Noront Resources

Long but here it is...

Socially Responsible Shareholdership in Canada

Filing the proposal

The proposal must be submitted to the Corporate Secretary at least 90 days before the anniversary date of the notice of meeting that was sent to shareholders in connection with the previous AGM. That exact deadline date for the following year's submissions is required by law to be stated in the present year's management proxy circular. This allows sufficient time for it to be vetted by management, printed and distributed.

The proposal submission, to be delivered in person, or sent to the Corporate Secretary via registered courier, should include the following items:

• A cover letter
• The name and address of the filer / co-filers
• The number of voting shares and proof of ownership, including the date the shares were acquired by the filer / co-filers
• The resolution and supporting statement

Keep the record of receipt of delivery as well as a copy of the submission for your own records (as you should for all your correspondences with the company). Also see to it that all filers and co-filers maintain at least the minimum prescribed number of shares right up to the time of the AGM. This is a legal requirement to ensure that they will be able to attend the AGM and present the proposal. Note also that the bylaws of different companies may require different procedures regarding AGMs and proxies– it is wise to check the bylaws beforehand.

Reasons for refusal of resolution

A company has up to 21 days after receiving a proposal (or after receiving subsequent proof of share ownership, as the case may be) to notify the submitter of its refusal to include a proposal in a management proxy circular and the reasons for it.

There are many reasons that an unsympathetic management can use to legally justify such refusal, according to Section 137(5) of the CBCA:

(a) the proposal is not submitted to the corporation at least ninety days before the anniversary date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders;

(b) it clearly appears that the proposal is submitted by the shareholder primarily for the purpose of enforcing a personal claim or redressing a personal grievance against the corporation or its directors, officers or security holders;

(b.1) it clearly appears that the proposal does not relate in a significant way to the business or affairs of the corporation;

(c) not more than two years before the receipt of the proposal, a person failed to present, in person or by proxy, at a meeting of shareholders, a proposal that at the person's request had been included in a management proxy circular relating to the meeting;

(d) substantially the same proposal was submitted to shareholders in a management proxy circular or a dissident's proxy circular relating to a meeting of shareholders held not more than five years before the receipt of the proposal and did not receive the following minimum amount of support at the meeting;

(i) 3% of the total number of shares voted, if the proposal was introduced at an annual meeting of shareholders;

(ii) 6% of the total number of shares voted at its last submission to shareholders, if the proposal was introduced at two annual meetings of shareholders; and

(iii) 10% of the total number of shares voted at its last submission to shareholders, if the proposal was introduced at three or more annual meetings of shareholders;

or

(e) the shareholder rights regarding proposal submissions are being abused to secure publicity.

If a person who submits a proposal fails to continue to hold or own the prescribed number of shares (i.e., 1% or $2,000) up to and including the day of the meeting, the corporation is not required to circulate any further proposals submitted by that shareholder for any meeting held within a subsequent two-year period.

Five percent for board member nomination

A final reason for rejection has to do with one particular type of proposal. Any proposal that nominates a member of the board of directors must be submitted by one or more shareholders who collectively own at least 5% of the shares of the company. Should this threshold not be reached, the proposal will be refused.

Should the proposal be rejected by management, one can either take the matter to court or distribute a dissident proxy circular. Both of these options can require substantial financial resources.

Going to court

Although it has the power to refuse a proposal, a company may also petition a court for an order permitting it to omit the proposal from the management proxy circular. Conversely, a shareholder whose proposal has been rejected by management can apply to the court to restrain the holding of the AGM, potentially until satisfaction is obtained. The financial burden of mounting a court challenge can be quite onerous, and since corporations generally have more financial resources than shareholders, such a challenge should not be lightly undertaken.

Dissident proxy circular

Should management refuse to circulate a shareholder proposal, and going to court is not a viable option, the only route left is to circulate your proposal via a dissident proxy circular. Dissident circulars are distributed independently of the proxy circular put out by company management and can be quite costly in the case of a large corporation with thousands of shareholders. Dissident circulars, in legally prescribed form, must be sent to the shareholders, the auditor, the directors of the corporation, the corporation, and to the Director of the Canada Business Corporations Act (CBCA). As the formal requirements relating to the circulation of dissident proposals are somewhat complex, it would be wise to seek legal advice before embarking on this route.

Proxy solicitation and shareholder communication

In many cases, investors who wish to solicit proxies can do so without having to resort to either distributing a dissident proxy circular or acquiring an official exemption from issuing one. This is allowed only

• if the total number of shareholders whose proxies are solicited is not more than fifteen; or
• if the solicitation contains the information normally required in a dissident's proxy circular and is communicated via public broadcast, speech or publication.

Apart from the above legal allowances of proxy solicitation, investors may further communicate with other investors on proposals and proxy votes, stopping short of what Section 147 of the CBCA refers to as “solicitation”, a definition that includes:

(i) a request for a proxy whether or not accompanied by or included in a form of proxy,
(ii) a request to execute or not to execute a form of proxy or to revoke a proxy,
(iii) the sending of a form of proxy or other communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy, and
(iv) the sending of a form of proxy to a shareholder under section 149 [i.e., via the management proxy circular];

but does not include

(i) the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,
(ii) the performance of administrative acts or professional services on behalf of a person soliciting a proxy,
(iii) the sending by an intermediary of the documents referred to in section 153 [i.e., an investment dealer holding registered shares on behalf of their beneficial owner]
(iv) a solicitation by a person in respect of shares of which the person is the beneficial owner,
(v) a public announcement, as prescribed, by a shareholder of how the shareholder intends to vote and the reasons for that decision

[prescribed circumstances include:

(a) a speech in a public forum; or
(b) a press release, an opinion, a statement or an advertisement provided through a broadcast medium or by a telephonic, electronic or other communication facility, or appearing in a newspaper, a magazine or other publication generally available to the public],

(vi) a communication for the purposes of obtaining the number of shares required for a shareholder proposal under subsection 137(1.1) [i.e., soliciting co-filers of a proposal], or
(vii) a communication, other than a solicitation by or on behalf of the management of the corporation, that is made to shareholders, in any circumstances that may be prescribed [mostly in cases where no proxy is solicited - see Section 68(1) of the CBCA Regulations for more details].

It can be seen that there is a great deal of leeway in communicating with other investors, provided that proxy votes are not solicited outside of legally prescribed