Yesterday, the SEC proposed amendments to the proxy rules that would require parties in a contested election to use universal proxy cards that would include the names of all director nominees. The proposal would permit shareholders to vote by proxy for their preferred combination of board candidates – as they could do if they attended the meeting & voted in person. Here’s the 243-page proposing release (and see Ning Chiu’s blog).
The proposed rules would:
– Allow shareholders to vote for the nominees of their choice by requiring proxy contestants to provide shareholders with a universal proxy card including the names of both management & dissident nominees.
– Enable parties to include all nominees on their universal proxy cards by changing the definition of a “bona fide nominee” in Rule 14a-4(d).
– Eliminate the Rule 14a-4(d)(4)’s “short slate rule,” since dissidents would no longer need to round out partial slates with management’s nominees.
– Require proxy contestants to notify each other of their respective director candidates by specific dates.
– Require dissidents to solicit shareholders representing at least a majority of the voting power of shares entitled to vote on the election of directors.
– Require proxy contestants to refer shareholders to the other party’s proxy statement for information about that party’s nominees and inform them that it is available for free on the SEC’s website.
– Require dissidents to file their definitive proxy statement with the SECby the later of 25 calendar days prior to the meeting date or five calendar days after the registrant files its definitive proxy statement.
The SEC also proposed amendments to Rule 14a-4(b), which would require proxy cards to include an “against” voting option for director elections when that vote has a legal effect, & also enable shareholders to “abstain” in a director election governed by a majority voting standard.
The ability to provide a “withhold” voting option when an “against” vote has legal effect would be eliminated. In addition, the proposed amendments to Item 21(b) of Schedule 14A would require disclosure about the effect of a “withhold” vote in an election of directors.
SEC Modernizes Rules 147/504 – & Rule 505 of Reg D Goes Poof!
The changes to the Rule 147 safe harbor include amendments updating Rule 147 & adoption of a new Rule 147A:
– Amended Rule 147 will remain a safe harbor under Section 3(a)(11) of the Securities Act, so that issuers may continue to use the rule for offerings relying on current state securities law exemptions.
– New Rule 147A – which is based on the SEC’s general exemptive authority under Section 28 of the Act – will be identical to Rule 147, except that it would not condition the safe harbor on Section 3(a)(11)’s requirement that offers be made only to in-state residents & would permit companies to be organized out-of-state. Sales would continue to be permitted only to in-state residents.
The amendments to Regulation D are intended to facilitate regional offerings. The final rules amend Rule 504 to increase the amount of securities that may be offered and sold from $1 million to $5 million. The rules also apply “bad actor” disqualifications to Rule 504 offerings. In light of the changes to Rule 504, the final rules repeal Rule 505 of Regulation D.
Amended Rule 147 and new Rule 147A will be effective in 150 days; revised Rule 504 will be effective in 60 days; and the repeal of Rule 505 will be effective in 180 days – all timed from publication in the Federal Register.
My Favorite Deal: Take Me Out to the Ballgame
Watching the Indians & Cubs in the World Series brings back a lot of memories – not only of baseball, but of my favorite deal. Most sports fans would give a kidney to spend a couple of months hanging out with – or just around – their favorite teams. I had that chance in 1998, when I was part of the underwriters’ counsel team for the Cleveland Indians’ initial public offering.
Working on that deal is still the most fun I’ve ever had practicing law – and there were plenty of legal challenges as well. The best part of the deal was that we were in the loop on trades, contract extensions, etc. well before everybody else was. You can keep your million dollar stock tips – this is the kind of material non-public information that I want!
Corp Fin took an interest in our deal too – or at least a couple of the reviewers did. On the day the deal priced, we’d asked to go effective at 4:00 pm, but by 4:30, we still hadn’t heard from the reviewer. I called my counterpart at company counsel, and she placed a couple of calls to the Staff to check on the status.
Finally, she called me around 4:45 to let me know that she’d spoken with the SEC, and we were effective. She was laughing when she told me this. When I asked why, she said the reviewers were apologetic for not calling sooner – but they had been distracted arguing about who was the best right hand power hitter in the American League.
The deal was criticized at the time, but investors got a pretty good return when the Dolan family purchased the team less than two years later – the 1998 IPO price was $15.00, and the team sold in early 2000 for more than $22.00 per share. However, there was another investment angle to the IPO – the memorabilia factor. I confess to setting aside some prospectuses for myself – and that turned out to be a pretty good investment too.
– John Jenkins