YEAR-END DISTRIBUTIONS

TSX staff remind issuers that the requirements to notify the TSX of the approval of a distribution and to provide seven trading days notice prior to the record date includes special year-end distributions and applies whether or not

  • the exact amount of distribution is known,
  • the distribution is to be made in cash, units or other securities, or
  • an immediate consolidation to maintain the current number of outstanding securities is planned.

TSX staff also remind issuers of the additional requirements that apply in the case of distributions to be followed by consolidations. For distributions that are not entirely in cash, the notices should be filed with the appropriate Listed Issuer Services Manager, as well as the TSX Dividend Administrator.  

RESTRICTED SECURITIES

TSX staff generally consider the issuance of a special share that provides the holder with rights that differ from those attached to the issuer’s general body of equity securities (e.g., board appointment rights, management appointment and removal rights, or veto rights over corporate decisions) to be a limitation on the voting rights of the equity securities. Accordingly, the TSX’s restricted securities policy would not permit the word “common” to be used in a legal designation of the issuer’s equity securities and would require a restricted security term, such as ‘limited voting’ or ‘restricted voting’ to be used.  

TSX staff have received a number of applications for exemptions from this rule, including in connection with income trust conversions. They may consider granting such an exemption where the special share confers appointment rights that are proportionate to, and correlated with, the holder’s equity interest in the issuer. In addition, where the holder of the special share also holds equity securities, the TSX expects that the holder will be permitted to exercise either, but not both, of its rights under the special share or its equity securities. The TSX may also require additional disclosure of these rights and will consider other rights attached to the special share in determining whether to grant an exemption. The TSX will also consider whether the equity securities should explicitly contain take-over bid protections, such as coattails.  

TSX staff also remind issuers to consider the application of Ontario Securities Commission Rule 56-501 Restricted Shares to determine whether similar relief would be required under that rule. National Instrument 51-102 Continuous Disclosure Obligations and National Instrument 41-101 General Prospectus Requirements also contain specific provisions for issuers that have outstanding restricted securities.

OPTION PLAN AMENDMENTS

The federal government has announced significant changes to the provisions of the Income Tax Act affecting stock options that are expected to become effective retroactively to March 4, 2010 or to January 1, 2011. For details of these changes, please see our Tax Law Bulletin Budget 2010 Stock Option Changes may Necessitate Action by Issuers.1

The TSX will generally consider amendments to option plans and agreements that respond to these tax changes to be of a “housekeeping” nature. Accordingly, such amendments may be made without security holder approval, provided that they are reviewed and pre-cleared by the TSX and disclosed to shareholders. The TSX will also permit such amendments to be made even where the existing option plan and agreements do not provide a mechanism for the changes. However, in these circumstances, the TSX will require the issuer to introduce proper amendment procedures in the plan, to be approved by the security holders at the next meeting.

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The TSX guidance is provided in TSX Staff Notice 2010–0002 2, dated November 12, 2010, which is available on the TSX website by following the above link.