Corp Fin has issued two new CDIs related to the voluntary submission of Notices of Exempt Solicitation under Exchange Act Rule 14a-6(g). That rule requires any person who engages in an exempt solicitation pursuant to Exchange Act Rule 14a-2(b)(1) (i.e., without soliciting a proxy) and beneficially owns over $5 million of the class of securities subject to the solicitation to furnish or mail to the SEC a Notice of Exempt Solicitation. Rule 14a-103 requires the soliciting party to attach the written soliciting materials required to be submitted pursuant to Rule 14a-6(g)(1). Recently, some shareholders (think John Chevedden) have begun to submit these Notices voluntarily in what appears to be a way to publicly to express their views on proposals.
As noted in thecorporatecounsel.net blog, in March of this year, Chevedden filed his first voluntary Notice in connection with a proposal from AES Corporation. You may recall that Chevedden had submitted a shareholder proposal to AES that sought to reduce the threshold required for shareholders to call a special meeting from 25% to 10%. AES sought no-action relief permitting exclusion of the proposal because it directly conflicted with a management proposal to be submitted at the same meeting to ratify the company’s existing special meeting provisions, which included the 25% threshold. The staff permitted AES to exclude the Chevedden proposal on the basis of Rule 14a-8(i)(9), which allows a shareholder proposal to be excluded if it directly conflicts with a management proposal to be submitted for a vote at the same shareholders meeting. (See this PubCo post.) In his voluntary Notice, Chevedden argued that the grant of relief by Corp Fin allowed the company to game the system by “belatedly cook[ing] up this ratification proposal after the shareholder proposal was submitted,” and urged shareholders to vote against the management proposal. The staff position in AES also led the Council of Institutional Investors to send a letter to Corp Fin raising objections to the staff’s treatment in that instance. (See this PubCo post and this PubCo post.)
In Question 126.06, the staff advises that, even if a soliciting party is not subject to Rule 14a-6(g)(1), because, for example, the party does not beneficially own more than $5 million of the class of subject securities, it is permitted to submit a Notice of Exempt Solicitation. The staff “will not object to a voluntary submission of such a notice, provided that the written soliciting material is submitted under the cover of Notice of Exempt Solicitation as described in C&DI 126.07 and such cover notice clearly states that the notice is being provided on a voluntary basis. Doing so will make it clear to investors the nature of the submission and that it is being made on behalf of a soliciting party who does not beneficially own more than $5 million of the class of subject securities.”
In Question 126.07, the staff explains that, under Rule 14a-6(g)(1), the Notice is required to contain the information specified in Rule 14a-103, including the name and address of the person relying on the exemption in Rule 14a-2(b)(1), and that the written soliciting material be attached to the Notice. The CDI advises that the written soliciting material is not allowed to appear in the Notice before the information specified in Rule 14a-103 is presented. That’s because “Rule 14a-103 is designed to be a ‘cover’ to which previously disseminated written soliciting material is ‘attached.’” Accordingly, all of the information required by Rule 14a-103 must be presented in the Notice submitted on EDGAR “before any written soliciting materials (including any logo or other graphics used by the soliciting party) are presented. To the extent that the notice itself is being used as a means of solicitation, the failure to present the Rule 14a-103 information in this manner may, depending upon the particular facts and circumstances, be misleading within the meaning of Exchange Act Rule 14a-9.