On May 26, 2016, the Toronto Stock Exchange (TSX) published for comment proposed amendments to Part IV and Part VI of the TSX Company Manual (Manual). If adopted, the proposed amendments would introduce website disclosure requirements for all TSX listed issuers (Part IV Amendments), and amend the security-based compensation arrangements disclosure requirements (Part VI Amendments), in particular by introducing a new disclosure form, Form 15 – Disclosure of Security Based Compensation Arrangements (Form 15).
PART IV AMENDMENTS
The Part IV Amendments would introduce a new section 473 to the Manual, which would require TSX listed issuers to maintain a publicly accessible website where current copies of the following documents, as applicable, must be made available:
- Constating documents, including articles, trust indentures, partnership agreements, by-laws and other similar documents
- Corporate policies that affect meetings of security holders and voting, including advance notice and majority voting policies
- Security holder rights plans
- Security based compensation arrangements
- Certain corporate governance documents, including charters of board committees, codes of ethical business conduct, position descriptions, board mandates, anti-corruption policies and other environmental, social and governance policies
The Part IV Amendments would also amend section 461.3 of the Manual, relating to the disclosure requirements for issuers that adopt a majority voting policy. Currently, issuers are required to describe majority voting policies annually in meeting materials sent to shareholders. The Part IV Amendments would remove this disclosure requirement and instead require that copies of such policies be posted on the issuer’s website as noted above. However, issuers may believe that it is necessary to disclose such policies in any event in the proxy circular as relevant to the election of directors at the meeting.
Not all documents that would be required to be posted on an issuer’s website under proposed section 473 must currently be filed with the Canadian Securities Administrators on the System for Electronic Document Analysis and Retrieval (SEDAR), although some disclosure about most of such documents is generally required in an issuer’s disclosure filings.
The TSX has stated that the Part IV Amendments are intended to provide Canadian capital markets participants with easier access to key security holder documents. Reporting issuers are currently required to file and make publicly available many of their material documents on SEDAR; however the TSX notes that these documents may be difficult to find and that reporting issuers have differing practices for identifying and filing documents. Many of these filed documents would have been filed at different times over a number of years and may not be easy to locate on SEDAR. The requirement for reporting issuers to publish such documents on their websites is intended to address these issues and provide readier access to key documents to investors. In considering the Part IV Amendments, the TSX reviewed and considered the issuer website requirements of other exchanges including the New York Stock Exchange, Aequitas NEO Exchange and the London Stock Exchange’s AIM, which each have some form of required website disclosure, and the London Stock Exchange, NASDAQ, Canadian Stock Exchange and the Australian Stock Exchange, which do not have website disclosure requirements. As currently proposed, this rule would apply to all TSX-listed issuers and does not provide for exemptions for foreign issuers or deferral to the requirements of another exchange for inter-listed issuers.
PART VI AMENDMENTS
Section 613 of the Manual requires that any security-based compensation arrangement adopted by a listed issuer must be approved by security holders. The Part VI Amendments would amend certain parts of section 613 of the Manual, relating to the disclosure required to be included in shareholder meeting materials (Meeting Materials), both for meetings where security holder approval is sought for a security-based compensation arrangement (Approval Meetings) and for other annual meetings. The Part VI Amendments propose to introduce a new form, Form 15, which sets out the necessary disclosure in tabular format.
The Part VI Amendments would amend subsection 613(b) of the Manual to specifically refer to more current types of security-based compensation arrangements, including plans that set out the general terms and conditions of options, deferred stock units, restricted stock units or other awards; individual awards not granted pursuant to a plan, financially assisted purchases of securities and other compensation or incentive mechanisms where equity securities are issued.
New and Modified Requirements
If implemented, the Part VI Amendments would eliminate many of the requirements for narrative disclosure regarding security-based compensation arrangements currently required in proxy circulars in favour of the public disclosure of the plan documents on issuers’ websites and narrative disclosure in the proxy circular of a few key terms. The Part VI Amendments, if implemented, would effect the following new or modified disclosure requirements:
- Outstanding Awards: disclosure is required regarding the number of awards currently outstanding under a security-based compensation arrangement. If the award includes a multiplier, the TSX proposes that the maximum payout under the multiplier must be used to calculate the number of listed securities issuable under the award. Issuers must also disclose details regarding the multiplier, if applicable, and the percentage of outstanding awards relative to currently issued and outstanding securities.
- Burn Rate: disclosure is required regarding the rate at which an issuer uses up the securities available for grant under its security-based compensation arrangements. The Part VI Amendments propose to define burn rate for a year as the number of awards granted under the security-based compensation arrangement in the year (net of cancellations), multiplied by any multiplier, divided by the number of issued and outstanding securities of the issuer at the beginning of the year.
- Vesting: more specific disclosure is required regarding default vesting provisions under a security-based compensation arrangement and whether vesting is time and/or performance based.
- Amendments: the amendments would remove the requirement to disclose amendments to a security-based compensation arrangement previously approved by security holders, however amendments made without security holder approval during the most recently completed fiscal year must still be disclosed.
- Other Key Terms: disclosure of other key terms is no longer mandatory for annual meetings, but must still be included in Meeting Materials for Approval Meetings.
- Copies of Security-Based Compensation Arrangements: issuers will be required to disclose details regarding where a copy of any security-based compensation arrangement can be found on their websites.
- Date of Disclosure Elements: for annual meetings, Form 15 disclosure will be required as at the end of the most recently completed fiscal year. For Approval Meetings, other than annual meetings, the information in Form 15 would continue to be provided as at the date of the materials.
If the Part VI Amendments are implemented, an issuer would be required to disclose the items included in Form 15 in its Meeting Materials for both Approval Meetings and other annual meetings. Burn rate would be required to be disclosed for the three most recent fiscal years for Approval Meetings, but only the most recent fiscal year for other annual meetings. As noted above, the disclosure of other key terms in Meeting Materials would only be mandatory for Approval Meetings.
The following requirements will continue unchanged:
- Maximum Number of Securities Issuable: disclosure regarding the maximum number of securities issuable under a security-based compensation arrangement continues to be required and, where the number is a fixed number, disclosure of the percentage that number represents of the issuer’s outstanding securities
- Eligibility: disclosure continues to be required regarding the eligible participants under each security-based compensation arrangement
- Pre-clearance of Meeting Materials for Approval Meetings: TSX pre-clearance of Meeting Materials for Approval Meetings continues to be required
Under the Part VI Amendments, disclosure regarding the following would no longer be required:
- Maximum securities available to insiders
- Maximum securities available to one person or company
- Exercise price calculation
- Purchase price calculation
- Formula for calculating stock appreciation rights (SARs)
- Ability to transform options into SARs involving issuance of securities from treasury
- Causes of cessation of entitlement and effect of employee termination
- Amendment process
- Financial assistance
- Entitlements previously granted but subject to security holder approval
The Part VI Amendments will remove certain TSX disclosure requirements for security-based compensation arrangements that are otherwise required pursuant to Canadian securities law or that may not be useful to security holders and will introduce requirements considered by the TSX to be more relevant to security holders. While discontinuing some disclosure requirements, as discussed above, TSX is proposing to concurrently introduce section 473, which will require current copies of each security-based compensation arrangement maintained by an issuer to be published on the issuer’s website.
In considering the Part VI Amendments, TSX reviewed and considered the disclosure requirements of other exchanges in the U.S. and Canada.
The TSX has asked for comment on a number of specific questions relating to the Part IV Amendments, including:
- Whether it is appropriate for the TSX to introduce these requirements
- Whether additional documents should be included or proposed documents excluded
- Whether material costs or effort would be required to comply
Similarly, the TSX has also asked for comment on a number of specific questions relating to the Part VI Amendments, including:
- Whether there are other key disclosure elements that should be included in Form 15, or elements that should be removed
- Whether disclosure of static elements of a security-based compensation arrangement should be required given that the information would now be available on an issuer’s website
- Whether the burn rate and formula for calculating it are useful and appropriate disclosure
The Part IV Amendments and the Part VI Amendments are open for comment until June 27, 2016.