The Toronto Stock Exchange is proposing changes to its rules relating to
- listing standards for development-stage oil and gas issuers;
- securityholder approval requirements for
- transactions involving insiders, and
- transactions involving employment inducements; and
- rights offerings.
Comments on the proposals are due by March 7, 2011. The TSX has also made various non-material changes to the listed company manual, primarily to codify existing practices or incorporate existing positions from TSX staff notices.
Development-Stage Oil and Gas Issuers
The TSX is proposing to add a listing subcategory for development-stage oil and gas issuers that have no proven developed reserves. The proposed requirements are
- contingent resources of $500 million;
- a minimum C$200 million market value of the issued securities to be listed;
- a clearly defined development plan that will advance the property;
- sufficient funds for an 18-month period or to bring the property into commercial production; and
- an appropriate capital structure.
Securityholder Approval Requirements
When a listed company engages in a transaction involving an issuance of securities, the TSX may, depending on the circumstances, require disinterested securityholders to approve the transaction. The TSX is proposing several amendments to the securityholder approval requirements.
Transactions involving insiders. The TSX seeks to prevent issuers from avoiding securityholder approval by separating insider transactions into smaller tranches over a period of time. Accordingly, TSX proposes that for the purpose of the 10% limit, insiders’ participation in the following transactions be aggregated with their participation in other transactions during the preceding six months (similar to the way private placements are currently treated):
- security issuances in which the consideration paid to insiders represents 10% or more of the issuer’s market capitalization; and
- acquisitions in which the number of securities to be issued in payment to insiders exceeds 10% of the number of outstanding securities.
The same aggregation rule would apply to any transaction by a non-exempt issuer (whether or not involving an issuance of securities) in which consideration to insiders exceeds 10% of the issuer’s market capitalization.
Employment inducements. The TSX is proposing to modify the exemption from its securityholder approval requirements for securities issued to proposed new employees as employment inducements. Instead of allowing each officer to receive up to 2% of the issuer’s outstanding securities, the TSX is proposing to make the exemption available only if the number of securities issued to all officers as employment inducements in the preceding year does not exceed 2%.
TSX is proposing to eliminate its requirement that rights offerings be unconditional. The TSX believes this requirement is no longer necessary, in part because of the extensive disclosure framework applicable to rights offerings under securities laws.
Other Changes to the TSX Company Manual
In addition to the substantive rule changes described above, the TSX has made various non-material changes to the listed company manual, including amendments to the rules governing security-based compensation arrangements, normal course issuer bids, dividends and distributions, anti-dilution provisions, stock option backdating, rights offerings and securityholder rights plans. All of these amendments represent updates to the manual and simply codify the TSX’s existing practices and/or incorporate existing positions from its staff notices.