CANADA

By Michelle Tan

In addition to agenda items covering routine items, Fairvest examined 44 resolutions proposing mergers, acquisitions, spin-offs or reorganizations, 49 private placements, 10 shareholder rights plans, 109 resolutions to adopt and/or amend option plans, and 3 resolutions to re-price options during this period.

Following is a summary of noteworthy governance news that occurred in Canada during the third quarter.

Toronto Stock Exchange Hands Over Corporate Governance Regulation to Provincial Regulators

After almost ten years in the game, the Toronto Stock Exchange (TSX) announced in late September that it would hand over all responsibility for setting corporate governance standards to provincial regulators. In recent years, the TSX has been the target of critics who say the organization has not done enough to reform and update its guidelines. Underlying this claim is the fact that the original corporate governance report, ‘Where Were the Directors?’ which was crafted in 1994 remains the yardstick by which most Canadian boards measure their governance practices and standards.

While the new policies to be adopted by the provincial regulators, have yet to be finalized, the newly appointed governance regulators will maintain the status quo on the requirement that companies disclose a comparison of their governance practices against a set of chosen guidelines. The proposed policy, which will apply to TSX and TSX Venture Exchange companies, will include guidelines culled from the TSX’s 14 guidelines as well as the New York Stock Exchange’s rules and the Sarbanes-Oxley Act. Among the reasons for the change is the increased ability of the provincial regulators to monitor, review and enforce the disclosure of corporate governance practices.

Corel Corporation Privatization

On August 20, 2003 Corel Corporation held a special meeting during which its shareholders determined whether or not they should accept a cash offer from Vector Capital to buy all of the outstanding shares of the company which its proposed acquirer did not already own. Many Corel shareholders had expressed their opposition to the deal prior to the meeting and have even done so in its aftermath. The Vector privatization was approved by 81% of all the votes cast by shareholders (73% of votes cast, excluding votes controlled by Vector).

Some of the unhappy shareholders who organized their opposition into a coherent group called Corel Rescue are maintaining their dissatisfaction and have continued their efforts to thwart the privatization of the company.

In its proxy circular, Corel provided exhaustive details regarding the efforts the company had undertaken to make a sale. As part of those activities, CIBC World Markets Inc. (CIBC WM), Corel’s financial advisor, became involved in the efforts to seek out alternative transactions to the Vector deal shortly after Vector made its initial advances to Corel. According to the circular, discussions were held with ‘more than 40 parties,’ which were viewed as potential suitors in the wake of a press release in March 2003 regarding an offer from Vector.

Whether these efforts were sufficient or not was not the concern of Corel Rescue. Rather, they believe the company would be better served remaining a public corporation to pursue a return to profitability. The group asked shareholders who experienced problems with the receipt of materials for the meeting to fill out and file an affidavit to that effect and e-mail it back to Corel Rescue. On this basis, Corel Rescue approached regulators and the Superior Court of Ontario to restore shareholder representation and to investigate the takeover arrangements for potential conflicts-of-interest. Submissions to the courts regarding this matter were heard and subsequently rejected. Following this rejection, Corel Rescue indicated on its site that it was considering an appeal, however, to date nothing further has materialized.

Magna International Inc. Spin-Off

At the August 19, 2003, Special Meeting, shareholders of Magna International Inc. overwhelmingly approved (97% of votes cast) a proposed transaction to spin-off the company’s automotive real estate, and all of its shareholdings in Magna Entertainment Corp. (MEC) to a company called MI Developments Inc. (MID). Following the completion of the spin-off, MID will immediately become the fourth largest publicly held commercial real estate company in Canada.

Pursuant to the transaction, Magna shareholders will receive one MID Class A Subordinate Voting Share for every two Magna Class A Subordinate Voting Shares held as of the record date, and one Class B Share for every two Magna Class B Shares held as of the record date. The pro rata basis will perpetuate the dual class structure in place at Magna and preserves the relative ownership and voting rights of holders of Magna Class A Subordinate Voting Shares and Magna Class B Shares. Fairvest generally frowns upon the perpetuation of dual class capital structures because good governance features a 'one share, one vote' capital structure as a central precept. However given the positive market response to the announcement of the spin-off and the favorable fairness opinions Fairvest did not oppose the spin-off.