United States: Corp Fin Updates CDIs For Proxy Rules And Proxy Statements

For quite a while, the CDIs related to the proxy rules and proxy statements have been a bit of a hodge-podge of different sources and supplements. There were even interpretations extant from the ancient Telephone Interpretations Manual—you may even have a mimeograph copy of that in your office somewhere. Now, Corp Fin has undertaken to update and harmonize some of those proxy-related interpretations, specifically the basic Interpretations Manual and its March 1999 Supplement. The rest of the supplements remain undisturbed for the moment; however, Corp Fin advises that it is in the process of updating them all.

Corp Fin advises that some of the updated CDIs reflect substantive changes and some only technical changes; the remainder reflect only non-substantive changes. Corp Fin identifies the following as CDIs with substantive changes:

Regulation 14A, Solicitation of Proxies

Rule 14a-4

124.01 Rule 14a-4(b)(1) states that a proxy may confer discretionary authority with respect to matters as to which a choice has not been specified by the security holder, so long as the form of proxy states in bold-faced type how the proxy holder will vote in that event. With regard to the election of directors, a soliciting party can cumulate votes among director nominees by simply indicating that it intends to do so in bold-faced type on the proxy card, so long as the persons solicited have cumulative voting rights, and state law grants the proxy holder the authority to exercise discretion to cumulate votes and does not require separate security holder approval with respect to cumulative voting.

124.07 Corp Fin has permitted registrants to avoid filing proxy materials in preliminary form even if the registrant has received adequate advance notification of a non-Rule 14a-8 matter (i.e., a shareholder proposal or matter to be raised by the proponent at the meeting, but not included in the registrant's proxy statement under Rule 14a-8) as long as the registrant has disclosed in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter were actually presented for a vote at the meeting. See Section IV.D of Release No. 34-40018 (May 21, 1998). However, if a registrant cannot properly exercise discretionary authority on the matter in accordance with Rule 14a-4(c)(2), the registrant may not rely on this position. (Rule 14a-4(c)(2) allows the registrant to exercise discretionary authority if it has received timely notice in connection with an annual meeting of shareholders and includes, in the proxy statement, advice on the nature of the matter and how the registrant intends to exercise its discretion to vote on each matter. Nevertheless, the registrant may not exercise discretionary voting authority on a particular proposal if the proponent timely advises the registrant in writing regarding its intent to deliver its own proxy statement and form of proxy to holders of at least the percentage of the company's voting shares required under applicable law to carry the proposal and complies with certain other requirements set forth in the rule.)

Section 126. Rule 14a-6

126.02 A registrant is not required to file a preliminary proxy statement in connection with a proposed corporate name change to be submitted for security holder approval at the annual meeting. As set forth in Release No. 34-25217 (Dec. 21, 1987), the underlying purpose of the exclusions from the preliminary proxy filing requirement is "to relieve registrants and the Commission of unnecessary administrative burdens and preparation and processing costs associated with the filing and processing of proxy material that is currently subject to selective review procedures, but ordinarily is not selected for review in preliminary form." Consistent with this purpose, a change in the registrant's name, by itself, does not require the filing of a preliminary proxy statement.

Schedule 14A: Information Required in Proxy Statement

Section 151. General

151.01 A registrant solicits its security holders to approve the authorization of additional common stock for issuance in a public offering. While the registrant could use the cash proceeds from the public offering as consideration for a recently announced acquisition of another company, it has alternative means for fully financing the acquisition (such as available credit under an executed credit agreement in the full amount of the acquisition consideration) and may choose to use those alternative financing means instead. Note A to Schedule 14A provides that "[w]here any item calls for information with respect to any matter to be acted upon and such matter involves other matters with respect to which information is called for by other items of this schedule, the information called for by such other items also shall be given. For example, where a solicitation of security holders is for the purpose of approving the authorization of additional securities which are to be used to acquire another specified company, and the registrants' security holders will not have a separate opportunity to vote upon the transaction, the solicitation to authorize the securities is also a solicitation with respect to the acquisition. Under those facts, information required by Items 11, 13 and 14 shall be furnished." However, under these facts, Corp Fin advises that the proposal to authorize additional common stock would not "involve" the acquisition for purposes of Note A of Schedule 14A. Why not? "Raising proceeds through a sale of common stock is not an integral part of the acquisition transaction because at the time the acquisition consideration is payable, the registrant has other means of fully financing the acquisition. The proposal would therefore not involve the acquisition and Note A would not apply. By contrast, if the cash proceeds from the public offering are expected to be used to pay any material portion of the consideration for the acquisition, then Note A would apply."

Section 161. Item 10

161.03 If a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, it should list in the table all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is "0." Alternatively, the registrant can choose to identify any individual or group for which the award and benefit information to be reported is "0" through narrative disclosure that accompanies the New Plan Benefits Table.

SoapBox

Really? Do we really need the New Plan Benefits Table at all? Won't someone just declare the thing obsolete? You might recall that, in 2015, in a speech to the National Institute on Executive Compensation, former Corp Fin Director Keith Higgins discussed what might be in store for Corp Fin, including potential changes to the New Plan Benefits Table. That table requires identification of the benefits that will be received by or allocated to specified persons and groups under the plan or amendment, where those benefits are determinable. However, Higgins suggested, "as is often the case with discretionary plans, the benefits or amounts to be received are not determinable..." In that event, the table must include benefits or amounts that "'would have been received by or allocated to [the persons and groups in the table] for the last completed fiscal year if the plan had been in effect, if such benefits or amounts may be determined. . . .' That language might lead one to conclude, for example, that for a plan amendment simply increasing the number of shares available under the plan the table should disclose the amounts that the specified persons and groups received in the prior year under that plan. But what if a plan is being newly adopted? How do you determine what would have been received or allocated? Should those situations produce different results? Is additional guidance necessary?" More importantly, he questioned if the table, as currently constructed, might perhaps be well past its prime: "this table was part of our rules well before the current compensation tables that appear in the proxy statement. Are there revisions to this table we should be considering to capture the information that is important to investors, but also reduce duplicative disclosure?" Sorry to say, but no proposal on this topic ever came to fruition. See this PubCo post.

Section 163. Item 12

163.01 A proxy statement seeking security holder approval for the elimination of preemptive rights from a security does involve a modification of that security for purposes of Item 12 of Schedule 14A, and, accordingly, financial and other information would be required in the proxy statement to the extent required by Item 13 of Schedule 14A.

Corp Fin identifies the following as CDIs with technical changes:

Regulation 14A, Solicitation of Proxies

Section 126. Rule 14a-6

126.04 A registrant that filed a Form S-4 may not send proxy cards to its security holders upon the filing of a preliminary proxy statement/prospectus. That's because Rule 14a-4(f) prohibits the delivery of proxy cards unless the security holders concurrently or previously received a definitive proxy statement filed with the SEC. Further, because a vote on the transaction described also would amount to a sale of the securities being registered, no proxy card can be sent until after the Form S-4 is declared effective and the final prospectus has been furnished to security holders.

126.05 A registrant files a registration statement on Form S-4 that contains its proxy statement disclosure pursuant to Instruction E.1 of Form S-4. If, after the effective date of the registration statement, the registrant sends an additional communication to security holders relating to the transaction, the registrant must file this communication as "other soliciting material" under Rule 14a-6(b) no later than the date it is first sent or given to security holders. Given that the communication was sent after furnishing the definitive proxy statement, it should not be filed under Rule 14a-12 (which applies to communications before furnishing a proxy statement).

Schedule 14A: Information Required in Proxy Statement

Section 158. Item 7

158.01 A registrant will hold a special meeting to elect one new person to its board of directors. The incumbent directors were elected at the annual security holder meeting three months ago and will not be up for re-election. Nevertheless, the proxy materials for the special meeting must still include the information required by Items 7 and 8 of Schedule 14A for the incumbent directors.

158.03 B is to be merged into A in a Rule 145 transaction. B's security holders will be voting to approve the proposed transaction and will become security holders of A. A's security holders are not voting on the proposed transaction. Three of B's directors will become directors of A. Pursuant to Note A to Schedule 14A, the Form S-4 should contain the information required by Items 7 and 8 of Schedule 14A as to the A directors in A's Form S-4, which includes B's proxy statement.

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