Chapter 17 - § 17.5 • PROXY RULES
| Jurisdiction | Colorado |
§ 17.5.1—General Discussion
Once stock is registered under the 1934 Act, all proxy solicitations must conform with the SEC's proxy rules in Regulation 14A.100 The SEC rules and regulations require that each time the company solicits proxies from holders of its securities, it provide a proxy statement describing the matters being submitted to a vote of the security holders (and other related information) together with a form of proxy on which they can vote for or against each matter being submitted. Where management does not intend to solicit proxies for a meeting, or if the company plans to take an action by shareholder consent without a meeting, the company must still distribute an information statement meeting the requirements of Regulation 14C.101 Regardless of whether the company solicits proxies or distributes an information statement, the company must supply record holders102 with enough copies of the proxy materials to send one to each beneficial owner and pay the record holder's reasonable expenses for completing the mailing.103 Where the proxy statement (or information statement) is for an annual meeting of shareholders at which directors are to be elected, it must include audited financial statements for the periods required by Rules 14a-3(b), Rule 14c-3(a), and Regulation S-X.104
The proxy disclosure materials must be pre-filed with the SEC a minimum of 10 days before public distribution of the definitive proxies, although a substantially longer period should be allowed whenever a complex transaction is being submitted to stockholders. (It is advisable to allow at least three to four times that period for comments from the SEC.) If the proxy is doing no more than electing directors and ratifying the appointment of auditors, and there are no material changes from the previous submission, then there is no need to file a preliminary proxy,105
The company must transmit the proxy statement to shareholders at least 10 days prior to the date of the meeting. When the company is not soliciting proxies or taking action by written consent of its security holders, the information statement must be sent to security holders at least 20 days before the earliest date that the action can be taken.106
The proxy rules require that separate proposals be presented to the shareholders for separate actions, even where the results are interdependent — such as a reverse stock split to be followed by a forward stock split,107 or a merger that also contemplates an amendment to the surviving corporation's articles of organization.108 In Koppel v. 4987 Corp.,109 the shareholders argued, and the Second Circuit agreed, that "[i]mpermissible grouping of voting items frustrates fair corporate suffrage and the voting rights of shareholders no less than a misrepresentation or omission in a proxy."
In recent years, many issuers have been concerned with the rising costs of proxy solicitations. Such issuers have expressed that the costs of proxy solicitations far outweigh their benefits, particularly in light of the low level of shareholder participation in proxy solicitations. Shareholder groups have found reason to be concerned as well. Shareholders who wish to elect their own candidates to the board of directors often complain that the costs of engaging in a proxy solicitation are prohibitively high.110 In light of these concerns, the SEC proposed and in 2007 adopted the notice and access rules "to update [the] regulatory framework to take advantage of communications technology and provide an alternative proxy model that could reduce the printing and mailing costs associated with furnishing proxy materials to shareholders."111
An issuer intending to solicit proxies for an annual meeting of shareholders at which directors are to be elected must contemporaneously deliver a copy of its proxy statement, annual report to shareholders, and form of proxy (collectively, "proxy materials").112 Under the notice and access model adopted in 2007,113 an issuer may satisfy this requirement by posting its proxy materials on an Internet website and sending a notice to shareholders indicating the availability of such materials. To ensure that shareholders receive proxy materials in the manner they prefer, upon a request from a shareholder, an issuer that relies on the notice and access model must provide paper or e-mail copies of such materials to the shareholder within three business days of receiving his or her request.114 This obligation to deliver the proxy materials continues for one year after the conclusion of the meeting date.115 Additionally, an issuer is required to maintain records of shareholders who request to receive copies of proxy materials in paper form or via e-mail, and for future solicitations must provide copies of the proxy materials to a shareholder in the same manner until the shareholder revokes the request.116
While the e-proxy rules are voluntary for most issuers, they are mandatory for "large accelerated filers" after January 1, 2008, and to all other reporting companies commencing January 1, 2009.117
Under these rules, companies will have two options for providing proxy materials to shareholders:
1) The "Internet only" option, by which a company must provide its shareholders a "notice of Internet availability of proxy materials" at least 40 days before the meeting and comply with the other e-proxy requirements described below; and
2) The "full set delivery" option, which requires the company to send the full set of proxy materials to its shareholders; but it must also post the proxy materials on an Internet website no later than the date the full set was first sent to shareholders.
Internet Posting of the Proxy Materials
The first step in both the Internet only model and the full set delivery option is the posting of an issuer's proxy materials on an Internet website. These materials must be posted at or prior to the time shareholders are notified that such materials are available (Internet only model) or the full set materials are first sent to shareholders (full set delivery option). The Internet materials must remain posted through the conclusion of the shareholder meeting (or in the case of an information statement, through the date upon which the corporate action is taken).
In addition, the company needs to maintain the website on which the proxy materials are posted in a manner that does not infringe on the anonymity of the shareholder accessing the materials on the website or requesting proxy materials in paper.118 The website may not be the SEC's EDGAR system database.119
Notice and Timing
Once an issuer using the Internet-only option has posted its proxy materials, the issuer begins the solicitation process by sending shareholders a "Notice of Internet Availability," which is a short notification informing shareholders that the issuer's proxy materials are available on the Internet (the Notice). The issuers using the full set delivery option must also provide shareholders a Notice, although the Notice can be included in the proxy materials being sent to shareholders.120
The Notice must be sent at least 40 calendar days before the date of the shareholder meeting in the Internet-only option,121 and not later than the date the full sets of proxy statements are sent to shareholders under the full set delivery model (which may be shorter than the 40 days required in the Internet-only model).122 However, the new rules also require that if an issuer intends to provide its beneficial owners copies of the proxy materials electronically, it must provide its intermediaries (such as banks, brokers, or other agents) with the Notice "in sufficient" time for the record holders to prepare and print their own notice of Internet availability.123
The Notice must be written in plain English and must include the information specified in Rule 14a-16(d) (Internet-only option) or Rule 14a-16(n)(4) (full set delivery option). This information includes the following information common to both options:
• A prominent, bold-faced legend that (1) indicates that the Notice is only an overview; (2) encourages shareholders to access the website where the proxy materials may be found; and (3) includes a date by which shareholders must request paper or e-mail copies of the proxy materials to ensure timely delivery.
• The date, time, and location of the shareholder meeting.
• A clear and impartial identification of the matters to be acted on, and the issuer's recommendations regarding those matters (but no supporting statements).
• A list of the materials being made available at the specified website.
• Any control or identification numbers necessary to access the proxy card and instructions on how to do so.
• Information on obtaining directions for attending the meeting and voting in person.
For issuers using the Internet-only option, the Notice must be sent separately from any other shareholder communication and may not contain any additional information other than the notice of meeting required under state law and, if desired, a reply card to request copies of the proxy materials.124 Under either option, the Notice constitutes soliciting material under 1934 Act Rule 14a-6(b) and must be filed with the SEC no later than the date on which it is first sent or given to shareholders.
Access to and Execution of Proxy Cards
An issuer relying on the Internet-only option cannot send the proxy card with the initial Notice. Instead, it must wait at least 10 calendar days after sending the Notice to send shareholders the proxy card.125 This waiting period is intended to allow sufficient time for shareholders to access the proxy statement and annual report or request copies before executing the proxy card. An issuer may send a proxy card before the conclusion of the 10-day period only if the proxy card is accompanied or preceded by a copy of the proxy statement and annual report.
If an issuer using the Internet-only option...
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