Related Party Transactions | Governance Canada

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RESEARCH IN MOTION – THE 10 YEAR OPTION GRANTING SCANDAL

From December 1996 to July 2006, Jim Balsillie, Dennis Kavelman (then CFO), Mike Lazaridis and certain other RIM officers and directors engaged in improper stock option granting practices, including backdating and repricing of executive, director and employee stock option awards.  Following an internal investigation, in May 2007, RIM restated its historical financial statements with a cumulative, non-cash, stock-based compensation expense of U.S. $248.2 million.  In the February 2009 settlement of the Ontario Securities Commission’s enforcement action, Balsillie, Lazaridis and Kavelman agreed that they engaged in option backdating and repricing and that the total “in-the-money” undisclosed benefit from the incorrect option dating practices was approximately $66 million.  They confirmed that they returned the improper financial benefits they received from the incorrectly priced options and undertook to contribute, in aggregate, $83.1 million to RIM and to pay administrative penalties and OSC costs totalling $9 million.

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FRANK STRONACH AND MAGNA’S ELIMINATION OF ITS DUAL CLASS EQUITY SHARES – WHAT’S THE BEEF?

In a major related party transaction between Frank Stronach and Magna International Inc. in 2010, Stronach’s controlling class of multiple voting shares were cancelled with a payment to Stronach valued at approximately US$ 1 billion. The transaction was denounced and vigorously opposed by large Canadian pension and investment funds lead by Ontario Teachers’ Pension Plan and CPP Investment Board. The challengers brought unsuccessful legal proceedings before the Ontario Securities Commission and the Ontario Superior Court of Justice and filed a failed appeal to Ontario’s Divisional Court. Notwithstanding (i) the unprecedented purchase price paid to Stronach to eliminate his controlling Class B Shares, (ii) the lack of a favourable recommendation to shareholders from Magna’s Special Committee, Chaired by Mike Harris, or from Magna’s Board of Directors, (iii) the absence of any fairness opinion from the independent financial advisor retained by the Special Committee, and (iv) the strong public opposition to the transaction from certain large shareholders and others, the arrangement was approved by a 75% vote of holders of Magna’s unaffiliated Class A Shares, who bore the bulk of the price paid to eliminate Stronach’s control. Following the overwhelming approval of shareholders, the Ontario Superior Court of Justice sanctioned the transaction in a “fairness” hearing, and its judgment was unanimously upheld by the Divisional Court on appeal.

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