The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
Issue link: https://digital.carswellmedia.com/i/138095
ADVANCE NOTICE REQUIREMENTS ADVANCE notice requirements are generally implemented through an amendment to the company's charter documents. ON JUNE 4, 2012, the entire board of directors of QLT Inc. was replaced following a stealth proxy contest. QLT is a leading Canadian life sciences company listed on the TSX and NASDAQ. QLT was caught unaware when, two days prior to its annual general meeting, a dissident shareholder holding 15 percent of QLT's shares and supported by a small group of other shareholders delivered proxies in favor of the dissident shareholder's slate of directors. QLT postponed its meeting for 11 days to allow shareholders who had received no information about the dissident's slate of directors or the dissident's plans for QLT an opportunity to make an informed vote. Despite the postponement, the dissident's slate of directors was elected. If QLT had implemented an advance notice requirement, QLT and its shareholders would not have been surprised by the dissident shareholder. WHAT IS AN ADVANCE NOTICE REQUIREMENT? An advance notice bylaw or policy requires any shareholder proposing to nominate a director for election to provide advance notice to the company prior to a shareholders' meeting, in order for a director nominee to be eligible for election at the meeting. Advance notice requirements adopted by Canadian companies generally require a minimum of 30 and a maximum of 65 days' notice before a regularly scheduled annual shareholder meeting. In the case of a special meeting, notice is generally required within 15 days of the first public announcement of the date of the special meeting. The notice generally must contain information concerning each director nominee (e.g., shareholdings, principal occupation, relationship with the company, bankruptcy history and securities regulatory penalties) and certain information concerning the nominating shareholder (e.g., name of the shareholder and related persons) similar to that required in a dissident information circular. > An advance notice bylaw or policy may contain additional requirements. For example, American companies have adopted advance notice bylaws requiring: • • • • longer notice periods; disclosure of derivative and short positions; mandatory completion of diretor nominee questionnaires; disclosure of any intention to solicit proxies; • identifying anyone "acting in concert" with the nominating shareholder; and • minimum shareholdings and holding periods. An advance notice bylaw or policy usually contains a provision authorizing a board of directors, in its sole discretion, to waive any requirement. WHY IMPLEMENT AN ADVANCE NOTICE REQUIREMENT? An advance notice requirement prevents stealth proxy contests and meeting ambushes. In the absence of an advance notice requirement, a shareholder has the right to nominate and vote for a director at a shareholder meeting. Nomination involves simply naming the director nominee. There is no requirement for advance notice of the nomination or background information on the director nominee to be provided to the company or shareholders. Consequently, a strategy often employed by a dissident shareholder is to nominate and vote for its slate of directors at a shareholder meeting. This strategy is effective because a company will generally have no notice (it is an "ambush") of the dissident shareholder's intentions until the shareholder meeting. Because it is not uncommon for only 20 percent to 40 percent of a company's shareholders to participate in a regular shareholder meeting, a dissident shareholder with 15 percent or more of a company's shares may be successful in electing its slate of directors. A complementary strategy is for a dissident shareholder to solicit proxies voted in support of its director nominees from not more than 15 other shareholders, in which case the dissident shareholder is not required to file with the securities commissions a dissident information circular (thereby alerting the company). The first notice that the company will usually receive that this strategy is being used is when the dissident shareholder delivers its proxies just prior to the cut-off for proxies, which is typically 48 hours before a meeting, leaving little time for the company to react. This strategy is referred to as a "stealth proxy contest." An advance notice requirement prevents a dissident shareholder from using an ambush or stealth proxy contest to make a surprise director nomination. Advance notice requirements facilitate an orderly and efficient meeting. They ensure that all shareholders, including shareholders who are only voting by proxy, receive adequate notice of director 40 | LEXPERT • June 2013 | www.lexpert.ca C-00-Firm.indd 40 13-05-17 10:06 AM