Canadian Securities Administrators ("CSA") recently announced that, effective February 11, 2013, the rules governing communication between reporting issuers (other than investment funds) and their securityholders will change. The changes will permit issuers to reduce the volume of meeting materials that are required to be printed and mailed, which will reduce printing and posting costs and simplify the delivery process for meeting materials.
The amendments affect National Instruments 54-101 (Communication with Beneficial Shareholders) and 51-102 (Continuous Disclosure), as well as related companion policies and forms.
The highlights of the changes are:
- issuers may adopt a notice-and-access mechanism for distribution of proxy-related materials to registered holders, and beneficial owners, of securities ("shareholders");
- meeting materials must include enhanced disclosure about the beneficial owner voting process; and
- the process for appointing beneficial owners as proxy holders is simplified.
Notice and Access
For meetings on and after March 1, 2013, issuers may use notice-and-access to send meeting materials to shareholders by (i) posting relevant materials on SEDAR and a non-SEDAR website, and (ii) sending shareholders a notice package.
The notice package may not contain any documents other than
- a notice that contains specific information (discussed below),
- in the case of registered holders, a form of proxy, and
- if applicable, permitted financial statements and MD&A.
The notice package can be sent by mail or, if prior consent has been obtained, electronically. An issuer using notice-and-access must send the notice package to registered holders at least 30 days before the date of the meeting.
The notice must contain, among other things,
- the date, time and location of the meeting,
- a description of each matter to be voted on (the CSA expects this description will be "reasonably clear and user-friendly" and not simply direct the reader to a separate document),
- the website addresses where the materials are posted (in the spirit of ease of access, the CSA expects issuers will provide the specific URLs where the documents are posted),
- a reminder to review the information circular before voting,
- an explanation of how to obtain paper copies of the information circular and, if applicable, annual financial statements and MD&A (the issuer must establish a toll-free number to assist in this regard), and
- a plain-language explanation of the notice-and-access process (which may address other aspects of proxy voting, but must not include any substantive discussion of the matters to be considered at the meeting).
In order to use notice-and-access, the issuer must set the record date for notice of the meeting to be at least 40 days before the meeting.
In addition, the first time that the issuer uses notice-and-access, the required notification of meeting and record dates (which issuers are required to file on SEDAR) must be filed on SEDAR at least 25 days before the record date (accordingly, at least 65 days before the meeting). This early notice for first use of notice-and-access is designed to provide sufficient advance notice to shareholders of the issuer's new process. After the initial use of notice-and-access, the issuer may abridge the required filing time of the notification to three business days before the record date.
The notice-and-access process may also be used for distribution of materials in connection with a proxy solicitation that is not a solicitation by management of the reporting issuer. In addition, it will be an acceptable method for distribution of annual financial statements and MD&A.
For meetings on and after February 15, 2013, in certain limited circumstances an SEC issuer1 can use a delivery method permitted under U.S. federal securities law to distribute proxy-related materials to registered holders of its securities.
Where an issuer sends proxy-related materials to beneficial owners of securities, the materials must contain a plain-language explanation of how the beneficial owners can exercise voting rights, and how to attend and vote at the meeting. The information circular must contain disclosure on whether the issuer is using the notice-and-access process to distribute materials, whether the issuer is distributing materials directly to non-objecting beneficial owners, and whether the issuer intends to pay for intermediaries to deliver relevant materials to objecting beneficial owners.
Appointment of Beneficial Owner as Proxy
Where a beneficial owner has instructed its intermediary to appoint the beneficial owner as proxy holder, the intermediary must give the beneficial owner authority to attend, vote and act for it in respect of all matters at the meeting (unless corporate law states otherwise).
These amendments will ease delivery requirements for meeting materials, and in many cases, will reduce issuers' costs. However, issuers are cautioned that they must comply with relevant corporate law requirements, which may not be consistent with these amendments.
This discussion is only a summary of some of the highlights of the CSA amendments to National Instruments 54-101 and 51-102. The amended Instruments contain technical requirements with which an issuer must comply in order to rely on the notice-and-access process and accordingly an issuer should consult with legal advisors.
1. An SEC issuer is an issuer that has a class of securities registered under s. 12 of the U.S. Securities Exchange Act of 1934 (1934 Act) or that is required to file reports under s. 15(d) of the 1934 Act, and is not registered or required to be registered as an investment company under the U.S. Investment Company Act of 1940.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
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