Canada: Toronto Stock Exchange - Securityholder Approval - Disclosure Requirements

Last Updated: November 2 2012
Article by Jeffrey P. Gebert

On September 28, 2012 the Toronto Stock Exchange (TSX) published Staff Notice 2012-0003 (Notice), which provides guidance with respect to, among other things, disclosure and other related requirements where a transaction is subject to securityholder approval pursuant to the TSX Company Manual (Manual).

Securityholder Approval — Disclosure Requirements

The guidance provided by the Notice applies to transactions involving the issuance of securities such as private placements and acquisitions. The guidance also applies to transactions involving insiders or related parties of non-exempt issuers which do not involve the issuance of securities but which require securityholder approval under Subsection 501(c) of the Manual.

The Notice states that in order for securityholders to make an informed decision whether to approve a transaction, listed issuers must disclose the material terms of the transaction either in the circular that will be mailed to securityholders or in the form of written consent (as may be permitted under Subsection 604(d) of the Manual). The guidance provided by the Notice is also applicable to press releases disclosing the material terms of a transaction where a listed issuer is: (i) seeking securityholder approval in writing; (ii) relying on the financial hardship exemption under Subsection 604(e) of the Manual; or (iii) using the 90% control block exemption under Subsection 604(f) of the Manual.

The disclosure included in the circular, form of written consent or press release, as applicable, should include the following items, as applicable:

  1. The principal terms of the transaction and the securities issuable such as the issue price, exercise or conversion price, interest rate, term, anti-dilution provisions, whether or not the transaction has been negotiated at arm's length and any other material features of the securities and conditions of the transaction. Pricing information should also include a statement disclosing the discount or premium in relation to the market price (as defined in the Manual) at the time the listed issuer has entered into the binding agreement to issue the securities or letter notice has been filed with the TSX.
  2. If security approval is required under Subsection 501(c) of the Manual, the principal terms of the transaction, including the identity of the insiders or related parties involved, their relationship with the listed issuer, the value of the consideration and a summary of the independent report required under Subsection 501(c)(ii).
  3. The maximum number of securities issuable under the transaction both as an absolute number (breaking down, for example, number of shares, warrants, broker warrants, etc.) together with the percentage such number represents of the listed issuer's outstanding number of securities, pre-transaction, on a non-diluted basis. If the number of securities issuable is based on the market price of the securities in the future so that the maximum number of securities issuable cannot be determined, the formula to calculate the number of securities issuable must be disclosed together with several pricing and dilution scenarios, including the maximum number of securities issuable under each such scenario (expressed both as an absolute number and as a percentage of the listed issuer's outstanding securities on a pre-transaction, non-diluted basis).
  4. The effect, if any, the transaction may have on the control of the listed issuer. The identity of any new control person or entity must also be disclosed together with the number of securities held by such person or entity (taking into account all securities issuable to such person or entity) both on a pre-transaction and post-transaction basis (expressed both as an absolute number and as a percentage of the listed issuer's outstanding securities on a non-diluted basis).
  5. The identity of any persons or entities who will hold more than 10% of the listed issuer's outstanding securities post-transaction and the number of securities held by each such person or entity (taking into account all securities issuable to such person or entity) on a post-transaction basis (expressed both as an absolute number and as a percentage of the listed issuer's outstanding securities on a non-diluted basis).
  6. The material terms of any voting trust or similar agreement or arrangement to be entered into in connection with the transaction, including a description of the matters and resolutions subject to the voting trust, the term of the agreement, the parties to the agreement and the aggregate number of securities that are subject to the voting trust (expressed both as an absolute number and as a percentage of the listed issuer's outstanding securities on a post-transaction, non-diluted basis).
  7. If insiders of the listed issuer are participating in the transaction, the identity of such insiders, the nature of the relationship with the listed issuer together with the number of securities issuable to each insider (expressed both as an absolute number and as a percentage of the issuer's outstanding securities on a pre-transaction, non-diluted basis). Where insider participation is de minimis, such information may be provided on an aggregate basis; for example, the number of securities issuable to directors and officers may be disclosed as a group, rather than on an individual basis.
  8. The reasons why securityholder approval is required under TSX rules, citing the appropriate rule and reference in the Manual.
  9. If securityholder approval is required on a disinterested basis, it must be disclosed together with the identity of the securityholders excluded from the vote and the number of securities held by such securityholders (expressed both as an absolute number and as a percentage of the listed issuer's outstanding voting securities as at the date of the circular or form of written consent).
  10. If securityholder approval is being sought by way of written consent, it must be disclosed in the news release issued in connection with the transaction. Alternatively, if securityholder approval is not required because of reliance on the financial hardship exemption or the 90% control block exemption, it must be disclosed in the news release.
  11. If the financial hardship exemption in Subsection 604(e) of the Manual is being relied on, the press release must include the specific disclosure that is required under Subsections 604(e) (i), (ii), (iii) and (iv) of the Manual.
  12. All other information deemed necessary by the TSX to ensure that securityholders have sufficient information to make an informed decision with respect to approving the transaction and to ensure that the principal terms of the transaction are available to market participants.

If the TSX requires securityholder approval or exempts an issuer from securityholder approval, all related disclosure, whether in a circular, form of written consent or press release, must be pre-cleared and approved by the TSX. Listed issuers and their advisors must provide a draft of a circular to the TSX for review at least five business days in advance of finalization of the circular. Press releases and forms of written consent related to securityholder approval or exemptions should be provided to the TSX for review at least two business days in advance of expected dissemination. Listed issuers are reminded that press releases required in connection with securityholder approval by written consent or securityholder approval exemptions must be issued at least five business days in advance of closing of the transaction.

If securityholder approval is being sought at a meeting, issuers are reminded that in accordance with Section 604(c) of the Manual, securityholders must be asked to ratify a resolution specific to the matter(s) for which the TSX requires securityholder approval, even where securityholders must also approve the transaction under corporate law. For example, if securityholder approval is required as a result of dilution being in excess of what is permitted under TSX rules, the resolution should ask securityholders to ratify the maximum number of securities issuable pursuant to the transaction. In addition, the TSX expects the proxy to allow securityholders to vote "for" or "against" the transaction.

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