Location: TSX Company Manual > Part VI Changes in Capital Structure of Listed Issuers > C. Security Based Compensation Arrangements > Requirement for Security Holder Approval > Sec. 613.

Requirement for Security Holder Approval D. Rights Offerings

Sec. 613.

(a) When instituted, and when required for amendment, all security based compensation arrangements must be approved by:
i) a majority of the listed issuer's directors; and
ii) subject to Subsection 613(c), the listed issuer's security holders.
Every three years after institution, all unallocated options, rights or other entitlements under a security based compensation arrangement which does not have a fixed maximum aggregate of securities issuable, must be approved by:
i) a majority of the listed issuer's directors; and
ii) subject to Subsection 613(c), the listed issuer's security holders.
Security holders must pass a resolution specifically approving unallocated options, rights or other entitlements. Such resolution must also include the date by which the listed issuer must subsequently seek security holder approval, such date being no later than three years from the date the resolution was approved. Failure to obtain security holder approval will result in all unallocated options, rights or other entitlements being cancelled and the listed issuer will not be permitted to make further grants until security holder approval is obtained.

Insiders of the listed issuer entitled to receive a benefit under the arrangement are not eligible to vote their securities in respect of the approvals required by this Subsection 613(a) unless the arrangement contains the insider participation limit.

If any security holder approval is required for a security based compensation arrangement and insiders of the listed issuer entitled to receive a benefit under the arrangement are not eligible to vote their securities in respect of the approval required by this Subsection 613(a), holders of Restricted Securities, as defined in Part I, must be entitled to vote with the holders of any class of securities of the listed issuer which otherwise carry greater voting rights, on a basis proportionate to their respective residual equity interests in the listed issuer.

Security holder approval required for a security based compensation arrangement must be by way of a duly called meeting. The exemption from security holder approval contained in Subsection 604(e) is not available in respect of security based compensation arrangements.

Types of Security Based Compensation Arrangements

(b) For the purposes of this Section 613, security based compensation arrangements include;
i) stock option plans for the benefit of employees, insiders, service providers or any one of such groups;
ii) individual stock options granted to employees, service providers or insiders if not granted pursuant to a plan previously approved by the listed issuer's security holders;
iii) stock purchase plans where the listed issuer provides financial assistance or where the listed issuer matches the whole or a portion of the securities being purchased;
iv) stock appreciation rights involving issuances of securities from treasury;
v) any other compensation or incentive mechanism involving the issuance or potential issuances of securities of the listed issuer; and
vi) security purchases from treasury by an employee, insider or service provider which is financially assisted by the listed issuer by any means whatsoever.
For greater certainty, arrangements which do not involve the issuance from treasury or potential issuance from treasury of securities of the listed issuer are not security based compensation arrangements for the purposes of this Section 613.

For the purposes of Section 613, a "service provider" is a person or company engaged by the listed issuer to provide services for an initial, renewable or extended period of twelve months or more.

Exception to the Requirement for Security Holder Approval—Employment Inducements

(c) Security holder approval is not required for security based compensation arrangements used as an inducement to person(s) or company(ies) not previously employed by and not previously an insider of the listed issuer, provided that: i) such person(s) or company(ies) enters into a contract of full time employment as an officer of the listed issuer; and ii) the number of securities made issuable pursuant to this Subsection during any twelve month period do not exceed in aggregate 2% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date this exemption is first used during such twelve month period.

Disclosure Required when Seeking Security Holder Approval & Annually

(d) Materials provided to security holders in respect of a meeting at which the approval of security based compensation arrangements will be requested must be pre-cleared with TSX. Meeting materials must provide the following disclosure in respect of:
(i) the eligible participants under each arrangement;
(ii) each of the following, as applicable:
i. Plan Maximum — the maximum number of securities issuable under each arrangement expressed as a fixed number (together with the percentage this number represents relative to the number of issued and outstanding securities of the listed issuer) or fixed percentage of the number of issued and outstanding securities of the listed issuer,
ii. Outstanding Securities Awarded — the number of outstanding securities awarded under each arrangement, together with the percentage this number represents relative to the number of issued and outstanding securities of the listed issuer, and
iii. Remaining Securities Available for Grant — the number of securities under each arrangement that are available for grant, together with the percentage this number represents relative to the number of issued and outstanding securities of the listed issuer;
(iii) the annual burn rate of each arrangement, as calculated in accordance with Section 613(p);
(iv) the maximum percentage, if any, of securities under each arrangement available to insiders of the listed issuer;
(v) the maximum number of securities, if any, any one person or company is entitled to receive under each arrangement and the percentage of the listed issuer's currently outstanding capital represented by these securities;
(vi) subject to Section 613(h)(i), the method of determining the exercise price for securities under each arrangement;
(vii) the method of determining the purchase price for securities under security purchase arrangements, with specific disclosure as to whether the purchase price could be below the market price of the securities;
(viii) the formula for calculating market appreciation of stock appreciation rights;
(ix) the ability for the listed issuer to transform a stock option into a stock appreciation right involving an issuance of securities from treasury;
(x) the vesting of the securities issuable under the Plan;
(xi) the term of the securities issuable under the Plan;
(xii) the causes of cessation of entitlement under each arrangement, including the effect of an employee's termination for or without cause;
(xiii) the assignability of benefits under each arrangement and the conditions for such assignability;
(xiv) the procedure for amending each arrangement, including specific disclosure as to whether security holder approval is required for amendments;
(xv) any financial assistance provided by the listed issuer to participants under each arrangement to facilitate the purchase of securities under the arrangement, including the terms of such assistance;
(xvi) entitlements under each arrangement previously granted but subject to ratification by security holders; and
(xvii) such other material information as may be reasonably required by a security holder to approve each arrangement.
Should a security based compensation arrangement not provide for the procedure for amending the arrangement, security holder approval will be required for such amendments, as provided for in Subsections 613(a) and (i). In addition, the votes attaching to any securities held by insiders who hold securities subject to the amendment will be excluded. Please see Subsection 613(l) for more information.

Other than the disclosure regarding the annual burn rate under Section 613(d)(iii), the disclosure required by this Section 613(d) should be presented as at (a) the end of the listed issuer's most recently completed fiscal year, in the case of an annual meeting, and (b) the date of the meeting materials, in the case of any security holder meeting (other than an annual meeting) where security holder approval is being sought in connection with a security based compensation arrangement matter.

Granting Entitlements Prior to Seeking Security Holder Approval

(e) A listed issuer may grant options or rights under a security based compensation arrangement that has not been approved by security holders provided that no exercise of such option or right may occur until security holder approval is obtained.

Filing Security Based Compensation Arrangements with TSX

(f) All security based compensation plans, and any amendments thereto, must be filed with TSX, along with evidence of security holder approval where required. Listed securities issuable under the arrangements will not be listed on TSX until such documentation is received.

Annual Disclosure Requirements

(g) Listed issuers must disclose on an annual basis, in their information circulars, or other annual disclosure document distributed to all security holders, the terms of their security based compensation arrangements and any amendments that were adopted in the last fiscal year (this includes amendments to individual security agreements and amendments to security based compensation arrangements, including, in both instances, those assumed or created by the listed issuer as part of an acquisition). The information circular must provide disclosure in respect of each of the items in Section 613(d), as at the end of the listed issuer's most recently completed fiscal year (other than the disclosure regarding the annual burn rate under Section 613(d)(iii)), as well as the nature of the amendments adopted in the last fiscal year, including whether or not (and if not, why not) security holder approval was obtained for the amendment.

Prohibited Provisions Notwithstanding Security Holder Approval

(h) Notwithstanding that a security based compensation arrangement contains provisions: (1) contrary to or inconsistent with the following items, or (2) allowing amendments to the following items without security holder approval, and notwithstanding that such provisions may have been approved by the listed issuer's security holders:
i) the exercise price for any stock options granted under a security based compensation arrangement or otherwise must not be lower than the market price of the securities at the time the option is granted; and
ii) the arrangement must have a maximum number of securities issuable, either as a fixed number or a fixed percentage of the listed issuer's outstanding capital represented by such securities.

For the purposes of this Subsection 613(h)(i), TSX will accept, as market price: (A) a closing market price at the time of the grant; or (B) a reasonable pre-determined formula, based on a weighted average trading price or average daily high and low board lot trading prices for a short period of time prior to the time of grant.

Amendments Requiring Specific Security Holder Approval

(i) Notwithstanding that a security based compensation arrangement contains a provision allowing amendments to the following items without security holder approval, specific security holder approval is required for:
i) a reduction in the exercise price or purchase price under a security based compensation arrangement benefiting an insider of the issuer;
ii) an extension of the term, under a security based compensation arrangement benefiting an insider of the issuer;
iii) any amendment to remove or to exceed the insider participation limit;
iv) an increase to the maximum number of securities issuable, either as a fixed number or a fixed percentage of the listed issuer's outstanding capital represented by such securities; and
v) amendments to an amending provision within a security based compensation arrangement.
For the purposes of Subsection 613(i)(i) and (ii), if a listed issuer cancels options (or similar entitlements) held by insiders, or held by non-insiders where the amendment provision does not permit such amendment, and then re-grants those securities under different terms, TSX will consider this as an amendment to those securities and will require security holder approval, unless the re-grant occurs at least three months after the related cancellation.

For Subsection 613(i)(i)–(iii), the votes of securities held directly or indirectly by insiders benefiting directly or indirectly from the amendment must be excluded. For Subsection 613(i)(iv)–(v), the votes of securities held directly or indirectly by insiders entitled to receive a benefit directly or indirectly under the arrangement must be excluded unless the arrangement contains the insider participation limit.

In addition to the above exclusions, for Subsection 613(i)(v), where the amendment will disproportionately benefit one or more insiders over other participants under the arrangement, the votes of securities held directly or indirectly by those insiders receiving the disproportionate benefit must be excluded.

Reporting Requirements to TSX

(j) The granting of stock options under a plan and the issuance of securities under a stock option plan or other plan do not require the prior consent of TSX if the plan has been precleared with TSX and the securities that are subject to issuance have been listed. However, stock options granted, exercised or cancelled under a plan must be reported to TSX on a monthly basis in the form of a duly completed Form I—Change in Outstanding and Reserved Securities (Appendix H: Company Reporting Forms), which must be filed within ten (10) days after the end of the month. If no listed securities are issued, no options have expired or been cancelled in any particular month, a nil report is required to be filed on a quarterly basis.

Material Undisclosed Information

(k) TSX's policy on timely disclosure requires immediate disclosure by its listed issuers of all "material information" as defined in the policy. The policy also recognizes that there are restricted circumstances where confidentiality may be justified on a temporary basis. Listed issuers may not set option exercise prices, or prices at which securities may otherwise be issued, on the basis of market prices which do not reflect material information of which management is aware but which has not been disclosed to the public. Exceptions are:
i) where employees, at a previous time when such employees did not have knowledge of the undisclosed event, committed themselves to acquire the securities on specified terms through participation in a security purchase plan, or
ii) where, in relation to an undisclosed event (such as the acquisition by a listed issuer of another issuer), a person or company who is neither an employee nor an insider of the listed issuer, is granted, or given the right to be granted at a set price, a stock option in the listed issuer, while the event is still undisclosed.

Amendment Procedures

(l) Security based compensation arrangements (including individual option or other security amendments) cannot be amended without obtaining security holder approval unless the arrangement contains a provision empowering the listed issuer's board of directors (who may delegate this to a committee of the board) to make the specific amendment. Security holder approval is required for the introduction of and subsequent amendments to, such amending provisions. Disclosure provided to security holders voting on amending provisions, and annually, must state that security holder approval will not be required for amendments permitted by the provision.

Blackout Periods

(m) Security based compensation arrangements may provide that the expiration term of an option (or similar entitlement) may be the later of a fixed expiration date or a date shortly after the expiration date should such date fall within or immediately after a blackout period, provided that:
(i) The blackout period is self-imposed by the listed issuer;
(ii) The period of time provided to exercise the option after the lifting of the blackout period be no more than ten (10) business days;
(iii) All participants under the security-based compensation arrangement are eligible for the extension, under the same terms and conditions; and
(iv) Security holders approve the amendment to the security-based compensation arrangement providing for such expiry term.

Backdating of Stock Options

(n) Listed issuers must notify TSX on a timely basis where it appears that stock options (and similar entitlements) may have been improperly dated or priced, during or following any investigation (including internal, self-initiated reviews) of the listed issuer's practices in relation to security-based compensation arrangements. In addition, in accordance with TSX's timely disclosure policy, listed issuers need to assess whether or not a news release is required where it appears that stock options (and similar entitlements) have been improperly dated or priced, during or following any review or investigation, and upon any resolution with TSX or other regulators.

Mergers and Acquisitions

(o) Notwithstanding the amendment provisions included in a security-based compensation arrangement, where a listed issuer is being acquired, outstanding options, rights and other entitlements may be: (i) cancelled for nominal consideration if out of the money; or (ii) exchanged for the consideration received by the listed issuer's security holders, on the basis of such options, rights or other entitlement's intrinsic value.

Burn Rate

(p) Annual burn rate disclosure may be omitted for the first fiscal year of newly adopted arrangements, but must be included for new arrangements adopted in replacement of similar arrangements.

For purposes of the disclosure required under Section 613(d)(iii), the annual burn rate of the arrangement must be calculated as follows and expressed as a percentage:
Number of securities1 granted under the arrangement during the applicable fiscal year
_________________________________________________________________________________
Weighted average number of securities outstanding2 for the applicable fiscal year
If the securities awarded include a multiplier, listed issuers are required to provide details in respect to such multiplier.

Listed issuers are required to disclose the annual burn rate for each of the listed issuer's three most recently completed fiscal years for the relevant arrangement. Where the arrangement has not existed for three fiscal years (including predecessor arrangements which were similar) or was approved by security holders within the last three fiscal years, listed issuers should disclose the annual burn rate for each of the listed issuer's fiscal years completed since adoption.

1 Securities awarded under an arrangement include, but are not limited to, options, performance stock units, deferred stock units, restricted stock units or other similar awards.

2 The weighted average number of securities outstanding during the period is the number of securities outstanding at the beginning of the period, adjusted by the number of securities bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the securities are outstanding as a proportion of the total number of days in the period; a reasonable approximation of the weighted average is adequate in many circumstances. The weighted average number of securities outstanding is to be calculated in accordance with the CPA Canada Handbook, as such may be amended or superseded from time to time.


Requirement for Security Holder Approval D. Rights Offerings

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