TheCorporateCounsel.net

The Staff’s Friday Compliance and Disclosure Interpretation update also included three new universal proxy CDIs. The new Rule 14a-19 CDIs are as follows:

Question 139.07

Question: Rule 14a-19(e) mandates that each soliciting party in a non-exempt director election contest include all director nominees of all soliciting parties on each universal proxy card. As a result, in a contested director election, each soliciting party’s universal proxy card will include more nominees than director seats up for election. Rule 14a-19(e)(6) mandates that a universal proxy card prominently disclose the maximum number of director nominees for whom a shareholder may grant authority to vote. Rule 14a-19(e)(7) requires that a universal proxy card prominently disclose the treatment and effect of a proxy executed in a manner that grants authority to vote “for” the election of more nominees than the number of director seats up for election (an “overvoted proxy card”) or fewer nominees than the number of director seats up for election (an “undervoted proxy card”). Can a soliciting party use discretionary authority to vote the shares represented by overvoted proxy cards in accordance with that party’s voting recommendation for the director election?

Answer: No. Rule 14a-4(e) provides that where a person solicited specifies on a proxy card “a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the specifications so made.” When a shareholder has specified its choice(s) for the election of directors with an overvoted proxy card, the shares represented by an overvoted proxy card cannot as a practical matter be voted in accordance with the shareholder’s specifications. Because the shareholder has specified its choice(s) for the election of directors with an overvoted proxy card, a soliciting party cannot rely on discretionary authority pursuant to Rule 14a-4(b)(1) to vote the shares represented by an overvoted proxy card on the election of directors. Although the shares represented by an overvoted proxy card cannot be voted on the election of directors, such shares can be voted on other matters included on the proxy card for which there is no overvote and can be counted for purposes of determining a quorum. The treatment and effect of the corresponding voting instruction form (“VIF”) should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). The staff understands that some intermediaries will contact shareholders or beneficial owners to seek a correction of an overvoted proxy card or VIF before the meeting date. The interpretive position described in this CDI does not prohibit this helpful practice. [November 17, 2023]

Question 139.08

Question: Can a soliciting party use discretionary authority to vote the shares represented by undervoted proxy cards for the remaining director seats up for election in accordance with that party’s voting recommendation?

Answer: No. A shareholder has specified its choice(s) for the election of directors with an undervoted proxy card, and the shares represented by an undervoted proxy card can be voted in accordance with the shareholder’s specifications. See Rule 14a-4(e). Because the shareholder has specified its choice(s) for the election of directors with an undervoted proxy card, a soliciting party cannot rely on discretionary authority pursuant to Rule 14a-4(b)(1) to vote the shares represented by an undervoted proxy card for the remaining director seats up for election. The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). [November 17, 2023]

Question 139.09

Question: Can a soliciting party use discretionary authority to vote the shares represented by a signed but unmarked proxy card in accordance with that party’s voting recommendations?

Answer: Yes. Because the shareholder has not specified any choices, the soliciting party can use discretionary authority in this manner and as permitted by Rule 14a-4(b)(1). Rule 14a-4(b)(1) states that “[a] proxy may confer discretionary authority with respect to matters as to which a choice is not 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. Note that Rule 14a-19(e)(7) requires that a universal proxy card prominently disclose the treatment and effect of a proxy executed in a manner that does not grant authority to vote with respect to any nominees. The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). [November 17, 2023]

For more on guidance regarding the use of universal proxy cards, be sure to check out our “Proxy Cards/VIFs/Universal Proxy Cards” Practice Area.