The Toronto Stock Exchange (TSX) provides guidance on "Voting Agreements" between a listed issuer and one or more of its security holders.

  • "Positive" Voting Agreements entered into in the context of a transaction requiring TSX approval may require disinterested security holder approval. TSX-listed issuers should therefore carefully review the TSX factors (summarized below) before agreeing to any positive Voting Agreements in the context of a reviewable transaction.
  • "Negative" Voting Agreements are generally not considered to materially affect control and will generally not result in the TSX requiring disinterested security holder approval.
  • The TSX will generally not review Voting Agreements entered into by a listed issuer in connection with a transaction that is not linked, directly or indirectly, to a transaction that is otherwise reviewable by the TSX. For example, Voting Agreements entered into in connection with transactions that are outside of the scope of TSX review, such as agreements entered into with an activist shareholder to settle a proxy contest, should not require TSX approval or be subject to TSX Staff Notice 2023-0001 Voting Agreements (the Staff Notice).

Background

On February 27, 2023, the TSX issued the Staff Notice, providing guidance on the TSX's current approach to addressing agreements between TSX-listed issuers and their security holders that require a security holder to vote in a specific manner (Voting Agreements). The Staff Notice effectively formalizes the long-standing approach of the TSX to Voting Agreements; namely, that "positive" Voting Agreements (i.e., covenants requiring the security holder to vote in accordance with management recommendations) may result in a requirement to obtain disinterested security holder approval, while "negative" Voting Agreements (i.e., covenants requiring the security holder not to vote against management's recommendations, but permitting abstentions from voting) will generally not result in a requirement to obtain disinterested security holder approval.

Scope of TSX Review of Voting Agreements

The TSX has confirmed that Voting Agreements are generally not subject to TSX review, unless they are being entered into in the context of a treasury issuance of listed or convertible securities or linked, directly or indirectly, to a transaction that is otherwise reviewable by the TSX under Part V - Special Requirements for Non-Exempt Issuers of the TSX Company Manual (the Manual). Reviewable transactions include transactions between "non-exempt issuers" and insiders or other related parties or that materially affect control of the issuer, or transactions under Part VI - Changes in Capital Structure of Listed Issuers of the Manual and, in particular, those involving the treasury issuance of securities. The TSX will review Voting Agreements entered into in the context of these transactions to determine whether the Voting Agreements "materially affect control"1 of the listed issuer. If the TSX determines in the affirmative, the TSX will generally require that the listed issuer obtain disinterested security holder approval of the transaction as a condition of TSX acceptance.

In addition, the TSX has confirmed that it will review Voting Agreements in the context of original listings under Part III - Original Listing Requirements of the Manual as part of the TSX review of existing material agreements of a prospective TSX-listed issuer.

Not All Voting Agreements Will Be Considered to Materially Affect Control of an Issuer

Under the Staff Notice, the TSX has confirmed that it will generally accept a Voting Agreement in connection with its review of a transaction if one of the following conditions is met:

  • the listed issuer has obtained disinterested security holder approval for the Voting Agreement; or
  • the Voting Agreement allows a covenanting security holder to abstain, or not participate, in a security holder vote (i.e., "negative" Voting Agreements).

In the case of a "positive" Voting Agreement, the TSX will consider the following factors to determine whether the Voting Agreement would have a material effect on control of the issuer and therefore require disinterested security holder approval:

  • the proposed term of the Voting Agreement (the TSX signals that time-limited covenants, or covenants based on the completion of a specific transaction, such as a lock-up agreement or voting support agreement in the context of a merger or acquisition, should not be considered to materially affect control of the issuer, whereas Voting Agreements that continue for a multi-year or indefinite period may be considered to materially affect control of the issuer);
  • whether the Voting Agreement results in a block sufficient to influence the outcome of a vote (which the TSX notes may occur at as low as 10% and is typically regarded as more than 20% of the issued and outstanding voting securities of the issuer, on a non-diluted basis, including the securities controlled by management, including in connection with other Voting Agreements, and any other security holders acting jointly and in concert);
  • the context in which the Voting Agreement is being entered into; and
  • the consequences to the covenanting security holder for breaching the Voting Agreement.

Footnote

1. "Materially affect control" is defined in Part I - Introduction of the Manual as including the ability of any security holder or combination of security holders acting together to influence the outcome of a vote of security holders. Holdings of voting securities by a combination of security holders acting together may be considered to materially affect control, depending on the individual circumstances of the issuer. Whether a Voting Agreement materially affects control of an issuer is a factual analysis and is affected by an issuer's individual circumstances and a variety of factors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.