Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Securities Regulation, July 2011
Highlights
- Notice-and-access system may be used for all meetings
- Investment funds not permitted to use notice-and-access system
- Timings specified for delivery to intermediaries, sending paper copies and deposit of legal proxies
The Canadian Securities Administrators (CSA) have republished for a second round of comments proposed changes to the proxy solicitation process. Amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) to introduce a "notice-and-access" system for providing proxy materials to beneficial owners, among other changes, were initially published in April 2010. The initial proposal has been revised and republished for further comments, which indicates that the revisions are considered to be material changes, so the revised proposal warrants a careful review. This bulletin will focus on what we judge to be the significant changes. For a description of the full original proposal, see our April 2010 Blakes Bulletin: Amendments Proposed to Improve Proxy Solicitation for Beneficial Owners.
Reporting issuers other than investment funds can use notice-and-access for all meetings
The original proposal would not have permitted reporting issuers to use notice-and-access for "special meetings" as defined in NI 54-101. Under the revised proposal, it is proposed that notice-and-access be permitted for all meetings. However, investment funds will not be permitted to use notice-and-access.
Must provide advance notice of first use of notice-and-access
The original proposal would have permitted a reporting issuer to use notice-and-access without giving shareholders any prior notification. Under the revised proposal, it is proposed that a reporting issuer must provide advance notice that it intends to do so three to six months before the first meeting. The issuer must issue a news release and post information regarding notice-and-access on a website that is not SEDAR.
Under the revised proposal, it is no longer proposed that reporting issuers must issue a news release disclosing intention to use notice-and-access before every meeting. Instead, the reporting issuer will state its intention to use notice-and-access in the notification of meeting and record dates sent under NI 54-101.
Additional information required in notification of meeting and record dates
Under the revised proposal, the notification of meeting and record dates required under NI 54-101 and the information circular itself would both have to include disclosure regarding the reporting issuer's use of notice‑and-access, whether it is sending proxy-related materials directly to NOBOs, and whether it intends to pay for delivery of proxy-related materials directly to OBOs.
Provide explanatory material regarding notice-and-access in notice package
It is now proposed that issuers must include a plain-language explanation of notice-and-access in the notice package that is sent to shareholders and on the website where the proxy materials are posted.
Cannot include additional material in notice package
It is now proposed that issuers cannot include any additional material regarding the meeting in the notice package, other than an explanation of notice-and-access, unless a copy of the information circular is also included.
Shareholders may provide standing instructions to receive paper copy of information circular with notice package
Under the original proposal, the only specified method by which a shareholder could obtain a paper copy of the information circular was to request the paper copy from the issuer or its agent after the notice package had been sent out. Under the revised proposal, it is proposed that shareholders can provide standing instructions that a paper copy of the information circular be automatically included with the notice package. Obligations on reporting issuers and intermediaries will require compliance with these standing instructions.
Automatic inclusion of paper copies of information circular with notice package if annual financial statements and MD&A are requested
Under the revised proposal, it is proposed that, if an issuer receives from a shareholder annual instructions to send its annual report (annual financial statements and annual MD&A), such instructions will be deemed to also request a paper copy of the information circular if the reporting issuer uses notice-and-access.
The CSA did not also propose at this time the converse, i.e., that standing instructions to receive paper copies of the information circular should also constitute instructions to include the paper annual report as part of the notice package, but the CSA stated that they "would appreciate additional input from stakeholders before proposing such a change."
Stratification
The CSA created a new defined term "stratification" for including a paper copy of the information circular in the notice package. The original proposal contemplated that a reporting issuer could choose to send just a notice package to some shareholders, and send a full package (which would contain the notice of meeting, voting document and information circular) to others. Under the revised proposal, it is proposed that if a reporting issuer uses notice-and-access, it must send the same basic notice package (containing the required notice, voting document, and the explanation of notice-and-access) to all shareholders. However, the notice package for those shareholders who have provided standing or annual instructions would also include the paper copy of the information circular.
Reporting issuers will be required to disclose whether they are using stratification, and what criteria they are applying to determine which shareholders will receive a paper copy of the information circular.
Exemption for SEC issuers only with a limited Canadian presence
The original proposal would have exempted reporting issuers who are SEC issuers from NI 54-101 if they use the notice-and-access process prescribed by the SEC. It is now proposed that this exemption will be available only to SEC issuers with a limited Canadian presence. "Limited" would mean residents of Canada don't own securities with more than 50% of the votes for the election of directors, a majority of executive officers or directors of the issuer are not residents of Canada, 50% or more of the consolidated assets of the issuer are located outside Canada, and the business of the issuer is not administered principally in Canada.
Specific times to provide materials to intermediaries
The notice package would have to be provided to intermediaries at least three business days before the 30th day before the meeting date (four business days if materials are sent other than by lettermail, courier or the equivalent).
Timing for fulfilling request for paper information circulars
If a request for a paper information circular is received prior to the date of the meeting, the circular must be sent within three business days. If the request is received on or after the date of the meeting, and within one year of the information circular being filed, the circular must be sent within 10 calendar days. No circular needs to be sent if a request is received more than one year after the date of the applicable meeting.
Timing for posting information circular and notice package on SEDAR
It is now proposed that the information circular and the notice package must be filed on SEDAR and posted on a non-SEDAR website on or before the day that the reporting issuer sends the notice package (instead of the same day as sending the notice package).
Deposit of legal proxy prior to proxy cut-off
The requirement for an intermediary (or, if applicable the reporting issuer) to comply with instructions from a beneficial owner to deposit a proxy appointing the beneficial owner as a legal proxy holder would only apply if the instructions from the beneficial owner are received at least one business day before the proxy deposit cut-off date.
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