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On June 28 2004, amendments to Ontario Securities Commission (OSC) Rule 61-501 - Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions came into force. The Rule protects the interests of minority security holders of issuers by providing (i) greater disclosure regarding, (ii) an independent valuation of, and (iii) an effective veto over, certain transactions with perceived inherent conflicts of interest. It is expected that similar amendments will be made to Quebec Policy Statement Q-27, the only other Canadian jurisdiction to maintain equivalent rules.

In general, the amendments to the Rule:

  • expand the definition of insider bid to include bids made by anyone who was an insider of the target company at any time within the 12 months before the commencement of the bid;
  • provide clarification that the protection of the Rule will be afforded to security holders in any transaction (subject to certain exceptions) where such holders could be expropriated and forced to receive, without their consent, any combination of cash or securities (including other publicly traded securities) in exchange for their securities of the issuer;
  • exempt downstream transactions from the rules relating to business combinations and related party transactions;
  • exempt certain junior issuers from the formal valuation requirement under the business combination and related party transaction rules;
  • indicate that formal valuations are not required for financial assets involved in a related party transaction, provided that all material information regarding the issuer and its securities have been previously publicly disclosed;
  • exempt certain junior issuers from the minority approval requirement in connection with related party cash financing transactions of C$2.5 million ($1.86 million) or less; and
  • exempt from the collateral benefit prohibition certain customary and non-coercive benefits provided to related parties in connection with their service as employees, directors or consultants of an issuer.

The full text of the OSC's amendments to the Rule can be obtained from the OSC's web site:

Bryce Kraeker

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