On Friday April 27th, The Toronto Stock Exchange (the "TSX") issued a Notice of Approval for Amendments to the Normal Course Issuer Bid Rules in the TSX Company Manual (the "Amendments"). The Amendments will come into effect on Friday June 1, 2007.

The Amendments affect how a normal course issuer bid ("NCIB") is carried out on TSX. The Amendments include:

Normal Course Issuer Bids – Sections 628 - 629.3:

• The TSX has replaced the current 2%-in-30-days restriction with a daily buy-back limit for all issuers (other than investment funds).  Under the Amendments, issuers will be permitted to repurchase up to 25% of the average daily trading volume ("ADTV") of the listed securities of the issuer on any trading day.  ADTV is calculated based on the trading on the TSX of the listed securities during the six month period immediately preceding the date of acceptance of the NCIB by the TSX.
  
• Issuers will continue to be restricted from purchasing more than 10% of an issuer's public float (as defined in the TSX Manual) or 5% of its issued and outstanding securities during any 12-month period.
  
• The Amendments provide for a new exception to permit one "block purchase" per week.  Specifically, issuers will be permitted to buy back one block of securities per week which exceeds the daily repurchase restrictions (described above).  A "block" is defined in Section 628(a)(ii) of the Amendments as a quantity of securities that either (a) has a purchase price of $200,000 or more, or (b) is at least 5,000 securities and has a purchase price of at least $50,000, or (c) is at least 20 board lots of the security and total 150% or more of the ADTV for that security.  In addition, and in contrast to the draft version of the Amendments originally published for comment in October 2005, NCIB purchases may be made on the same day of a block purchase, up to the time of the block purchase.  Once the block purchase exemption has been relied upon in an given day, no further NCIB purchases may be made for the remainder of that trading day.  It should also be noted that issuers are not permitted to purchase blocks under the foregoing exemption from insiders (the definition of which remains the same).
  
• The TSX Manual currently requires that purchases made under an NCIB be made at a price which is not higher than the last "independent trade" of a board lot of the listed securities.  The definition of what does not constitute an "independent trade" under Section 629 has been revised to make clear that any trades directly or indirectly by a broker making purchases for the bid which are made in order to facilitate a subsequent block purchase by the issuer at a certain price will not be an "independent trade". 

Automatic Purchase Plans – Section 629(l)(6):

• The TSX Manual currently prohibits any purchases of securities by an issuer pursuant to an NCIB while the issuer possesses any material undisclosed information.  The Amendments clarify that this restriction will not apply to NCIBs established by the listed issuer in accordance with applicable securities laws, particularly Section 175 of Regulation 1015 of the Securities Act (Ontario) (the "OSA"), which basically exempts purchases and sales of securities from the general prohibition from trading with knowledge of an undisclosed material fact or material change (Section 76(1), OSA) and from liability in respect of such trades (Section 134, OSA), where the issuer proves that the purchase or sale was made pursuant to an automatic share purchase plan.  The Amendments will permit an issuer purchasing its own shares under an automatic purchase plan conducted under its NCIB to do so even if it possesses material undisclosed information at the time of actual purchase, provided that at the time the decision to purchase was made (i.e., when the issuer gave instructions to the broker), the issuer was not in possession of material undisclosed information.

 Use of Derivatives and Accelerated Buy Backs – Section 629.1:

• Under the October 2005 draft version of the then-proposed Amendments, the Amendments contemplated permitting the use of forward purchase contracts, put option agreements and call option agreements ("derivatives") in conjunction with NCIBs.  The October 2005 incarnation of the then-proposed Amendments also contemplated allowing for accelerated buy-backs, whereby an issuer would repurchase a block of its shares at the current market price, typically from a dealer in a short sale.  The parties then agree to subsequently adjust the price based on the trading price of the securities over a future period.
• The Amendments coming into force on June 1st do not include any of these proposed provisions relating to the use of derivatives and accelerated share buy-backs in connection with NCIBs.  Rather, the TSX Notice of Amendments indicates that these provisions have been removed and will be republished at some later, unspecified date.  As such, it is currently unclear what amendments, if any, are intended to be effected by the TSX in respect of these transactions.

Debt Substantial Issuer Bids – Section 629.2:

• The Amendments provide for the repurchase by issuers of listed non-convertible debt securities.  Debt repurchases on the TSX are subject to the requirement of advance notice to (in the form of new Form 13) and acceptance of the bid by the TSX.  A debt substantial issuer bid must be made to all securityholders for identical consideration and, to the extent more securities are tendered than the issuer sought, the issuer must take up securities on a pro rata basis.

Effective Date and Transition:

• Effective June 1st, the current Appendix F contained in the TSX Manual will be repealed in its entirety.
  
• Notwithstanding this effective date, issuer bids whose commencement date was prior to June 1st or that the TSX has accepted notice of in writing but which have not yet commenced may continue to comply with the existing rules.
  
• To the extent issuers have commenced an NCIB, or have had notice of their intention to commence an NCIB accepted by the TSX prior to June 1st, those issuers may elect to continue their bid in compliance with the Amendments which, among other things, would then allow for block purchases under an issuer bid.  To elect to continue a bid in accordance with the provisions of the Amendment, issuers must submit a revised notice of intention (in accordance with the new Form 12) and, upon acceptance by the TSX, issue a press release announcing the revisions to the bid.  An issuer should carefully consider whether the new 25%-daily-trading restriction (which replaces the 2%-per-30-days trading limit) would have a favourable or adverse effect on the number of securities an issuer may acquire under an NCIB, depending on an issuer's trading volume, if considering whether to elect to continue an NCIB under the new Amendments.

If you would like additional information on this topic, please contact Patricia Olasker or Jennifer Longhurst in the Toronto office at (416) 863-0900 or Maryse Bertrand in the Montréal office at (514) 841-6400.

Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.