Effective June 30, 2007 the Toronto Stock Exchange (TSX) will no longer permit issuers with security based compensation arrangements that have amendment procedures that fail to meet TSX standards to make even minor “housekeeping” amendments to their plans without securityholder approval. Issuers should review their security based compensation plans to ensure that their amendment procedures meet TSX standards and, if they do not, shareholder approval of changes to such amendment procedures should be obtained.
Effective January 1, 2005 the TSX introduced several changes to the TSX Company Manual (the Manual), including changes relating to security based compensation arrangements. A “security based compensation arrangement” is defined broadly in Section 613 of the Manual to include any compensation or incentive plan or individual award involving the issuance or potential issuance of securities of the listed issuer from treasury, including stock option, share purchase and restricted share unit plans as well as individual awards made outside of a plan.
Among the changes introduced on January 1, 2005 was a provision in Section 613(d) of the Manual that required securityholder approval for any amendment to a security based compensation arrangement if the arrangement did not include an amendment procedure. In TSX staff notice #2004-0002, (the 2004 Notice), the TSX clarified that the amendment procedure must contain specific details as to whether securityholder approval is required for an amendment and that this procedure must be specifically disclosed at the time of securityholder approval of the security based compensation arrangement. The 2004 Notice also stated that general amendment provisions in security based compensation arrangements which permit amendments subject to the approval of the board of directors and, if required, the TSX, would not be sufficient for purposes of Section 613(d) of the Manual.
The 2004 Notice stated further that the TSX would permit issuers with security based compensation arrangements containing a general amendment provision to make certain types of amendments, notably “housekeeping” changes, without requiring securityholder approval, effectively grandfathering TSX practices prior to the changes which came into effect on January 1, 2005.
The 2006 Notice
On June 6, 2006 the TSX issued new staff notice #2006-001 (the 2006 Notice), which provides that effective June 30, 2007, the TSX will retract the interpretation of Section 613(d) of the Manual provided in the 2004 Staff Notice. As a result, issuers who have only general amendment provisions in their plans will no longer be able to make any amendments, even those of a “housekeeping” nature, to their security based compensation arrangements (including the terms of individual awards) without securityholder approval.
Listed issuers should consider revising the amendment procedures in their security based compensation arrangements and obtaining securityholder approval of such changes at their next annual meeting of securityholders, or in any event prior to June 30, 2007. Listed issuers who seek securityholder approval for such changes will need to describe (with examples) the types of amendments that may be made without securityholder approval, and will need to pre-clear with the TSX all materials to be provided to securityholders relating to approval of the new amendment procedures.
Options Expiring During Blackout Periods
In the 2006 Notice, the TSX also stated that those issuers which prohibit the exercise of stock options by insiders during a blackout period may wish to consider amending their stock option plans so that the expiry date will be the later of (i) a fixed expiry date or (ii) a date shortly after the fixed expiry date, if the fixed expiry date is within a blackout period or falls immediately after the expiry of a blackout period.
Authors Credit: Andrew MacDougall is a partner in Osler's Business Law Department. Craig Wright is a partner in the firm's Business Law Department and the national chair of the firm's Technology Business Group. Sivan Fox is a senior associate in Osler's Toronto office where she practises corporate finance, mergers and acquisitions, and general corporate law.
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