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SEC Proxy Rules
Who Must Obey: Any company (1) with class of securities
listed on exchange or (2) with assets over 10 mill and
over 500 record owners of a class of securities.
Exchange Act § 12(b), (g).
What required: Before soliciting proxies, management
must prepare and submit to shareholders detailed proxy
statement and form of proxy. Schedule 14A specifies
what must be included in proxy statment.
Quality of Disclosures: No materially false or misleading
statements. Both pros and cons must be disclosed. Rule
14a-9.
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
Basic Proxy Procedures
Filing Proxy Statement: Must be filed with SEC staff 10 days before
mailing unless all issues uncontested. Rule 14a-6. Filed proxies are
available to public and are published at www. sec.gov.edgar.
Dissemination: Must send definitive proxy statement and proxy
solicitation to all shareholders of record. If election of directors
included, must also include annual report of the company.
Preliminary non-definitive statements may be sent to gage
shareholder interest/reactions.
Proxy Card: Must give shareholder option to vote for or against any noelection matter. For director election, must allow shareholders to
withhold vote on group or any individual candidate.
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
Common Management Proxy Issues
 Elect Management’s Director Slate
 Approve Appointment of Independent
Auditors
 Changes to Stock Option and Incentive Plans
for Executives
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
What is a “Proxy Solicitation”?
Rule 14a-1: Solicitation:
 Any request for proxy whether or not proxy
form used
 Any request to execute, not execute or revoke
a proxy
 Furnishing proxy or other information
“reasonably calculated” to result in
procurement, withholding or revocation of
proxy.
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
“Solicitation” Battlegrounds
 Shareholder solicitation of requisite consents
to demand corporate records. Studebaker
Corp.
 Public advertising to obtain shareholder
support. Long Island Lighting and SEC Rule
14a-2 – no request for voting authority. No
need to file with SEC if oral or by shareholder
who owns less than $5 mill of stock. Person
acting on behalf of company and other
financially-interested players excluded.
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
Shareholder Proposal Game – Rule 14a-8
Who can play? Any shareholder who for one year owned 1% of
stock or $2k of stock
How many? One proposal per shareholder
Length? No more than 500 words
When? Not less than 120 calendar days before date of last
year’s statement
Grounds for company rejection? Specified in a-(8)(i)
Can company recommend against? Yes and always does
Procedure post rejection? Company notifies SEC and hopes for
“no-action” letter
Shareholder option post rejection and “no action” letter? Sue
for injunctive relief – argue grounds in a-(8)(i) applicable
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
Popular Shareholder Proposals
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Majority vote director elections
Board declassification
Independent chairman of the board
Shareholder poison bill approval
Independent directors
Cumulative voting
Eliminate supermajority voting
Required shareholder approval of parachutes
Option expensing
Social, political, cultural issues
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake
Rule 14a-8(i) Grounds for Excluding Shareholder
Proposals
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Improper shareholder issue under state law
Violation of law
Personal grievance; special interest
Not relevant – triple “5” test or “not otherwise significantly related”
to business
Lack of company power/authority
Management function – ordinary business operation
Relates to elections
Conflicts with company proposals
Substantially implemented
Duplication
Resubmission
Specific dividend amounts
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com
Law 514 Corporations
Instructor: Dwight Drake