Canada: TSX To Require Securityholder Approval Of All Amendments To Most Security-Based Compensation Arrangements

Last Updated: August 1 2006

This article was originally published in Blakes Bulletin on Securities Law - June 2006

Article by John Tuzyk, ©2006 Blake, Cassels & Graydon LLP

Amendment Approvals

Change to Require Securityholder Approval for all Amendments to Certain Plans

The Toronto Stock Exchange (TSX) issued a Staff Notice dated June 6, 2006, which will require securityholder approval for all amendments to security-based compensation plans and arrangements, including even "housekeeping" or immaterial amendments, for all issuers that have "general" (or no) amendment provisions in their plans. Most TSX-listed issuers, in compliance with prior TSX rules and common practice, have "general amendment" provisions in their plans.

To avoid the necessity for obtaining securityholder approval for all amendments, such issuers can amend their plans to provide for "specific amendment" provisions. Such amendment provisions specify each type of amendment which requires securityholder approval. Adding a "specific amendment" provision also requires securityholder approval.

The change is effective June 30, 2007, to allow issuers an opportunity to obtain securityholder approval of "specific amendment" provisions at their next annual meeting.

Existing Rules

On January 1, 2005, the TSX’s new rules for security-based compensation arrangements came into force, including in particular new rules relating to amendments to security-based compensation arrangements. The new rules provided that the arrangement or plan was to specify which particular matters required securityholder approval to be amended.

However, the plans of most TSX issuers at that time, and still do, have a "general amendment" provision, which typically provides the board of directors may make amendments to plans subject to obtaining any required regulatory or securityholder approvals. Recognizing that the plans of most issuers contained a "general amendment" provision, in Staff Notice 2004-0002 in December 2004, the TSX provided guidance that issuers with "general amendment" provisions would not require securityholder approval for certain types of amendments, such as amendments to vesting and changes of a "housekeeping" nature.

Effect of New TSX Staff Notice

The June 6, 2006, TSX Staff Notice proposes to revoke this previous guidance, effective June 30, 2007, such that issuers without "specific amendment" provisions will require securityholder approval for any amendments whatsoever to their plans, including clerical changes, "housekeeping" changes and other immaterial changes. Accordingly, issuers with "general amendment" (or no amendment) provisions will require securityholder approval for all amendments.

The June 6, 2006 TSX Staff Notice indicates that issuers will have until June 30, 2007 to adopt a "specific amendment" procedure in their plans. After that, issuers whose plans still have "general amendment" provisions will not be able to make any amendments to their plans without securityholder approval, including amendments of a "housekeeping" nature. The TSX Staff Notice "strongly advises" issuers to introduce detailed amending provisions to their plans at their next meeting of securityholders in order to obtain requisite approval.

The TSX rules provide for certain matters which require securityholder approval for amendment, such as increasing the number of securities reserved for issuance under an arrangement, effectively meaning such items must be included in the "specific amendment" provision.

The TSX Staff Notice strongly recommends that issuers proposing to include an amendment empowering the board of directors or similar body to make fundamental changes to a plan include a description of the general nature of the changes that the board may make together with examples. The TSX Staff Notice also indicates that the TSX may require that a copy of the plan be included with the circular relating to the meeting at which securityholder approval is sought. Issuers must provide the materials to be provided to securityholders in advance to the TSX for preclearance.

Black Out Periods

The TSX Staff Notice also provides guidance that the TSX will permit plans to provide for expiration dates which are conditional upon potential expiration during a black out period. Plans may provide that the expiration of a term of an option may be the later of a fixed date or date shortly after the expiration date should a fixed expiration date fall within or immediately after a black out period.

The TSX Staff Notice indicates that any amendment to an existing plan to provide for this type of a black out period extension must be approved by securityholders.

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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