TSXV publishes changes to Security Based Compensation

by | Dec 13, 2021

On November 24, 2021, the TSX Venture Exchange (the TSXV) announced changes to the TSXV’s Corporate Finance Manual regarding Security Based Compensation. The following amendments have been made:

  • Policy 4.4 – Incentive Stock Options has been amended and renamed Policy 4.4 – Security Based Compensation (the New Policy);
  • Policy 4.7 – Charitable Options in Connection with an IPO (Policy 4.7) has been repealed as the Security Based Compensation Policy includes the substantive contents of Policy 4.7;
  • Form 4G – Summary Form – Incentive Stock Options has been amended and renamed Form 4G – Summary Form – Security Based Compensation (New Form 4G); and
  • Form 4F – Certification and Undertaking Required from a Company Granted an Incentive Stock Option (Form 4F) has been repealed as the New Form 4G includes the substantive contents of Form 4F.

The New Policy and the New Form 4G, and the repeal of Policy 4.7 and Form 4F, are effective November 24, 2021.

Security Based Compensation Plans currently in effect will remain in full force and effect, and may be amended in accordance with the New Policy with the requisite Shareholder approval. Any outstanding Security Based Compensation Plan that does not comply with the New Policy will need to be amended to comply with the New Policy the next time it is placed before the Issuer’s Shareholders for approval.

The following highlights some but not all of the amendments:

1. Types of Security Compensation

    1. – In addition to stock options (Stock Options) the New Policy covers a variety of types of Security Based Compensation, such as deferred share units (DSU), performance share units (PSU), restricted share units (RSU) and stock appreciation rights (SAR).

    2. 2. Categories of Security Based Compensation Plans
    – The New Policy permits four categories of Plans:

    a. “rolling up to 10% – a maximum of 10% of the Issued Shares of the Issuer;
    b. “fixed up to 20%” – a fixed specified number of Listed Shares of the Issuer up to a maximum of 20% of the Issued Shares of the Issuer;
    c. “rolling up to 10% and fixed up to 10%” – a maximum of 10% of the Issued Shares of the Issuer as at the date of any Stock Option grant, and “fixed” Security Based Compensation Plan(s) (other than Stock Option Plans) under which the number of Listed Shares of the Issuer that are issuable pursuant to all such Security Based Compensation Plan(s) (other than Stock Option Plans) in aggregate is a fixed specified number of Listed Shares of the Issuer up to a maximum of 10% of the Issued Shares of the Issuer; or
    d. “fixed Stock Option Plan up to 10%” – a “fixed” Stock Option Plan under which the number of Listed Shares of the Issuer that are issuable pursuant to the exercise of Stock Options is a fixed specified number of Listed Shares of the Issuer up to a maximum of 10% of the Issued Shares of the Issuer.

    3. Shareholder Approval – The Security Based Compensation Policy clarifies the specific Shareholder approval required for each category of Security Based Compensation Plan:

    a. “fixed Stock Option Plan up to 10%” – the only circumstance in which Shareholder approval of a Security Based Compensation Plan is not required is in relation to the implementation of a “fixed” Stock Option Plan;
    b. “fixed up to 20%” – must receive Shareholder approval at the time the “fixed” Security Based Compensation Plan is implemented.
    c. “rolling up to 10%” – must receive Shareholder approval at the time the “rolling” Security Based Compensation Plan is implemented and yearly thereafter, at the Issuer’s annual meeting of Shareholders.
    d. “rolling up to 10% and fixed up to 10%” – must obtain yearly approval of the “rolling” Stock Option Plan and must also obtain Shareholder approval of the “fixed” Security Based Compensation Plan(s). If the Issuer has elected to implement one Security Based Compensation Plan that includes both the “rolling” Stock Option Plan and “fixed” Security Based Compensation Plan(s), then the Issuer must obtain yearly approval of that Security Based Compensation Plan.

    4. Cashless Exercise / Net Exercise – the New Policy permits Stock Options to be exercised using “Net Exercise” and “Cashless Exercise”.
    5. Security Based Compensation Outside of a Security Based Compensation Plan – in certain circumstances, the TSXV will consider an application of an issuer to grant Security Based Compensation outside of a Security Based Compensation Plan and generally such a grant will be subject to disinterested shareholder approval, which may be obtained at a meeting or by written consents.

    a) Securities for Services – Policy 4.3 – Shares for Debt (Policy 4.3), sets out a number of requirements for an agreement to compensate a Person by way of Securities for Services. These requirements are now included in the New Policy.
    b) Compensation Owed to Non-Arm’s Length Parties – the TSXV is increasing the limit for Shares for Debt to $5,000 per month per Person and $10,000 per month in aggregate per Issuer, and has included this type of compensation in the Security Based Compensation Policy
    c) One Time Payments as Inducement or Severance – issuers may issue Listed Shares as an inducement or as severance without Shareholder approval subject to certain limitations set out in the New Policy.
    d) Loans – where an Issuer wishes to lend funds for the purposes of acquiring shares of the issuer, the loans must be approved by disinterested shareholders.

    Please see: https://www.tsx.com/resource/en/2758

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