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Warrior Met Coal filed its definitive proxy materials last week, and they include not one, but FIVE separate shareholder proposals from the United Mine Workers of America. Since Rule 14a-8 limits a proponent to a single shareholder proposal, how did the union avoid this limitation? As this excerpt from Michael Levin’s article in The Activist Investor email newsletter explains, the UMW did it through the shrewd use of Rule 14a-4(c)(2):

SEC Rule 14a-4 prescribes how companies and activists solicit proxies from shareholders. Activists usually do so only when they compete for BoD seats. Yet, 14a-4 applies to shareholder proposals, too.

UMW will not rely on HCC to distribute proxy materials to shareholders for its five proposals. Instead, UMW will itself send those materials to shareholders. It drafted proxy materials with its case for the five proposals, filed them with the SEC, hired a vendor to collect proxies (apparently not a proxy solicitor, though), and will distribute proxy materials using notice-and-access. It committed to soliciting shareholders representing a majority of HCC voting power, pursuant to SEC rules (Rule 14a-4(c)(2)). It will then collect its own proxy cards from shareholders, counting votes itself. It estimates this effort will cost $15,000, not much at all.

Thus, shareholders submit proxy cards to UMW, instead of to HCC. Shareholders can also vote for incumbent directors and the routine HCC proposals (say-on-pay and auditor appointment) on the UMW card.

In order to appreciate what the UMW did, and the box it put the company in, a little explanation of Rule 14a-4(c)(2) is probably in order.  That rule says that if a company receives timely notice of a shareholder proposal for its annual meeting, its proxy holders may exercise discretionary voting authority on that proposal if the company discloses the nature of the proposal and how its proxy holders intend to vote on it.

The rule goes on to say that the company can’t exercise this authority if the proponent tells it in writing that it intends to deliver proxy materials to the holders of enough shares to approve the proposal under applicable law. This statement has to appear in the proponent’s own proxy materials and the proponent must immediately inform the company when it has satisfied the rule’s minimum solicitation requirement.

Putting together a proxy statement and soliciting votes from a large percentage of the outstanding shares sounds like it might be expensive enough to deter most shareholders from using Rule 14a-4(c)(2), but in the age of notice & access, that cost is a lot more manageable. In fact, the UMW’s preliminary proxy statement discloses that it estimates the cost of its solicitation to be only approximately $15,000.

Now, here’s how the UMW compelled Warrior Met to include all of its proposals in the company’s own proxy materials.  Although the UMW didn’t nominate any directors, as permitted by the universal proxy rules, it included the company’s slate on its own proxy card along with its five proposals.  As Michael points out in his article, that decision made it more likely that shareholders would return the union’s proxy card, and if enough shareholders opted to return that card, the union could potentially control whether the company obtains a quorum for the meeting.

Since the company won’t have visibility into how many shareholders are returning the UMW’s card, it may not be in a position to know whether its quorum is in jeopardy or how many shares are being voted in favor of the shareholder proposals until late in the game. That put the company in a position where it needed to make it less likely that shareholders would return the UMW’s card, and the only way to do that was by including the union’s proposals in its own proxy materials.

– John Jenkins