TSX Venture Exchange – Security Based Compensation Policy Change

Written by: Ryan Amaral

On November 24th 2021, the Toronto Stock Exchange Venture Exchange (TSXV) announced amendments to their policies regarding security based compensation. These changes will allow greater flexibility to issuers in terms of their ability to offer a variety of security-based compensation options. As the TSXV is focused on early-stage and growth companies, these amendments are particularly relevant to start-ups who frequently utilize security-based compensation as a mechanism to attract and retain employees. While a number of changes were made, some of the key changes are outlined below.

Additional Forms of Security Based Compensation

The former policy (Policy 4.4 – Incentive Stock Options) only addressed traditional stock options, whereas the new policy (Policy 4.4 – Security Based Compensation) now covers other forms of security-based compensation such as:[1]

Deferred share units (“DSUs”)

Performance share units (“PSUs”)

Restricted share units (“RSUs”); and

Stock appreciation rights (SARs).

By expanding upon the previous policy, these additions will effectively allow TSXV issuers greater ability to tailor their compensation plans to the specific needs and peculiarities of their organizations.

Vesting Changes

Additionally, a key change in relation to these incentives is that they may not vest for a period of at least 12 months from the date of grant or issuance, subject to limited circumstances which may provide for acceleration.[2]

Security Based Compensation Plan Changes

Further, the new policy expands upon the previous one by providing for two additional types of security-based compensation plans, while also amending the previous stock option plans to include the new forms of security-based compensation. These four new categories include:[3]

“rolling up to 10%” (section 3.1(a)): “rolling” Security Based Compensation Plan(s) under which the number of Listed Shares of the Issuer that are issuable pursuant to all such Security Based Compensation Plan(s) in aggregate is equal to up to a maximum of 10% of the Issued Shares of the Issuer as at the date of grant or issuance of any Security Based Compensation under any of such Security Based Compensation Plan(s); or

“fixed up to 20%” (section 3.1(b)): “fixed” Security Based Compensation Plan(s) under which the number of Listed Shares of the Issuer that are issuable pursuant to all such Security Based Compensation Plan(s) in aggregate is a fixed specified number of Listed Shares of the Issuer up to a maximum of 20% of the Issued Shares of the Issuer as at the date of implementation of the most recent of such Security Based Compensation Plan(s) by the Issuer; or

“rolling up to 10% and fixed up to 10%” (section 3.1(c)): a “rolling” Stock Option Plan under which the number of Listed Shares of the Issuer that are issuable pursuant to the exercise of Stock Options is equal to up to 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 as at the date of implementation of the most recent of such Security Based Compensation Plan(s) (other than Stock Option Plans) by the Issuer; or

“fixed Stock Option Plan up to 10%” (section 3.1(d)): 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 as at the date of implementation of the Stock Option Plan by the Issuer.

Categories (i) and (ii) are unchanged from the previous policy, except as to including the new additional types of Security Based Compensation. Category (iii) is termed by the TSXV to be a “hybrid” category, designed to provide additional flexibility to Issuers. Category (iv) is a subset of (ii) in that it permits a fixed number up to 10% only, and it is further limited only to Stock Options.[4]

Cashless Exercise and Net Exercise

Formerly, the exercise price of a stock option was required to be paid in cash where the option holder would pay the issuer the strike price at the time of exercise. The new policy now allows for these options to be exercised under either a “cashless” or “net” method. A "cashless exercise" is one where a brokerage firm facilitates the exercise of an option, and the issuer still receives the exercise price in cash.[5] A "net exercise" is one where the participant receives the shares based on a five-day volume weighted average trading price calculation, provided that the participant is not an investor relations service provider.[6]

These amendments took effect as of November 24th, 2021. For further information regarding these changes, check out the TSXV's bulletin notice here.

Ryan is a member of the BLG Business Venture Clinic and is a 2nd year student at the University of Calgary Faculty of Law.

[1] TMX Security Based Compensation Bulletin Notice (2021), online: <https://www.tsx.com/resource/en/2758>

[2] John E Piasta et al, “TSX Venture Exchange Updates Security-Based Compensation Policies”, (December 10, 2021), online: <https://www.bennettjones.com/Blogs-Section/TSX-Venture-Exchange-Updates-Security-Based-Compensation-Policies>

[3] Supra note 1

[4] Ibid

[5] Rick Moscone and Sabrina Alaimo, “Canada: TSX Venture Exchange Announces Amendments to Security-Based Compensation Policies”, (December 16, 2021), online: <https://www.mondaq.com/canada/shareholders/1142220/tsx-venture-exchange-announces-amendments-to-security-based-compensation-policies>

[6] Ibid