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Frequently Asked Questions
  Staff Interpretation 2023-01
Identification Number 1862
This is in response to your correspondence asking whether a proposed “nonqualified” Employee Share Purchase Plan (“Plan”) would require shareholder approval pursuant to Listing Rule 5635(c) (“Rule”).  
According to the information you provided, under the Plan, eligible employees would participate by contributing no greater than five percent of their regular salary, wages and commissions (“Employee Contribution”), which the company would match in the applicable payroll period (“Employer Contribution”).  The Employee Contribution and Employer Contribution would be used to purchase common shares periodically in the open market at prevailing market prices.  The shares will be acquired by an administrator on behalf of Plan participants as fully paid and non-assessable shares, and will be held in an account for the participant maintained by the administrator. Plan participants may elect to receive the shares, or the proceeds from the sale of the shares, with written notice; provided, however, that a participant will be ineligible to receive an Employer Contribution for five years following any such release of shares. Neither the Employee Contribution nor the Employer Contribution will be tax deferred.

Following our review of the information you provided, we have determined that shareholder approval is required prior to the issuance of securities under the Plan. The Rule sets forth the requirement to obtain shareholder approval for equity compensation plans pursuant to which stock may be acquired by certain recipients, including employees of the Company, unless an enumerated exception applies. Exceptions provided in Listing Rules 5635(c)(1), (3), and (4) do not apply under the plain reading of the Rule.  Under Rule 5635(c)(2), shareholder approval is not required for certain tax qualified, non-discriminatory employee benefit plans and plans that merely provide a convenient way for participants to purchase shares in the open market or from the company at fair market value in lieu of cash otherwise due to a participant.  This is not such a plan because it is “nonqualified” and because the Plan participants receive a defined benefit in a form of an Employer Contribution, which, in economic terms, is equivalent to issuing securities to a participant at a discount to market value.  As such, the Plan is an equity compensation arrangement that would require shareholder approval prior to the issuance of securities under the Plan.
Publication Date*: 4/24/2023 Mailto Link Identification Number: 1862
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