On June 17, 2011, the Canadian Securities Administrators (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 and other related policies that are designed to further enhance the shareholder voting communication process (collectively, the Revised Proposed Amendments). The original proposed amendments to NI 54-101 were first published on April 9, 2010 (the Original Proposal). In our May 2010 Securities Bulletin "CSAs Propose New Rules Permitting Web Posting of Proxy Materials," we commented on the proposed amendments to NI 54-101 providing for an alternative method for the delivery of proxy-related materials to beneficial shareholders of public companies that are reporting issuers in Canada.
The Revised Proposed Amendments would allow issuers to satisfy their proxy material delivery requirements with respect to shareholder meetings by posting the proxy-related materials on SEDAR as well as on a publicly accessible Internet website and sending beneficial shareholders a notice of the availability of the materials. This “notice-and-access” model is inspired by a similar notice-and-access process introduced by the United States Securities Exchange Commission (SEC).
Responding to comments on the Original Proposal, the CSA indicated their continued belief that permitting issuers to use the "notice-and-access" model to send proxy-related materials can improve the beneficial owner communication process.
The most significant features of the Revised Proposed Amendments relate to the:
- availability of the "notice-and-access" mechanism to send proxy-related materials to shareholders in connection with all types of shareholder meetings. The Original Proposal only contemplated that the "notice-and-access" mechanism could be used for shareholder meetings that were not special meetings;
- standardization of the "notice-and-access" mechanism to facilitate consistency between the notice and other proxy-related materials, as well as standardization of the notice among issuers, both of which are intended to minimize investor confusion;
- simplification of the process by which beneficial owners are appointed as proxy holders in order to attend and vote at shareholder meetings; and
- requirement that reporting issuers provide enhanced disclosure regarding the beneficial owner voting process.
Under the proposed “notice-and-access” mechanism, a reporting issuer (but not investment funds) would be permitted to deliver proxy-related materials for all types of shareholder meetings (not just special meetings as originally proposed) by sending a notice package to shareholders informing them that proxy-related materials have been filed on SEDAR and posted on another non-SEDAR website and explaining how to access them and providing them with the relevant voting document.
The notice package would not contain the information circular. Instead, the information circular would be filed on SEDAR and also posted on a non-SEDAR website. A shareholder could request that a paper copy of the information circular be mailed to the shareholder free of charge.
Unlike the "notice-and-access" process introduced by the SEC, the model proposed by the CSA would not be mandatory. However, the CSA do propose guidance on what factors reporting issuers should consider when deciding whether to use "notice-and-access," including the nature of the meeting business (including whether it is expected to be contentious) and whether "notice-and-access" resulted in material declines in shareholder voting rates in prior meetings where it was used.
Advance Notification of 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 raising concerns that a shareholder who receives a notice package for the first time would be confused about what he or she is being sent. The Revised Proposed Amendments include a new requirement that a reporting issuer provide advance notice three to six months before the expected date of the first meeting where "notice-and-access" is used by posting on a website that is not SEDAR a plain language document that explains “notice-and-access” and issuing a news release stating its intention to use "notice-and-access" to deliver proxy-related materials and providing the website address where the explanation document is posted.
Furthermore, unlike the Original Proposal which would have required that each time a reporting issuer uses "notice-and-access" it issue a news release disclosing that fact at least 30 days before the relevant meeting, the Revised Proposed Amendments require that the reporting issuer state its intention to use notice-and-access in the notification of meeting and record dates required by NI 54-101.
The Revised Proposed Amendments reflect the CSA’s concern that the notice should contain basic information about the matters to be voted on at the meeting and that investor confusion should be minimized. Accordingly, an issuer wishing to avail itself of the "notice-and-access" method must send to all of its beneficial owners a notice package containing a notice and an explanation document.
The Revised Proposed Amendments provides that the notice must contain the following information, and no other information:
- the date, time and location of the meeting;
- a factual description of each matter or group of related matters identified in the form of proxy to be voted on;
- 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.
Reflecting the views of the CSA that shareholders who receive a notice package should always have basic information about "notice-and-access" as part of that package, the Revised Proposed Amendments will also require the notice package to include a document in plain language explaining the "notice-and-access" mechanism and setting out the following information:
- why the reporting issuer is using "notice-and-access;"
- if the reporting issuer is using stratification (the process of including a paper copy of the information circular in the notice package; see below “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 in order for the requester to receive the information circular in advance of any deadline for the submission of voting instructions and the date of the meeting;
- an explanation of how the beneficial owner is to return voting instructions, including any deadline for 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 the beneficial owner can call to ask questions about "notice-and-access."
The Original Proposal would have permitted reporting issuers to include additional material regarding the meeting (but not an information circular) in the notice package. The Revised Proposed Amendments would restrict the ability to do so unless a copy of the information circular is also included. 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.
Instructions to Receive Paper Copies
Under the Original Proposal, the only specified method by which a shareholder could obtain a paper copy of the information circular was to contact the reporting issuer (or the reporting issuer’s service provider) to request a paper copy after the notice package had been sent out. The Revised Proposed Amendments would provide that shareholders will be able to request that a paper copy of the information circular be automatically included with the notice package.
The Revised Proposed Amendments will permit reporting issuers and intermediaries to obtain annual or standing instructions from registered holders or beneficial owners, as the case may be to receive a paper copy of the information circular where a reporting issuer uses notice-and-access. The Revised Proposed Amendments would also impose obligations on reporting issuers and intermediaries to facilitate compliance with these standing instructions once they have been obtained.
The Original Proposal contemplated that a reporting issuer could choose to send a notice package to some shareholders, and send a standard package (which would contain the notice of meeting, voting document and information circular) to others.
The Revised Proposed Amendments would now require that where a reporting issuer uses "noticeand- access," it must send the same basic notice package containing the required notice, the voting document, and the explanation of "notice-and-access" to all shareholders. However, the notice package for those shareholders who have provided standing instructions or who have provided annual instructions would also include the paper copy of the information circular.
The CSA do not propose at this time to prescribe other criteria for when stratification, i.e., the process of including a paper copy of the information circular in the notice package, can be used by a reporting issuer. However, the CSA would require reporting issuers to disclose whether they are using stratification, and what criteria were applied to determine which shareholders will receive a paper copy of the information circular. The Revised Proposed Amendments also provide guidance stating the CSA’s expectation that a reporting issuer that uses stratification for purposes other than complying with shareholder instructions would do so in order to enhance effective communication, and not to disenfranchise shareholders. The guidance also explains that the CSA would not mandate the provision of stratification by reporting issuers or intermediaries, other than in order to comply with standing instructions or annual requests for paper copies of information circulars that they may have chosen to obtain from registered holders or beneficial owners. The CSA expect any additional stratification criteria will evolve through market demand and practice, and they will monitor developments in this area.
Simplification of Proxy Appointment Process
Authority to Act
The Revised Proposed Amendments would provide that unless a beneficial owner has instructed otherwise, where an intermediary appoints a beneficial owner or a nominee of the beneficial owner as a proxy holder, the beneficial owner or nominee also must be given authority to attend, vote and otherwise act for and on behalf of the intermediary (or the issuer’s management, where the reporting issuer is sending proxy-related materials directly to NOBOs) in respect of all matters that may come before the applicable meeting and at any adjournment or continuance.
The Original Proposal would have required an intermediary (or if applicable the reporting issuer) to deposit any proxy appointing a beneficial owner as a proxy holder within any time specified under corporate law for the deposit of proxies (a proxy cut-off). The Revised Proposed Amendments would modify this requirement so that it applies only where the intermediary or reporting issuer (as the case may be) obtains the instructions from the beneficial owner to appoint it as proxy holder at least one business day before the proxy cut-off.
Comments on the Revised Proposed Amendments are due by August 16, 2011. Information on submitting comments to the CSA can be found on the website of the individual security administrator.