A few weeks ago, I wrote about shareholder meeting timelines, which included a brief discussion as to how a company can increase, or decrease, a meeting timeline by delivering proxy materials by making them available on the internet – see HERE. This week I am going to drill down on Rule 14a-16 including disclosure obligation and technical requirements for utilizing “Internet Availability of Proxy Materials.”
Rule 14a-16 – Internet Availability of Proxy Materials
Rule 14a-16 governs a company’s ability to make proxy materials available over the internet, as opposed to printing and mailing, which can be expensive and time consuming. Rule 14a-16 provides that when a company is making proxy materials available over the internet, it must mail a notice to all security holders a minimum of 40 calendar days before the meeting, or if there is no meeting, before the consents or authorizations may be used to affect the consented upon corporate action.
Companies may not use internet availability for proxy materials for business combination transactions.
Moreover, unless a company chooses to follow a “full set delivery option” it must provide record holders (i.e. the banks, brokerage accounts and other nominees that hold securities on behalf of beneficial owners) with the specified information required for inclusion in a “Notice of Internet Availability of Proxy Materials” in sufficient time for such record holder to prepare, print and send (mail or electronically) the notice to beneficial owners at least 40 calendar days prior to the meeting date.
Contents of Notice of Internet Availability of Proxy Materials
The Notice of Internet Availability of Proxy Materials must contain:
- A prominent legend in bold face type that states “Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on [insert date of meeting].”
- A statement that the communication is not a form for voting and presents only an overview of the more complete proxy materials, which contain important information and are available on the internet or my mail, and encouraging security holders to access and review the proxy materials before voting.
- The internet website where the proxy materials are available (cannot be the EDGAR website).
- Instructions regarding how a security holder may request a paper or email copy of the proxy materials, at no charge, including the date by which they should make such request to allow for timely delivery, and a statement that they will not otherwise receive a paper or email copy.
- The date, time and location of the meeting, of if the corporate action is being taken by written consent, the earliest date on which the corporate action may be effected.
- A clear and impartial identification of each separate matter intended to be acted on and the soliciting person’s recommendations, if any, regarding those matters, but no supporting statements.
- A list of the materials being made available at the specified website.
- A toll-free number, an email address, and a website address where the security holder can request a copy of the proxy statement, annual report and form of proxy card, relating to all future security holder meetings including the particular meeting for which the proxy materials are being furnished.
- Any control or identification numbers that the security holder needs to access his or her form of proxy.
- Instructions on how to access the form of proxy, provided that the instructions do not allow a security holder to execute or vote a proxy without having access to the proxy statement and, if required, the annual report.
- Information on how to obtain directions to attend the meeting in person.
The notice cannot contain additional information other than any additional information required by state law. A company must revise a Notice to reflect: (i) that the company is conducting a consent solicitation instead of a proxy solicitation; or (ii) that the company is not soliciting proxies or consents but is rather providing an information statement (i.e. 14C).
Further, a company may voluntarily include a statement that no personal information other than the identification or control number, is necessary to execute the proxy.
Although Notices generally follow a set format, the rule also requires that the Notice be written in, organized and designed using Plain English principles. The rule specifically delineates some of the Plain English principles which must be followed, including: (i) short sentences; (ii) definite, concrete, everyday words; (iii) active voice; (iv) tablular or bullet point presentation for complex material; (v) no legal jargon or highly technical business terms; and (vi) no multiple negatives. Company logos and pictures are allowed as long as they do not interfere with the rest of the information.
A copy of the form of Notice must be filed with the SEC no later that the date the company first sends the Notice out to its security holders.
General Requirements
All materials identified in the Notice of Internet Availability of Proxy Materials (“Notice”) mut be publicly available and accessible, free of charge, at the website specified on the notice, on or before the time the Notice is sent out and must remain available until the conclusion of the meeting. The website used cannot be the SEC’s EDGAR database. A company may utilize a portal through a third party service, a separate website, or its company website.
In addition, the website must provide each security holder with a means to execute a proxy as of the time the Notice is first mailed out.
Any and all additional materials made public after the Notice is sent out must be added to the website and make available no later than the day on which such additional materials are first sent to security holders or made public.
The materials on the website must be presented in a format that is convenient for both online reading and review and for printing.
The Notice may not be incorporated into, or combined with, another document, except that it may be incorporated into, or combined with, a notice of security holder meeting required under state law, unless prohibited by state law. Subject to certain exceptions, the Notice must be sent separately from any other types of security holder communications and may not accompany any other documents or materials, including a form of proxy.
As exceptions to this rule, a company may include the following with the Notice: (i) a pre-addressed, postage paid reply card for requesting a copy of proxy materials; (ii) a copy of any separate notice of meeting required under state law if the company did not combine it with the Notice; and (iii) an explanation of the reason’s the company is using internet availability of proxy materials.
Additionally, a company may send a separate proxy card to security holders if: (i) at least 10 calendar days has passed since the Notice was sent and the form of proxy is accompanied by a copy of the Notice; or (ii) the form of proxy is accompanied by or preceded by a copy of proxy and annual report.
The requirements set forth in Rule 14a-16 apply to third parties (other than the company) that are soliciting proxies to the same extent they apply to the company.
Obligation to Provide Copies
A company must send a copy of the full proxy materials (proxy statement, annual report and proxy card), free of charge, within three business days of receiving a request for such paper or email copy. Moreover, the company must continue to provide such copies for one year after the conclusion of the meeting or corporate action to which the proxy materials relate, provided however, if the request is made after the conclusion of the meeting, the three day time limit no longer applies.
The company must also maintain records of any security holder requests for copies, and if requested by the security holder, continue to send them paper or email copies for all future proxy materials.
Security Holder Information
The website containing the proxy materials must be designed to maintain the anonymity of a person accessing such site. The company and its agents may not use any email addresses obtained by security holders requesting copies of the proxy materials, for any other purpose than to send the requested materials. Further, the company cannot even disclose the email addresses to anyone other than the employee or agent that is responsible for sending the requested materials.
Full Set Delivery Option
A “full set delivery option” means just that – providing a full set of proxy materials (proxy statement, annual report and proxy card) either together with or in lieu of a Notice of Internet Availability of Proxy Materials. Companies that follow a full set delivery option are not bound by the 40 calendar day requirement and are not required to provide additional copies of such documents if requested.
A company may choose to provide a “full set” of documents either with or without a Notice of Internet Availability of Proxy Materials. However, if the proxy materials are available on the internet and the company does not include a Notice, the proxy materials must contain the information that would be in the separate Notice.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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