CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
4.4 Dealings in Derivatives Dealings in derivatives are permitted in Canada. 4.5 Filing/Reporting Obligations Disclosure by 10% holders must be made of the material terms of any “related financial instru - ment” involving the issuer’s securities as well as any other “agreement, arrangement or under- standing that has the effect of altering, directly or indirectly” , the investor’s economic exposure to the issuer’s securities. Disclosure is also required of any securities lending arrangements. See 2.4 Antitrust Regulations for filing require - ments under competition laws. 4.6 Transparency Early warning reports and alternative monthly reports require disclosure of any plans or inten - tions that investors and joint actors may have relating to any changes in their security owner- ship, voting intentions or any material transac- tion they may propose. An eligible institutional investor will be disquali - fied from filing alternative monthly reports if the investor intends to propose a transaction that would result in it acquiring effective control. 5. Negotiation Phase 5.1 Requirement to Disclose a Deal Reporting issuers must immediately disclose all “material changes” . In the context of a proposed transaction, the threshold for a material change requiring disclosure is typically met when both parties have decided to proceed with a potential transaction and there is a substantial likelihood that the transaction will be completed. There is no bright-line test for this determination.
Certain Canadian stock exchanges require disclosure of all “material information” , which includes both material changes and material facts. Confidential material change filings and trading halts may be made in certain circum- stances. The acquisition by a reporting issuer of a pri - vate company will require disclosure only if the transaction is a material change for the reporting issuer. A transaction between two private com- panies carries no public disclosure obligation. 5.2 Market Practice on Timing Most acquisitions are announced publicly only once definitive acquisition agreements are signed. Companies tend to avoid disclosing a potential transaction at the non-binding letter of intent stage because the transaction may be tentative or uncertain and premature disclosure could unduly affect the share price or give poten - tial competitors or stakeholders time to mobilise in opposition prior to the issuer having any deal certainty. If the transaction is announced prema- turely, the target could suffer reputational harm Significant business combinations usually involve a thorough scope of due diligence including searches of public bankruptcy, lien and litigation registries, obtaining a corporate profile, and a review of public filings on SEDAR+, SEDI and other databases. Searches are typically run against the target company and its management and material sub- sidiaries; for privately held companies, they are also run against the selling shareholders. or face questions from regulators. 5.3 Scope of Due Diligence Diligence documents, such as financial state - ments and material contracts, will typically be
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