Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com SEC Proxy Rules Who Must Obey: Any company (1) with class of securities listed on exchange or (2) with assets over 10 mill and over 500 record owners of a class of securities. Exchange Act § 12(b), (g). What required: Before soliciting proxies, management must prepare and submit to shareholders detailed proxy statement and form of proxy. Schedule 14A specifies what must be included in proxy statment. Quality of Disclosures: No materially false or misleading statements. Both pros and cons must be disclosed. Rule 14a-9.

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Basic Proxy Procedures Filing Proxy Statement: Must be filed with SEC staff 10 days before mailing unless all issues uncontested. Rule 14a-6. Filed proxies are available to public and are published at www. sec.gov.edgar.www. sec.gov.edgar Dissemination: Must send definitive proxy statement and proxy solicitation to all shareholders of record. If election of directors included, must also include annual report of the company. Preliminary non-definitive statements may be sent to gage shareholder interest/reactions. Proxy Card: Must give shareholder option to vote for or against any no- election matter. For director election, must allow shareholders to withhold vote on group or any individual candidate.

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Common Management Proxy Issues  Elect Management’s Director Slate  Approve Appointment of Independent Auditors  Changes to Stock Option and Incentive Plans for Executives

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com What is a “Proxy Solicitation”? Rule 14a-1: Solicitation:  Any request for proxy whether or not proxy form used  Any request to execute, not execute or revoke a proxy  Furnishing proxy or other information “reasonably calculated” to result in procurement, withholding or revocation of proxy.

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com “Solicitation” Battlegrounds  Shareholder solicitation of requisite consents to demand corporate records. Studebaker Corp.  Public advertising to obtain shareholder support. Long Island Lighting and SEC Rule 14a-2 – no request for voting authority. No need to file with SEC if oral or by shareholder who owns less than $5 mill of stock. Person acting on behalf of company and other financially-interested players excluded.

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Shareholder Proposal Game – Rule 14a-8 Who can play? Any shareholder who for one year owned 1% of stock or $2k of stock How many? One proposal per shareholder Length? No more than 500 words When? Not less than 120 calendar days before date of last year’s statement Grounds for company rejection? Specified in a-(8)(i) Can company recommend against? Yes and always does Procedure post rejection? Company notifies SEC and hopes for “no-action” letter Shareholder option post rejection and “no action” letter? Sue for injunctive relief – argue grounds in a-(8)(i) applicable

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Popular Shareholder Proposals  Majority vote director elections  Board declassification  Independent chairman of the board  Shareholder poison bill approval  Independent directors  Cumulative voting  Eliminate supermajority voting  Required shareholder approval of parachutes  Option expensing  Social, political, cultural issues

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Rule 14a-8(i) Grounds for Excluding Shareholder Proposals  Improper shareholder issue under state law  Violation of law  Personal grievance; special interest  Not relevant – triple “5” test or “not otherwise significantly related” to business  Lack of company power/authority  Management function – ordinary business operation  Relates to elections  Conflicts with company proposals  Substantially implemented  Duplication  Resubmission  Specific dividend amounts