Annual Meetings and Information Circulars: What Shareholders Vote On

Introduction

Listed companies in Canada hold an annual meeting of shareholders. For many juniors it is a short, quiet event, and it is easy to throw the mailing away. That is a missed opportunity. The meeting is where shareholders exercise their main rights, and the document that comes with it, the management information circular, is one of the most useful disclosures a junior produces.

This guide explains what happens at an annual meeting, what the circular contains, and how to vote shares held through a broker.

The information circular answers three questions about a junior: who runs it, how they are paid, and who owns it.

Why Companies Hold Annual Meetings

The obligation comes from corporate law, which depends on where the company is incorporated. Under the federal Canada Business Corporations Act (CBCA), for example, directors must call an annual meeting no later than 15 months after the last one, and no later than six months after the end of the previous financial year. Provincial statutes set their own rules.

The CBCA treats three items as ordinary business at an annual meeting: considering the financial statements, electing directors and reappointing the incumbent auditor. Anything else, such as approving a new option plan or a share consolidation, is special business. Securities rules require the circular to give the particulars of each matter to be voted on.

What Shareholders Vote On

A typical junior annual meeting includes:

1. Number of directors. Setting how many seats the board will have.
2. Election of directors. Under the CBCA, directors of distributing corporations are elected for terms ending at the next annual meeting. Where there is only one nominee for each seat, a nominee is elected only if the votes for exceed the votes against.
3. Appointment of the auditor, and usually authority for the board to set the auditor's pay.
4. The stock option or security based compensation plan. On the TSXV, a rolling plan, which reserves up to 10% of the issued shares, must be approved by shareholders when it is put in place and yearly after that, at the annual meeting. Under the policy, plans generally also need shareholder approval when they are put in place and when they are amended, with limited exceptions. If the yearly approval lapses, Policy 4.4 sets out consequences for the plan.
5. Special business. Sometimes a share consolidation, a name change, a new class of shares or approval of a transaction. These items deserve the closest reading.

What the Circular Tells You

When management solicits proxies, it sends an information circular prepared under Form 51-102F5. The form's items include:

• Voting securities and principal holders. The number of shares outstanding and anyone who owns 10% or more.
• Election of directors. Each nominee's residence, principal occupation, time on the board, committee memberships and shareholdings.
• Executive compensation. A statement of executive compensation. Venture issuers may use a shorter version, Form 51-102F6V.
• Securities authorized under equity compensation plans. How many options and other awards are outstanding, their average exercise price, and how many remain available.
• Indebtedness of directors and executives, and interests of informed persons in material transactions. Loans to insiders and related party dealings.
• Appointment of auditor.
• Particulars of matters to be acted upon. The detail behind each resolution.

For a small company, the compensation and equity plan sections are worth comparing with its cash position. Options are a normal part of junior pay, but they add to the fully diluted share count. The fully diluted shares calculator and our guide to reading a junior's capital structure help put the numbers in context.

Registered and Beneficial Holders

If you bought shares through a brokerage account, you are almost certainly a beneficial owner. The registered holder is a depository or your broker, which holds the shares on your behalf. National Instrument 54-101 governs how companies reach beneficial owners.

Two terms appear in it. A non-objecting beneficial owner (NOBO) has told the broker it does not object to its ownership information being disclosed to the company. An objecting beneficial owner (OBO) has objected. The company can send materials directly to NOBOs. OBOs receive them through their broker.

To decide who gets the mailing, the company fixes a record date for notice. NI 54-101 requires it to be no fewer than 30 and no more than 60 days before the meeting.

Many companies use notice-and-access. Instead of mailing the full circular, they post it on SEDAR+ and another website and send a notice with the meeting date, the matters to be voted on, where to find the materials and how to request a paper copy.

How to Vote Through a Broker

1. Find the voting instruction form. It arrives by mail or email from your broker or its agent, or directly from the company if you are a NOBO. It carries a control number.
2. Read the circular. The notice tells you where it is posted.
3. Vote by the deadline on the form. Online, by phone or by mail, as the form allows. The deadline comes before the meeting itself, often by a day or more, so votes can be counted.
4. To attend in person, use the voting instruction form to ask to be appointed proxyholder for your own shares. NI 54-101 sets out how a company must appoint a NOBO as proxyholder on request. Without that step, you may be able to attend but not vote.

What to Check in a Circular

• The board. Who the nominees are, how long they have served and how many shares they own.
• Pay against progress. Executive and director compensation compared with the company's cash and its work in the ground.
• Option overhang. Options outstanding and available, and whether the plan is rolling or fixed.
• Related party dealings. Loans, management contracts and transactions with insiders.
• Special resolutions. Consolidations, new share classes or transactions, and the reasons given.
• Your vote. Read the circular on SEDAR+, vote before the deadline, and speak to your own adviser if a resolution affects your investment decision.