Join us on Thursday, September 19, 2013, for a webinar on FCPA successor liability issues.

This program will provide an inside look at recent FCPA enforcement trends of the DOJ and SEC in connection with successor liability, including guidance the

This post was contributed by Matthew Marquardt, Partner, Norton Rose Canada

Last week, apparently by accident, Motorola Mobility leaked specs and images of its newest mobile device, the Atrix HD. This is the first new smartphone announced by Motorola since Google bought the company in May.

While the device bears a strong family resemblance to earlier Motorola products, many observers expect, unsurprisingly, that future products will bear a more apparent Google stamp. Google has been working its way into the smartphone market since 2005 when it purchased Android for $50 million.

How does Google, which started as an Internet search engine, end up calling the shots for the designs of one of the world’s best-known makers of mobile devices? By paying $12.5 billion for the privilege.

Google smartphone held in hand

As a result of new US reporting rules that came into effect on January 1, 2011, Canadian public and private issuers may be subject to a significant information reporting obligation when undertaking one of a wide range of transactions. The new rules are intended to increase compliance in reporting capital gains and losses for US tax purposes.

The rules require issuers of “specified securities” to complete an information return for any “organizational action” that affects the US tax basis of those securities. Specified securities currently include shares of a corporation or a Regulated Investment Company.

On January 1, 2013, or at a later date if determined by the IRS, specified securities will include notes, bonds, debentures, other debt, and certain commodities, contracts or derivatives with respect to commodities, or financial instruments.

IRS reporting rules

Organizational actions that trigger the reporting requirement may include transactions such as mergers, acquisitions, stock splits, stock redemptions, distributions in excess of US earnings and profits, and similar transactions and events.

This post was contributed by Éric L’Italien, Lawyer, Norton Rose Canada

Given the shaky economy over the past couple of years and the reduced number of takeovers, mergers and acquisitions, one would have expected a decline in indirect compensation such as golden parachutes.

However, according to a recent Alvarez & Marsal study, there has been a 32% increase over the past two years in the average value of the change-in-control benefits (i.e., golden parachutes) provided to US executives. Considering that the evolution of change-in-control benefits in Canada tends to be influenced by what takes place in the United States, it’s likely that a similar trend exists in Canada.


Change-in-control benefits generally take the form of an employment contract clause by which the company agrees to pay the employee (usually an executive) significant benefits in the event of a change in the company’s ownership. These benefits are typically severance payments, bonuses or stock options. Such benefits are rarely, if ever, tied to performance.

This practice has made shareholders and boards of directors reluctant to reach agreements that enable executives who haven’t been terminated or had significant changes made to their terms and conditions of employment to receive benefits upon a change-in-control.

From an employment and labour perspective, buying the assets of a business may be preferable to acquiring its shares, as buying assets enables the buyer to clean house and hire new staff.

When considering the merits of an asset transaction, however, a buyer should consider the points raised below regarding the seller’s workforce, as these can significantly affect valuation.

Provincial jurisdiction

Unlike with unionized employees, generally speaking there are no rules protecting non-unionized employees after a business is sold—a buyer can keep the seller’s employees or let them go, even if it continues the same business.

Obviously, the seller will be stuck with the often high cost of dismissing its employees unless it negotiates the transfer of its employees to the buyer. While this may push up the purchase price, it need not be an obstacle, as the buyer can pay the seller a premium on top of the sale price to clean house.

This post was contributed by Jean Allard, Partner, Norton Rose Canada

There are many business and tax reasons for acquiring the assets of a business instead of its shares.

From an employment and labour perspective, buying a business’s assets may be preferable to acquiring its shares because the buyer can clean house and recruit new staff.

Provincial jurisdiction

Each Canadian province has its own legislation governing collective labour relations. This legislation contains provisions defeating the principle of privity of contract and, if the asset sale has the effect of transferring the business to the buyer, requiring that the collective agreement binding the seller will also be binding on the buyer.

In addition, this legislation transfers trade union bargaining rights from the seller to the buyer. Therefore, even if the seller’s collective agreement has expired by the time of the sale, for example, because of a hiatus in operations prior to the sale, the buyer may still be bound to the trade union’s bargaining rights. The buyer will then be obligated to negotiate with the union in good faith to form a new collective agreement.

This post was contributed by Jean R. Allard, Partner, Norton Rose Canada

In a recent Quebec Court of Appeal decision,[1] the court reversed a decision of all previous courts in a case regarding unfair termination for refusal to sign a non-compete agreement three years after the hiring date.

In this case, the employer, a pharmaceutical company, had recruited a chemist who lived in France.

The offer to the employee said he’d be asked to sign a non-compete agreement and a confidentiality agreement. However—and unfortunately for the employer—, only the confidentiality agreement was signed on the employee’s first day of work.

A few years later, after promoting the employee to director, the employer asked the employee to sign a non-compete agreement. The employee decided he wouldn’t sign the agreement unless the employer compensated him with a large sum of money and respected his demands on the duration of and territory covered by the non-compete clause.

This post was contributed by Walied Soliman, Partner, Norton Rose Canada, and Evelyn Li, Associate, Norton Rose Canada

A scan of recent business headlines suggests shareholder activism continues to rise, and even the who’s who of deep-rooted Canadian businesses are not immune.

While preparing for the upcoming proxy season, whether or not your company is at risk for a proxy contest, it might be a good idea to consider adopting certain pre-emptive defensive tactics, including a by-law to provide advance notice for nomination of directors as recently proposed by Arius3D Corp.

Proxy fights

Dissidents in a proxy contest typically look to gain board control by replacing directors with nominees whose strategy reflects that of the dissidents. Dissidents can propose their own nominees by:

  • requisitioning a meeting of shareholders to remove incumbent directors and elect the dissidents’ nominees;
  • preparing a shareholder proposal to the company within the prescribed timeline before a shareholders’ meeting, for inclusion in the management information circular;
  • soliciting proxies for the dissidents’ nominees before a meeting of shareholders; or
  • ambushing from the floor (i.e., during the motion to elect management’s nominees as directors) at a meeting of shareholders.

For your company, an ambush is the worst-case scenario as you would have no advance warning and no chance to prepare a defence.  Other shareholders and proxyholders (i.e., the non-dissidents) would also learn of the dissidents’ proposal and nominees at the time of the ambush, just before voting for the election of directors.

This post was contributed by Paul Whitelock, Partner, Norton Rose LLP

September 2011 saw the most significant overhaul in many years of the UK takeover regime.

Changes to the UK Takeover Code followed a year-long review into how takeovers