SEC compliance and disclosure - proxy rules and procedures

SEC Compliance and disclosure-
Proxy rules and procedures, series
13
By
Arthur Mboue
Research conducted by Arthur Mboue 1

Regulatory required timeline for proxyActivity Months/days
prior to Annual
Meeting
Deadline for submission to shareholder proposals for inclusion in proxy materials (120 days prior to the
filing of the proxy materials [Rule 14a-8])
180-200 days
Search cards mailed to record holder banks ( at least 20 business days prior to the annual meeting record
date [Rule 14a-13])
96 days
Notify NYSE of tentative annual meeting record date and matters to be voted upon at the meeting
(notice is required at least 10 days prior to record date [NYSE §401.02]
86 days
Review officer and director questionnaires and determine if any Form 5 filings are required 80-100 days
Submit opposition statement to SEC and mail response (s) to shareholder proposal (s) to proponent (s)(
(no later than 30 days before filing of proxy statement [Rule 14 a-8(m)])
(www.geproxy.com/shareowner-proposals)
75 days
RECORD DATE (not more than 60 nor less than 10 days before the date of such meeting [DGCL§213(a)] 60-70 days
Preliminary form of proxy statement filed with SEC via EDGAR (10 days before filing the definitive proxy) 50 days
Mail 6 copies of definitive proxy material to NYSE – no later than date of mailing to shareholders (Section
204.28 of NYSE Listed Company Manual). Mail 8 copies to the SEC staff
40 days
Files definitive proxy material with SEC electronically via EDGAR. [§240.14a-16(a)(1)] 40 days
Research conducted by Arthur Mboue
2

Regulatory required timeline for proxy
Activity Months/days
prior to Annual
Meeting
Deadline to send shareholder the notice of internet availability of proxy materials [§240.14a-
16(a)(1)]
(www.geproxy.com/notice-of-the-2016-annual-meeting-....)
40 days
Deadline to post proxy material on website under notice and access [§240.14 a-16(b)(1)]
(at GE, shareholder vote at investor/vote or 1800-652-vote; beneficiaries, proxyvote.com and 1800
454-VOTE)
(www.geproxy.com/voting-and-meeting-information/....)
40 days
Conduct Notice & access follow up mailing to shareholders, if required 30 days
List of shareholders entitled to vote at meeting open for examination [DGCL §219(a)] 10 days
ANNUAL MEETING OF SHAREHOLDERS
(April 27, 2016, Sunshine State, Jacksonville, FL)
D-DAYS
Filing of 8–K with voting results from annual meeting 4 days after t5he
meeting
CEO to file with the NYSE, no later than 30 days after the annual meeting of shareholders, certifying
corporate governance requirements, subject to any necessary qualification (NYSE Rule 303A 12(a))
Up to 30 days
after the
meeting

Preliminary materials
When required, a registrant must mail 5 copies to the SEC staff.
Pursuant to Rule 14a-6 (a) under the exchange act, a Pre-14
must be filed unless the matters to be acted upon are:
• The election of the director
• The election, approval or ratification of independent auditors
• A proposal by a shareholder
• Ratification or approval of a new employee benefit plan or
plan amendments
• Approval of executive compensation (i.e. say on pay vote or
any other shareholder advisory vote on executive
compensation)
• Determination of whether the shareholder vote on executive
compensation will occur every one, two or three years (i.e.
frequency vote) Research conducted by Arthur Mboue 4

All items in Schedule 14 A
Items Names
Item1 Date, time and place information
Item 2 Revocability of proxy
Item 3 Dissenters right of appraisal
Item 4 Persons making the solicitation
Item 5 Interest of certain persons in matters to be acted upon
Item 6 Voting securities and principal holders thereof
Item 7 Directors and executive officers
Item 8 Compensation of directors and executive officers
Item 9 Independent public accountants
Item 10 Compensation plans
Item 11 Authorization or issuance of securities otherwise than for exchange
Item 12 Modification or exchange of securities
Item 13 Financial and other information
Item 14 Mergers, Consolidation, acquisitions and similar matters
Item 15 Acquisition or disposition of property

All items in Schedule 14-A (next)
items names
Item 16 Restatement of accounts
Item 17 Action with respect to reports
Item 18 Matters not required to be submitted
Item 19 Amendment of charter, bylaws or other documents
Item 20 Other proposed action
Item 21 Voting procedures
Item 22 Information required in investment company proxy statement
Item 23 Delivery of documents to security holders sharing an address
Item 24 Shareholder approval of executive compensation
Pursuant to Rule 14a-6 (b). 8 copies of the Def 14 A, proxy card and all other soliciting material
must be filed and mailed with the SEC and sent or given to shareholders. A minimum of 3
copies of the Def 14 A, proxy card and all other soliciting material must be submitted to each
national securities exchange
6

Regulations, Rules and Standards
• Evolving governance regime is derived from federal
legislation, SEC rulemaking, state corporate legislation,
stock exchange rules, shareholder proposals, ‘best
practices’ standards and judicial decisions, principally
those of the Delaware General Corporation Law and
MBCA
– Corporate activists often use the governance as a mean to
maximize shareholder value
• Regulation of the proxy solicitation process was
assigned to the SEC in 1934
• The SEC, OCC, FDIC, DOL, FINRA and OTS have
implemented proxy related rules
• Fiduciary standards require implementation and
records of the proxy voting process

SEC Proxy Rules
• Who must file the proxy statement? Any company whose securities
are registered under Section 12 of the Exchange Act. They must be
listed on a national securities exchange or have more than $10
Million in assets and 2000 or more holders of any class of equity
securities for non bank (500 or more who are not accredited
investors)
• What required? Before soliciting proxies, management must
prepare and file a Pre14 A and definitive Schedule 14 A with the SEC
• Quality of disclosure: No materially false or misleading statements.
Both pros and cons of the proposals must be disclosed as required
by rule 14a-9
• PS: SEC does not require a proxy but if you do, follow the rules (SEC
and State)

Basic Proxy Procedures
• Filing proxy statement: A definitive schedule 14 must be
filed with the SEC, post and mail to shareholders 40 days
before the annual meeting according to Rule 14a-16
• Dissemination: a registrant must send proxy materials to
shareholder by mail or via e-mail if it follows some
guidance required obtaining affirmative consent from
individual shareowners 40 days before the annual
meeting. It may or may not include proxy card (it depends
of options, ‘notice only’ or ‘full set delivery’ option)
• Proxy card: Must give shareholder option to vote for or
against any elective matter of the meeting.

Form of Proxy
• According to Rule 14a-4 under the Exchange Act prescribes the
requirements for proxy cards used by a registrant to solicit proxy
votes for proposals being voted on at the annual meeting.
• Requirement language:
– Bold space type
– Blank space for dating the proxy card
– Identify clearly and impartially each separate matter intended to acted upon
• Unauthorized Proxies
– 14a-4(d) under the Exchanges Act prohibits proxy cards from conferring
authority to:
• Vote for the election of any person to any office
• Vote at any annual meeting other than the next meeting
• Vote with respect to more than one meeting, and any adjournment thereof; and
• Authorize and consent to any action other than the action proposed to be taken in the
proxy statement
• Discretionary Authority
– Under Rule 14a-4(c), a proxy can confer discretionary authority to vote if
• Did not receive at least 45 days notice
• Nominee is unable to serve or for good cause will not serve
• Receive proxy with mistakes

Rule 14a-1: Solicitation includes:
 Any oral and written request for proxy whether or not
proxy form is 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.
What is a ‘Proxy Solicitations’?
11

Importance of Proxy Voting
• Most shareholders are not able to attend shareholder
meeting
• Majority of investors shares are held by Intermediaries
for the benefit of their clients
• The financial crisis and revised shareholders activisms
have brought greater attention to the proxy voting
process
• In 2009, SEC enforced its first action for proxy voting
record violation, SEC vs one Registered investment
Advisor for proxy voting
– On May 8, 2009, SEC filed a case against Intech Investment
Management LLC and David Hurley for violating proxy rules
• PS: Proxy holder is an agent legally authorized to act on
behalf of another party

Shareholder Proposal – Rule 14a-8
Who can make a proposal? A shareholder who has continuously held at least $2000 in
market value or 1% of the securities entitled to vote on the proposal for a least 1
year by the date of submitting the proposal and must be held until the annual
meeting
How many? One proposal per shareholder
Length? No more than 500 words
When? Not less than 120 calendar days before the annual meeting
Attendance of annual meeting? This shareholder or his representative must attend the
annual meeting
Grounds for company rejection? Specified in a (14a-8)(i)
Can company recommend against? Yes and always does
What options does the company have? the company can exclude, include or negotiate
for a resolution
Procedure post rejection? Company notifies SEC and file for a “No-Action” letter
(NAL)
Shareholder option post rejection and “no action” letter? Start the proxy fight with
a lawsuit for injunctive relief – argue grounds in a (14a-8)(i) applicable

Path to the Inclusion of Proposal at GE
Shareowner
Proposals
2016 Shareowner Proposals
Jump To:
 Proposals for Inclusion in Next Year’s Proxy Statement
 Director Nominees for Inclusion in Next Year’s Proxy Statement (Proxy Access)
 Other Proposals or Nominees for Presentation at Next Year’s Annual Meeting
Proposals for Inclusion in Next Year’s Proxy Statement
SEC rules permit shareowners to submit proposals for inclusion in our proxy statement if the shareowner and
the proposal meet the requirements specified in SEC Rule 14a-8.
 When to send these proposals. Any shareowner proposals submitted in accordance with SEC Rule
14a-8 must be received at our principal executive offices no later than the close of business on
November 11, 2015.
 Where to send these proposals. Proposals should be addressed to Brackett B. Denniston III,
Secretary, General Electric Company, 3135 Easton Turnpike, Fairfield, CT 06828.
 What to include. Proposals must conform to and include the information required by SEC Rule 14a-
8.
Director Nominees for Inclusion in Next Year’s Proxy Statement (Proxy Access)
We recently amended our by-laws to permit a group of shareowners (up to 20) who have owned a significant
amount of GE stock (at least 3%) for a significant amount of time (at least 3 years) the ability to submit
director nominees (up to 20% of the Board) for inclusion in our proxy statement if the shareowner(s) and the
nominee(s) satisfy the requirements specified in our by-laws.
 When to send these proposals. Notice of director nominees submitted under these by-law provisions
must be received no earlier than October 12, 2015 and no later than the close of business on
November 11, 2015.
 Where to send these proposals. Notice should be addressed to Brackett B. Denniston III, Secretary,
General Electric Company, 3135 Easton Turnpike, Fairfield, CT 06828.
 What to include. Notice must include the information required by our by-laws, which are available
on GE’s website (see “Helpful Resources”).

Popular Shareholder Proposals
 Require majority vote in the election of directors
 Repeal classified board
 Independent chairman of the board, separate chair from the CEO
duties
 Redeem or require shareholder vote on poison pill approval
 Independent directors
 Cumulative voting
 Eliminate supermajority voting
 Required shareholder approval of parachutes
 Allow for or decrease requirement to call special meeting
 Social, political, cultural issues (major concerns for company and board
of directors)
 Political contribution
 Human rights
 Board diversity
 Environmental issues

Included Proposal will come with GE
Recommendation
Shareowner
ProposalsWhat are you voting on?
The following shareowner proposals will be voted on at the annual meeting only if properly presented by or on
behalf of the shareowner proponent. Some of these proposals contain assertions about GE that we believe are
incorrect, and we have not tried to refute all of the inaccuracies. The Board recommends a vote against these
proposals for reasons that we explain following each proposal.
Share holdings and addresses of the various shareowner proponents will be supplied promptly upon oral or
written request.
 Introduction
 Shareowner Proposal No. 1
 2016 Shareowner Proposals

Research conducted by Arthur
Mboue
Rule 14a-8(i) Grounds for Excluding Shareholder Proposals
Rule 14a-8 requires a registrant to include a shareholder proposal in its proxy materials
if the submitting shareholders has complied with certain eligibility and procedural
requirements (in its Q & A format)
1. Is not a proper subject for action by shareholders under the laws of the corporation’s
jurisdiction of incorporation
2. Would, if implemented, cause the corporation to violate any state, federal or foreign
law to which it is subject, or that is contrary to any of the proxy rules
3. Relates to a personal claim or grievances against the corporation or any other
person, or that is designed to result in a benefit to the shareholder submitting the
proposal that is not shared by the corporation’s shareholders at large
4. Relates to operations that account for less than a specified percentage of the
corporation’s total assets, net earnings and gross sales for its most recent fiscal year,
or is not otherwise significantly related to the corporation’s business
5. The corporation does not have the power or authority to implement
6. Relates to an election for membership on the corporation’s board of directors;
7. Directly conflicts with one of the corporation’s own proposals to be submitted to
shareholders at the same meeting;
8. The corporation has already substantially implemented
17

Rule 14a-8(i) grounds for Exchange
Shareholder proposal
9. Substantially duplicates another proposal previously submitted to
the corporation by another proponent that will be included in the
proxy materials for the same meeting
10. Deals with substantially the same subject matter as another
proposal that was previously included in the corporation’s proxy
materials within the preceding five calendar years and received
fewer than a specified number of votes at the meeting
11. Relates to the payment of cash or stock dividends, or to the
corporation’s ordinary business operations
12. Can only exclude the proposal if the shareholder fails to
adequately remedy the deficiency
13. Can exclude the proposal if it is related to resubmitted
application
18

Steps follow by the no action letter
Company
disclosure
executives
decide that
they need to
get the SEC
involved in a
complex
disclosure
The Company
General
Counsel
assigns this
task an insider
counsel or
hire an
outside
counsel firm
for help
The inside
counsel or
outside
counsel
research the
case in detail
to determine
how to
request the
relief . He
researches
previous
letters,
applicable
laws and
regulations
and other
sources. He
prepares a
draft letter
and send it to
the company
Chief
Securities and
General
Counsel
The draft is
reviewed by
the Chief
Securities and
General
Counsel who
make needed
corrections. It
is returned to
the counsel
after approval
and then sign
and send to
the
concerned
CCO.
(amendment
to the filing
may be
requested, 60
days within
receipt of
comment)
The letter is
received by
the SEC and
assigned to a
particular
staff attorney.
He reviews
the letter in
detail to
determine the
question
posed and the
relief
requested.
Then, they
research
previous aces
and letters,
applicable
laws and
regulations
and other
sources. They
can contact
the requester
for
clarification
and additional
information
(no oral no
action letter)
They discuss
their
preliminary
results with
the special
counsel,
assistant Chief
Counsel and
Chief Counsel.
If the written
response is
appropriate,
next step
(pre-filing
conference
can be
ordered with
the filing of
written
summaries)
Staff attorney
will prepare a
draft and
forward it to
the special
counsel and
assistant chief
counsel
Special
Counsel and
assistant chief
counsel
review the
draft, make
any needed
revisions and
forward it to
the Chief
Counsel for
review
After the
Chief Counsel
reviews and
approve the
draft, the staff
attorney will
write its
ending with
contact
addresses and
sign this
letter. He
sends this
copies to the
SEC library,
selected
commission
staff, public
reference
office (Federal
Register) and
SEC post
office (to the
requester)
19

Last Step
• It takes days (up to 15) for the application to be
posted on the Federal Register giving interested
parties the opportunity to request a hearing on
the proposed relief or rules.
• The notice period typically lasts from between 25
and 28 days
• If no hearing has been requested by or by the
commission acting on its own motion, the order
will typically be granted within two days after the
notice period expired
20

Forbidden words in the shareholder proposals
1. Violence /profanity
2. Partial nudity
3. Sexual act/text
4. Xxx pictures/text
5. Intolerance
6. Satanic or cult
7. Drug culture
8. Militant/extremist
9. Sex education
10. Alcohol, Drug and Tobacco (‘ADT’)

State of proposals to GE, 2016
Shareowners proposals excluded Shareowners proposals included
Timothy Roberts proposals Lobbying Report, Brad Woolworth proposal
Alexander Lehman proposals Independent Chair, Kenneth Steiner proposal
Robert Fredrick proposals Holy land Principles, Sisters of St Dominic of
Caldwell, Mary Beth Gallagher*
Cumulative Voting, Martin Harangozo
proposal*
Performance Based Options, James Jensen*
Human Rights Report- the National Center for
Public Policy Research proposal*
* GE did attempt unsuccessfully to exclude these proposals. After a series of NAL, the
staff side with the authors of these proposals. The staff, special counsel Evan Jacobson,
did waive the 80 day requirement in order to require GE to include Martin Harangozo
proposals

The Notice & Access Model
• Provides companies with the alternative of mailing a one page Notice of
Internet Availability of Proxy Materials (“Notice”) and providing proxy
materials electronically through an Internet web site instead of traditional
paper delivery of all proxy materials under Rule 14a-16.
• Three Options for Compliance:
– Notice-Only Delivery
• Proxy materials posted on web site and only the Notice mailed to
shareholders
– Full Set Delivery
• Hard copies of all proxy materials mailed to shareholders, with
Notice information incorporated in proxy statement and proxy card
and proxy materials posted on web site and mailed to the
shareholders
– Hybrid Delivery
• Notice-only delivery to some shareholders and Full Set delivery to
others.

Notice & Access Model
40 days before the annual meeting
Web-Posting
Proxy materials
on a specified IR
web site pages
Mailing
For notice only nor
full set of proxy
materials
to shareholders
File with the SEC
Proxy materials,
Including Notice,
with the SEC
( file DEF 14A)

Who Can Use Notice & Access Model?
A proxy statement is intended to provide
shareholders with the information necessary to make
an informed voting decision proposals for which
proxies are solicited
• Available for issuers, intermediaries and soliciting
persons other than the issuer
• Specific model used at the annual shareholder
meeting
– Proxy holders do not have to follow shareholder
recommendation

Delivery of the Notice
• If Notice-only or Hybrid delivery is used, the Notice must be sent at
least 40 calendar days prior to the annual meeting date
– Note that the Notice must actually be completed 55-60 days
prior to the meeting date to give intermediaries time to create
the voting instruction cards for beneficial holders
• Only two things can accompany (or be combined with) the Notice:
– Notice of meeting required by state law (if permitted under state
law)
• For example, Section 222 of DGCL requires a registrant to give
shareholder 10 or 50 days of notice prior to the meeting
– Reply card to request paper or e-mail copies of proxy materials
• For any Notice-only deliveries, a proxy card cannot be sent with the
first Notice

Ability to Vote
Rule 14a-3 of the Exchange Act prohibits solicitation of a
shareholder proxy unless the shareholders has been provided
with a written proxy statement containing the information
required by Schedule 14-A
• Concurrently with delivery of the Notice, the issuer must
provide a means of voting – but not without access to proxy
materials
– Electronic voting platform linked to the Web site
– Telephone number on the Web site
• For Notice-only delivery – hard copy of proxy card can be
sent 10 calendar days or more after the Notice
• For full set delivery-Must be accompanied with
another copy of the Notice or with the proxy
materials

Content of the Notice – Required
• Plain English text
• Bold-face legend with web site address and recommended deadline for requesting
paper copies
• Date, time and location of the annual shareholder meeting
• Clear and impartial description of matters to be voted on and issuer’s
recommendations – but no supporting statements
• Indication that the communication is not a form of voting and presents only an
overview of the more complete proxy materials, which are available by internet or
mail
• List of proxy materials available on the web site
• Toll-free phone number, e-mail address and Internet address for requesting paper
or e-mail copies (not required for Full Set delivery)
• Any identification numbers needed to vote
• Instructions on how to access the proxy card – no execution of proxy without
access to proxy materials
• Information about attending the meeting and voting in person and any
identification the shareholders needs to enter the meeting

Optional content and its delivery
• Optional content of the notice
– State law meeting notice
– Advisory statement that is no personal
– All required Information
– Picture, logos, design (mostly brevity) that is not misleading
• Upon request, paper or e-mail copies must be sent to
shareholders who receive Notice-only delivery:
– Until the conclusion of the meeting, materials must be
sent within 3 business days of request and, if paper is
requested, they must be sent by first class mail (or similar
prompt service)
– Paper or email copies can be requested up to one year
after the meeting – but only “prompt” delivery is required
– Request can be made for the particular meeting or for all
future solicitationsResearch conducted by Arthur Mboue 30

Web Site Posting
• Direct access to materials on publicly accessible web
site
• Materials accessible on the site at no charge from the
time the Notice (or full set of materials) is sent until the
end of the meeting
• Materials must be:
– Readable and readily searchable on screen
– Printable like a paper copy (pdt)
• Amended/additional materials posted (and filed) no
later than the day they are first made public

Rule of Delivery for Beneficial Owners
• Intermediary must request materials from issuer within 3
business days of owner’s request
• Issuer must send to intermediary within 3 business days of
intermediary’s request
• Intermediary must send to shareowners within 3 business days of
receipt
Issuer
Intermediary
shareowner
3
3
3
Right to request and
receive Materials

Third Parties in a Proxy Voting Process
• Transfer Agent
• Proxy Service Providers
• Proxy Solicitors
• Vote Tabulators
• Proxy Advisors

Concerns Raised by the
Notice & Access Model
• Misuse of shareholder personal information
• Over/Underestimation of number of printed
copies
• Timing and coordination
• Additional solicitation efforts
• New or uncertain costs

Last Hurrah Campaign

Corporate Activists and their demands
Issues Will ask for
M & A • The sale of the company
• The breaking up of the company (too big)
• The spin off of the company (too complex)
Balance Sheet • The increase in Dividend payout
• More shares buyback
• More profit and higher margin
Operational • The resignation of the CEO
• The removal of the CFO
• The change in leadership structure in order to make it more focus on the
shareholder value (their fiduciary duties)
Governance • Resignation of some directors (not quite independent)
• The appointment of more accountable board members (are they ‘do
nothing’!)
• Appointment of more independent directors (less conflict of interests!)

Shareholder Activism in M&A Situations
•Shareholder reaction to announced transaction
•Wait and see
•I do not sell
•I will exercise my appraisal right (most Delaware company)
•Activist’s opportunity during M&A
• Supermajority shareholder approval requirements
• Class votes
• Appraisal rights and its various games (DGCL 622,…)
• Third party consents as a condition
• Special regulatory approvals
– Analyze the situation clearly
– Is there any shareholder value added? good argument against
activists
• Prove a merger of equal or will the target synergy materialized, payback time?
(trouble or peace the future will tell, but you may still retire with a lot of
compensation packages; Al Dunlap did win them in court, FL)
37 Research conducted by Arthur Mboue

Activists Response to a merger

Peri-activism checklists: preemptive conflict strategies
• Put a basic strategy in place
– Hire management, lawyers, bankers, IR/OPR, proxy solicitors
– Conduct regular update calls and surveys
• Assess and address vulnerabilities
– Operational/ strategic weaknesses
– Structural defenses
– Corporate governance policies and key proxy deadlines
• Focus on comparable method
– Track peer performance
• Key metrics include; 1, 2, 3, 5 years, stock performance, ROI, executive compensation comparisons, governance policies (number of
BoD,…)
• Roadshow campaign
– Make presentation about company result of operation, strengths
– Use planned events (e.g earnings) to reinforce progress against benchmarks, metrics and competitors
– Consider increasing frequency of momentum (positive) announcements, conferences and festivals
• Operating milestones, key hires, new guidance, new policies, etc. for awareness and support from media and 3rd parties
• Target 3rd party supporters
– Build strong friendship with institutional investors, sell-side/industry analysts, customers, business
partners, business/trade organizations, corporate governance gurus (Prof Bebchuck, John Coffee,..)
• Increase media (4th power) relationships
– Conduct interviews about your company’s performance or other easy topics (events) to get news
headlines
• Identify media spokespeople
– Train the best people, give microphone to your independent board of directors (as independent insider
talking for the company)

Advanced preparation is critical
– Stay one step ahead
• Hedge fund and other strategy to get board seat expose
management missed target or board conflict of interests
– See your company in the eyes of a short term investors
• What past decisions (e.g., acquisitions) is the activist likely to focus
on?
• What data does the activist value? what approach does the activist
propose last years?
• Analyze “capital allocation” strategies and all its alternatives
(parameters strategies)
• Much better if done before any proxy fight
– Build and maintain credibility with shareholders and analysts before
activists show up for a fight
– Consider the takeover landscape in your industry
• Who might be tempted to acquire your company for operational or
synergy reasons or as a result of industry dynamics?

Warning Signs
– Be alert to early warning signs, such as:
• Recent investor or company events with too many
questions from the audience
• Analyst and media reports suggesting structural changes
• Changes in shareholder base – clandestine agreements
between your shareholders for strong block
• Review past events and news from corporate activist for
hints
– Be ready for the first phone call
• Be polite, clear and firmed for your first conversation
• Establish internal and external teams, including advisors

Pressure strategy from hedge fund and other
corporate activists
• Send private letters threatening public action
– Company executives and board members are under activists microscope
– Greater scrutiny by investors and media of BoD and executives
– Directors and Top executives are open to public criticism
• Demand board seat
• Request meetings with management and/or board of director and
issue open letters to the board
• Buy full page of newspaper for advertisement of its demands
• Become aggressive with management on analyst calls,…
• Threaten ‘withhold the vote’ campaign
• Threaten to agitate against Board’s preferred strategic alternatives or to
vote against board approved M&A activity
• Team up with other institutional and/or corporate activists shareholders
• Seek to stir-up 3rd party interest and rally with other investors
• Disclose to shareholders management personal e-mails, address, cars
and/or homes

What can the Board and Executives do?
– Opposing strategy
• No strategy or statement goes unchallenged in the media
– Political alike campaign
• Battle for shareholder support / votes
• Increasing use of rhetoric and manifestations
• Third party advocates needed to counter attacks
• Strategic and “rapid response” communications required
• Ready for ‘rapid response’ to any public criticisms
– Control the forum for good message delivery
• It is o.k to show anger to trained agent provocateur in order to
succeed or media will label you as a weak and incompetent

What can the Board and management do?
– Roadshow for public relations strategy
• Need to maintain consistency of message along with rapid response to
dissident attacks with good headlines (Taiwan style not Japanese)
• Public ad to solicit shareholders support does not require SEC filing (if
done by 5+% owners), long Island lighting company vs Barbash (Maurice)
and al, (2d Cir. 1985). ‘SEC regulations do not prevent such ad, nor could
they w/o violating fundamental 1st amendment rights of free speech’
– Board will be kept informed of dissident activity and proxy
communications
• Press releases, media coverage, analyst reports, SEC filings, etc.
– Independent Board representatives should join management in
attending ISS meeting and bringing the management message
to the media, shareholders and 3rd party
– Screen phone calls (office and cell) and house address
• Be ready to respond calls from dissidents, they will get the number. You
can find them sitting in front of your door early in the morning
– Board meeting calendars should remain confidential
– Individual directors may be targets of attacks
• Give independent director microphone to defend their peers

IR Tactics and Considerations
– Regular, targeted one-on-one meetings
• Major vehicle for communicating with investors and sell-side analysts
(invite them to call you for follow-ups, keep a lot of your business
cards with you all the time)
• No substitute for in-person meeting with a CEO and / or executive
team
• Controlled forum for delivering messages
– Good protocol: hand up, line, 10 min for a question,…
– Large format or group meetings must be carefully considered
• Limit group meetings with representation of all groups (including
dinners and lunches meetings)
• Level of control is significantly shifted to you
• Fight “godfather/ mob’ mentality, bloodless coup d'état alike
– Sell-side needs to be educated
• Focus on SWOT- strength, weakness, opportunity and threat when
holding meeting with them

Key documents in a proxy contest
– Shareholder “fight” letters
• Shareholder proposals sent by dissident and Company to shareholders multiple
times, accompanied by “fight letters”
• Can be used as press releases or 8-K filings
• Consider whether Company letters can be also used for PRs to send to
reporters
– SEC filings
• Letters, press releases (FWP), presentations, statements can all be filed as 8-K
(Company),
13-D / 13-G (dissident, 5+% of stock owner) or 14A (Company)
• 8-K filings (consider filing item 8.1)
– Presentations
• Used in meetings with investors and proxy advisory firms
• Helps educate media and other key constituencies about your company data
– Press release
• Fast and furious method to reach all audiences and directly communicate key
messages against activists
– Standby statements
• Responsive (talking to media corps)
– Ancillary communication materials
• Company websites (letter to/from government officials, community leaders, 3rd
party, retirees, others)

Typical Proxy Fight Timeline
45 To 40 days
before the
annual meeting
Filing of definitive proxy materials, issuing a press release with
first fight letter, mailing the ‘stop, look, listen’ letter
39 to 32 days Mailing a second fight letter, issuing a press release
31 to 24 days Mailing the 3rd fight letter, issuing a press release
23 to 14 days ISS meetings; Glass-Lewis decisions outreach; issuing press release
with the fourth fight letter
14 to 7 days ISS, Glass-Lewis decisions; both parties issuing press releases when
decisions are made
10 to 7 days Mailing the fifth fight letter, issuing a press release
5 to 2 days Issuing open shareholder letters as press release
Day 0 Annual shareholder meeting
Adapted from the corporate board, Rachel Posner

Dealing with Corporate Activism Effectively
– Continue to focus on the business
– Renew focus on investor Communication
– Anticipate threats
– Review advance notice deadlines for shareholder proposals
and nominations to strike the right “balance”
– Financial preparedness, know your company weak data and be
prepared to justify them- readiness!
– Implement legal/structural preparedness
– Focus on the activist’s agenda, 13D and track their record, it
will give you advantages against activists
– Be prepared to expose fight; do not allow activists to frame the
public agenda with bad news
– Litigation is commenced infrequently (rarely sue, bad PR, be
ready to defend yourself against some shareholder proposal
lawsuits)
– Negotiation may be a productive path – settlement should
avoid admission of guilt

Responding to the Corporate Activist’s Attacks
• Known when and when not to respond to activist attacks
• Think ahead
• Establish a single contact and maintain unified front
• Stay focused on the facts
• Know your company weaknesses and prepare a defense, you
must be consistent and speak with one voice from a previous
closed door meeting
• Do not ignore activists, communicate and be flexible and
listen to them
• Be willing to negotiate and/or negotiate when circumstances
warrant, but do not let ‘godfather’ mentality to intimidate
you
• Exit questions:
– Have dissidents met their burden of proving that board or other
changes are warranted?
– If so, is the dissident proposal more likely to help maximizing
shareholder value?

Fiduciary Responsibilities of a Board When
Responding to Corporate Activists
– Board as negotiating representative
• Board cannot be passive –should be active and engaged
• Smith v. Van Gorkom: a shareholder vote does not absolve the Board
• To negotiate effectively, you must know how far is too far and have the power
to extinguish the negotiation
• Directors’ duty in context of a decision to sell control is to obtain the highest
value reasonably available for shareholders (the Revlon rule)
• I will add that independent board members are well positioned to represent
the company because they are perceived as outsider and impartial negotiator
with insider knowledge
– Takeover defenses enhance Board’s negotiating power
– When the Board responds to activists and proposals not seeking a
takeover, it must focus on due care and business judgment rule. BoD
must be able to take into account the long term interests of the
corporation while maximizing shareholders value
– If an activist investor gains minority representation on the Board, the
Board still should attempt to make decisions collectively and collegially,
and act as a group – board secretary (company counsel) can play a
critical role in healing after ugly proxy fight

Target Director Fiduciary Duties
• For Delaware court, the BoD has the right to adopt
defensive measures
– It is not governed by BJR
– It is test for enhanced scrutiny standard
• Directors must show that:
– Reasonable ground for believing a threat to the operation or
policies of the corporation exists and
– The defensive measure was reasonable in relation to the
threat (defenses that preclude other offers or coerce
shareholders are generally considered unreasonable in
relation to a threat)
– Must show affirmative duty to adopt defensive measures
when doing so would protect the interests of the corporation
and its shareholders valueResearch conducted by Arthur Mboue 52

GE Board strategic Team
Although most of the GE directors are labeled as independent, my review did uncovered CEOs of
firms, GE directors with huge contractual agreements with GE; and also, Directors with family
members working at GE in the decision making position

GE Directors Qualification

Hostile Take-over Different Strategies
Level of Hostility
Casual pass toehold Bear hug Dawn Raid Open Market
Purchase/stre
et sweep
Tender Offer Proxy Fight litigation
• Informal
first
contact to
target
company
to test the
CEO
reactions
• Could
alert
target CEO
• Initial
accumulat
ion of
shares
• Reduces
number of
target
shares
that must
be
purchased
at a costly
premium
• Public
disclosure
of terms
of
unsolicite
d offer
after a
futile or
frustrating
private
approach
• Buying
shares of
the
target
through
brokers.
The
acquirer/
bidder
marks its
identity
and
intent
• More likely
to be
effective if
shareholdin
g is
concentrate
d. Legal
limit how
much one
can
purchase
w/o making
Tender
offer
disclosure
• Tender
offer for
cash
• Tender
offer for
stock
exchange
• Seek
support of
the target
sharehold
ers at next
annual
meeting
• Special
meeting
called by
them, or
• consent
solicitatio
n
• Lawsuit
• Regulatory
complaint

Analysis of the Structural Defense
• Review the company’s existing structural
defenses to hostile takeovers and
shareholders activism
• Adoption of unilateral bylaw amendments to
gain tactical advantages in any confrontation
• Evaluate the advisability of bylaw
amendments or a poison pills adoption with
outside counsel, proxy solicitor and PR firm

What Are the Risk of a Hostile Approach
• Might damage bidder’s reputation as trustworthy deal
partner
• Rating agencies and credit markets will undervalue the
company
• Limited to no ability to perform due diligence
• Management distraction during the pendency of the hostile
bid
• Limited ability to pursue other deal while outcome of
hostile bid is uncertain
• Lack of support by target or bidder’s shareholders
• ‘White knight’ bidder emerges as preferred counterparty of
target

Collaborating with Activist Hedge Funds
• Description
– Bidder can solicit votes, campaign and financial support from
activist hedge funds (including joint bid)
• Advantages
– Its supports can give enhanced credibility to the bid
– If the activists have stake in the target, they could form a
formidable toehold (by agreement) for a proxy contest or
consent solicitation
• Disadvantages
– Any open collaboration with activist hedge funds might make
it more difficult for hostile bidder to obtain a friendly deal
– Collaboration increases the risk that a ‘group’ is not formed
for Section 13 D purposes and disclosure is required

Monitor the Shareholders Base
• Insider ownership: assured votes for the board
and management
• Institutional shareholders: open to be persuaded
by a hostile bidder, but influenced by proxy
advisory firms
• Retail shareholders: traditionally management-
friendly, but typically lower turnout
• Hedge Funds & Arbitrageurs: almost certain to
support hostile bidder

Factors that the BoD Should Consider in
Assessing the Merits of an Unsolicited Offer
• Long term prospects of the company on an independent basis
• Whether it is an advisable time to consider a sale of the
company
• Management’s and the company’s financial advisor views as
to the adequacy of the offer
• Current industry, economic and market conditions and trends
• Current market valuation of the company (including any
recent stock price decline and frequency of fluctuations)
• Likelihood of consummation (including financing and
regulatory impediments)

Defensive Tactics that Do Not Need
Shareholders Approval
• Anti-trust law suits
• Greenmails, targeted repurchase with handsome
premium
• Classified Board
• Poison Pills, measures of true desperation to make
the company unattractive to bidders. They reduce
shareholder wealth
– One example of a poison pill is giving the shareholders of a
target company the right to buy shares in the merged
company at a bargain price, contingent on another
company acquiring control

Litigation Against the Board
• Description:
– Bidder could bring legal action against target’s board by claiming that
it breached its fiduciary duties by (1) refusing to properly consider
proposal or (2) adopting defensive measures
• Advantages
– A lawsuit can add pressure to a target board/management to
negotiate a deal with hostile bidder
– Pleadings give bidder a forum to criticize BoD actions and forces board
to justify actions based on its BJR
– Many companies have limited resources and this adds another
problem to the target’s list
• Disadvantages
– In absence of conflict of interest and BJR violations, these cases are
difficult to win, since courts recognize a target board’s right to ‘just say
no’

Influential & “independent” outsiders are often
key voices in determining outcomes
– Institutional Shareholder Services (ISS)
• Leading proxy advisory firm in terms of size and influence
• More than 1,100 clients: institutions, mutual funds, corporate and public pension funds, hedge funds, college
endowments and other ISS followers
• Many institutions strictly follow ISS recommendations when voting their shares
• Reviews issues separately with both sides in a proxy contest before releasing its recommendation to clients
• 10-14 days before annual shareholder meeting, it issues its report
• This year, it seems it will be about executive compensation
• Scheduled events include look ahead 2016 proposal, fulfill your 2016 PRI reporting and Forecasting key issues
for 2016 proxy
– Glass Lewis & Co.
• Owned by Ontario Teachers’ Pension Plan Board
• Major competitor of ISS
• 1,200 clients include mutual funds, index and public pension funds
• 200,000+ research reporting annually with 360+ employees
• In 2010, Glass Lewis merged with Proxy Governance
• His public forum called “Proxy Talk” is a major public debate, this year, 2016 proxy season previews
• Glass Lewis can influence 10% or more of the vote in a proxy contest
• It favors minority representation for dissident and influence a lot of voters like ISS
– Egan-Jones Proxy Services
• Established in 2002 by Egan-Jones Rating Co
• Provides proxy research, voting recommendations and proxy services on a few companies
• Unlike Glass Lewis it does not automatically make recommendation against ISS; at the same token, it does not
hold any public contest forum
• It is conference calls oriented

ISS and Glass Lewis & co proxy fights factors for
examinations
– Long-term performance (Total Shareholder Return vs.
market and peers)
– Earnings and cash flow trends
– Strong Board oversight (vs. an “royal” CEO)
– Board accountability (e.g., anti-takeover provisions,
ignoring proposals from shareholders)
– Corporate governance “best practices”
– Nominee experience, track record, independence and
conflict of interest
– Ability to work constructively with activists after the
proxy fight
– Length of ownership (“owners managers align with
residual claimants interests ” versus “renters
employees align with low risk)”
– Does the market reaction to dissident fight with a
change in price therefore change in value?

Achieving Success at the Regulatory
Agencies
• Have a plan
• Avoid delay and 2nd phase (including litigation)
• Have a good team
• Get the data
• Get an articulate and media connected corporate PR
• Answer all issues
• Do not delay your SEC filing, it will create more
problems
• Use data to build arguments, do not take it personal
• Settle when it is in a best interest of your shareholders
and dictated by BJR (it’s business)

A Strong Defense Requires a Multi-Talented Team
• Management-leads the defense and keeps the board informed of the
events
• Board of Directors-Directors must work hard and attend all meetings;
review all minutes and understand them or ask questions and make
decision based on informed BJR
• Investment bank-analyzes the bidder’s offer, assists with the target’s
response to the offer and the development of the defense campaign
platform, strategy and tactics
• Law firm-briefs the BoD on fiduciary duties, ensures compliance with the
federal securities laws and state corporate law, reviews all communication,
drafts any proxy/tender offer materials, and handles any litigation
• Proxy solicitor- analyzes the prospectus for success, identifies the
shareholders, sets up investor meetings, organizes meetings and calls with
proxy advisory firms, and tracks the flow of tenders or votes
• Financial PR firm- drafts press releases, ‘fight’ letters and other
communications, and works with the media (4th power)

Other legal considerations in offering (next)
Types Section Descriptions
SEC Reporting laws Forms • Sch TO and Sch TO/A, SC 14A, SCH 14 C, PRE and Def
• S-4
• Sch 14D-1
RESEARCH REPORTS
Research by offering
participants
covering other types
of securities
Rule
138
Research by brokers/dealers that are offering participants permitted if:
• On a reporting issuer current in its Exchange Act reports or certain foreign private
issuers as currently permitted
• Confined to a different type of security; and
• Broker/dealer previously published research reports on the types of securities
covered in regular course of business
For instance, if a registration statement has been filed for a non-convertible bond or a
non-convertible preferred stock, a broker/dealer, who is a participant in a distribution of
the securities, may in the normal course of business issue recommendation, information
or opinions relating to the issuer’s common stock or a convertible securities. If the
registration statement convers common stock or a convertible securities of the issuer and
broker dealer may only issue recommendation, information or opinions relating to the
issuer’s non convertible debt or preferred stock
• Applies in Rule 144 A and Regulation S
Research by non
offering participants
Rule
137
Research by brokers/dealers that are not offering participants permitted on all issuers.
They may issue recommendations, information or opinions regarding securities that are in
the registration as long as they did not receive compensation from the issuer, selling
shareholder or any other participant
Research by
Offering participants
covering issuer or
any class of its
securities
Rule
139
Underwriter participating in a distribution of securities by certain seasoned issuers can
publish on going research about the issuer and the securities without being deemed to
offer those securities by way of its research reports. Rule 139 research can take the form
of issuer specific reports, or more general reports covering an industry or sector 67

Other legal considerations in offering (end)
Types Section Descriptions
Research by
offering
participants
covering issuer
or any class of
its securities
Rule
139
• Issuer -specific research by brokers/dealers that are offering participants permitted if:
• On an issuer eligible to use Form S-3 or F-3 for primary offerings or certain foreign
private issuers as currently permitted
• Broker/dealer publishes research reports in regular course of business; and
• Broker/dealer previously published research reports on issuer or its securities
• Industry research permitted if:
• On a reporting issuer or certain foreign private issuers as currently permitted
• Broker/dealer publishes research reports in regular course of its business; and
• Includes similar information about issuer or its securities in similar reports (but
may contain a more favorable recommendation than prior recommendation)
• Permits initiation of coverage on a new class of issuer securities if research reports
on issuer or any class of securities previously published
• Applies in Rule 144A and Regulation S Offerings
List of actions prohibited to Researchers
• Publish research reports concerning the securities of an issuer immediately following its IPO or expiration of any lock-
up agreement
• Publish research reports concerning issuers that are the subject of any public offering of common equity securities
even if the firm is participating in the offering
• Participate in meetings with representatives of an issuer, attended by Investment Banking personnel
• Contact potential investors in an issuer’s IPO
• Make public appearances concerning the securities of an issuer
• Solicit business for Investment Banking personnel
• Engage in communications with potential investors in the presence of Investment Banking personnel
• Share price targets and ratings with an issuer prior to the launch of a deal
• Be compensate based on Investment Banking revenue
68

Form 8-K
• A company is required to file under item 5.07 the results of
a shareholder vote within 4 business days
• Requirements:
– Indicate date of the meeting and whether it was annual or
special meeting
– Provide name of each director elected at the meeting
– Describe briefly each matter voted upon at the meeting
– Disclose the number of votes cast for, against or withheld
– Disclose the number of abstentions and broker non-votes
– Provide a tabular representation with respect to each nominee
for office
– Describe terms of any settlement between the registrant and
any other participant terminating any solicitation including cost
or anticipated cots to the registrant
• After 150 days after the nonbinding shareholder vote of say
on pay, the company must file Form 8-K under item 5.07

70
SEC Comments
• Trends in SEC comments:
– Peer group and benchmarking
• describe how peers are selected and data is used; disclose where
actual payments fell in range
– Performance targets
• disclose any material performance targets; identify the specific
targets; disclose actual results
– Compensation Discussion and Analysis
• “how” and “why”
• The SEC staff questions the use of the simplified method when
historical data appears to be available or the characteristic of the
awards are not plain vanilla
– Related party transactions
– Policies and procedures
– Transactions involving indebtedness

References Reg 14ARule 14a-1 definitions
Rule 14a-2 Solicitations to which Rule 14a-3 to Rule 14a-15 apply
Rule 14a-3 Information to be furnished to security holders
Rule 14a-4 Requirements as to proxy
Rule 14a-5 Presentation of information in proxy statement
Rule 14a-6 Filing requirements
Rule 14a-7 Obligations of registrants to provide a list of, or mail soliciting material to security holders
Rule 14a-8 Shareholder proposals
Rule 14a-9 False or misleading statements
Rule 14a-10 Prohibition of certain solicitations
Rule 14a-11 [Reserved]
Rule 14a-12 Solicitation before furnishing a proxy statement
Rule 14a-13 Obligations of registrants in communicating with beneficial owners
Rule 14a-14 Modified or superseded documents
Rule 14a-15 Differential and contingent compensation in connection with roll-up transactions
Rule 14a-16 Internet availability of proxy materials

References Reg 14a (end)Rule 14a-17 Electronic shareholder forums
Rule 14a-18 Disclosure regarding nominating shareholders and nominees submitted for inclusion in a
registrant’s proxy materials pursuant to applicable state or foreign law or a registrant’s
governing documents
Rule 14a-20 Shareholder approval of executive compensation of TARP recipients
Rule 14a-21 Shareholder approval of executive compensation, frequency of votes for approval of
executive compensation and shareholder approval of golden parachute compensation
Rule 14a-102 [reserved]
Rule 14a-103 Notice of exempt solicitation, information to be included in statements submitted by or on
behalf of a person pursuant to Rule 14a-6(g)
Rule 14a-104 Notice of exempt preliminary roll-up communication, information regarding ownership
interests and any potential conflicts of interests to be included in statements submitted by
or behalf of a person pursuant to Rule 14a-1(b0(4) and Rule 14a-6(n)
Rule 14b-1 Obligation of registered brokers and dealers in connection with the prompt forwarding of
certain communications to beneficial owners
Rule 14b-2 Obligation of banks, associations and other entities that exercise fiduciary powers in
connection with the prompt forwarding of certain communications to beneficial owners

This NAL will not be empty at GE in the future, the investor communication is in
great shape at GE and perfecting itself.

SEC compliance and disclosure - proxy rules and procedures

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