NIN 98/12 - Notice of Proposed National Instrument 54-101 Forms 54-101F1, 54-101F2, 54-101F3, 54-101F4, 54-101F5, 54-101F6, 54-101F7 and 54-101F8 and Companion Policy 54-101CP Communication With Beneficial Owners of Securities of a Reporting Issuer [NIN - Rescinded]

The Commission, together with other members of the Canadian Securities Administrators ("CSA"), is publishing for comment the text of proposed National Instrument 54-101; proposed Forms 54-101F1, 54-101F2, 54-101F3, 54-101F4, 54-101F5, 54-101F6, 54-101F7 and 54-101F8; proposed Companion Policy 54-101CP and proposed consequential amendments to the Securities Rules. The National Instrument, Forms, Companion Policy and proposed consequential amendments to the Securities Rules deal with communication with beneficial owners of securities of a reporting issuer and are a reformulation of most of the provisions of National Policy Statement No. 41 ("NP41"), which they will replace. The National Instruments and Companion Policy contain footnotes that are not part of the proposed instrument or policy, but which have been included to provide background and explanation.

The proposed National Instrument and Companion Policy are initiatives of the CSA. The proposed National Instrument is expected to be adopted or made as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all the other jurisdictions represented by the CSA. The proposed Forms are expected to be implemented by local rule in certain jurisdictions. In British Columbia, the proposed Forms are expected to be specified by the Executive Director under section 182 of the Securities Act. The proposed Companion Policy is expected to be implemented as a policy in all of the jurisdictions of the CSA. Subject to considering any comments submitted and receiving approval from the Minister of Finance, the Commission hopes to be able to adopt the proposed National Instrument in January 1999 and to make the proposed National Instrument applicable to the sending of proxy-related materials for all meetings of securityholders held on or after March 1, 1999.

The CSA are publishing, concurrently with this Notice, proposed National Instrument 54-102 Supplemental Mailing List and Interim Financial Statement Exemption, which replaces the provisions of NP41 and associated rules and blanket orders pertaining to supplemental mailing lists.

Background

The CSA approved NP41 on October 28, 1987 based upon the recommendations of the Joint Regulatory Task Force on Shareholder Communication, a task force consisting of securities regulators, corporate law administrators and representatives of exchanges, depositaries, transfer agents and other interested groups. For most reporting issuers, NP41 became effective for meetings of securityholders held after March 1, 1988. Implementation of NP41 was delayed until 1989 in Alberta and British Columbia for all issuers listed only on the Alberta Stock Exchange and all exchange issuers listed only on the Vancouver Stock Exchange and all issuers listed only on these two exchanges. NP41 was amended in 1988 to add Parts XII and XIII to deal with certain matters, including applications for waivers and exemptions.

The CSA published¹

¹ In British Columbia, NIN#94/19.

a Draft Amended National Policy Statement No. 41 ("Draft Amended NP41") in October 1994. Following receipt of a large number of comments on Draft Amended NP41, the National Policy 41 Committee of the CSA prepared revisions to that proposal. However, prior to its implementation, the new legislative requirements for rule-making in Ontario and other Canadian jurisdictions required further revision to that proposal. The proposed National Instrument, Forms and Companion Policy represent the CSA's proposals for a replacement for NP41, superseding the Draft Amended NP41.

Substance and Purpose of Proposed National Instrument, Forms and Companion Policy

The proposed National Instrument, Forms and Companion Policy provide a procedure to enable a reporting issuer to send securityholder materials, including proxy-related materials and annual reports, to beneficial owners of its securities who are not registered holders of its securities, and impose obligations on various parties in the securityholder communication process.

Summary of Proposed National Instrument, Forms and Companion Policy

The proposed National Instrument contains the fundamental obligation, namely that a reporting issuer is required to send proxy-related materials to the beneficial owners of its securities, either directly in the case of beneficial owners who do not object to the disclosure of their names and other information to issuers (called “non-objecting beneficial owners” or “NOBOs” in the proposed National Instrument) or indirectly through intermediaries. Proxy-related materials are materials required by securities legislation or corporate law to be sent to registered securityholders in connection with a meeting.

The proposed National Instrument imposes an obligation on intermediaries to obtain instructions from each of their clients concerning disclosure of the client’s name, address, securities holdings and preferred language of communication to issuers and other persons in accordance with the proposed National Instrument. Similar to existing provisions in NP41, a client who does not object, including a client who does not provide instructions, is considered to be a NOBO. Intermediaries are also required to obtain instructions from clients concerning the delivery of securityholder materials. A client who does not provide instructions to receive all securityholder materials sent to beneficial owners of securities, including a client who does not provide instructions, is considered to have declined to receive proxy-related materials for meetings at which only routine business is to be conducted, similar to existing provisions in NP41, and securityholder materials not required under securities legislation or corporate law to be sent to registered holders.

The proposed National Instrument also imposes an obligation on intermediaries to provide a reporting issuer with beneficial ownership information including, where requested by the issuer, a NOBO list in electronic format. Intermediaries are also required to provide an omnibus proxy appointing management of the reporting issuer as proxy for NOBOs.

The proposed National Instrument imposes an obligation on depositaries to provide a reporting issuer with information concerning securities of the issuer registered in the name of the depositary together with the names of nominees and intermediaries, and to provide an omnibus proxy for a meeting of the issuer appointing each participant on whose behalf the depositary holds securities of the issuer as the depositary’s proxy in respect of the corresponding number of securities.

The proposed National Instrument permits any person to request a NOBO list from a reporting issuer and permits any person to request certain information, not including a NOBO list, directly from depositaries.

The proposed Forms are intended to facilitate the securityholder communication process set out in the proposed National Instrument. Except for proposed Form 54-101F5 Electronic Format for NOBO List, a person may substitute another form or document or combine the required form with another form or document, so long as the other form or document requests or contains the same information as the required form.

The proposed Companion Policy provides guidance and interpretation of the practical application of the proposed National Instrument, including discussion of the application of the proposed National Instrument to foreign securityholders and to U.S. issuers; timing requirements; and fees. The proposed Companion Policy also includes, as an appendix, a flow chart that outlines the procedures prescribed by the proposed National Instrument that relate to proxy-related materials.

Major Changes of a Substantive Nature

The proposed National Instrument differs from NP41 in a number of significant ways. The principal conceptual changes incorporated in the proposed National Instrument from NP41 are:

• Procedures have been included to permit reporting issuers to obtain a list of NOBOs; this will permit issuers to send securityholder materials directly to NOBOs. Reporting issuers may also choose to continue to distribute materials to NOBOs indirectly through intermediaries.

• The scope of materials that a beneficial owner may decline to receive has been narrowed from NP41. Under the proposed National Instrument, a beneficial owner can decline to receive proxy-related materials for meetings at which only routine business is to be conducted or non-proxy-related materials not required by law to be sent to registered holders.

• Unlike NP41, reporting issuers will no longer be able to override the election of beneficial owners who decline to receive certain materials.

• The proposed National Instrument recognizes that securities may be held through a multi-layered structure, in which there may be several layers of intermediaries between a share register and a beneficial owner; the proposed National Instrument allows a reporting issuer to deal only with the intermediary that is shown on the register or that is a participant in a depositary.

• A specific electronic format is mandated for intermediaries to use in sending NOBO lists to reporting issuers based upon a current common industry format.

• NOBO lists can be used by reporting issuers and other persons for any matter relating to the affairs of the reporting issuer, subject to specified terms and conditions similar to those imposed by Canadian corporate law for the use of shareholder lists.

• Beneficial owners who object to disclosure of their name to reporting issuers (called "objecting beneficial owners" or OBOs" in the proposed National Instrument) will be responsible for costs incurred by intermediaries in sending securityholder materials to them, unless the issuer is also sending such materials indirectly to NOBOs through intermediaries, in which case the reporting issuer and not the OBOs will be responsible for such costs.

• The search fee payable by reporting issuers to intermediaries for responding to requests for beneficial ownership information and for delivery of materials to beneficial owners is not specified. The fees in both cases are required to be reasonable.

• The time periods specified in NP41 for a reporting issuer to provide a notification of meeting and records dates to depositaries, securities regulatory authorities and exchanges, and to commence an intermediary search (which were each subject to an automatic waiver) have been reduced. Notification of meeting and record dates must be sent, and an intermediary search commenced, a minimum of 8 and 5 business days, respectively, before the record date for notice of the meeting. However, the proposed Companion Policy cautions issuers that they must plan the timing of these preliminary steps to ensure intermediaries actually can provide the required information in time to send materials. Longer time periods will be normal.

• The deadline for a reporting issuer to deliver proxy-related materials in bulk to intermediaries has been reduced from 33 days in NP4l (subject to an automatic waiver) to a minimum of 21 calendar days plus 3 business days before the meeting.

• The supplemental mailing list requirement for exemption from sending interim financial statements to securityholders is continued but has been moved to a separate National Instrument (54-102).

Certain of these changes are the subject of specific requests for comments made in this notice.

Alternatives Considered

The only alternative method of implementing the requirements of the proposed National Instrument, Forms and Companion Policy would be to amend the securities legislation of the various jurisdictions. The CSA determined that continuing the system established by NP41, with the proposed amendments, by national instrument was the most harmonious and efficient method of carrying forward NP41.

Consequential Amendments

In order to avoid inconsistencies between the Securities Rules and the proposed National Instrument, consequential amendments to section 182 of the Securities Rules will be required. In particular, the proposed amendments clarify that certain requirements set out in section 182 of the Securities Rules do not apply if securityholder materials are sent to beneficial owners of a reporting issuer's securities in accordance with the proposed National Instrument.

Anticipated Costs and Benefits

The CSA believe that a reporting issuer will benefit from being able to elect direct communication with NOBOs and thereby achieve greater control over communication. Reporting issuers may elect which method to use to communicate with NOBOs, and will have the ability to choose potentially less expensive means of communication with their securityholders. The ability of reporting issuers and others to obtain NOBO lists should provide greater transparency of securityholder ownership and improve the ability to identify the ultimate beneficial owner of the securities. The ability of beneficial owners to choose to be OBOs will maintain any desired confidentiality. By being identified, a NOBO will have a better ability to change a vote and to attend or vote in person at meetings. The ability of beneficial owners to choose to receive either all securityholder materials, or all but "routine" proxy-related materials and materials not required by law to be sent to registered holders balances the beneficial owners' need to keep informed with their desire not to receive unwanted communications. The requirements for reconciliation of NOBO lists and omnibus proxies will assist in reducing unintentional over-voting. Intermediaries will be relieved of responsibility for sending securityholder materials to NOBOs if the reporting issuer elects to send them directly, with the associated reduction in administrative burden for intermediaries.

If a reporting issuer chooses to communicate indirectly to NOBOs, the reporting issuer will bear the cost of communicating with both NOBOs and OBOs. Reporting issuers have the option of communicating with NOBOs directly, at the issuer's expense, but in that case, the proposed National Instrument requires OBOs to bear the cost of their confidentiality.

Based on experience to date under NP41, the CSA believe that the benefits of the proposed National Instrument justify the costs.

Specific Request for Comments

In addition to welcoming submissions on any provision proposed in the proposed National Instrument, Forms and Companion Policy, the CSA seek comment on the specific matters referred to below.

Timing Requirements

The timing requirements of NP41 have been amended in the proposed National Instrument to reflect a requirement that materials be sent to beneficial owners no later than 21 days before a meeting and to reduce the minimum time periods for conducting intermediary searches before the record date. The CSA request comment on the appropriateness of the timing requirements.

Use of Procedures for Non-proxy-related Materials

Section 2.7 of the proposed National Instrument provides that a reporting issuer must use the procedures contained in the proposed National Instrument for the sending of proxy-related materials to beneficial owners. Section 2.8 of the proposed National Instrument provides that a reporting issuer may, but is not required to, use those procedures for securityholder materials other than proxy-related materials. The CSA request comment on whether the use of the procedures set out in the proposed National Instrument should be mandatory for reporting issuers in respect of non-proxy-related materials and if so, in what circumstances.

Use of Procedures by Persons other than Reporting Issuers

The proposed National Instrument permits other persons to obtain NOBO lists and to use the procedures contained in the proposed National Instrument to distribute securityholder materials to beneficial owners. However, the proposed National Instrument does not require persons other than reporting issuers to use those procedures to deliver securityholder materials. Such materials could include proxy solicitations or take-over bids. The CSA request comment on whether the use of the procedures set out in the proposed National Instrument by parties other than reporting issuers should be mandatory and if so, for what distributions of materials and in what circumstances.

Sending of Materials to All NOBOs

NP41 permits a reporting issuer to request an intermediary to deliver materials to beneficial owners who have waived the right to receive those materials. Sections 2.10 and 4.3 of the proposed National Instrument would prohibit the delivery of routine proxy-related materials to beneficial owners who have chosen, or been considered to have elected, not to receive such materials. The CSA request comment on whether the existing ability of a reporting issuer to override a beneficial owner's waiver is appropriate.

Decline of Receipt of Routine Materials

The proposed National Instrument permits beneficial owners to waive the receipt of proxy-related materials for meetings at which only routine business is conducted. The CSA request comment on whether beneficial owners should have this ability to waive receipt, and whether the definition of "routine business" contained in the proposed National Instrument should be expanded or reduced.

Third Party NOBO Lists

The proposed National Instrument provides that when a reporting issuer receives a request from another person for a NOBO list, the reporting issuer must perform an intermediary search to request a new NOBO list. The CSA request comment on whether this obligation should be placed on the reporting issuer and whether the reporting issuer should be allowed to provide the most recent NOBO list in its possession, rather than initiate the procedures to prepare a new list.

Form of Omnibus Proxy

The forms under the proposed National Instrument prescribe forms of omnibus proxy. The CSA request comment on whether there are any possible conflicts between the specified forms of omnibus proxy and any form of proxy that may be required pursuant to an issuer's governing legislation or constating documents.

Electronic Transfer of Funds

The CSA have received suggestions that it would be appropriate, at some time in the future, to mandate in the instrument that replaces NP41 the electronic transfers of funds between reporting issuers, depositaries and intermediaries to facilitate the payments of fees provided for under the instrument. The CSA consider that this is premature at this time, but invite comment on these suggestions.

Transition Period

The proposed National Instrument requires that the procedures contained in the Instrument apply for meeting held on or after March 1, 1999, and that NP41 will continue to apply for meetings held before that time. The CSA seek comment on the appropriateness of this transition period.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument, Forms and Companion Policy. Submissions received by May 29, 1998 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Registrar of Securities, Northwest Territories
Registrar of Securities, Government of the Yukon Territory

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:

Claude St Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.

Questions may be referred to any of:

Diane Joly
Commission des valeurs mobilières du Québec
(514) 873-5326

Glenda A. Campbell
Alberta Securities Commission
(403) 297-6454

Robert Hudson
British Columbia Securities Commission
(604) 899-6691
or 1-800-373-6393 (in B.C.)

Robert F. Kohl
Ontario Securities Commission
(416) 593-8233

DATED at Vancouver, British Columbia, on February 25, 1998

Douglas M. Hyndman
Chair

1. Section 182 of the Securities Rules, B.C. Reg. 194/97, is amended

(a) by repealing subsection (3) and substituting the following:

(3) Subsection (2) does not apply to a registrant or custodian if

(a) neither the issuer nor the beneficial owner of the security referred to in subsection (2) has agreed to pay the reasonable costs of sending the material under that subsection, or

(b) the material

(i) relates to a meeting at which only routine business is to be conducted, or

(ii) is not required by law to be sent to registered holders of the securities unless the beneficial owner has notified the registrant or custodian that the beneficial owner wants to receive those materials., and

(b) by adding the following subsections:

(6) Subsections (2), (4) and (5) do not apply to registrant if the registrant has been notified that the notice, financial statement, information circular or other relevant material will be sent under NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer.

(7) No registrant or custodian may send materials referred to under paragraph (3)(b) unless the registrant or custodian has been notified that the beneficial owner wants to receive those materials.