Early warning system and alternative monthly reporting system

The early warning system ensures that the marketplace is promptly informed of significant accumulations of securities of a reporting issuer that may influence control of that issuer. The requirements of the early warning system are set out in Part 5 of National Instrument 62-104 Take-Over Bids and Issuer Bids.

Under the early warning system, disclosure must be made when a person or company acquires ownership or control of 10 per cent or more of the outstanding securities of a class of voting or equity securities of an issuer. This reporting threshold drops to 5 per cent if the issuer becomes the target of a take-over bid. The full definitions of determining whether or not disclosure is required are established in NI 62-104.

If the initial reporting threshold is crossed, the acquiror must:

1. Issue and file a news release containing prescribed information before the opening of trading on the business day after the acquisition.
2. File an early warning report containing prescribed information within two business days of the acquisition.
3. Not acquire (or offer to acquire) beneficial ownership of, or control or direction over, any securities of the class in respect of which the early warning report was made (or securities convertible into that class) from the time the reporting requirement has been triggered until one business day after the early warning report is filed. This prohibition does not apply to persons who already hold 20 per cent or more of the securities of the particular class.

Subsequent early warning reports and news releases are required:

• for every increase or decrease of 2 per cent or more in the holdings of a 10 per cent security holder
• for every material change in information contained in a previously filed report
• if the security holder has fallen below the 10 per cent reporting threshold

The information required to be included in an early warning report and news release are set out in section 3.1 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103).

An alternative monthly reporting (AMR) system exists for certain types of entities who qualify as an "eligible institutional investor" (as defined in NI 62-103), which includes:

• financial institutions
• mutual funds that are not public in Canada
• regulated Canadian pension funds
• investment managers acting on behalf of investors on a fully discretionary basis
• certain kinds of entities that are eligible to make filings under the U.S. equivalent of AMR

The complete provisions of the AMR system can be found in NI 62-103.

The AMR system represents an exemption from reporting under the early warning system and provides a less onerous reporting system for institutional investors who have no current intention of acquiring control of the reporting issuer. It also applies to entities who are not soliciting proxies from security holders so as to contest director elections or a reorganization, amalgamation, merger, arrangement, or similar corporate action. These types of investors are permitted to report their holdings in reporting issuers at regular intervals, rather than on an immediate basis as is required under the early warning system. 

Generally, an eligible institutional investor is required to file an AMR report within 10 days of the end of the month when any of the follow occurs:

• it elects to begin filing under AMR, if it held 10% or more of the class at such time
• it increases its holdings to 10% or more
• its holdings cross (either going above or falling below) the following thresholds: 12.5%, 15%, or 17.5%
• its ownership drops below 10%
• there has been a material change in a prior to report

If an eligible institutional investor becomes disqualified from the AMR system, or elects to cease filing reports under the AMR system, it must:

1. Immediately issue and file a news release.
2. File a report within two business days after the news release.
3. Refrain from acquiring ownership of, or control or direction over, additional securities of the reporting issuer for a 10-day moratorium period (starting on the date the news release is filed).