Location: TSX Company Manual > Staff Notices to Applicants, Listed Issuers, Securities Lawyers and Participating Organizations > 2017 > 2017-0004

2017-0005 2017-0003

2017-0004

  Versions
(1 version)
 
Sep 5 2017 onwards

September 5, 2017

Section 431
Special Year-End Distributions by Issuers

Section 624
Restricted Securities
Legal Designation

Subsection 613 (l)
Amendment Procedures
Security Based Compensation Arrangements

STAFF NOTICE TO APPLICANTS, LISTED ISSUERS, SECURITIES LAWYERS AND PARTICIPATING ORGANIZATIONS

***This Staff Notice replaces TSX Staff Notice 2010-0002, which is repealed in its entirety.***

Toronto Stock Exchange ("TSX") staff is providing guidance on:

1. special year-end distributions by income trusts ("Trusts") and other entities;
2. the application of the restricted securities policy in the TSX Company Manual (the "Manual") to issuers with special voting shares (or similar securities); and
3. amendment procedures for security based compensation arrangements impacted by federal tax changes with respect to employee stock options which are expected to become effective as of January 1, 2011.

1. Section 431

TSX staff reminds its issuers that Section 431 of the Manual requires that issuers provide TSX with notification of a distribution (including a dividend) declaration immediately following the meeting at which the decision to declare the distribution is made. In any event, a notice in the form of a Form 5: Dividend/Distribution Declaration ("Form 5") must be filed at least five (5) trading days prior to the record date. Form 5 must be filed using TSX SecureFile. Reference is made to Sections 428 to 435.2 of the Manual for additional details regarding dividends and other distributions to security holders.

This minimum five (5) trading day notification period applies to all distributions, including special year end distributions by Trusts, whether or not:

(a) the exact amount of the distribution known;
(b) the distribution is to be paid in cash, trust units and/or other securities; or
(c) if the distribution is to be paid in securities, the securities to be distributed are immediately consolidated after the distribution, resulting in no change to the number of securities held by security holders.

Where the exact amount of the distribution is unknown, issuers should provide, at the time they file their Form 5, their best estimate of the anticipated amount of the distribution and indicate that such amount is an estimate. Details regarding the payment of the distribution in cash, trust units and/or other securities and whether such securities will be immediately consolidated must be provided. Upon determination of the exact amount of any estimated distribution, the issuer must disseminate the final details by news release and provide TSX's Dividend Administrator with a copy of the news release, by email or fax.

Sections 428 to 435.2 of the Manual also apply to distributions paid entirely in securities which are immediately consolidated following the distribution, resulting in no change to the number of securities held by security holders. Such distributions may have tax consequences for security holders, which could impact the market price of the securities. Accordingly, TSX will publish a bulletin containing details of any such distribution. The following additional documentation will be required for such transactions: (i) a certified copy of the directors resolution, or equivalent document effecting the distribution and consolidation; (ii) a certified copy of the amendment to the articles (if applicable); (iii) confirmation there will be no change in CUSIP number as a result of the consolidation; (iv) opinion of counsel that the distribution and consolidation has been effected in accordance with the articles and applicable legislation; and (v) a filing fee (an invoice will be sent to the issuer).

TSX staff further reminds its issuers that notices of any distributions, other than those solely payable in cash, should also be filed with the appropriate Listed Issuer Services Manager, in addition to the TSX Dividend Administrator. The TSX Dividend Administrator, Kay Dhanraj, can be reached at (416) 947-4663 or kay.dhanraj@tsx.com.

2. Section 624

TSX has received applications involving the issuance of a special voting share or similar security (a "Special Share"). These applications have included, but are not limited to, original listing applications and income trust conversions into corporate entities (including conversions which are intended to replicate special rights which existed in the income trust). A Special Share is typically issued to a significant security holder or founder of the applicant or listed issuer, has limited or no equity value and confers rights to its holder that are different than those attached to the class of equity securities offered to the public (the "Equity Shares"). These rights may include board appointment rights, management appointment and removal rights, and veto rights over matters typically considered by the board or management.

TSX generally considers that a Special Share limits the voting rights attached to Equity Shares. Consequently, TSX will apply the provisions of Subsections 624 (c), (d), (e) and (f) of the Manual in respect of the legal designation of the Equity Shares. TSX will not permit Equity Shares to include the word "common" in the legal designation if a Special Share is issued or issuable. In such circumstances, pursuant to the restricted securities policy, TSX will require that the Equity Shares be designated as limited voting, restricted voting or another appropriate designation to alert investors that the Equity Shares are not "Common Securities" as defined in Part 1 of the Manual.

In accordance with Subsection 624(g), TSX may exempt applicants and listed issuers from these designation requirements. It has been TSX practice to provide an exemption if the holder of the Special Share has board appointment rights proportionate and correlated to its equity interest. For example, if the holder of the Special Share holds 50% of the Equity Shares, it may be permitted to appoint up to three out of six directors. In addition, where the holder of the Special Share also holds Equity Shares, such holder will only be permitted to either (and not both): i) exercise the right to appoint directors to the board as provided by the Special Share; or ii) exercise the votes attached to the Equity Shares in respect of the election of directors. Disclosure as to whether the holder will exercise the rights attached to the Special Share or exercise the votes attached to the Equity Shares will be required in each management information circular (or similar document) while the Special Share is outstanding. However, TSX will also consider other rights attached to the Special Share in determining whether it is appropriate to grant an exemption.

In accordance with Subsection 624(g), TSX will consider the public interest and the principles underlying Section 624 of the Manual when applying its discretion under Section 624. In addition to the disclosure required under Subsection 624(i), TSX may also require specific disclosure in the listed issuer's continuous and timely disclosure documents in respect of the rights attached to the Special Share.

TSX will consider the Special Share together with other securities held by a significant security holder to assess whether the Equity Shares should explicitly contain take-over bid protections (e.g. coattails), as contemplated in Subsection 624 (l) of the Manual.

Listed Issuers and their advisors should also review OSC Rule 56-501 — Restricted Shares to determine whether any exemptive relief is required under securities legislation.

3. Subsection 613 (l) — Amendment Procedures

TSX has received a number of inquiries from listed issuers about amendments to stock option plans and other security based compensation arrangements ("Plans") and agreements evidencing grants of options or other awards ("Option Agreements") that may be required as a result of legislative proposals to the Income Tax Act (Canada) (the "ITA"). TSX is publishing this staff notice to provide issuers with notice of how TSX will treat such amendments to Plans and Option Agreements.

TSX understands that the federal government announced tax changes with respect to employee stock options (the "ITA Amendments") which are expected to become effective as of January 1, 2011. As a result of the proposed ITA Amendments, TSX has been advised that listed issuers may have to amend the provisions of their Plans and Option Agreements.

TSX will generally consider amendments to Plans and Option Agreements as a result of the proposed ITA Amendments to be of a "housekeeping" nature. Such amendments would usually be allowed under amendment provisions empowering the listed issuer's board of directors (or committee of the board) to make such amendments to Plans and Option Agreements. Listed issuers are reminded that amendments to Plans and Option Agreements must be: i) reviewed and pre-cleared by TSX, in accordance with Subsection 613(d) of the Manual; and ii) disclosed annually, as required under Subsection 613 (g) of the Manual.

Notwithstanding Staff Notice #2006-0001 dated June 6, 2006 (Security Based Compensation Arrangements - Amendment Procedure), in the event that a Plan does not contain proper amendment provisions, TSX will allow a listed issuer to amend Plans and Option Agreements in order to comply with the ITA Amendments, provided that such amendments are limited to compliance with the ITA Amendments. In such instances, TSX will require that the listed issuer adopt proper amendment procedures in the Plan and that the amendments be approved by security holders at the next meeting. Staff Notice #2006-0001 otherwise remains in full force and effect.

TSX is providing this Staff Notice for information purposes and is not providing advice regarding the ITA Amendments or any specific impact the ITA Amendments may have on listed issuers. Listed issuers should seek specific legal, financial or tax advice regarding the ITA Amendments and their impact as necessary.

If you have any questions about this Staff Notice, please contact your listing manager. Please refer to the following link under Listed Issuer Services to find your Listed Issuer Services Manager: https://www.tsx.com/listings/tsx-and-tsxv-issuer-resources/tsx-issuer-resources/tsx-listings-staff.


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