Following up on Part 1 of this blog that explains what a “preliminary proxy” is – and the first two common mistakes made with them – here are three more common mistakes (as well as a bonus note):
3. Filing for shareholder proposals
Rule 14a-6(a)(3)states that a preliminary proxy is not required due to the inclusion of a Rule 14a-8 shareholder proposal in the proxy – it’s one of the carve outs. This is true even if the shareholder proposal is asking the company to declassify the board, which would require an amendment of the company’s articles to effectuate, since the declassification proposal is merely precatory, it’s advisory.
But if the company includes its own declassification proposal, it’s a management proposal, not a shareholder proposal – even if it’s worded the exact same way as a shareholder’s proposal that it received, it would no longer be carved out.
4. Leaving too much blank
Back in my early law firm days, an associate left so much of a preliminary proxy statement blank that it kicked it back, saying it was so incomplete that it could not be considered a legitimate filing. It’s very rare that the staff makes that kind of ruling, and the associate got in big trouble. As he should have!
Although preliminary proxies are supposed to be preliminary and not final, the SEC staff will not consider one to be “complete” and decide whether to review it unless nearly all of the required content is included. The staff will tolerate only a few missing blanks – the date of the proxy statement and perhaps the number of holders as of the record date. Everything else should be completed
So, it might not be quite final on your end, maybe you have a few small minor tweaks to make. But it should be pretty close to final – and definitely look final to the SEC. Remember that when you file a preliminary proxy, it’s a publicly available document. It’s on EDGAR, and the world can review it. It shows up in your filing stream on EDGAR as “PRE 14A”; the final proxy shows up as “DEF 14A.”
5. Forgetting to file a proxy card – or forgetting to mark the preliminary proxy and proxy card as ‘preliminary’
A common mistake is forgetting to file a form of proxy card with the preliminary proxy. It’s easy to forget filing this with the definitive proxy as it is, but doubly easy to forget when filing the proxy in preliminary form. Rule 14a-6(a)requires the filing of both the proxy statement and the form of proxy.
On the other hand, you don’t have to file a preliminary “Notice of Internet Availability of Proxy Materials” as “additional soliciting materials” or as part of the filing of the preliminary proxy because the e-proxy rule, the Notice and Access rule (Rule 14a-16), is triggered by the distribution of proxy materials.
You do still have to file this notice as additional soliciting materials before you file the definitive proxy though, so you can deliver that before you deliver the final proxy to shareholders.
The other thing to not forget is to mark your preliminary proxy statement – as well as the related form of proxy – as “preliminary.” Rule 14a-6(e)(1) notes that all copies of preliminary proxies and forms of proxies should be clearly marked as “Preliminary Copies.”
Bonus: Including a cover letter
This is really not a mistake, so I didn’t count it toward the five listed here – more of a waste of time. When filing a preliminary proxy on EDGAR, some people include a cover letter to the SEC. They do this to argue that the ballot doesn’t include anything that should trigger a review, even though there is something on the ballot that triggered the need to file a proxy.
Don’t bother. It really won’t help the Corp Fin staff to decide whether to select the filing for review – they do their own independent analysis. Funny enough, Note 4 to Rule 14a-6(a) includes a reference to a cover letter for when a preliminary proxy is filed because it mentions an ongoing proxy contest. Proxy contests are truly a different beast, and this note is in the rule to help flag the fact there is one for the staff.
So, you do use cover letters for proxy contests, and quite often, those filings will be pulled for review by the Corp Fin staff. Proxy contests are “solicitations in opposition” as defined in Note 3.
One last point is that some people send the staff a markup of a preliminary proxy statement when they file a definitive proxy statement as a courtesy. That’s an old habit from days gone by and not necessary anymore since the staff has easy access to digital copies and can run their own comparison if they want.
Authored by
Broc Romanek