May 21, 2018Client Alert

SEC Division of Corporate Finance Issues New Compliance and Disclosure Interpretations (C&DIs) for Proxy Rules and Forms

The staff of the Division of Corporate Finance of the U.S. Securities and Exchange Commission (SEC) published a number of new Compliance and Disclosure Interpretations (C&DIs) to replace existing interpretations found in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement. Other staff interpretations relating to the proxy rules remain in effect, but the staff advises that it is in the process of updating them all.

The C&DIs impact the drafting and filing of proxy statements and information statements by reporting companies, and change some of the disclosure required. Simply updating prior-year disclosure is never sufficient when drafting SEC documents, and reporting companies must carefully craft disclosure that meets current rules and the latest interpretations.

The staff has indicated that, in addition to some technical and non-substantive changes, substantive updates to the Interpretations Manual and Supplement are contained in the following C&DIs. If you have any questions regarding the new C&DIs and how they could impact your disclosure requirements, please contact any member of Michael Best’s Securities & Capital Markets team.

Rule 14A, Solicitations of Proxies
Rule 14a-4

Question 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 where no choice is specified. If action is to be taken with respect to the election of directors and the persons solicited have cumulative voting rights, can a soliciting party cumulate votes among director nominees by simply indicating this in bold-faced type on the proxy card?
Answer: Yes, as long as 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.

Question 124.07: The Division has permitted registrants to avoid filing proxy materials in preliminary form despite receipt of adequate advance notification of a non-Rule 14a-8 matter as long as the registrant disclosed in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter is actually presented for a vote at the meeting. See Section IV.D of Release No. 34-40018 (May 21, 1998). Can a registrant rely on this position if it cannot properly exercise discretionary authority on the matter in accordance with Rule 14a-4(c)(2)? Answer: No.

Rule 14a-6
Question 126.02: Is a registrant 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?
Answer: No. 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
Question 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. Would the proposal to authorize additional common stock “involve” the acquisition for purposes of Note A of Schedule 14A?
Answer: No. 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.

Item 10
Question 161.03: If a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, should it 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”?
Answer: Yes. 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.

Item 12
Question 161.01: Do all actions on compensation plans that must be submitted for security holder approval need all of the disclosure required under Item 10 of Schedule 14A?
Answer: Any action on a compensation plan that must be submitted for security holder approval requires all of the disclosure called for under Item 10 of Schedule 14A. If the action proposed is only an amendment to an existing plan (e.g., adding shares available under an option plan, or adding a new class of participants), the Item 10 disclosure still must include a complete description of any material features of the plan (Item 10(a)(1)), including the material differences from the existing plan (Instruction 2).

In the News
Michael Best is pleased to announce that Lisa M. Gingerich has joined the Transactional Practice Group as a partner. Gingerich will be based out of the firm’s Milwaukee office, focusing her practice on healthcare law. Read more.

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