THE MATRIX
TO DEFINING
DIRECTOR
INDEPENDENCE
IN CANADA
André Boivin
January 2017
TABLE OF
DIRECTOR INDEPENDENC
INDEPENDENCE IN CANADA.........................
......................... 1
CONTENTS
DIRECTOR INDEPENDENC
INDEPENDENCE MATRIX...............................
............................... 3
TSX Listed Companies ................................................................
.................................................. 3
General Governance Independence – Board Composition
3
NP 58--201 Part 2 and Part 3, NI 58-101 and NI 52-110
110 Sections 1.4
and 1.5 and 3
3
ISS Voting Guidelines Section 2
5
Glass Lewis Approach Section I
7
Globe’s Board Games Section 1
8
CCGG Guideline 2
9
CBCA Section 171
9
Independence in the Context of Transactions
10
MI 61-101
101 Part 7
10
CBCA Section 120
11
TSX Company Manual
12
AUTHOR PROFILE: ANDRÉ BOIVI
BOIVIN ................................ 13
© 2017 Cassels Brock & Blackwell LLP. All rights reserved.
pg | i
DIRECTOR INDEPENDENCE IN
CANADA
One of the main pillars of good corporate governance in Canada is the independence of the board.
So, it should be fairly straightforward for everyone to identify what exactly is an independent
director. But it is not. It depends on whose standards one uses to look at the question. It also
depends on the situation in connection with which the question arises.
For “general governance,”
ernance,” Canadian securities regulatory authorities have adopted National Policy
58-201 — Corporate Governance Guidelines (“NP 58-201”)
201”) to provide public companies with
guidance on corporate governance with a view to achieving the right balance between providing
pr
protection to investors and maintaining fair and efficient capital markets. NP 58-201,
58
in conjunction
with National Instrument 58
58-101 — Disclosure of Corporate Governance Practices (“NI 58-101”)
and National Instrument 52
52-110 — Audit Committees (“NI 52-110”)
110”) set out the regulatory guidance
and requirements with respect to the composition and operation of public company boards. NP 5858
201 provides that boards should have a majority of independent directors and that the chair of the
th
board should be independent. If a corporation does not have an independent chair, an independent
director should be appoin
appointed to act as “lead director.” The audit committee of a non-venture
non
issuer
must be composed entirely of independent directors. A director is consider
considered
ed independent if he or
she has no direct or indirect “material rela
relationship” with the corporation. A “material relationship”
is one which could, in the view of the board, be reasonably expected to interfere with the exercise of
the director’s independent judgement. NI 52-110
110 also sets out some specific instances in which
directors would be deemed not to be independent.
But in addition to the body of regulatory guidance and requirements with respect to board
independence referred to above, public companies are also subject to the expectations of
institutional shareholders, most notably as a result of the activities of proxy advisory firms that have
their own definitions of independence and associated standards with respect to board composition.
Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”) are
amongst the most influential shareholder advisory organizations. They each set out their own
corporate governance guidelines which are often different from, and even more extensive
ext
than,
mandatory requirements or guidelines from the regulators. These organizations review a
corporation’s governance practices and advise Canadian shareholders on how to vote their shares
based on their standards. These firms have a strong influenc
influencee on shareholder decision-making.
decision
The media also brings its own influence on independence determina
determinations
tions by public company boards.
In particular, companies in the S&P/TSX composite index will often seek to rank high on the Globe
& Mail’s Board Games Repor
Report,
t, which is an annual ranking of the governance practices of
companies forming part of such index, and this ranking is based on the Globe’s own governance
definitions and benchmarks
benchmarks, which again differ from regulatory standards.
In addition to the foregoi
foregoing
ng general governance standards, there is another different layer of
independence requirements that is often confused with the foregoing general governance notion of
independence. It is the concept of independence in the context of specific transactions, or
o in other
words, the notion that a director should be free of any conflicts with respect of certain transactions
rather than in respect of management. Indeed, corporate law, securities law and stock exchange rules
prescribe specific requirements to ensure directors who are independent of conflicts with respect to a
transaction play a special role in the approval process of such transaction. And it is not because a
director is independent under the general governance standards of NP 58
58-201
201 and ISS guidelines
guideline that
pg | 1
he or she will be independent of conflicts with respect to a specific transaction. For example a board
member of company X who is independent of company X under NP 58
58-201
201 will not generally be
considered independent (i.e., free of conflicts) in the context of an acquisition of company X by
company Y, if the said director is also the CEO and a major shareholder of company Y.
So, in short, when a client calls a lawyer to ask if a director is independent, the client often finds the
answer much more nuan
nuanced
ced than he or she expected. There is a myriad of sources of standards that
are to be considered and the context of the question (i.e.
(i.e., is it for governance in general or for a
specific transaction) will also have an impact on the parameters that will need to be considered for
the analysis.
The following is simply a matrix assembling all in one place the key definitions and standards from
the various relevant sources as they relate to director independence as they may apply to a company
listed on the Torontoo Stock Exchange (the “TSX”) in the context of (a) general corporate governance
board composition; and (b) a transaction where conflicting interests for a director may arise.
pg | 2
DIRECTOR INDEPENDENCE MATRIX
TSX LISTED COMPANIES
General Governance Independence – Board Composition
NP 58-201
201 Part 2 and Part 3, NI 58
58-101 and NI 52-110
110 Sections 1.4 and 1.5 and 3
Independence Criteria
1.4 Board member independence
(1) A board member is independent if he or she has no direct or indirect
material relationship with the issuer.
(2) For the purposes of subsection (1), a “material relationship” is a
relationship which could, in the view of the issuer's board of directors,
be reasonably expected to interfere with the exercise of a member's
independent judgement.
udgement.
(3) Despite subsection (2), the following individuals are considered to
have a material relationship with an issuer:
(a) an individual who is, or has been within the last three years, an
employee or executive officer of the issuer;
Application
The majority of the board should be
independent directors.
The Chair of the board should be an
independent director or a lead
director who is an independent
indep
director should be appointed.
The board should appoint a
nominating committee and a
compensation committee, each of
which should be composed entirely
of independent directors.
(b) an individual whose immediate family member is, or has been within
the last three years, an executive officer of the issuer;
(c) an individual who:
(i)
is a partner of a firm that is the issuer's internal or external
auditor,
(ii) is an employee of that firm, or
(iii) was within the last three years a partner or employee of that
firm and personally worked on the issuer's audit within that
time;
(d) an individual whose spouse, minor child or stepchild, or child or
stepchild who shares a home with the individual
individual:
(i)
is a partner of a firm that is the issuer's internal or external
auditor,
(ii) is an employee of that firm and participates in its audit,
assurance or tax compliance (but not tax planning) practice, or
(iii) was within the last three years a partner or employee of that
firm and personally worked on the issuer's audit within that
time;
(e) an individual who, or whose immediate family member, is or has
been within the last three years, an executive officer of an entity if
any of the issuer's current ex
executive officers serves or served at that
same time on the entity's compensation committee; and
(f) an individual who received, or whose immediate family member who
is employed as an executive officer of the issuer received, more than
$75,000 in direct com
compensation from the issuer during any 12 month
period within the last three years.
(4) […..]
(5) For the purposes of clauses (3)(c) and (3)(d), a partner does not
include a fixed income partner whose interest in the firm that is the
internal or external aud
auditor is limited to the receipt of fixed amounts of
compensation (including deferred compensation) for prior service with
pg | 3
Independence Criteria
Application
that firm if the compensation is not contingent in any way on continued
service.
(6) For the purposes of clause (3)(f), direct compensa
compensation does not
include:
(a) remuneration for acting as a member of the board of directors or of
any board committee of the issuer, and
(b) the receipt of fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior servi
service with the issuer if
the compensation is not contingent in any way on continued service.
(7) Despite subsection (3), an individual will not be considered to have a
material relationship with the issuer solely because the individual or his
or her immediate family member
(a) has previously acted as an interim chief executive officer of the
issuer, or
(b) acts, or has previously acted, as a chair or vice
vice-chair of the board of
directors or of any board committee of the issuer on a part
part-time basis.
(8) For the purposes of section 1.4, an iss
issuer includes a subsidiary entity
of the issuer and a parent of the issuer.
1.5 Additional Independence Parameters specific to Audit
Committee members
(1) Despite
ite any determination made under section 1.4, an individual who
Every issuer must have an audit
committee. Every audit committee
member must be independent
(a) accepts, directly or indirectly, any consulting, advisory or other
compensatory fee from the issuer or any subsidiary entity of the
issuer, other than as remuneration for aacting in his or her capacity as
a member of the board of directors or any board committee, or as a
part-time
time chair or vice
vice-chair of the board or any board committee; or
(b) is an affiliated entity of the issuer or any of its subsidiary entities is
considered
ed to have a material relationship with the issuer.
(2) For the purposes of subsection (1), the indirect acceptance by an
individual of any consulting, advisory or other compensatory fee
includes acceptance of a fee by
(a) an individual's spouse, minor chi
child or stepchild, or a child or
stepchild who shares the individual's home; or
(b) an entity in which such individual is a partner, member, an officer
such as a managing director occupying a comparable position or
executive officer, or occupies a similar po
position (except limited
partners, non-managing
managing members and those occupying similar
positions who, in each case, have no active role in providing services
to the entity) and which provides accounting, consulting, legal,
investment banking or financial adviso
advisory services to the issuer or any
subsidiary entity of the issuer.
(3) For the purposes of subsection (1), compensatory fees do not include
the receipt of fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior serv
service with the issuer if the
compensation is not contingent in any way on continued service.
pg | 4
ISS Voting Guidelines 1 Section 2
Independence Criteria
1. Inside Director(I)::
i
1.1 Employees of the company or its affiliates ;
1.2 Non-employee
employee officer of the company or its affiliatesi if he/she is among the five
most highly compensated;
Application
Generally ISS will
recommend that vote be
withheld for any insider
or affiliated outside
director where:
1.3 Current interim CEO or any other current interim executive of the company or its
affiliatesi;
›
1.4 Beneficial owner of company shares with more than 50 percent of the
outstanding voting rights (this may be aggregated if voting power is distributed
among more than one member of a group)ii.
The board is less
than majority
independent; or
›
The board lacks a
separate
compensation or
nominating
committee.
2. Affiliated Outside Director
Director(AO):
Former/Interim CEOiii
2.1 Former CEO of the company or its affiliatesi within the past five yearsiv or of an
acquired company within the past five years.
2.2 Former interim CEO of the company or its affiliatesi within the past five yearsiv if
the service
ervice was longer than 18 months or if the service was between 12 and 18
months and the compensation was high relative to that of the other directors or in
line with a CEO’s compensationv at that time.
2.3 CEO of a former parent or predecessor firm at the time the company was sold or
split off from the parent/predecessor within the past five yearsiv.
ISS will recommend to
withhold voting for
individual directors
who are insiders and are
members of the audit,
compensation or
nominating committee.
Non-CEO Executivesiii
2.4 Former executive of the company, an affiliate, or a firm acquired within the past
three years;
2.5 Former interim executive of the company or its affiliatesi within the past three
years if the service was longer than 18 months or if the service was between 12
and 18 months, an assessment of the interim executive's terms of employment
including compensation relative to other dir
directors or in line with the top five
NEOs at that time.
2.6 Executive of a former parent or pr
predecessor firm at the time the company was
sold or split off from parent/predecessor within the past three years.
2.7 Executive, former executive of the company or its affiliatesi within the last three
years, general or limited partner of a joint venture or partnership with the
company;
Relatives
2.8 Relativevi of current executive officervii of the company or its affiliatesi;
2.9 Relativevi of a person who has served as an executive officer of the company or
its affiliatesi within the last three years;
Transactional, Professional, Financial, and Charitable Relationships
2.10 Currently provides (or a relativevi provides) professional services to the
company, its
ts affiliatesi or to its officers;
2.11 Is (or a relativevi is) a partner, controlling shareholder or an employee of, an
organization that provides professional services to the company, to an affiliate of
the company, or to an individual officer of the company or one of its affiliatesi.
2.12 Currently employed by (or a relativevi is employed by) a significant customer or
supplierix of the company or its affiliatesi
2.13 Is (or a relativevi is) a trustee, director or employee of a charitable or non-profit
organization that receives materialix grants or endowments from the company or
its affiliatesi.
vi
2.14. Has, or is (or a rrelative is) a partner, controlling shareholder or an employee
of, an organization that has a transactional relationship with the company or its
affiliatesi, excluding investments in the company through a private placement.
pg | 5
Independence Criteria
Application
Other Relationships
2.15 Has a contractual/guaranteed board seat and is party to a voting agreement to
vote in line with management on proposals being brought to shareholders.
2.16 Founderxi of the company but not currently an employee.
2.17 Has any material relationship with the company or with any one or more
members of management of the company.
Board Attestation
2.18 Board attestation that an outside director is not independent.
3. Independent Outside Directors(IO):
3.1 No material ties to the company other than board seat.
Footnotes:
I
"Affiliate" includes a subsidiary, sibling company, or parent company. ISS uses
50 percent control ownership by the parent company as the standard for applying
its affiliate designation.
ii
Under this definition, officers of an entity and/or its affiliates holding more than
50 percent of the outstanding voting rights will be considered insiders.
iii When there is a former CEO or other officer of a capital pool company (CPC) or
special purpose acquisition company (SPAC) serving on the board of an acquired
company, ISS will generally classify such directors as independent un
unless
determined otherwise taking into account the following factors: the applicable
listing standards determination of such director’s independence; any operating
ties to the firm; and the existence of any other conflicting relationships or related
party transactions.
ransactions.
iv The determination of a former CEO's classification following the five year
cooling-off
off period will be considered on a case
case-by-case basis. Factors taken into
consideration may include but are not limited to: management/board turnover,
current
rent or recent involvement in the company, whether the former CEO is or has
been Executive Chairman of the board or a company founder, length of service
with the company, any related party transactions, consulting arrangements, and
any other factors that m
may reasonably be deemed to affect the independence of
the former CEO.
v
ISS will look at the terms of the interim CEO's compensation or employment
contract to determine if it contains severance pay, long
long-term health and pension
benefits or other such sstandard provisions typically contained in contracts of
permanent, non-temporary
temporary CEOs. ISS will also consider if a formal search
process was underway for a full
full-time CEO.
vi Relative refers to immediate family members including spouse, parents, children,
siblings, in-laws
laws and anyone sharing the director's home.
vii Executive Officer will include: the CEO or CFO of the entity; the president of
the entity; a vice-president
president of the entity in charge of a principal business unit,
division or function; an offi
officer of the entity or any of its subsidiary entities who
performs a policy making function in respect of the entity; any other individual
who performs a policy
policy-making function in respect of the entity; or any executive
named in the Summary Compensation Tabl
Table.
viii The terms "Currently", "Is" or "Has" in the context of Transactional,
Professional, Financial, and Charitable Relationships will be defined as having
been provided at any time within the most recently completed fiscal year and/or
having been identified at any time up to and including the annual shareholders'
meeting.
ix If the company makes or receives annual payments exceeding the greater of
$200,000 or 5 percent of recipient's gross revenues (the recipient is the party
receiving proceeds ffrom the transaction).
x
"Material" is defined as a standard of relationship (financial, personal or
otherwise) that a reasonable person might conclude could potentially influence
pg | 6
Independence Criteria
Application
one's objectivity in the boardroom in a manner that would have a meaningf
meaningful
impact on an individual's ability to satisfy requisite fiduciary standards on behalf
of shareholders.
xi The company's public disclosure regarding the operating involvement of the
Founder with the company will be considered. If the Founder was never
employed
mployed by the company, ISS may deem the Founder as an independent outsider
absent any other relationships that may call into question the founding director's
ability to provide independent oversight of management.
Glass Lewis Approach 2 Section I
Independence Criteria
Application
Independent Director:
i
A director is independent if s/he has no direct or indirect material financial or familial
connections with the company, iii its executives, its independent auditor or other board
members, except for service on the board and the standard fees paid for that service.
Employee relationships that have existed within the past five years and other
relationships that have existed within the three years prior to the inquiry are usually
considered to be "current" for purposes of this test. However, Glass Lewis does not
apply the five-year
year look
look-back period to directors who have previously served as
executives of the company on an interim basis for less than one year.
ii
Affiliated Director:
A director is affiliated if s/he has a material, financial, familial or other relationship
with the company, its independent auditor or its executives, but is not an employee of
the company. This includes directors whose primary employers have a material
financial relationship with the company, as well as those who own or control at least
20% of the company's voting power. iv We note that in every instance in which a
company classifies one of its directors as non
non-independent, that director will be
classified as an affiliate by Glass Lewis.v
Inside Director:
An inside director is one who simultaneously serves as a director and as an employee of
the company. This categ
category may include a chairman of the board who acts as an
employee of the company or is paid as an employee of the company.
Footnotes:
i "Material" as used herein means a relationship where the dollar value exceeds: (i)
C$50,000 (C$25,000 for venture firms), or where no amount is disclosed, for
directors who personally receive compensation for a service they have agreed to
perform for the company, outside of their service as a director, including
professional or other services; (ii) C$100,000 (C$50,000 for ven
venture firms), or
where no amount is disclosed, for those directors employed by a professional
services firm such as a law firm, investment bank or consulting firm where the firm
is paid for services but not the individual directly (see section on TSX Ventur
Venture
Companies for exceptions). This dollar limit would also apply to charitable
contributions to schools where a board member is a professor, or charities where a
board member serves on the board or is an executive, or any other commercial
dealings between tthe company and the director or the director's firm; (iii) 1 % of
either company's consolidated gross revenue for other business relationships (e.g.,
where the director is an executive officer of a firm that provides or receives services
or products to or from
rom the company).
ii "Familial" as used herein includes a person's spouse, parents, children, siblings,
grandparents, uncles, aunts, cousins, nieces and nephews, in
in-laws, and anyone
(other than domestic employees) who share such person's home.
iii "Company"" includes any parent or subsidiary in a consolidated group with the
company or any entity that merged with, was acquired by, or acquired the company.
In general, at least a
majority of a board
should consist of
independent
directors.i However,
Glass Lewis believes
boards of
companies in the
S&P/TSX
Composite Index
should have at least
two thirds of
independent.
In the event that a
board fails to meet
these thresholds,
Glass Lewis typically
recommends
shareholders
withhold their votes
from some of the
inside and/or
affiliated directors in
order to satisfy these
independence
standards.
Only independent
directors should
serve on a company's
audit, compensation
and nominating
and/or governance
committees. As such,
Glass Lewis will
typically recommend
that shareholders
withhold their votes
from any affiliated or
inside director
seeking appointment
to these committees.
Footnotes
i NP58-201
pg | 7
Independence Criteria
Application
iv The CBCA stipulates that an associate of a person means (among other things) a
corporate body or perso
person
n that beneficially owns or controls, directly or indirectly,
shares or securities currently convertible into shares carrying more than 10% of the
voting rights.
v If the reason for a director's non
non-independent status cannot be discerned from the
company's documents, we will footnote the director in the board table as "Not
considered independent by the board." In all other cases where the director is
considered affiliated or is an insider, we will footnote the reasons or circumstances
for the director's sta
status.
Globe’s Boardd Games3 Section 1
Independence Criteria
Independent means directors have no links to
the company beyond their board role. That
means, for example, they are not
management, relatives of management,
former members of management within the
previous five years, or people whose firms
do business with the company — including,
for example, lawyers, accountants, suppliers,
or investment bankers. Directors will be
considered related if they are paid extra
compensation by the company for providing
non-board
board services, such as consulting work.
We also mark as related those directors who
are controlling shareholders of the company
or who work for a parent company that
controls the public subsidiary.
Application
1. What percentage of the company’s directors are fully
ful
independent? Four marks for boards with at least two-thirds
two
independents. Two marks if more than 50 per cent of directors
are independent. Zero marks if there is a majority of related
directors.
2. What percentage of the audit committee is fully independent?
indepen
Three marks if the committee is fully independent. One mark if
there are one or more related directors who are not
management. Zero marks if a member of management is on the
committee.
3. What percentage of the compensation committee — the
committee that determines executive pay — is fully
independent? Two marks if the committee is fully independent.
One mark if there are one or more related directors who are not
management. Zero marks if a member of management is on the
committee or if there is no committee.
mmittee.
4. What percentage of the nominating committee — the
committee responsible for recommending new directors to join
the board — is fully independent? Two marks if the committee
is fully independent. One mark if there are one or more related
directors who are not management. Zero marks if a member of
management is on the committee or if there is no committee.
5. Is the role of chairperson and CEO split? Five marks if the
roles are split and there is a fully independent
dependent chairperson. Two
marks if they are split, but the chairperson is a related director.
One mark if they are split, but the chairperson is a member of
management. Zero marks if the roles are not split. (Note: There
is no longer credit for not splitting
ing the roles but having a lead
director.)
pg | 8
CCGG Guideline4 2
Independence Criteria
“Independence” means a director is independent of management, does not have a
material relationship with the corporation and, except for director fees and share
ownership, does not financially benefit from his or her relationship with the
corporation. A material
terial relationship is any relationship that could interfere with a
director’s ability to exercise independent judgment or inhibit his or her ability to
make difficult decisions about management and the business. Examples of people
with material relationsh
relationships with the corporation include: employees of a corporation;
paid advisors or consultants to the corporation such as lawyers, accountants and
bankers; employees of a significant customer or supplier; anyone with a personal
services contract with the corpo
corporation;
ration; anyone affiliated with a foundation, university
or other non-profit
profit organization that receives significant grants or endowments from
the corporation; relatives of the CEO or of other executives of the corporation; and
those who are part of an inter
interlocking directorate (where the CEO or other executive
serves on the board of the corporation that employs the director).
Application
At least two thirds of
every board should be
independent of
management.
As much as possible, directors also should be independent of each other. For
example, boards should have policies to limit interlocking board relationships (i.e.,
when two directors of Company A sit on the board of Company B) and, in particular,
committee interlocks.
Too many interlocks suggests a degree of inter
inter-related interests that might be
detrimental to director independence.
Boards also should assess the “independent mindedness” of prospective and current
directors. Every member of a well
well-governed board should be willing to challenge
management and, if necessary, other members of the board.
CBCA5 Section 171
Independence Criteria and Application
Audit Committee
171. (1) Subject to subsection (2), a corporation described in subsection 102(2) shall, and any other corporation
may, have an audit
udit committee composed of not less than three directors of the corporation, a majority of whom
are not officers or employees of the corporation or any of its affiliates.
(2) The Director may, on the application of a corporation, authorize the corporation to dispense with an audit
aud
committee, and the Director
irector may, if satisfied that the shareholders will not be prejudiced, permit the corporation
to dispense with an audit committee on any reasonable conditions that the Director thinks fit.
(3) An audit committee shall review the fin
financial
ancial statements of the corporation before such financial statements
are approved under section 158.
pg | 9
Independence in the Context of Transactions
MI 61-1016 Part 7
Independence Criteria
7.1 Independent Directors:
(1) For the purposes
ses of the Instrument, it is a
question of fact as to whether a director of an issuer
is independent.
(2) A director of an issuer is not independent in
connection with a transaction if the director
(a) is an interested party (as defined in MI 61-101)
in the transaction,
(b) is currently, or has been at any time during the 12
months before the date the transaction is agreed
to, an employee, associated entity (as defined in
MI 61-101) or issuer insider of an interested
party, or of an affiliated entity (as defined in MI
61-101) of an interested party, other than solely
in his or her capacity as a director of the issuer,
(c) is currently, or has been at any time during the 12
months before the date the transaction is agreed
to, an adviser to an interested party in cconnection
with the transaction, or an employee, associated
entity or issuer insider (as defined in MI 61-101)
of an adviser to an interested party in connection
with the transaction, or of an affiliated entity of
such an adviser, other than solely in his oor her
capacity as a director of the issuer,
(d) has a material financial interest in an interested
party or an affiliated entity of an interested party,
or
(e) would reasonably be expected to receive a
benefit as a consequence of the transaction that is
not
ot also available on a pro rata basis to the
general body of holders in Canada of offeree
securities or affected securities, including,
without limitation, the opportunity to obtain a
financial interest in an interested party, an
affiliated entity of an in
interested party, the issuer
or a successor to the business of the issuer.
(3) A member of an independent committee for a
transaction to which the Instrument applies shall not
receive any payment or other benefit from an issuer,
an interested party or a succ
successor to any of them that
is contingent upon the completion of the transaction.
(4) For the purposes of this section, in the case of an
issuer bid, a director of the issuer is not, by that fact
alone, not independent of the issuer.
Application
The Instrument requires that a committee comprised
exclusively of independent directors
dire
(an “independent
committee”) play a role in certain circumstances:
Under the definition of “collateral benefit”, a benefit
received solely in connection with a related party’s
services as an employee,
mployee, director or consultant of the
issuer, of an affiliated entity of the issuer or of a
successor to the business of the issuer, shall not be
considered to be a collateral benefit if:
(I) the related party discloses to an independent
committee of the issuer the amount of consideration
that the related party expects it will be beneficially
entitled to receive, under the terms of the transaction
or bid, in exchange for the equity securities
beneficially owned by the related party,
(II) the independent committee,
mmittee, acting in good faith,
determines that the value of the benefit, net of any
offsetting costs to the related party, is less than five
per cent of the value referred to in subclause (I), and
(III) the independent committee’s determination is
disclosed
ed in the disclosure document for the
transaction, or in the directors’ circular in the case of
a take-over bid;
Under Section 2.3 of the Instrument, in the context of an
insider bid, the insider offeror must obtain a formal
valuation, and an independent committee
c
of the offeree
issuer shall, and the offeror shall enable the independent
committee to:
(a) determine who the valuator will be,
(b) supervise the preparation of the formal valuation,
and
(c) use its best efforts to ensure that the formal valuation
is completed and provided to the offeror in a timely
manner.
An independent committee may play a similar role in an
issuer bid, a business combination or a related party
transaction (Sections 3.3, 4.3 and 5.4)
The Instrument also requires that the issuer have one or
more independent directors in respect of the transaction
and that certain determinations by and at least two-thirds
two
of the issuer’s independent directors be made in respect
of certain matters for an issuer to rely on the “financial
hardship exemption”
mption” from valuation requirements in the
context of a related party transaction. (Section 5.5(g) of
the Instrument). Similar agreements exist for the
$2,500,000 fair market value exemptive from minority
approval (Section 5.7(1)(b) of the Instrument.
pg | 10
CBCA Section 120
Independence Criteria and Application
120. (1) A director or an officer of a corporation shall disclose to the corporation, in writing or by requesting to
have it entered in the minutes of meetings of directors or of meetings of committees of directors, the nature and
extent of any interest that he or she has in a material contract or material transaction, whether made or proposed,
with the corporation, if the director or officer:
(a) is a party to the contract or transaction;
(b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or
transaction; or
(c) has a material interest in a party to the contract or transaction.
Time of disclosure for director
(2) The disclosure required by subsection (1) shall be made, in the case of a director,
(a) at the meeting at which a proposed contract or transaction is first considered;
(b) if the director was not, at the time of the meeting referred to in paragraph (a), interested in a proposed
contract or transaction, at the first meeting after he or she becomes so interested;
(c) if the director becomes interested after a contract or transaction is made, at the first meeting after he or she
becomes so interested; or
(d) if an individual who is interested in a contract or transaction later becomes a director, at the first meeting
after he or she becomes a director. Time of disclosure for officer
(3) The disclosure required by subsection (1) shall be made, in the case of an officer who is not a director,
di
(a) immediately after he or she becomes aware that the contract, transaction, proposed contract or proposed
transaction is to be considered or has been considered at a meeting;
(b) if the officer becomes interested after a contract or transaction iiss made, immediately after he or she becomes
so interested; or
(c) if an individual who is interested in a contract later becomes an officer, immediately after he or she becomes
an officer.
Time of disclosure for director or officer
(4) If a material contra
contract
ct or material transaction, whether entered into or proposed, is one that, in the ordinary
course of the corporation’s business, would not require approval by the directors or shareholders, a director or
officer shall disclose, in writing to the corporatio
corporation
n or request to have it entered in the minutes of meetings of
directors or of meetings of committees of directors, the nature and extent of his or her interest immediately after
he or she becomes aware of the contract or transaction.
Voting
(5) A director required to make a disclosure under subsection (1) shall not vote on any resolution to approve the
contract or transaction unless the contract or transaction unless the contract or transaction
(a) relates primarily to his or her remuneration as a director, officer, employee, agent or mandatory of the
corporation or an affiliate;
(b) is for indemnity or insurance under section 124; or
(c) is with an affiliate.
Continuing disclosure
(6) For the purposes
oses of this section, a general notice to the directors decla
declaring
ring that a director or an officer is to be
regarded as interested, for any of the following reasons, in a contract or transaction made with a party, is a
sufficient declaration of interest in relation to the contract or transaction:
(a) the director or officer
ficer is a director or officer, or acting in a similar capacity, of a party referred to in
paragraph (1)(b) or (c);
(b) the director or officer has a material interest in the party; or
(c) there has been a material change in the nature of the director’s or the officer’s interest in the party.
Access to disclosures
(6.1) The shareholders of the corporation may examine the portions of any minutes of meetings of directors or of
committees of directors that contain disclosures under this section, and any other documents that contain those
pg | 11
Independence Criteria and Application
disclosures, during the usual business hours of the corporation.
Avoidance standards
(7) A contract or transaction for which disclosure is required under subsection (1) is not invalid, and the director
or officer is not accountable to the corporation or its shareholders for any profit realized from the contract or
transaction, because of the director’s or officer’s interest in the contract or transaction or because the director
was present or was counted to determine whet
whether
her a quorum existed at the meeting of directors or committee of
directors that considered the contract or transaction, if
(a) disclosure of the interest was made in accordance with subsections (1) to (6);
(b) the directors approved the contract or transac
transaction; and
(c) the contract or transaction was reasonable and fair to the corporation when it was approved.
Confirmation by shareholders
(7.1) Even if the conditions of subsection (7) are not met, a director or officer, acting honestly and in good faith,
is not accountable to the corporation or to its shareholders for any profit realized from a contract or transaction
for which disclosure is required under subsection (1), and the contract or transaction is not invalid by reason
only of the interest of the di
director or officer in the contract or transaction, if
(a) the contract or transaction is approved or confirmed by special resolution at a meeting of the shareholders;
(b) disclosure of the interest was made to the shareholders in a manner sufficient to indicate
indi
its nature before the
contract or transaction was approved or confirmed; and
(c) the contract or transaction was reasonable and fair to the corporation when it was approved or confirmed.
Application to court
(8) If a director or an officer of a corpor
corporation
ation fails to comply with this section, a court may, on application of the
corporation or any of its shareholders, set aside the contract or transaction on any terms that it thinks fit, or
require the director or officer to account to the corporation for any profit or gain realized on it, or do both those
things.
TSX Company Manual 7
Independence Criteria and Application
Under Section 501(C) certain transactions involving insiders or other related parties of a non-exempt
non
issuer must
be approved by the board on the recommendation of directors who are unrelated to the transaction.
1
“ISS Voting Guidelines” means the Canadian ““Proxy Voting Guidelines for TSX Listed Companies, 2017 Benchmark Policy
Recommendations”,
”, published December 23, 2016
2016, by ISS.
2
“Glass Lewis Approach” means ““2017 Proxy Paper Guidelines – An overview of the Glass Lewis Approach to Proxy Advice, Canada”
Canada by
Glass Lewis.
3
“Globe’s Board Games” means the ““Board Games 2016 published in the Report of Business by the Globe & Mail, November 2016.
4
“CCGG Guideline” means the publication entitled ““Building High Performance Boards”” of the Canadian Coalition for Good Governance,
August 2016.
5
“CBCA” means the Canada Business Corporations Act
Act.
6
“MI 61-101”
101” or the “Instrument” means Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions.
Transactions
See MI 61-101
101 for defined terms such as “related party”, “interested party”, “affiliated entity”, “associated entity” and others.
7
“TSX Company Manual” means ““The Toronto Stock Exchange Company Manual”” of the Toronto Stock Exchange. See TSX Company
Manual for defined terms “insider” and “non
“non-exempt issuer”.
pg | 12
AUTHOR PROFILE: ANDRÉ BOIVIN
416 860 6580
[email protected]
Education: LL.B. (Common Law), Dalhousie University, 1996; LL.B. (Civil Law), University of
Sherbrooke, 1994
Call to the Bar: Ontario, 1999; Québec, 1997
Associations: Barreau du Québec; Canadian Bar Association; Ontario Bar Association
Asso
Achievements: Canadian Legal Lexpert Directory 2015 and 2016 (Mining); Awarded the 2011
Zenith Award by Lexpert in the area of Corporate Social Responsibility for his work with, and
donations to, the Omatjete Primary School Project in Namibia
As a member of Cassels Brock’s Securities Group and Mining Group, André Boivin’s practice
focuses on corporate and securities law, mostly for public mining companies. André is one of our
top experts on National Instrument 43
43-101 Standards of Disclosure for Mineral
eral Projects. He is
continuously involved in numerous equity financing transactions and advises many public
companies on a daily basis with respect to regulatory compliance and governance matters. André
has also been involved in various mergers and acquis
acquisitions
itions and other significant strategic
transactions, including, for example, acting as our team leader in the acquisition by New Gold Inc.
of the Blackwater Gold Project located in British Columbia, through New Gold’s acquisition of
Richfield Ventures Corp
Corp.,
., Silver Quest Resources Ltd. and Geo Minerals Ltd.
André's transactional experience includes playing a key role in representing:









Belo Sun Mining in its $75 million bought deal
Dundee Precious Metals in its $54.65 million bought deal
Luna Gold Corp. in the sale of its Cachoeira Project to Brazil Resources
Allana Potash Corp. in its Plan of Arrangement with Israel Chemicals
Sulliden Gold Corporation Ltd. in its Plan of Arrangement with Rio Alto Mining Limited
New Gold Inc. in its acquis
acquisition of Silver Quest Resources Ltd.
New Gold Inc. in its acquisition of Geo Minerals Ltd.
New Gold Inc. in its $550 million acquisition of Richfield Ventures Corp.
Consolidated Thomson Iron Mines in its US$230 million financing of convertible unsecured
subordinated
bordinated debentures
 Sulliden Gold Corporation in public offerings aggregating $55 million
 Dundee Precious Metals in connection with the sale of its Timok and Potoj Cuka Gold Projects








in Serbia
Avion Gold Corporation in public offerings aggregating approx
approximately
imately $150 million
Luna Gold in its $39.35 million prospectus offering and South American private placement
Crocodile Gold in a $29 million bought deal
Crocodile Gold in its RTO $136 million business combination with Franc-Or
Franc
Resources
Western Goldfield
Goldfieldss in a $1.2 billion business combination with New Gold
Central Sun in a business combination with B2Gold Corp.
Franco-Nevada
Nevada in its $370 million unit financing
Kinross Gold Corporation in its three
three-way cross-border
border $3.5 billion business combination with
TVX
X Gold Inc. and Echo Bay Mines Ltd.
pg | 13