On May 11, 2018, the U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance (the Division) consolidated and updated its interpretations of the proxy rules and Schedules 14A and 14C. The interpretations, still grouped by Rule or Schedule section, but now in the question-and-answer format of the Division’s other Compliance & Disclosure Interpretations (C&DI), replace the interpretations published in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations (collectively, the Telephone Interpretations). In particular, C&DIs 124.01, 124.07, 126.02, 151.01, 161.03 and 163.01 reflect substantive changes to the Telephone Interpretations, while C&DIs 126.04, 126.05, 158.01 and 158.03 reflect technical revisions. The remaining C&DIs reflect only nonsubstantive changes to the Telephone Interpretations.
Telephone Interpretation 9 stated that a proxy card could grant discretionary authority to a proxy holder to cumulate votes among directors without requiring disclosure of the discretionary authority in bold-faced type on the proxy card itself pursuant to Rule 14a-4(b)(1), as long as the proxy statement included appropriate disclosure of cumulative voting. However, the Telephone Interpretation did not expressly state what disclosure would be appropriate for granting such authority.
C&DI 124.01 provides, in contrast, that Rule 14a-4(b)(1) does require bold-faced disclosure on a proxy card for a grant of discretionary authority for cumulative voting in the election of directors. Accordingly, where security holders have cumulative voting rights, and applicable state law permits a proxy holder to exercise discretion to cumulate votes and does not require separate security holder approval with respect to cumulative voting, a registrant may provide that signed and returned proxy cards that do not specify voting choices will grant discretionary authority to a proxy holder to cumulate votes among director nominees, by indicating that the proxy holder will have such discretion in bold-faced type on the proxy card.
Telephone Interpretation 7S provided a somewhat lengthy discussion of situations in which a security holder proponent has submitted a non-Rule 14a-8 proposal, but a registrant may still file a “plain vanilla” definitive proxy statement without first filing a preliminary proxy statement under Rule 14a-6 and the discussion in Section IV.D of SEC Release No. 34-40018 (May 21, 1998), and when a registrant may exercise discretionary proxy authority in connection with a matter submitted by a security holder in a manner consistent with Rule 14a-4(c)(2)(i).
C&DI 124.07 simplifies Telephone Interpretation 7S(a) (Telephone Interpretation 7S(b) is subject to only technical revision in C&DI 124.08) and clarifies that, if a registrant has received adequate advance notification of a non-Rule 14a-8 matter from a security holder pursuant to Rule 14a-4(c)(2), then the registrant may only avoid filing a preliminary proxy statement before filing a definitive proxy statement under Rule 14a-6 if the registrant may exercise discretionary authority on the matter pursuant to Rule 14a-4(c)(2), which, in turn, requires that (A) the registrant disclose in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter were actually represented for a vote at the meeting, and (B) the proponent does not satisfy the requirements of Rule 14a-4(c)(2)(i)-(iii), including providing the registrant with timely statements that the proponent intends to and has delivered a 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.
Telephone Interpretation 11 stated that, notwithstanding a literal reading of Rule 14a-6(a), a registrant would not be required to file a preliminary proxy statement before filing a definitive proxy statement for a proposed corporate name change to delete the surname of a long-dead founder that bore no relation to a change in the present membership of the board of directors, given the reason for the name change proposal and the purpose of the exclusions from the preliminary proxy statement filing requirements “to relieve registrants and the Commission of unnecessary administrative burdens,” as stated in SEC Release No. 34-25217 (Dec. 21, 1987).
C&DI 126.02 simplifies the prior interpretation and clarifies that, consistent with the underlying purpose of the exclusions from the preliminary proxy filing requirement, as set forth in SEC Release No. 34-25217, a change in the registrant’s name, by itself, does not require the filing of a preliminary proxy statement. Notably, the new interpretation does not refer to the reason for a name change.
Telephone Interpretation 9S stated that Note A to Schedule 14A requires that information called for by Items 11 (authorization or issuance of securities otherwise than for exchange), 13 (financial and other information relating to proposals under Item 11 or 12 (modification or exchange of securities)) and 14 (mergers, consolidations, acquisitions and similar matters) must be provided when security holders are asked to authorize the issuance of additional securities to be used to acquire another specified company when there will be no separate opportunity to vote on the acquisition, even when the securities will be sold in a public offering for cash to finance the transaction.
C&DI 151.01 revises the prior interpretation to provide that Note A to Schedule 14A would not apply in such a situation if the registrant 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 of using the proceeds from the sale of common stock in a public offering. However, if the registrant expects to use the cash proceeds from the public offering to pay any material portion of the consideration for such acquisition, then Note A would apply, and information called for by Items 11, 13 and 14 of Schedule 14A would need to be provided if security holders are asked to authorize the issuance of additional securities for the public offering.
Telephone Interpretation 29 stated that, if a New Plan Benefits Table is required pursuant to Item 10(a)(2) (compensation plans) to Schedule 14A, all of the individuals and groups for which award or benefit information is required should be listed (including those for which the amount to be reported is “0”).
C&DI 161.03 clarifies that, in addition to listing in a New Plan Benefits Table required pursuant to Item 10(a)(2) to Schedule 14A all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is “0,” a registrant may, alternatively, 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.
Telephone Interpretation 19 stated that a proxy statement requesting security holder approval of the elimination of preemptive rights involves the modification of a security for purposes of Item 12 (modification or exchange of securities) of Schedule 14A (and may be tantamount to creation of a new security, depending on the facts and circumstances, thereby raising an issue regarding Securities Act registration absent an exemption) and that, accordingly, the financial statement requirements of Item 13 (financial and other information relating to proposals under Items 11 (authorization or issuance of securities otherwise than for exchange) or 12) would apply.
C&DI 163.01 simplifies the prior interpretation to state that a proxy statement seeking security holder approval for the elimination of preemptive rights from a security involves a modification of that security for purposes of Item 12 of Schedule 14A and that, accordingly, financial and other information would be required in the proxy statement to the extent required by Item 13 of Schedule 14A. The new interpretation removes the prior express statement that such an elimination of preemptive rights may amount to the creation of a new security, which may, in turn, require Securities Act registration. However, registrants and their advisors should continue to carefully consider whether modifications of security holder rights are significant enough to constitute the creation of a new security for purposes of the Securities Act.
Telephone Interpretation 15 stated that, since 1992, registrants have been able to solicit immediately upon the filing of a preliminary proxy statement/prospectus, rather than waiting 10 days pursuant to Rule 14a-6(a) to file a definitive proxy statement, as long as no proxy card is circulated. Telephone Interpretation 15 noted that, because a vote on the transaction described would amount to an investment decision with respect to the securities being registered, no proxy card could be sent until after the Form S-4 registration statement became effective and the final prospectus was furnished.
C&DI 126.04 simplifies the interpretation and modernizes it to reflect the preliminary communications framework of the Regulation M-A adopting release, SEC Release No. 33-7760 (October 22, 1999). The revised interpretation clarifies that Exchange Act 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, the revised interpretation notes that, 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.
C&DI 126.05 updates prior Telephone Interpretation 16 and clarifies that an additional communication relating to a transaction sent by a registrant to security holders, after a registration statement on Form S-4 that contains the proxy statement disclosure has been filed and declared effective, should be filed as other soliciting material pursuant to Rule 14a-6(b) no later than the date it is first sent or given to security holders. The revised interpretation specifically emphasizes filing pursuant to Rule 14a-6(b), rather than Rule 14a-12, because the communication was sent after the furnishing of the definitive proxy statement.
Telephone Interpretation 20 stated that, when a registrant holds a special meeting to elect one new person to its board of directors, following an annual security holder meeting three months prior at which incumbent directors were elected and will not be up for re-election at the special meeting, the proxy materials for the special meeting have to include the information required by Items 6 (voting securities and principal holders thereof) and 7 (directors and executive officers) of Schedule 14A for the incumbent directors.
C&DI 158.01 clarifies that, under such circumstances, the proxy materials for the special meeting have to include the information required by Items 7 (directors and executive officers) and 8 (compensation of directors and executive officers) of Schedule 14A for the incumbent directors. This revision effectively updates only references in the prior interpretation: the subject matter of Items 6, 7 and 8 has remained generally the same.
Telephone Interpretation 21 stated that, in a situation where B is to be merged into A in a Rule 145 transaction, where (1) B’s security holders will be voting to approve the proposed transaction and will become security holders of A, (2) A’s security holders are not voting on the proposed transaction, and (3) 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 6 and 7 of Schedule 14A as to the A directors.
C&DI 158.03 clarifies that, under such circumstances, the Form S-4 should contain the information required by Items 7 and 8 of Schedule 14A as to the A directors. This revision updates Item references as discussed in connection with C&DI 158.01 above.
The Division currently is in the process of updating other previously published interpretations relating to the proxy rules and will publish any revised or new interpretations in these proxy C&DIs going forward.