some of BC and Ontario's concerns

• Cited common deficiencies for mining issuers

– Incomplete or inadequate compliance with disclosure rules

– Non-compliant certificates and consents of QPs for technical reports

– Disclosure of scientific and technical information does not include name of QP that prepared or supervised preparation

6. What Was Missing:2013 CSA CD Review Program

What Was Missing: The Numbers• 2013 CSA Continuous Disclosure Review Report• Over 1,300 Reviews

– 25% full reviews – 75% issue oriented reviews

• Results– No action required – 53%– Prospective changes – 26%

• Disclosure enhancements required for next scheduled filing– Refilings – 14%– Enforcement – 5%– Education and awareness – 2%

2013 CSA CD Review: Issue Oriented Review Topics• 2013 Issue oriented review subjects:• Mining and Oil & Gas technical disclosure (24%)• Cash flow (19%)• IFRS transition (12%)• Operating segments (7%)• Other (38%)

– Defined benefit plans– Risk disclosure– Forward looking information– Certification of controls and procedures– BARs and press releases

Deficiencies: Cash Flow Disclosure• Cash Flow Disclosure

– Both securities laws (MD&A) and GAAP (financials) apply

• Common deficiencies are disclosure that does not• Properly classify cash flows• Discuss exposure to liquidity risks from financial instruments• Address why non-GAAP cash flow financial measures are useful to

investors• Describe fully the issuer's liquidity• Set out detail of issuer's debt facilities

Deficiencies:IFRS/Operating Segments• IFRS Transition disclosure deficiencies

– Description of the effect of the transition on the issuer– Failure to reconcile with previously used Canadian GAAP

• Operating Segments disclosure deficiencies– Does not set out geographic areas and major customers– No description of other business activities and operating segments

that are not separately reportable– No restated comparative period segment data reflecting a change in

reportable segments– Incomplete analysis of reportable segments in MD&A

Deficiencies:Financial Statements• Disclosure of management's use of its judgement

– Use of estimates well disclosed, but not where judgement used

• Impairment of goodwill– Need to disclose information on each cash generating unit for which

carried goodwill is significant compared to total carrying amount

• Going concern– Inconsistent information between disclosure in financials and in

auditor's report

MD&A Deficiencies:Liquidity• Liquidity• Too much focus on short-term project completion or expanding operations

• Assess liquidity needs in the long term to fund development activities or meet planned growth

• Address working capital deficiencies in detail– What will be done to fix deficiency

• Amend credit agreements? • Cost cutting? • Capital raise?

MD&A Deficiencies:Operations• Operations• Need to discuss what caused period over period changes• Revenue analysis should address

• Selling prices• Volume or quantity• New products or services • New competitor • Other external changes

– Effect should be quantified where possible

• Discuss changes for each reportable segment

MD&A Deficiencies:Related Party Transactions• Related Party Transactions

– MD&A disclosure standard different than accounting requirement– Cannot simply repeat footnote from financial statement– For MD&A, must

• Identify related party• Discuss business purpose of transaction• Discuss measurement basis used • Discuss ongoing commitments

Other Deficiencies• Oil & Gas Issuers

– Failure to adopt current form of 51-101F1, Non-compliance with rules about disclosure of non-reserve information

– Classification to the most specific category of resources– Summation across categories of resources– Disclosure of high case estimates for resources

– Boilerplate disclosure of significant factors and uncertainties regarding proved and probable reserves

• Certifications for Venture Issuers– When discuss ICFR and DC&P in MD&A, must use cautionary

language if full control framework and evaluation methods not used– Where are certificating voluntarily, use full certificate for non-venture

• Executive Compensation • file within 140 days (may be in AIF or as stand alone document)

Forward Looking Information• In June OSC issued a staff notice regarding the use of forward looking information (FLI)

• Identified four areas where improvement necessary:– Clear identification of FLI– Disclosure of the material factors or assumptions used to develop FLI– Updating previously disclosure FLI– Comparison of actual results to FOFI or Financial Outlook previously

disclosed

• Notice has extensive (and lengthy) examples of what Staff consider good disclosure

7. Social Media: To Tweet or Not to Tweet

Overview

• Increased use of social media to communicate with investors

• Concerns of regulators: widespread dissemination of material information

• US regulators have directly addressed the topic

• Canadian regulators have not

Regulation Fair Disclosure

• Regulation FD was introduced by SEC in August 2000

• When an issuer discloses material non-public information to certain enumerated persons it must make public disclosure of that information

• Disclosure made through a recognized channel of distribution reasonably designed to effect broad, non-exclusionary distribution of the information to the public

Netflix Case

• July 2012: CEO uses personal Facebook to page announce record streaming of content for June

• Social media never used before by Netflix

• No 8K filed and same day press release did not include the disclosure

• Stock price went up

SEC Response

• SEC elected not to take enforcement action

• Clarified application of Reg FD to social media

• Fact specific analysis

• Investors need notice of method of disclosure

Canadian Landscape

• TSX: disclosure by the Internet alone is not sufficient and an issuer must continue to use traditional means of dissemination

• OSC allows electronic dissemination for corporate filings

• OSC has not yet adopted rules allowing the use of social media for purposes of disseminating material information

What You Should Be Concerned About

• Selective disclosure issue?

• How is it monitored?

• Who should have the right to disclose?


OverviewOn June 25, 2013, Aequitas Innovations Inc. announced its intent to establish a new Canadian stock exchange

On August 13, 2013, OSC Staff published a notice and request for comments

Comment period ends on September 27, 2013

Aequitas intends to submit a formal application for recognition as an exchange by the end of 2013

What Is Aequitas?"Aequitas" is Latin for fairness

Backers include:

• Royal Bank of Canada

• CI Investments

• IGM Financial

• PSP Investments

New equities exchange for issuers who list on Aequitas or are listed on the TSX or TSX Venture

Do We Need A New Exchange?Aequitas says:

• predatory trading behaviour, particularly certain high-frequency trading (HFT) practices, are adversely impacting the quality of the market

• impairs the quality of execution, negatively affects liquidity and results in excessive costs

• exchanges now geared to maximize short-term profitability, catering to volume and revenue-generating HFT at the expense of long-term investors and issuers

Legitimate Criticisms?Competition has emerged during recent years

Currently six "visible" markets other than the TSX and the TSX Venture and four "dark" markets

However, similar concerns have been raised by other investors and market participants

Legitimate Criticisms? (cont'd)Concerns:• a lack of meaningful competition on cost issues• complexity of multiple marketplaces – increased costs• market makers unable to make a reasonable profit • "maker-taker" pricing has led to increased friction and fees• HFT firms are crowding out traditional investors

IIROC study on HFT lends support to concerns

The Regulatory Framework The principles:

• liquidity, transparency, price discovery, competition, innovation, market integrity and fairness

The rules:

• best execution based on price, certainty, speed of execution and transaction costs

• fair access – displayed orders should be accessible to all

Order Protection RuleKey regulatory concept: "order protection rule" or OPR

• fair access by requiring all displayed orders to be accessible to all

• best execution by ensuring that better-priced orders are executed before inferior-priced orders

• imposes efficiency and transparency on fragmented, competing marketplaces

The Dark Side …The CSA and IIROC have also developed "dark rules"

• price determined by reference to other visible quotes, bypassing normal price discovery process

• benefits include minimizing market impact costs associated with a large block trades

• risks include diversion of orders to dark pools –adverse impact on price discovery process and liquidity

• special rules designed to limit risks

What is Unique About the Aequitas Proposal?Segmented Order Flow. Structure comprised of three order books:• Dark – similar to other dark pools

• Hybrid – similar to visible pools but less transparency

• Lit – traditional displayed book

Hybrid book a unique innovation - would display aggregate liquidity but no resting order information

Each pool has features favouring traditional institutional and retail investors

What is Unique about Aequitas? (cont'd)More Sustainable Market Making. New priority incentives; participation by certain non-registrants

Access to Technology. Affordable smart order routers with broader accessibility

Lower Costs. A low fee model for Dark and Hybrid books and discounts for retail trading networks

Exempt Market Platform. A centralized marketplace for exempt securities to facilitate secondary trading

OSC ConcernsBy favouring "natural" investors, Aequitas would not treat all investors equally

1. Hybrid market would limit access; best prices not always executed; risk of undermining traditional price discovery process

2. Priority access to market makers; investor confidence impaired if diminished likelihood of an investor's order being filled

3. Certain non-registered parties could act as market makers if sponsored by a registered dealer

The Aequitas ResponseProposals comply with the spirit of the rules

Rules should be interpreted in a broader context of principles of fairness, market integrity and innovation

Some restrictions on fair access reasonable if they shield investors from negative behaviours

Catalyst for change?

Regulators trying to encourage innovation and competition without compromising key principles


Expanding the Exempt Market?• Canadian securities regulators have been

reviewing the exempt market for securities

• Initial foray was CSA initiative regarding monetary thresholds in current exemptions– Are monetary thresholds still appropriate?

• OSC decided to expand its examination of the exempt market to consider additional capital raising exemptions

Why Expand the Exempt Market?

• OSC's rationale for expansion of review

– Importance of exempt market for capital formation, particularly in regard to small and medium sized enterprises (SMEs)

– Perception that current exempt market rules have not kept pace with global developments

– Issuer concern that regime could be enhanced to encourage capital formation

Round Two:Targeting SMEs

December 2012 Consultation Paper• Considered exemptions based on

– Investment knowledge– Registrant advice– Offering memorandum– Crowdfunding

• Also committed to obtaining more and better data about the exempt market

Round Three:Crowdfunding Survives

August 2013 Progress Report• Only previous proposal to survive was crowdfunding• Other prospectus exemptions now being considered for

Ontario:– Family, friends and business associates – Offering memorandum– Streamlined rights offering exemption

How to Equity Crowdfund

• Crowdfunding essentially a means of attracting many small contributions to finance a business or project

• OSC proposed a "straw man" in December 2012 • Issuer restrictions:

– Canadian incorporated and headquartered, no investment funds– Limited raises to < $1.5 million in any 12 month period– No advertisement, except on issuer or funding portal website– Limited types of securities

Protecting the Investor• Investor Protection Measures

• Investment limits – $2,500 in single investment; $10,000 in total for a calendar year

• Disclosure– Limited disclosure document – information statement– Include one year of financials; audited if proceeds >$500,000

• Risk Acknowledgement• Two day "cooling off" period• Ongoing disclosure

Finding the Crowd…• Funding Portal• A crowdfunding portal is the centralized website through which issuers may raise capital– OSC proposal contemplates all investments made through a

registered funding portal– OSC Staff still considering whether to register as dealer or adviser,

and appropriate category– OSC Staff will consider specific exemptions from the obligations of a

registrant based on the business model of the portal

• Appropriate regulation of funding portals appears to be the biggest open question for crowdfunding

Reaction to Crowdfunding Proposal

Comments on the crowdfunding proposal were mostly supportive

• However, significant potential problems were raised– Diminished investor protections– Informational asymmetry between investors and issuers– Lack of diligence role– Increased likelihood of fraud– Limited recourse and incentives of investors – Difficult to police small market with limited OSC resources

Designing the PortalsPortal design may help overcome some of these

issues• Currently the OSC is seeking input on appropriate level

of protection– Diligence obligations on portal

• Background checks on principals• Business diligence• Investor screening

– Additional services portal could offer

MaRS VX Platform

OSC granted relief in June 2013 to MaRS VX • MaRS VX similar to crowdfunding portal• MaRS VX received relief from some elements of

registrant obligations• No execution, settlement or clearance services


Background

• March 2013: CSA publishes proposed changes for comment

• Comment period ended June 12, 2013

• Current regime: press release and EWR at 10% or more and every additional 2%

• Alternative monthly reporting regime for passive investors

Threshold Changes

• 10% to 5%

• 2% decreases

• 1% changes?

• Below 5%

• Change in moratorium threshold?

Hidden Ownership

• Inclusion of "equity equivalent derivatives" in calculation

• "Long position" such as total return swaps and contracts of difference

• Not collars or options

Empty Voting and Securities Lending

• Investor has voting rights but no related economic interest

• SLA: transfer of title to securities for a fee

• Proposal requires greater transparency and clarifies application of rules

Institutional Investor Impact

• Existing alternative monthly reporting for passive investors

• Proposal would "disqualify" institutional investors who solicit or intend to solicit proxies

Enhanced Disclosure

• Investor's intentions and purpose of transaction

• "plans or future intentions":

• Mergers, changes in board, changes in constating documents, solicitation of proxies

• Material terms of SLAs

What Does It Mean For You?

• Better understanding of shareholder intentions?

• Better prepared for contested transactions?



2. Getting Your Deal Bought: Developments in Bought Deals




6. What Was Missing: 2013 CSA Continuous Disclosure Review Program

7. Social Media: To Tweet or not to Tweet




Selected Links

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Selected LinksContinuous Disclosure Links1. CSA Staff Notice 51-339 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2013http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20130718_51-339_cd-review-program.htm2. OSC Staff Notice 51-721 Forward-Looking Information Disclosurehttp://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20130613_51-721_forward-looking.htmMining Links3. OSC Staff Notice 43-705 Report on Staff’s Review of Technical Reports by Ontario Mining Issuershttp://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20130627_43-705_rpt-tech-rpt-mining-issuers.htm4. CSA Staff Notice 43-307 Mining Technical Reports – Preliminary Economic Assessmentshttp://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20120816_43-307_mining-tech-rpts.htm5. 4. BCSC 2012 Mining Reporthttp://www.bcsc.bc.ca/uploadedFiles/companies/Mining/2012_Mining_Report.PDF6. OSC Notice: 45-712 - Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raisinghttp://www.osc.gov.on.ca/documents/en/Securities-Category4/sn_20130828_45-712_progress-report.pdf

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Selected LinksContinuous Disclosure Links7. TSX Staff Notice on Director Electionshttp://tmx.complinet.com/en/display/display.html?rbid=2072&element_id=8568. CSA Consultation Paper 54-401 – Review of the Proxy Voting Infrastructure http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20130815_54-401_proxy-voting.htm9. OSC Staff Notice and Request for Comment Regarding Proposed Structure of Trading Facilities for a New Exchange Proposed to be Established by Aequitas Innovations Inc.http://www.osc.gov.on.ca/en/Marketplaces_xxr-aequitas_20130813_rfc-pro-structure.htm

Contact Information

Mindy B. [email protected]

Robert S. [email protected]

James R. [email protected]

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Top 10 Securities Law Developments that General Counsel