The Toronto Stock Exchange ("TSX") has made two recent changes to the TSX Company Manual that will impact disclosure:
A. It introduced a requirement for many corporate listed issuers to disclose specified policies and corporate documents on the issuer's website, effective April 1, 2018, which the TSX refers to as the Part IV Amendments; and,
B. It amended the disclosure requirements for securities based compensation arrangements in circulars for securityholder meetings of the issuer, effective for financial years ending on or after October 31, 2017, which the TSX refers to as the Part VI Amendments.
The TSX believes the changes will be beneficial to security holders by making issuers' material corporate governance documents more easily obtained in a centralized location and the "modest increase in a listed issuer's disclosure obligations is outweighed by the benefits to investors".
SUMMARY OF THE AMENDMENTS
A. Website Disclosure
There are two main changes relating to issuer website disclosure:
Posting corporate documents on issuer's website. Unless they are exempted as described below, listed corporate issuers will now be required to maintain a publicly available website with current, effective versions of the following documents:
- articles of incorporation, amalgamation, continuation or any other constating or establishing documents of the issuer and its by-laws; and
- if adopted, copies of: • majority voting policy, • advance notice policy, • position descriptions for the chairman of the board, and the lead director, • board mandate, and • board committee charters.
We understand that the TSX intended only standing committee charters need be posted. Ad hoc committee mandates, which would include special committees, would often be confidential when they are created, and their mandates or charters are not intended to be posted. We expect that the TSX may clarify this requirement.
The website hosting these documents must meet several criteria:
- the webpage should be easily identifiable and accessible from the listed issuer's homepage or investor relations page;
- If a listed issuer's website is shared with other issuers, each listed issuer should have a separate, dedicated webpage; and,
- a listed issuer may post the current, effective version of a larger document which contain these documents.
These new requirements will not apply to:
- Non-Corporate Issuers (Exchange traded products like REITs, closed-end funds, or structured products);
- Eligible Interlisted Issuers (issuers listed on another Recognized Exchange in addition to the TSX); or,
- Eligible International Interlisted Issuers (Eligible Interlisted Issuers incorporated or organized in Recognized Jurisdictions).
Majority voting policies must be uploaded, not just described. The TSX listing requirements insist that each director of an issuer be elected by a majority of votes cast with respect to their election. To meet this requirement, the TSX permits listed issuers to adopt a policy providing for majority voting if the requirement was not otherwise enforced on the issuer (by its constating documents, for example).
When these amendments take effect, the TSX will require any majority voting policy to be uploaded to the issuer's website in its entirety. This requirement will apply to both corporate and non-corporate issuers. Although the amendments remove sections of the TSX Company Manual which require the issuer to describe any majority voting policy to security holders on an annual basis, the policy should still be described in a circular for a meeting in which directors are being elected since it is relevant to the election.
B. Compensation arrangements
TSX rules govern securities based compensation arrangements, such as options, securities purchase plans, PSUs, DSUs, RSUs, SARS and other similar arrangements that involve the issuance of securities from treasury. The TSX Company Manual has for some time required certain disclosure relating to these arrangements in (a) circulars sent to security holders seeking approval of these arrangements or amendments to them, and (b) otherwise annually in a circular or other disclosure document distributed to security holders.
Amendments to the TSX Company Manual require the following changes to this disclosure:
Calculation of burn rate. The amendments require that listed issuers disclose the following:
- annual burn rate for new equity compensation arrangements, including those adopted in replacement of similar arrangements;
- if the securities awarded include a multiplier, details in respect to such multiplier; and,
- the annual burn rate for each of the listed issuer's three most recently completed fiscal years for the relevant arrangement (or since adoption if less than three years).
The amendments provide the following formula for calculating burn rate:
number of securities granted under the arrangement during the applicable fiscal year
weighted average number of securities outstanding for the applicable fiscal year
Changes to time period of compensation arrangement disclosure. The amendments to the TSX Company Manual clarify the time at which the disclosure speaks depending upon the type of meeting as follows:
|Security based compensation arrangements up for approval||Must present disclosure as at end of issuer's most recently completed fiscal year. Include three-year burn rate disclosure (in accordance with burn rate calculation)||Must present disclosure as at the date of the meeting materials. Include three-year burn rate disclosure (in accordance with burn rate calculation).|
|No security based compensation arrangements up for approval||Must present disclosure as at end of issuer's most recently completed fiscal year. Include three-year burn rate disclosure (in accordance with burn rate calculation)||Compensation arrangement disclosure not required.|
Certain disclosure broadened beyond options. Formerly only the vesting and term of "stock options" issuable under the compensation arrangement were required to be disclosed by an issuer. The amendments clarified that disclosure applies to "securities issuable" under the compensation arrangements, which captures all plans, not just options.
Clarification to disclosure of plan maximums. The TSX has clarified how plan maximums, outstanding and reserved securities are to be disclosed:
- 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,
- 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
- 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 issue.
WHAT THE NEW CHANGES MEAN FOR ISSUERS
The new requirements are not overly onerous, but will require non-exempt corporate issuers to review and update their websites by the end of the first quarter of calendar 2018, and keep those websites updated over time whenever changes are made to the posted documents. TSX issuers must also add a few additional calculations, including compensation plan burn rates, to the circular in connection with future AGMs. The changes do not apply to venture issuers.