Deemed Ownership – Securities Regulation

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You are Deemed to own Shares you have a right to acquire within 60 days of the date of any takeover bid (i.e. options)

  1. Sections 89(5) and 90(1)
  • 89(5) Deemed convertible securities: For the purposes of this Part,

o (a) a security shall be deemed to be convertible into a security of another class if, whether or not on conditions, it is or may be convertible into or exchangeable for, or if it carries the right or obligation to acquire, a security of the other class, whether of the same or another issuer; and

(b) a security that is convertible into a security of another class shall be deemed to be convertible into a security or securities of each class into which the second-mentioned security may be converted, either directly or through securities of one or more other classes of securities that are themselves convertible.

90 (1) Deemed beneficial ownership***

For the purposes of this Part, in determining the beneficial ownership of securities of an offeror or of any person or company acting jointly or in concert with the offeror, at any given date, the offeror or the _person or company shall be deemed to have acquired and to be the beneficial owner of a security, including an unissued security, if the offeror or the person or company is the beneficial owner of a security convertible into the security within 60 days _ following that date or has a right or obligation permitting or requiring the offeror or the person or company, whether or not on conditions, to acquire beneficial ownership of the security within 60 days, by a single transaction or a series of linked transactions.

  1. Sample problems – “Sunlor”

What matters:

  • Order of Purchase
  • Who Purchasing From

Question 1: If on Day 1, I own 10%, on Day 4, I have an option from the company to purchase 9% of shares exercisable at any time, and on day 6, I consider buying 2% on the open market. Is the acquisition of 2% a takeover bid?

  • Yes ^ Own 10%, deemed to own 9% that I can exercise from company (will be outstanding if I buy them), and then I buy 2% = puts me over 20. I bought the portion that put me over 20% and the portion that gives me control (so paying a premium for these) on the open market (I bought 2% of OUTSTANDING shares, which puts me over 20% total ownership) ^ I have to issue a takeover bid circular to all SHs to treat them equally and not give a premium to the SH from whom bought that last 2 on the open market

Question 2: On Day 1, I own 10%, on Day 4, I have option to purchase 9% from an individual, exercisable at any time, and then on day 6, I consider buying 2% on the open market. Is the acquisition of 2% a takeover bid?

  • Yes ^ still exercisable at any time, deemed 19%, and the 2% puts me over.

Question 3: Day 1, I own 10%. Day 4, I have option from an individual to purchase 9% of common shares exercisable in 6 months. Then on day 6, I consider buying 2% on open market.

  • (a) Is the acquisition of 2% a takeover bid?

o No ^ because I only own 12% and that’s all I’m deemed to own (I can’t exercise option in the next 60 days)

  • b) When I exercise the option for 9%, is it a takeover bid?

o Yes ^ I own 12% after buying on market, and the 9% of outstanding shares from the person puts me over.

Question 4: Own 10% on day 1, option from company to purchase 9% in six months, on day 6 I consider buying 2% on open market.

  • (a) Is acquisition of 2% a takeover bid?

o No, again, I only own 12% with the option to take the 9 in six months.

  • (b) When I exercise option for 9% is it a takeover bid?

o No ^ because if I’ve bought 2% on open market, I now own 12%. I’m then purchasing shares from the COMPANY, meaning that I’m not buying outstanding shares that put me over the 20% (so not being unfair to SHs by offering a premium to some SHs over others for control, it’s going to the company, which really means it’s going to the SHs) o The whole purpose for takeover bid legislation is that when you buy control at a premium it belongs to ALL shareholders because, in theory, they helped to create value o POLICY: premiums are to be shared by all shareholders equally; therefore, if there are not premiums resulting from the proposed transaction (i.e. option being exercised from the company) there is no problem

  • Thus, control can be sold by the company and its not a problem b/c the value of that control goes to the company and indirectly to all shareholders
  • Only when you’re buying outstanding (already issued) shares from other SHs would you be giving a bigger premium to those SHs ^ this does exactly what the takeover bid legislation is designed to do

• ALSO, ORDER: you bought the part that put you over 20 on the open market, order matters… what you pay for first 49 shares isn’t what you pay for 50 and 51 and 20 is new 50

  1. Mechanics of a Vendor Takeover Bid

**remember each of these is achieving one of three things in order to achieve the overall objective of protecting SHs of the target company: (a) time, (b) information to SHs and (c) equality

*Two types:

  1. Vendor Takeover Bid and

o If I own no shares of a public company, I can buy as many as I want from wherever, whoever, I don’t have to tell anyone anything.

o When I hit 10%, have insider reporting and early warning, and every 2% thereafter until I hit 20. o When I hit 20%, in takeover bid regime.

  1. Exempt Takeover Bid (see rules below, 100 and 100.1 of OSA)

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