On June 17, 2011, the Canadian Securities Administrators (the CSA) published for comment revised proposed amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101), National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and their respective companion policies (collectively, the Revised Proposed Amendments). The main feature of the proposed amendments is called notice and access (Notice & Access), which provides reporting issuers, other than investment funds, with a new mechanism to transmit proxy-related materials to registered holders and beneficial owners of its securities. The comment period for the Revised Proposed Amendments ended on August 16, 2011 and the CSA is currently considering the comments.
WHAT IS NOTICE & ACCESS?
Notice & Access is a mechanism whereby a reporting issuer, other than an investment fund, transmits its information circular in connection with a meeting of shareholders by posting it on a non-SEDAR website instead of sending out paper copies of the information circular by mail as is required under the current rules. Notice & Access is not a mandatory requirement; rather it is a voluntary process. The CSA provides guidance in the Companion Policy to NI 54-101 about the factors to consider when making the decision whether to use Notice & Access. Specifically, the Companion Policy encourages reporting issuers to consider:
- the nature of the business that will be dealt with at the meeting; and
- whether Notice & Access resulted in material declines in shareholder voting rates at prior meetings where Notice & Access was used.
The original proposed amendments, which were published by the CSA on April 9, 2010 (the Original Proposed Amendments) limited the use of Notice & Access to annual meetings, however the Revised Proposed Amendments permit the use of Notice & Access for all meetings of a reporting issuer.
Several benefits are expected to result from the implementation of Notice & Access, including the cost-savings arising from reduced printing and mailing costs of proxy packages.
NOTICE & ACCESS DOCUMENTS
Although Notice & Access is a web-based mechanism for transmitting the information circular, a reporting issuer that uses it will still be required to mail paper copies of proxy-related materials, other than the information circular, to its shareholders. The documents that must be mailed are:
- a notice package;
- the applicable voting documents (form of proxy or applicable voting instruction forms), and
- if the reporting issuer uses stratification, a paper copy of the information circular.
The notice package must include:
- a notice containing the following information:
- the date, time and location of the reporting issuer's meeting;
- a factual description of each matter or group of related matters identified in the form of proxy to be voted on. According to the Companion Policy, it is not sufficient to identify a matter by referring to disclosure contained in the information circular;
- the website address other than the address for SEDAR, where the proxy-related materials are located;
- a reminder to review the information circular before voting; and
- an explanation of how to obtain a paper copy of the information
circular from the reporting issuer;
- a document in plain language that explains notice-and-access
and includes the following information:
- why the reporting issuer is using notice-and-access;
- if the reporting issuer is using stratification, which registered holders or beneficial owners are receiving paper copies of the information circular;
- the date and time by which a request for a paper copy of the information circular should be received;
- an explanation of how the beneficial owner is to return voting instructions, including any deadline for the return of such instructions;
- the page numbers of the information circular where disclosure regarding each matter or group of related matters identified in the notice can be found; and
- a toll-free telephone number that the shareholder can call to
ask questions about notice-and-access;
The Original Proposed Amendments allowed a reporting issuer to include additional information in the notice package without including the information circular. The Revised Proposed Amendments prohibit the inclusion of additional documents unless a copy of the information circular is also included in the notice package. This requirement reflects the CSA's concern that providing any such additional material without providing the information circular only encourages shareholders to read the additional material without referring to the information circular.
MAILING PROXY-RELATED MATERIALS UNDER NOTICE & ACCESS
Under Notice & Access, the proxy related materials that are mailed to shareholders can be mailed using the same mailing methods as would be used under the current rules, i.e. prepaid mail, courier or an equivalent method. However, the timing requirements for mailing are different. Under the current rules, proxy-related materials must be sent to shareholders at least 21 days before the date fixed for the meeting. Under Notice & Access:
- If the notice package is being sent by the reporting issuer to registered holders or directly to NOBOs, the documents must be sent at least 30 days before the date of the meeting.
- If the notice package is being sent indirectly to beneficial owners through an intermediary, the reporting issuer must send the documents at least 3 or 4 business days before the 30th day before the date fixed for the meeting (depending on the mailing method).
Note that using Notice & Access would not prevent a reporting issuer from sending proxy-related materials using an alternative method for which a shareholder has previously consented.
POSTING THE PROXY-RELATED MATERIALS ON A WEBSITE
The proxy-related materials must be filed on SEDAR and posted on a non-SEDAR website on or before the day that the notice package is sent out to the shareholders. The documents must remain posted on the non-SEDAR website for a period ending no earlier than the date of the first annual meeting following the meeting to which the documents relate.
A reporting issuer that posts proxy-related materials on a website must also post:
- Any other disclosure material regarding the meeting that it has sent to its shareholders; and
- Any written communication that it has made available to the public regarding the meeting, whether sent to shareholders or not.
Stratification is the process of including a paper copy of the information circular in the notice package that is sent to certain shareholders. Stratification must be implemented where:
- a shareholder has provided standing instructions to receive a paper copy of the information circular pursuant to section 2.7.6 of the proposed amendments to NI 54-101; or
- a shareholder has provided annual instructions to receive a copy of the reporting issuer's annual financial statements pursuant to section 4.6 of NI 51-102.
The proposed amendments do not prescribe other criteria for when stratification must be used, other than where complying with standing or annual instructions. The CSA have indicated that they expect reporting issuers to use stratification in circumstances where it would enhance market effectiveness and that any additional stratification criteria will evolve through market demand and practice.
REQUEST FOR A PAPER COPY OF THE INFORMATION CIRCULAR
The reporting issuer must provide shareholders a toll-free number used to request a paper copy of the information circular at any time from the date the notice package is sent to the shareholders, up to and including the date of the meeting.
If the reporting issuer receives a request for a paper copy of the information circular, the circular must be sent free of charge to the person making the request:
- within 3 business days after receiving the request, if the request is received prior to the meeting (by first class mail, courier or the equivalent), or
- within 10 calendar days after receiving the request, if the request is received on or after the date of the meeting (by prepaid mail, courier or the equivalent).
NOTICE IN ADVANCE OF FIRST USE OF NOTICE AND ACCESS
Before using Notice & Access for the first time, the reporting issuer must, between 3 months and 6 months before the date of the meeting (i) issue a press release stating that it intends to use Notice & Access at the next meeting, and (ii) post on a non-SEDAR website a document in plain language that explains Notice & Access.
DISCLOSURE IN THE INFORMATION CIRCULAR
Pursuant to the proposed amendments, the reporting issuer must provide the following disclosure in the information circular:
- whether it is using Notice & Access, and if stratification will be used, the types of shareholders who will receive paper copies of the information circular;
- whether it is sending proxy-related materials directly to NOBOs; and
- whether it intends to pay for delivery to OBOs, and if not, a statement that it is the OBO's responsibility to contact its intermediary to make arrangements to exercise voting rights.
The comments received by the CSA in connection with the Revised Proposed Amendments are currently under review and may result in changes to the proposals. The CSA has not yet published a final version of the amendments or proposed an effective date.
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.