Proxy Rules and Schedules 14A/14C

Question: A cooperative subject to reporting obligations under Exchange Act Section 12 has a procedure for sending an advisory ballot to its members seeking their recommendations on who should be nominated to the board of directors. Are these advisory vote materials subject to the requirements of Exchange Act Section 14(a) and Regulation 14A?

Answer: Yes, the advisory vote materials constitute a solicitation for the election of directors. Accordingly, the advisory vote materials, including the advisory ballot, are required to comply with the requirements of Section 14(a) and Regulation 14A. [May 11, 2018]

Question: An acquiror and a target company plan to engage in a business combination transaction. The acquiror is subject to the federal proxy rules and will file a proxy statement to solicit shareholder approval for the transaction. The target company is a non-reporting company that does not need to file a proxy statement to solicit its own shareholders. It does plan to issue press releases and make other public communications, including through its social media channels, to publicize the merits of the proposed transaction and its benefits for both companies’ shareholders. Could the target company’s public communications constitute a solicitation subject to the proxy rules?

Answer: Yes. A solicitation includes any “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” See Exchange Act Rule 14a-1(l)(1)(iii). Accordingly, a target company that does not plan to solicit its own shareholders could nevertheless be engaged in a solicitation of the acquiror’s shareholders if its public communications promote the proposed transaction or may be reasonably expected to influence the voting decisions of the acquiror’s shareholders. Any target company communication that constitutes a solicitation would be subject to the liability provision of Exchange Act Rule 14a-9, which prohibits materially false or misleading statements or material omissions, as well as the filing and information requirements of the federal proxy rules. Also see Question 132.01 below. [March 22, 2022]

Question: Does a person holding securities in several nominee accounts count as one “person” for purposes of Rule 14a-2(b)(2)?

Answer: Yes. [May 11, 2018]

Question: Does providing a form of proxy to a security holder in response to that security holder’s unsolicited request count against the ten-person limit of Rule 14a-2(b)(2)?

Answer: No, because such an act is not a solicitation under Rule 14a-1(l)(2)(i). [May 11, 2018]

Question: Can the filing of a Schedule 13D preclude reliance on Rule 14a-2(b)(2)?

Answer: Yes. A dissident intending to engage or engaging in a solicitation of no more than ten persons under Rule 14a-2(b)(2) should be mindful that its filing of a Schedule 13D – depending on the content of this document and other relevant facts and circumstances – may constitute a more widespread solicitation that may preclude reliance upon Rule 14a-2(b)(2). For example, the filing of a Schedule 13D that states no more than what is explicitly required by the schedule generally would not be viewed as a more widespread solicitation. By contrast, where the Schedule 13D or any of its exhibits invites security holders to contact the filer in order to discuss the solicitation, or urges security holders to take some action, the Schedule 13D filing may be viewed as a solicitation of all of the registrant’s security holders. [May 11, 2018]

Question: If securities are purchased prior to the record date, but title does not pass until after the record date, would the efforts by the purchaser to obtain proxies from the sellers be an exempt solicitation under Rule 14a-2(a)(2)? Would such efforts count toward the ten-person limitation of Rule 14a-2(b)(2)?

Answer: As these efforts would be an exempt solicitation under Rule 14a-2(a)(2), which exempts any solicitation by a person in respect of securities of which he or she is the beneficial owner, they would not count towards the ten-person limitation in Rule 14a-2(b)(2). [May 11, 2018]

Question: If the information in an annual report to security holders required by Rule 14a-3 is included in a proxy statement contained in a Form S-4 filed for the same security holder meeting, is a separate Rule 14a-3 annual report nevertheless required?

Answer: No. [May 11, 2018]

Question: A limited partnership has units registered under Exchange Act Section 12, but it does not hold director elections and therefore does not solicit proxies for the election of directors. Is the limited partnership required to file copies of its annual report with the Commission pursuant to Rule 14a-3?

Answer: No. [May 11, 2018]

Question 123.03

Question: Would a special meeting of a limited partnership held for the purpose of adding a general partner be an annual meeting (or a special meeting in lieu of an annual meeting) of security holders to elect directors of a corporation for purposes of Exchange Act Rule 14a-3?

Answer: Yes. Accordingly, an annual report prepared in accordance with Rule 14a-3 should be provided to the limited partners in connection with the meeting. However, the limited partnership would not be required to provide more than one annual report to its limited partners during any fiscal year. [May 11, 2018]

Question 123.04

Question: What does the reference to the “most recent fiscal years” in Rule 14a-3(b)(1) mean?

Answer: The “most recent fiscal years” referenced in Rule 14a-3(b)(1) are the most recently completed fiscal years as of the date of a registrant’s annual meeting, not as of the date the registrant mails proxy materials for its annual meeting. For example, a registrant with a December 31 fiscal year end, holding an annual meeting in early February 2018, must include audited balance sheets as of the end of each of fiscal years 2017 and 2016 in the annual report that accompanied or preceded the annual meeting proxy statement. [May 11, 2018]

Question: 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. [May 11, 2018]

Question 124.02

Question: When is notice of a non-Rule 14a-8 matter to be presented to a vote considered to be untimely under Rule 14a-4(c)?

Answer: Notice of a non-Rule 14a-8 matter to be presented to a vote that the registrant receives after the Rule 14a-4(c)(1) “timeliness” deadline (i.e., as measured under the registrant’s advance notice provision or, absent such a provision, the 45-day standard of Rule 14a-4(c)(1)) is considered untimely. This means that a registrant can exclude the matter from its proxy statement, while preserving discretionary authority to vote management proxies on such matter, as long as the registrant includes a specific statement in its proxy statement regarding how it intends to exercise its discretionary authority to vote on the matter if presented at the meeting. Additional disclosure may be necessary to satisfy Rule 14a-9. State law governs whether the matter may be properly introduced and voted upon at the meeting. [May 11, 2018]

Question 124.03

Question: If the last day of the 45-day deadline in Rule 14a-4(c)(1) for a registrant to receive timely notice from a security holder of a matter to be presented to a vote outside of Rule 14a-8 is not a business day (e.g., such last day is a weekend day or a holiday), when does the notice have to be received in order to be timely for purposes of the rule?

Answer: The notice must be received on the preceding business day. [May 11, 2018]

Question 124.04

Question: If a registrant has an advance notice by-law or charter provision that governs when notice of a matter is deemed to be timely, may it exercise discretionary voting authority in accordance with Rule 14a-4(c)(1)?

Answer: Yes. A registrant that has an advance notice by-law or charter provision governing when notice of a matter is deemed timely may exercise discretionary voting authority in accordance with Rule 14a-4(c)(1), even if the advance notice provision does not specifically reference the use of discretionary voting authority. [May 11, 2018]

Question 124.05

Question: For purposes of determining whether it has discretionary authority under Rule 14a-4(c)(1), should a registrant rely on the deadline prescribed in its advance notice provision for submission of non-Rule 14a-8 matters, or should it instead rely on the 45-day deadline specified in Rule 14a-4(c)(1)?

Answer: A registrant must rely on the deadline for submission of non-Rule 14a-8 matters prescribed in its advance notice provision in determining when notice of a matter is received in a timely manner for purposes of Rule 14a-4(c)(1). See Exchange Act Release No. 39093 (Sept. 18, 1997) (noting that Rule 14a-4(c)(1) is not intended “to interfere with the operation of state law authorized definitions of advance notice set forth in corporate bylaws and/or articles of incorporation…”). Hence, if a registrant’s advance notice provision requires receipt of notice of a matter 60 days before the date on which the registrant mailed its proxy materials for the prior year’s annual meeting of security holders, the registrant should use this deadline to determine compliance with the “timely notice” standard defined in Rule 14a-4(c)(1), rather than the 45-day period in Rule 14a-4(c)(1). [May 11, 2018]

Question: When a registrant has changed its annual meeting date to be more than 30 days from the date it was held the prior year, or if the registrant did not hold an annual meeting last year, what is a “reasonable time” for notice of a matter to be submitted by a security holder for purposes of Rule 14a-4(c)(1)?

Answer: The term “reasonable time” should be determined based upon the particular facts and circumstances. In such a situation, the registrant must publicly disclose through means reasonably calculated to inform security holders the date change and the date by which a notice of a matter proposed by security holders must be received. [May 11, 2018]

Question: 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 was actually represented 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. [May 11, 2018]

Question: When a registrant receives notice of a matter submitted by a security holder that is timely but deficient for purposes of Rule 14a-4(c)(2)(i.e., it does not comply with the requirements listed in the rule by, for example, failing to indicate that the security holder intends to deliver a proxy statement and form of proxy to holders of at least that percentage of the registrant’s voting shares necessary to approve the matter), does the registrant have discretionary voting authority on the matter?

Answer: If the notice is timely but deficient, the registrant would not be required to put the matter on its proxy card. The registrant’s ability to exercise discretionary authority, however, is conditioned on including in its proxy statement advice on the nature of the matter and how the registrant intends to exercise its discretion to vote on that matter. The registrant’s ability to avoid filing a preliminary proxy statement and instead file a definitive proxy statement pursuant to Rule 14a-6 will depend upon, among other factors, the extent of its comments on, or discussion in, its proxy material of any solicitation in opposition in connection with the meeting. [May 11, 2018]

Question: Under the factual circumstances described in Question 101.02 above, can the target company rely upon Exchange Act Rule 14a-12 to communicate publicly about the proposed business combination transaction even though it does not plan to file its own definitive proxy statement?

Answer: Yes, subject to the conditions described below. Rule 14a-12 permits solicitations before the furnishing of a proxy statement, provided, among other things, that “a definitive proxy statement…is sent or given to security holders solicited in reliance” on the rule. See Rule 14a-12(a)(2). Recognizing the need for the target company to publicly announce the proposed transaction and the fact that the acquiror will send its own definitive proxy statement to its shareholders, the staff will not object if the target company relies on Rule 14a-12 for its public written communications, provided that:

• the target company identifies itself as a participant in the acquiror’s proxy solicitation;
• the target company satisfies the remaining applicable requirements of Rule 14a-12, including the filing of its communications with the Commission; and
• the acquiror complies with the conditions specified in Question 102.04 of the Exchange Act Form 8-K C&DIs.

The target company may have its written communication filed by the acquiror on its behalf and under the acquiror’s Exchange Act file number, provided the communication is clearly identified as that of the target company. [March 22, 2022]

Question 132.02

Question: Is the Rule 14a-12 position described in Question 132.01 above also available for an acquiror that makes public communications regarding a proposed business combination transaction in which it will not file a definitive proxy statement for the transaction but the target company will?

Answer: Yes, as long as the following conditions are satisfied:

• the acquiror identifies itself as a participant in the target company’s proxy solicitation;
• the acquiror complies with all other requirements of Rule 14a-12, including the filing of its communications with the Commission; and
• the target company complies with the conditions specified in Question 102.04 of the Exchange Act Form 8-K C&DIs.

The acquiror may have its written communication filed by the target company on its behalf and under the target company’s Exchange Act file number, provided the communication is clearly identified as that of the acquiror. [March 22, 2022]

Question: Is a broker search letter a proxy solicitation within the meaning of Exchange Act Rule 14a-1(l)?

Answer: No, it is not a proxy soliciting material where it is sent to a broker and only requests information about the number of copies of the proxy materials that the broker will need to forward to beneficial owners. [May 11, 2018]

Question: Rule 14a-19(a)(1), in conjunction with Rule 14a-19(b), generally requires a dissident shareholder in an election contest to provide the registrant with notice of the names of the dissident shareholder’s nominees for whom it intends to solicit proxies at least 60 calendar days before the anniversary of the prior year’s annual meeting date. Can a dissident shareholder include in the Rule 14a-19(b) notice the names of more nominees than there are director seats up for election, without the intent of actually soliciting proxies for all of them but, instead, finalizing its slate of nominees after the Rule 14a-19(b) deadline and closer to the date of the shareholder meeting?

Answer: No. The Rule 14a-19(b) notice must contain only the names of nominees for whom the dissident shareholder intends to solicit proxies. The purpose of this requirement is to provide a definitive date by which the parties in a contested election will have the names of all nominees in order to compile a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021). Knowingly submitting the names of more nominees than there are director seats up for election, with the intention of finalizing the actual slate of nominees after the Rule 14a-19(b) notice deadline, would be inconsistent with the purpose of the rule.

The staff, however, recognizes that a dissident shareholder may need to change its slate of nominees after the Rule 14a-19(b) notice deadline (for example, because a nominee withdraws from the slate or the registrant increases the number of director seats up for election). Therefore, the staff will not object if the dissident shareholder includes in its Rule 14a-19(b) notice: (1) the names of the nominees for whom it intends to solicit proxies and (2) the names of additional or alternate nominees who, in accordance with the registrant’s governing documents and state law, would be presented for election in the event of a need to change the original slate, so long as the notice clearly identifies the persons who are being presented as additional or alternate nominees. If the dissident shareholder later changes its slate to include any of the additional or alternate nominees, then it must promptly notify the registrant of the change as required by Rule 14a-19(c).

The views above also apply to the ability of a registrant to include in its Rule 14a-19(d) notice the names of more nominees than director seats up for election. [August 25, 2022]

Question: Rule 14a-19(b) generally requires a dissident shareholder in an election contest to send a notice to the registrant with the names of its nominees. Similarly, Rule 14a-19(d) requires the registrant to provide the names of the registrant’s nominees to any person conducting a solicitation pursuant to Rule 14a-19. In a contested director election where more than one dissident shareholder intends to present a slate of director nominees, should the registrant inform each dissident shareholder of the Rule 14a-19(b) notice that the registrant received with respect to persons nominated by other dissident shareholders?

Answer: Yes. The Rule 14a-19 notification requirements are intended to provide the parties in a contested election with the names of all director nominees by a definitive date so they can compile a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021). Although Rule 14a-19 does not expressly address a situation where there is more than one dissident shareholder submitting a slate of nominees, the registrant is best positioned to notify all parties of the slates submitted by the dissident shareholders as it alone receives the Rule 14a-19(b) notices that all dissident shareholders must send in a contested election. Accordingly, the registrant should notify each dissident shareholder, by the deadline prescribed in Rule 14a-19(d), of not only the names of its nominees and any nominees submitted under a “proxy access” provision but also of the names of any other persons nominated by another dissident shareholder who provided a Rule 14a-19(b) notice. This view also applies to the Rule 14a-19 requirements with respect to prompt notifications of any changes in the registrant’s and dissident shareholders’ slates of nominees. [August 25, 2022]

Question: Rule 14a-19(b)(1) requires the dissident shareholder in an election contest to send notice of its director nominees generally no later than 60 calendar days before the anniversary of the prior year’s annual meeting. In addition, Rule 14a-5(e)(4) requires the registrant to disclose in its proxy statement the Rule 14a-19(b)(1) deadline for a dissident shareholder to provide notice of its director nominees for election at the next annual meeting. If the registrant’s advance notice bylaw provision imposes an earlier deadline for notice of a dissident shareholder’s nominees than Rule 14a-19(b)(1), must the registrant’s proxy statement also include disclosure of Rule 14a-19(b)(1)’s later deadline?

Answer: Rule 14a-19(b)(1) establishes a minimum, not a maximum, notice period for a dissident shareholder to inform the registrant of its intent to present its own director nominees. See Release No. 34-93596 (Nov. 17, 2021)(“Rule 14a-19’s notice requirement is a minimum period that does not override or supersede a longer period established in the registrant’s governing documents.”). Accordingly, where the registrant’s advance notice bylaw provision requires earlier notice than Rule 14a-19(b)(1), then the registrant disclosing only the earlier advance notice bylaw deadline would satisfy Rule 14a-5(e)(4).

Note, however, that Rule 14a-19(b) requires specific information to be included in the notice, such as a statement that the dissident shareholder intends to solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors. To the extent that the registrant’s advance notice bylaw provision does not require the same information as that required by Rule 14a-19(b), then the registrant’s proxy statement must clearly state the need for a dissident shareholder to comply with the additional requirements of Rule 14a-19(b). [August 25, 2022]

Question: 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. [May 11, 2018]

Question: Is a subsidiary created by a parent for the purpose of engaging in a proxy solicitation a participant in the solicitation?

Answer: Yes. Both the parent and the subsidiary would be participants in the solicitation pursuant to Instruction 3(a)(vi) to Item 4 of Schedule 14A. [May 11, 2018]

Question: 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. Do the proxy materials for the special meeting have to include the information required by Items 7 and 8 of Schedule 14A for the incumbent directors?

Answer: Yes. [May 11, 2018]

Question 158.02

Question: Does a registrant soliciting proxies for a special meeting at which management will propose a classification of the board of directors (but not the election of any directors under the proposed new board structure) need to include information pursuant to Items 7 and 8 of Schedule 14A in the proxy statement for the special meeting?

Answer: No, provided that the proposal, if adopted, will not have the effect of shortening or lengthening the term of any incumbent directors. [May 11, 2018]

Question 158.03

Question: 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. Is it necessary to include the information required by Items 7 and 8 of Schedule 14A as to the directors of A in A’s Form S-4, which includes B’s proxy statement?

Answer: Yes. 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. [May 11, 2018]

Question: 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). [May 11, 2018]

Question: When should registrants provide the disclosure required by Item 10(a)(2)(i) of Schedule 14A regarding the benefits or amounts that will be received or allocated to each of the named executive officers and certain groups?

Answer: Item 10(a)(2)(i) disclosure regarding benefits or amounts that will be received by or allocated to each of the named executive officers and certain groups will only be called for if the plan being acted upon is: (i) a plan with set benefits or amounts (e.g., director option plans); or (ii) one under which some grants or awards have been made by the board or compensation committee subject to security holder approval (e.g., action is to add shares available under an existing option plan because there are not enough shares remaining under the plan to honor exercises of all outstanding options). [May 11, 2018]

Question 161.03

Question: 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. [May 11, 2018]

Question: Can a registrant include other information, such as that called for by Item 10(b) of Schedule 14A, in the New Plan Benefits Table mandated by Item 10(a)(2) of Schedule 14A?

Answer: No. [May 11, 2018]

Question: Should a registrant report the “dollar value” for option plans in the New Plan Benefits Table required by Item 10(a)(2) of Schedule 14A?

Answer: For option plans, no “dollar value” information should be given in the table (i.e., no Black-Scholes or other valuation). The number of shares underlying the options should be provided in the “Number of Units” column. [May 11, 2018]

Question 161.06

Question: Does Item 10(a)(2)(iii) of Schedule 14A require disclosure of actual awards made under an existing plan for the prior fiscal year?

Answer: No. The language of Item 10(a)(2)(iii) stating “if the plan had been in effect” contemplates plans that were not in effect for the prior fiscal year. Accordingly, Item 10(a)(2)(iii) disclosure of actual awards under an existing plan for the last fiscal year is not required. Disclosure under this item would be required when action is being taken on an existing plan only where the existing plan is being amended to alter a formula or other objective criteria to be applied to determine benefits. [May 11, 2018]

Question: Does Item 10(a)(2)(i) or 10(a)(2)(iii) of Schedule 14A require a “pro forma” presentation of the benefits or amounts that would have been received under a plan where such awards or benefits are discretionary?

Answer: No, as such discretionary awards or benefits would not be considered to be determinable for purposes of these two item requirements. [May 11, 2018]

Question 161.08

Question: Does the disclosure requirement in Item 10(a)(2)(iii) of Schedule 14A apply to all compensation plans?

Answer: This disclosure requirement applies only to plans that have objective criteria for determining the compensation payable under the plan so that the registrant can take the criteria and, assuming the variables of the last year, determine what would have been paid under the plan had it been in place then. An example would be a bonus or long-term incentive plan with award opportunities based upon a fixed percentage of salary and actual payment earned based upon corporate performance against fixed measures (such as percentage growth in earnings over previous years). [May 11, 2018]

Question: How should the “market value of the securities underlying the options, warrants, or rights as of the latest practicable date” be calculated for purposes of Item 10(b)(2)(i)(D) of Schedule 14A?

Answer: The “market value of the securities underlying the options, warrants, or rights as of the latest practicable date” may be presented as either: (i) market price per share or (ii) aggregate market value of the total number of shares underlying all options (granted or available for grant) under the plan. [May 11, 2018]

Question 161.10

Question: Does Item 10(b)(2)(ii) of Schedule 14A, which requires the registrant to state separately the amount of options received or to be received, cover options under all plans or only the plan upon which action is to be taken?

Answer: The requirement covers only options under the plan upon which action is being taken. For example, it would be inapplicable if a new plan was being considered because there would be no grants under that new plan to report. No disclosure is required if a new plan is being considered, even if the registrant has other plans under which there have been or will be options granted, and even if a previous or existing plan appears identical to the new plan in all but name. [May 11, 2018]

Question: Does the disclosure under Item 10(b)(2)(ii) of Schedule 14A need to appear in a table?

Answer: No. This disclosure does not have to be in a table; narrative disclosure is acceptable. [May 11, 2018]

Question: Does Item 10(b)(2)(ii) of Schedule 14A apply only to options received during the last year?

Answer: No. It applies to all options received at any time (not just last year) and options to be received (if determinable) by the specified persons and groups. The information called for under this item requirement should be given for each individual and group (including those for which the amount of options received or to be received is “0”). [May 11, 2018]