TSX Adopts Amendments Relating to Security Based Compensation Arrangements and Backdoor Listings
Further to our article dated December 20, 2013 entitled TSX publishes proposed amendments to Stock Exchange Company Manual, the Toronto Stock Exchange (the “TSX”) has recently announced that it has adopted, and the Ontario Securities Commission has approved, amendments to Part VI – Changes in Capital Structure of Listed Issuers of the TSX Company Manual (the “Manual”) which become effective today, October 1, 2014. The amendments relate to the adoption of security based compensation arrangements (each an “Arrangement”) in the context of acquisitions under Section 611 of the Manual (the “Section 611 Arrangement Amendments”) and the criteria considered by the TSX in determining whether a transaction is a backdoor listing under Section 626 of the Manual (the “Section 626 Backdoor Listing Amendments”).
The Section 611 Arrangement Amendments allow listed issuers to adopt Arrangements for employees of a target issuer in the context of an acquisition under Section 611 of the Manual without obtaining security holder approval, provided that:
- the number of securities issuable under such Arrangement does not exceed 2% of the listed issuer’s issued and outstanding securities; and
- the issuance of securities in connection with the acquisition (including any related Arrangement) does not exceed 25% of the number of issued and outstanding securities of the listed issuer.
The Section 626 Backdoor Listing Amendments broaden the scope of the transactions that may be considered backdoor listings by taking into account a variety of factors and considering a more comprehensive view of the concept of dilution. The Section 626 Backdoor Listing Amendments include the following:
- clarification of the definition of a “backdoor listing” to mean a transaction which results in the acquisition of a listed issuer by an entity not currently listed on the TSX. The transaction may be a series of transactions and may take one or a number of forms, including an issuance of securities for assets, an amalgamation or a merger;
- adoption of a series of factors set out in Subsection 626(b) of the Manual to be considered by the TSX in determining whether there is a backdoor listing, including the business of the listed issuer and the unlisted entity, changes in management (including the board of directors), voting power, security ownership, name changes and the capital structure of the listed issuer;
- clarification of the discretion of the TSX to consider a variety of relevant factors when determining whether a transaction constitutes a backdoor listing; and
- in assessing whether the transaction will or could result in the existing security holders of the listed issuer holding less than 50% of the securities or voting power in the entity resulting from the transaction, and in assessing the various factors in Subsection 626(b) of the Manual, the TSX will take into account securities issued or issuable upon a concurrent financing, whether it is by way of a private placement or public offering (rather than only by private placement).
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