"Notice-and-Access" Mechanism Comes to Canada

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On November 29, 2012, the Canadian Securities Administrators (CSA) announced the adoption of amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 Continuous Disclosure Obligations.

The proposed amendments are designed to improve the current beneficial shareholder communication procedures in Canada, which have been criticized as being too time consuming and confusing, and thereby create difficulties for appointing beneficial owners as proxy holders. The basic policy objective of the notice-and-access proposal is to promote the use of the Internet as a potentially reliable and cost efficient means of shareholder communication.

First proposed in April 2010 (see our bulletin here), amended in June 2011 (see our bulletin here), the amendments will take effect on February 11, 2013. However, reporting issuers will only be permitted to use notice-and-access for meetings taking place on or after March 1, 2013.

Highlights

The amendments are designed to improve procedures for reporting issuer communications with investors who hold securities through intermediaries such as dealers, trust companies and banks.

The most significant features of the amendments include:

  • providing reporting issuers with a new notice-and-access mechanism to send proxy-related materials to registered holders and beneficial owners of securities;
  • requiring reporting issuers to provide enhanced disclosure regarding the beneficial owner voting process; and
  • simplifying the process by which beneficial owners are appointed as proxy holders in order to attend and vote at shareholder meetings.

The focus of this FL@SH Bulletin will principally be on the notice-and-access mechanism.

“Notice-and-Access” Mechanism

Under the current rules, reporting issuers in Canada soliciting proxies for a meeting of shareholders must send an information circular to each shareholder whose proxy is solicited. Under the proposed rules, reporting issuers could voluntarily decide to satisfy this requirement, with respect to beneficial shareholders by posting the proxy-related materials on a publicly accessible website (other than the SEDAR website) and sending beneficial shareholders a notice of the availability of the proxy-related materials on such website (the Notice).

A reporting issuer (but not investment funds) could voluntarily decide to satisfy this requirement by availing itself of the so-called “notice-and-access” mechanism pursuant to which it could deliver proxy-related materials for all types of shareholder meetings, by posting the relevant information circular (and if applicable, other proxy-related materials) on a website that is not SEDAR and sending a notice package to shareholders informing them of the availability of the proxy-related materials on such website.

Unlike the notice-and-access process introduced by the SEC, the model proposed by the CSAs 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 notice-and-access was used.

Notice Package

The 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. The notice must contain the following information and no other information:

  • the date, time and location of the meeting;
  • a description of each matter or group of related matters identified in the form of proxy to be voted on, unless that information is included in the accompanying relevant voting instruction form;
  • the website address for SEDAR and the non-SEDAR website where the proxy-related materials are posted;
  • a reminder to review the information circular before voting;
  • an explanation of how to obtain a paper copy of the information circular from the reporting issuer; and
  • a plain language explanation of the notice-and-access mechanism that includes:
  • if the reporting issuer is using stratification (the process of including a paper copy of the information circular in the notice package), a list of the types of registered holders or beneficial owners who will be receiving paper copies of the information circular and, if applicable, the financial statements of the reporting issuer to be approved at the meeting, and the management`s discussion and analysis (MD&A) related to those financial statements, which may be part of an annual report;
  • the estimated 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 and, if applicable, the financial statements of the reporting issuer to be approved at the meeting and MD&A related to those financial statements, which may be part of an annual report 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 sections (and not as previously contemplated 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 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.

Except for the notice and the financial statements of the reporting issuer to be approved at the meeting and MD&A related to those financial statements, which may be part of an annual report. The amendments restrict the ability of reporting issuers to include additional material regarding the meeting in the notice package unless a copy of the information circular is also included. This 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.

Record Date for Notice

In order to use the “notice-and-access” mechanism, a reporting issuer must set the record date for notice of the meeting date to be at least 40 days before the meeting date.

Advance Notice of First Use of Notice-and-Access

A reporting issuer intending to use the notice-and-access mechanism must file a notification of meeting and record dates containing information about the meeting and its use of notice-and-access on SEDAR. Where the issuer is using notice-and-access for the first time, the notification must be filed at least 25 days before the record date for notice (i.e., when factoring the requirement for the record date for notice of the meeting, at least 65 days before the date of the meeting).

For meetings subsequent to the first meeting for which an issuer uses notice-and-access, the issuer can abridge the timeline for filing the notification of meeting and record dates to three business days before the record date for notice.

Methods of Sending Notice Package

A notice package can be sent by mail or, if prior consent has been obtained, electronically. In addition, if a service provider offers an e-delivery method (for example, an email is sent with hyperlinks to all the proxy-related materials) that is distinct from notice-and-access and that is otherwise compliant with securities legislation, such delivery method can continue to be used in conjunction with notice-and-access.

Posting the Materials

Electronic public access to the information circular, form of proxy or voting instruction form and other proxy-related materials to be furnished through the notice-and-access method must be provided on or before the notice package is sent. Practically, this means that the documents should be filed on SEDAR and posted on the specified website by the time the issuer sends the notice package to shareholders. The proxy-related materials must remain posted and be available to shareholders until the date that is one year from the date that the documents are posted on a website other than SEDAR.

The amendments specify that the address of the website where the proxy-related materials are located must not be the address for SEDAR, but unlike the US rules, they do not specify that the website address provided in the notice must be specific enough to lead shareholders directly to the materials, i.e. it is possible that the shareholder will be linked to the company’s home page or another section of the website which would require the shareholder to browse to find the materials.

However, the proposed rules do specify that posted proxy materials must be in a format that permits a person with a reasonable level of computer skill and knowledge to conveniently access, read and search the documents on the website, as well, as download and print the documents. Providing meaningful access to proxy-related materials may require that the materials be posted in two formats, such as full Hypertext Markup Language (HTML) and Portable Document Format (PDF). Whether a company chooses HTML or PDF and image-based documents, it should involve the web developer early in the planning timeline.

Reflecting shareholder privacy concerns, the website hosting the issuer’s proxy-related materials must be maintained in a manner that does not infringe on the anonymity of a person accessing the website. This means that a host website cannot use “cookies” or any other user-tracking features.

Shareholder Requests for Copies

To ensure that beneficial shareholders (who do not have internet access or simply prefer hard copies of the materials) are not disenfranchised, reporting issuers who choose to furnish proxy-related material using the alternative notice-and-access method must send, free of charge, to any person making such a request (either by calling the toll-free telephone number set up for that purpose or by any other means) a paper copy of the information circular by prepaid mail, courier or the equivalent at the address specified in the request, in the case of a request received prior to the date of the meeting, no later than three business days after receiving the request, and in the case of a request received on or after the date of the meeting, and within one year of the information circular being filed, within 10 calendar days after receiving the request.

Use of Notice-and-Access by Third Parties

A person or company other than management of a reporting issuer that is required by law to send materials to registered holders or beneficial owners of securities in connection with a meeting may use notice-and-access to send the materials. The CSA noted that notice-and-access is a delivery mechanism for proxy-related materials, and does not modify any existing legal obligations of third parties such as dissident shareholders in the shareholder voting communication process.

Enhanced Disclosure of Voting Process

Issuers must provide enhanced disclosure of the voting process in the information circular. Specifically, a reporting issuer’s proxy-related material is now required to contain a plain language explanation of how the beneficial owner can exercise the voting rights attached to the securities. Management of a reporting issuer is required to provide in the information circular disclosure about the following:

  • whether the reporting issuer is sending proxy-related materials to registered holders or beneficial owners using notice-and-access, and if stratification will be used, the types of registered holders or beneficial owners who will receive paper copies of the information circular;
  • whether the reporting issuer is sending proxy-related materials directly to non-objecting beneficial owners; and
  • whether the reporting issuer intends to pay for delivery to objecting beneficial owners (OBOs).

If the reporting issuer does not intend to pay for such delivery, the information circular must disclose this fact and state that an OBO will not receive the materials unless the OBO’s intermediary assumes the costs of delivery.

This disclosure is intended to explain to beneficial owners why they may receive different proxy-related materials than other beneficial owners and why they may not receive proxy-related materials even if they have requested them.

The CSA also encourage reporting issuers to disclose whether they are sending proxy-related materials to beneficial owners who have declined to receive them and explain their decision.

Coming Into Force

The amendments will take effect on February 11, 2013. However, reporting issuers will only be permitted to use notice-and-access for meetings taking place on or after March 1, 2013.

 

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