Canada's securities regulators are proposing changes to National Instrument 54-101, Communication with Beneficial Owners of Securities of a Reporting Issuer. The most significant proposal is to permit reporting issuers to make their annual proxy materials available by posting them on a website instead of mailing hard copies to securityholders. This proposal, known as "notice-and-access," is summarized below along with the other proposed changes to NI 54-101. The comment period is open until August 31, 2010.
Website Posting of Proxy-Related Materials (Notice-and-Access)
The notice-and-access proposal would permit, but not require, reporting issuers to make their annual proxy-related materials available to securityholders by posting them on a website (either the issuer's or a service provider's) in addition to filing them on SEDAR. To take advantage of notice-and-access, an issuer would have to publish a news release and send a notice to beneficial owners at least 30 days before the meeting date, providing certain information, including
- particulars about the meeting and a summary of the matters to be voted on;
- an explanation of how to access the proxy-related materials electronically; and
- an explanation of how to execute and return the voting instruction form.
A securityholder would be able to request a hard copy of the proxy materials, which the issuer would have to send within three business days of receiving the request. The proposed rules would also maintain beneficial owners' ability to consent to any other method of delivery of proxy materials, such as email delivery.
Reporting issuers would have the flexibility to use notice-and-access in respect of some but not all beneficial owners, but would have to explain the reasons for the disparate treatment in their news release and management information circular. Notice-andaccess would also be permitted for registered securityholders under proposed amendments to the proxy solicitation rules in National Instrument 51-102.
The regulators are not proposing notice-and-access for meetings at which a special resolution1 will be considered, but are soliciting comments on this point as well as on the question whether notice-and-access is likely to reduce the number of retail shareholders who vote.
The proposed notice-and-access procedures are similar to the SEC's rules applicable to U.S. public companies. Although foreign private issuers are exempt from the U.S. proxy rules, the Canadian proposals would permit cross-border issuers to voluntarily comply with U.S. notice-and-access procedures in lieu of complying with the Canadian rules.
There is one significant difference, however, in the way notice-and-access would operate in Canada compared to the way it operates in the United States. Under NI 51-102, Canadian reporting issuers would still be required to mail their annual financial statements and management's discussion and analysis (MD&A), either to all securityholders or to those who request them. U.S. law has no separate mailing requirement for financial statements or MD&A. As a result, instead of taking advantage of notice-andaccess, some Canadian issuers might find it more efficient to continue their current practice of mailing their proxy materials along with their financial statements and MD&A in a single delivery to all securityholders.
The regulators are seeking comment on whether the separate delivery requirements for proxy materials and annual request forms for financial statements/MD&A are adequately integrated.
Appointing Beneficial Owners as Proxy Holders
The proposed rule changes would simplify the process by which beneficial owners are appointed as proxy holders. The existing rules require beneficial owners to request to be appointed as proxy holders by returning the voting instruction form. The issuer or intermediary must then send the beneficial owner a legal proxy, which the beneficial owner must deposit by the applicable deadline. The proposed new rules would make issuers and intermediaries responsible for appointing beneficial owners as proxy holders and depositing proxies by the applicable deadline. Intermediaries could continue to use their existing appointee systems to achieve this result.
Third-Party Use of Securityholder Information
The proposed rule changes would prohibit anyone other than the issuer from using NOBO2 information or employing the indirect sending procedures under NI 54-101, except in connection with
- an attempt to influence securityholder voting, or
- an offer to acquire securities of the issuer.
Third parties would no longer have any ability to use NOBO information or the indirect sending procedures in connection with other matters relating to the issuer's affairs.
Services Not Restricted to Transfer Agents
Under the proposals, entities other than transfer agents would be able to assist in the process of obtaining beneficial ownership information. Other persons or companies, such as proxy solicitors, could serve this function if they are in the business of providing proxy solicitation services and the issuer has reasonable grounds to believe that they have the necessary technological capacity.
1 A special resolution generally means one that must be passed by at least two-thirds of the votes cast.
2 Under NI 54-101, "NOBO" stands for "non-objecting beneficial owner," meaning a securityholder who does not object to his, her or its identity being disclosed to the reporting issuer. Correspondingly, a securityholder who has objected is an "OBO."
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