Proxy Statements - Practising Law Institute



From PLI’s Course Handbook

Securities Filings 2008

#14106

5

proxy statements

Mark A. Borges

Compensia. Inc.

Proxy Statements

Securities Filings 2008

Practising Law Institute

Mark A. Borges

Compensia Inc.

I. General

A. Unlike other periodic reports under the Securities Exchange Act of 1934 (the “Exchange Act”), a reporting company must deliver a proxy statement to its shareholders in connection with its annual meeting of shareholders

1. Consequently, the annual proxy statement may be only company securities filing that a shareholder actually sees

2. Exchange Act Rule 14a-16 permits registrants to satisfy their proxy statement delivery requirements via the Internet (see below)

B. The preparation and delivery of proxy statements is governed by Section 14 of the Exchange Act

1. Section 14 only applies to issuers with a class of securities that is registered under Section 12 of the Exchange Act

2. Registration of a class of securities under Section 12 can occur two ways:

a. All companies listed on a national securities exchange must register the class of listed securities under Section 12 (see Section 12(b) of the Exchange Act)

b. Companies with more than $10 million in assets (as of its most recent fiscal year-end) and 500 or more shareholders of a class of equity securities must register that class of securities under Section 12 (see Section 12(g) of the Exchange Act)

(i) Companies also may voluntarily register under Section 12(g) of the Exchange Act

C. The basic provision requiring the delivery of a proxy statement can be found in Exchange Act Rule 14a-3(a):

1. “[N]o solicitation subject to this regulation [Regulation 14A] shall be made unless each person solicited is concurrently furnished or has previously been furnished with a publicly-filed preliminary or definitive written proxy statement containing the information specified in Schedule 14A . . .”

2. While exceptions exist, the basic rule for a publicly traded company is that it probably will be preparing, filing, and distributing a proxy statement each year in connection with annual meeting of shareholders

II. Content

A. The basic requirements for what must be included in a proxy statement are set forth in Schedule 14A

1. Schedule 14A incorporates many of the specific information requirements by reference to certain provisions of Regulation S-K

B. Note that Schedule 14A not a “safe harbor”

1. The information included in a proxy statement is subject to Exchange Act Rule 14a-9, which prohibits false and misleading statements in proxy materials

C. There are 23 separate reporting items that are potentially applicable to proxy statements (not all are required in each proxy statement – for example, some items are required only in proxy statements where shareholders are being asked to consent to a merger or other significant corporate transaction)

1. Five of these reporting items represent the bulk of the information that will be included in proxy statements in connection with annual meetings of shareholders:

a. Item 6 – Voting securities and principal holders thereof

b. Item 7 – Directors and executive officers

c. Item 8 – Compensation of directors and executive officers

d. Item 9 – Independent public accountants

e. Item 10 – Compensation plans

III. Directors and Executive Officers

A. Item 7 – If action is to be taken with respect to the election of directors, furnish the following information in tabular form to the extent practicable

1. Item 401 – Directors, executive officers, promoters, and control persons

a. List the names and ages of all directors (and all director nominees), all executive officers (and persons chosen to become executive officers); indicate all positions and offices with the company held by each such person; state his term of office as director (or officer) and any period(s) during which he has served as such; describe briefly any arrangement or understanding between him and any other person(s) (naming such person(s)) pursuant to which he was or is to be selected as a director or nominee or an officer

b. Where the company employs persons such as production managers, sales managers, or research scientists who are not executive officers but who make or are expected to make significant contributions to the company’s business, such persons shall be identified and their background disclosed to the same extent as in the case of executive officers

c. State the nature of any family relationship between any director, executive officer, or person nominated or chosen by the company to become a director or executive officer

d. Briefly describe the business experience during the past five years of each director, executive officer, person nominated or chosen to become a director or executive officer, and each person identified in (b) above, including: each person's principal occupations and employment during the past five years; the name and principal business of any corporation or other organization in which such occupations and employment were carried on; and whether such corporation or organization is a parent, subsidiary or other affiliate of the company

e. Indicate any other directorships held by each director or person nominated or chosen to become a director in any public reporting company or any company registered as an investment company, naming such company

f. Describe any bankruptcy, criminal proceeding, or enjoinment from participating in certain specified activities that occurred during the past five years and that are material to an evaluation of the ability or integrity of any director, person nominated to become a director or executive officer of the company

g. Identify each director (and director nominee) that is independent under the independence standards applicable to the company and the basis for that determination

2. Item 404 – Related person disclosure

a. Describe any transaction, since the beginning of the company's last fiscal year, or any currently proposed transaction, in which the company was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest

b. Describe the company's policies and procedures for the review, approval, or ratification of any transaction with a related person that is required to be reported under this item

3. Item 405 – Compliance with Section 16(a)

a. Under the caption “Section 16(a) Beneficial Ownership Reporting Compliance,” identify each person who, at any time during the fiscal year, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the company registered pursuant to Section 12 of the Exchange Act that failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years

4. Item 407 -- Corporate governance

a. Provide certain specified information about the board of directors of the company, including the total number of meetings of the board of directors (including regularly scheduled and special meetings) held during the last full fiscal year (and naming each incumbent director who attended fewer than 75% of the meetings), the company’s policy for director attendance at annual meetings of shareholders, and whether the company has standing audit, nominating, and compensation committees of the board of directors, or committees performing similar functions

(i) If the company has such committees, it must identify each committee member, state the number of committee meetings held by each such committee during the last fiscal year, describe briefly the functions performed by each such committee, and provide certain other specified information

5. Item 403 – Beneficial ownership information

a. Provide, with respect to each beneficial owner of more than five percent of the company’s voting securities, its directors (and director nominees), its named executive officers, and all directors and executive officers as a group, certain specified information about the amount and nature of their beneficial ownership of the company’s voting securities and the percentage of the class owned

IV. Executive Compensation

A. Item 8 of Schedule 14A - Furnish the information required by Item 402 and paragraphs (e)(4) and (e)(5) of Item 407 if action is to be taken with regard to (a) the election of directors; (b) any bonus, profit sharing or other compensation plan, contract or arrangement in which any director, nominee for election as a director, or executive officer of the company will participate; (c) any pension or retirement plan in which any such person will participate; or (d) the granting or extension to any such person of any options, warrants or rights to purchase any securities, other than warrants or rights issued to security holders as such, on a pro rata basis

1. Item 402 – Executive compensation

a. Provide a Compensation Discussion and Analysis discussing the compensation awarded to, earned by, or paid to the named executive officers, which is to describe the objectives of the company's compensation program, what the compensation program is designed to reward, each element of compensation, why the company chooses to pay each element, how the company determines the amount (and, where applicable, the formula) for each element to pay, and how each compensation element and the company's decisions regarding that element fit into the company's overall compensation objectives and affect decisions regarding other elements

(i) This discussion must explain all material elements of the company's compensation of the named executive officers

b. Provide a Summary Compensation Table that itemizes and totals the compensation of the named executive officers for each of the company’s last three completed fiscal years

c. Provide a Grants of Plan-Based Awards Table concerning each grant of an award made to a named executive officer in the last completed fiscal year under any plan, including awards that subsequently have been transferred

d. Provide an Outstanding Equity Awards at Fiscal Year-End Table concerning unexercised options; stock that has not vested; and equity incentive plan awards for each named executive officer outstanding as of the end of the company’s last completed fiscal year

e. Provide an Option Exercises and Stock Vested Table concerning each exercise of stock options, SARs and similar instruments, and each vesting of stock, including restricted stock, restricted stock units and similar instruments, during the last completed fiscal year for each of the named executive officers on an aggregated basis

f. Provides a Pension Benefits Table with respect to each plan that provides for payments or other benefits at, following, or in connection with retirement

g. Provide a Nonqualified Deferred Compensation Table with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified

h. Provide certain specified information about each contract, agreement, plan or arrangement that provides for payment(s) to a named executive officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a named executive officer, or a change in control of the company or a change in the named executive officer's responsibilities, with respect to each named executive officer

i. Provide a Director Compensation Table that itemizes and totals the compensation of the directors for the company’s last completed fiscal year

B. 2008 Proxy Season Results

1. Disclosures continued to represent the largest segment of the proxy statement

a. Average length of disclosure ranged between 20-30 pages

2. The Compensation Discussion and Analysis was still the single longest item in most executive compensation presentations

a. While some CD&A’s were shorter, most were 10%-25% longer than in the 2007 proxy season

b. This increased length was largely a response to SEC Staff comments seeking better analysis and more detail about how specific compensation decisions were made

c. Topics that were covered in more depth

(i) Descriptions of incentive compensation plans, including disclosure of performance metrics target levels)

(ii) Use of benchmarking to set compensation and companies included in peer groups

(iii) Role of management and compensation consultants in compensation-setting process

(iv) Differences in compensation between named executive officers

(v) Reasons for amounts or formulas for determining severance and change in control arrangements and relationship to overall compensation decisions

3. The use of supplemental tables (particularly in the CD&A) was greater than in the 2007 proxy season

a. The average was almost two per company

b. Some companies had several (for example, Ford had 13)

V. Beneficial Ownership

B. Required by Item 6 of Schedule 14A

1. Must disclose, with respect to each beneficial owner of more than five percent of the company’s voting securities, its directors (and director nominees), its named executive officers, and all directors and executive officers as a group, certain specified information about the amount and nature of their beneficial ownership of the company’s voting securities and the percentage of the class owned

B. Observations

1. This information must be provided “as of the most recent practicable date”

2. A company may omit the actual number of securities and the percentage beneficially owned if less than 1%

C. Beneficial ownership

1. Predicated on concepts embodied in Exchange Act Rule 13d-3

2. Based on power to vote or dispose of the securities

a. Differs from beneficial ownership under Section 16 of the Exchange Act, which is based on ability to enjoy the economic benefits of the securities

3. A person is deemed to own shares have right to acquire within 60 days pursuant to exercise of an option, warrant, or right as provided under Exchange Act Rule 13d-3(d)(1)(i))

4. The beneficial ownership calculation is as follows:

a. The denominator is the total number of shares outstanding (exclusive of authorized but unissued and treasury shares)

(i) Also includes, with respect to each person’s calculation, number of shares which is deemed to be outstanding under the beneficial ownership rules for that person

b. The numerator is the number of shares held by a particular person and includes for each such person the number of shares such person is deemed to own by virtue of the beneficial ownership rules

c. Thus, for each person, both the numerator and denominator may vary, since shares deemed to be beneficially owned by one director may also be deemed to be beneficially owned by another director

5. Must also disclose, by means of a footnote to the Beneficial Ownership Table, the number of shares pledged as security by such persons (see Item 403(b))

VI. Related Person Disclosure

C. Required by Item 7 of Schedule 14A

1. Item 404(a) related person transaction disclosure is based on a “principles-based” standard:

a. The required disclosure covers any individual or series of financial transactions, arrangements, or relationships in which:

(i) The company benefits from the transaction (even if not a contractual party to the arrangement),

(ii) The amount involved exceeds $120,000, and

iii) The related person had or will have a “direct or indirect material interest”

2. Item 404(b) requires that a company describe its policies and procedures for review, approval or ratification of any transaction that is disclosable under Item 404(a)

a. This includes identification of who is responsible for applying the policies and whether any reported transactions were not reviewed and approved or ratified

3. Also need to disclose director independence status using NYSE/NASDAQ listing standards

4. Don’t forget Staff interpretations

VII. Equity Compensation Plan Disclosure

A. Required by Item 10 of Schedule 14A

1. When action to be taken by shareholders for any plan under which cash or non-cash compensation may be paid, a company must disclose:

a. A narrative description of the compensation plan

b. Provide a New Plan Benefits Table that contains information about the awards that the directors and executive officers of the company may received under the plan

i) If the plan provides for discretionary grants or awards, a New Plan Benefits Table is not required

c. Describe the federal income tax consequences of plan participation

B. Item 14 of Form 10-K requires that the company file a copy of the executive compensation plan and related agreements as exhibits

C. Item 201(d) of Regulation S-K

1. Where a new plan is to be approved or an existing plan is being materially modified, the company also must provide tabular disclosure of all shareholder-approved and non-shareholder-approved plans, including

a. The number of securities to be issued upon the exercise of outstanding options, warrants and rights,

b. The weighted-average exercise price of the outstanding options, warrants, and rights disclosed, and

c. The number of securities remaining available for future issuance under the plan

2. In the case of any non-shareholder-approved plans, the company also must provide a brief narrative description of the material features of the plan

VIII. Corporate Governance Disclosure

A. Required by Items 7 and 8 of Schedule 14A

1. In 2006, all of the SEC’s corporate governance disclosure requirements were consolidated in Item 407

2. Provide certain specified information about the board of directors of the company, including the total number of meetings of the board of directors (including regularly scheduled and special meetings) held during the last full fiscal year (and naming each incumbent director who attended fewer than 75% of the meetings), the company’s policy for director attendance at annual meetings of shareholders, and whether the company has standing audit, nominating, and compensation committees of the board of directors, or committees performing similar functions

a. If the company has such committees, it must identify each committee member, state the number of committee meetings held by each such committee during the last fiscal year, describe briefly the functions performed by each such committee, and provide certain other specified information

3. Director independence

a. The company must identify its independent directors and director nominees

a. It also must describe the standards by which directors or nominees are determined to be independent, including identification of the committees on which they serve and the independence standards applicable to service on the committees

c. Further, it must disclose for each director and director nominee the type of transactions, relationships, and arrangements considered by the board of directors in determining director independence

d. These requirements are applicable to any director that served in that capacity for any portion of the year

XI. Shareholder Proposals

A. Permits shareholders to submit matters directly for shareholder action

B. The submission of a proposal, and a company’s responsibility to include it in its proxy materials, is governed by Exchange Act Rule 14a-8

1. Procedural requirements

a. The deadline for submission of proposals for a company’s annual meeting is generally included in prior year’s proxy statement

b. In case of an annual meeting, a proposal must be received at the company’s principal executive offices not less than 120 calendar days in advance of the day and month of the company’s last proxy statement for any annual meeting

2. Substantive requirements – there are 13 substantive reasons that a shareholder proposal may be excluded by a company from its proxy materials

a. The proposal is improper under state law – the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company's organization

b. the proposal would violate law – the proposal would, if implemented, cause the company to violate any state, federal, or foreign law to which it is subject

c. The proposal would violate the proxy rules – the proposal or supporting statement is contrary to any of the SEC's proxy rules, including §240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials

d. The proposal involves a personal grievance or special interest – the proposal relates to the redress of a personal claim or grievance against the company or any other person, or it is designed to result in a benefit to the shareholder submitting it, or to further a personal interest, which is not shared by the other shareholders at large

e. The proposal is not relevant – the proposal relates to operations which account for less than 5 of the company's total assets at the end of its most recent fiscal year, and for less than 5% of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company's business

f. The company lacks the power or authority to implement the proposal

g. The proposal involves a management function – the proposal deals with a matter relating to the company's ordinary business operations

h. The proposal relates to an election – the proposal relates to a nomination or an election for membership on the company's board of directors or analogous governing body or a procedure for such nomination or election

i. The proposal conflicts with company's proposal – the proposal directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting

j. The proposal has already been substantially implemented by the company

k. The proposal substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company's proxy materials for the same meeting

l. If a proposal deals with substantially the same subject matter as another proposal or proposals that has or have been previously included in the company's proxy materials within the preceding five calendar years, a company may exclude it from its proxy materials for any meeting held within three calendar years of the last time it was included if the proposal received less than certain specified vote levels

m. The proposal relates to specific amounts of cash or stock dividends

X. Electronic Proxy Delivery

A. In December 2006, the SEC introduced “voluntary” electronic delivery of proxy materials

1. This system reflects a “notice and access” model

B. On July 26, 2007, the SEC approved “universal” proxy delivery

1. This action makes Internet access to proxy materials a required element for most proxy solicitations

2. Companies are generally required to choose one of two alternative models of delivery to conduct proxy solicitations

C. “Notice only” model:

1. A company may post its proxy materials (proxy statement, annual report to shareholders, and other proxy materials) on a specific, publicly-accessible Internet website

2. The company then must send a “Notice of Electronic Proxy Materials” to its shareholders at least 40 days before meeting informing them that proxy materials are available and explaining how to access

3. The company also must provide means to access and vote proxy cards (but can’t send with Notice)

4. The company must also agree to send a paper or e-mail copies of such materials upon request

D. “Full set delivery” model:

1. A company may continue to deliver paper copies of proxy materials (as under the former rules)

2. The company also is required to post a copy of its proxy materials to a publicly-accessible Internet website

a. The company may need to adjust its website to comply with guidelines regarding the use of confidential and identifying information obtained from shareholders

3. The company must include Notice with paper copies of proxy materials or incorporate Notice’s content into proxy materials mailed to shareholders

E. Compliance

1. Large accelerated filers began complying on January 1, 2008

2. Companies that are not large accelerated filers must comply no later than January 1, 2009, but may begin to comply with the rules in 2008

E. Comparison of the two approaches

1. The Full Set Delivery model doesn’t require company to send the Notice and proxy materials 40 days before the meeting date, whereas the Notice Only model does

2. Under the Full Set Delivery model, a proxy card can be distributed with the Notice (and other proxy materials) – a company doesn’t have to wait 10 days to deliver the proxy card as under the Notice Only model

3. The Notice Only model requires companies to provide shareholders with paper or e-mail copies of proxy materials upon request – a company doesn’t have to do this under the Full Set Delivery model

4. Since the proxy materials include a proxy card, companies using the Full Set Delivery model don’t have to provide another means for voting when the Notice is provided (unless it chooses to do so); this is required under the Notice Only model

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download