The Toronto Stock Exchange ("TSX") has announced
proposed changes to the TSX Company Manual (the "Manual")
to allow for the adoption of certain security-based compensation
arrangements in connection with acquisitions without obtaining
security holder approval, and to clarify the circumstances in which
listed issuers will need to meet original listing requirements in
the context of reverse takeovers, also known as "backdoor
listings". The proposed amendments have been published for a
45-day comment period which expires on January 13, 2014.
Compensation Arrangements Adopted in Connection with
The proposed amendments to the Manual will allow listed issuers
to adopt a security-based compensation arrangement for employees of
a target issuer in the context of an acquisition, without obtaining
security holder approval, provided that the number of securities of
the listed issuer issuable under the compensation arrangement and
the acquisition does not exceed 2% and 25% of the issued and
outstanding securities, respectively.
Historically, the TSX has not required security holder approval
for security-based compensation arrangements that are assumed by an
acquirer in the context of an acquisition, on the condition that no
new awards are granted under the assumed arrangements.Under the
proposed amendments, the TSX will extend this practice to
security-based compensation arrangements that are newly created in
connection with an acquisition and are intended for employees of
the target issuer only.
The proposal recognizes the importance of security-based
compensation plans as a retention tool for employees of target
companies while balancing the potential dilutive effect of these
plans. The proposed amendments formalize discretionary relief
granted by the TSX in the past.
Meeting Original Listing Requirements After RTOs
The Manual currently requires that a formerly unlisted entity
that obtains a TSX listing as a result of a reverse takeover or
"backdoor listing" must meet the TSX original listing
requirements.A transaction generally constitutes a "backdoor
listing" if it meets two requirements: (a) existing security
holders of the listed issuer end up holding less than 50% of the
securities or voting power in the entity resulting from the
transaction; and (b) the transaction "materially affects
control" of the listed issuer.
The TSX is proposing to expand the list of factors considered in
the determination of a backdoor listing to include changes in the
business or management (including board members) of the listed
issuer, as well as changes in voting power, security ownership,
name and capital structure and other factors that may be relevant
in the particular circumstances. There will be no bright line tests
and the TSX will have the discretion not only to exempt a backdoor
listing transaction from original listing requirements, but also to
consider a transaction as a backdoor listing even if it does not
The TSX has specifically asked for comment on whether any
special consideration should be given to circumstances where the
listed issuer party to the backdoor listing transaction will
develop a significant connection to an emerging market jurisdiction
as a result of such transaction.Many emerging market issuers have
accessed Canadian markets through backdoor listings.As we reported
2013 Canadian Capital Markets Report – Looking Back, Looking
Forward, Canadian securities regulators have been grappling
with how to regulate emerging market issuers.In 2012, the TSX and
the TSX Venture Exchange issued a consultation paper seeking input
on whether new guidelines should be implemented for the listing of
emerging market issuers.The proposed amendments appear, in part, to
address concerns raised by and in response to the consultation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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