14C Information Statement Requirements for a Pre-Merger Recapitalization
Posted by Securities Attorney Laura Anthony | May 8, 2014 Tags: , , , , ,

Background on 14C Information Statements

All companies with securities registered under the Securities Exchange Act of 1934, as amended, (i.e., through the filing of a Form 10 or Form 8-A) are subject to the Exchange Act proxy requirements found in Section 14 and the rules promulgated thereunder.  The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the approval of any corporate action requiring shareholder approval.  The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules.

Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which shareholders are asked to vote.  The disclosure information filed with the SEC and ultimately provided to the shareholders is enumerated in SEC Schedules 14A.

Where a shareholder vote is not being solicited, such as when a Company has obtained shareholder approval through written consent in lieu of a meeting, a Company may satisfy its Section 14 requirements by filing an information statement with the SEC and mailing such statement to its shareholders.  In this case, the disclosure information filed with the SEC and mailed to shareholders is enumerated in SEC Schedule 14C.  As with the proxy solicitation materials filed in Schedule 14A, a Schedule 14C Information Statement must be filed in advance of final mailing to the shareholder and is reviewed by the SEC to ensure that all important facts are disclosed.  However, Schedule 14C does not solicit or request shareholder approval (or any other action, for that matter), but rather informs shareholders of an approval already obtained and corporate actions which are imminent.

In either case, a preliminary Schedule 14A or 14C is filed with the SEC, who then reviews and comments on the filing.  Upon clearing comments, a definitive Schedule 14A or 14C is filed and mailed to the shareholders as of a certain record date.

Generally, the information requirements in Schedule 14C are less arduous those in a Schedule 14A in that they do not include lengthy material regarding what a shareholder must do to vote or approve a matter.  Moreover, the Schedule 14C process is much less time-consuming, as the shareholder approval has already been obtained.  Accordingly, when possible, Companies prefer to utilize the Schedule 14C Information Statement as opposed to the Schedule 14A Proxy Solicitation.

Pre-Merger Recapitalization

Generally, public company shareholders do not have the right to vote on a merger or acquisition transaction.  Such mergers or acquisitions are usually structured such that the public company completes the merger or acquisition via the issuance of shares of common or preferred stock.  In such cases, where the merger or acquisition is being accomplished via the issuance of authorized but previously unissued stock of a public company, the board of directors has the full power and authority to complete the transaction without shareholder approval.

However, in many instances the public company requires a pre-transaction recapitalization involving a reverse stock split and/or increase in authorized capital stock in order to have the available capital stock to issue at the closing of the merger or acquisition transaction and to provide the target entity and its shareholders with the agreed-upon share ownership and capital structure.  Shareholders do have the right to vote on recapitalization transactions, including a reverse stock split and a change in authorized capital stock.

Here is the catch.  Item 1 of Schedule 14C requires that the company provide information that would be required as if a vote were being solicited via a 14A Proxy Solicitation and specifically provides “[N]otes A, C, D, and E to Schedule 14A are also applicable to Schedule 14C.”  Note A to Schedule 14A provides:

“Where any item calls for information with respect to any matter to be acted upon and such matter involves other matters with respect to which information is called for by other items of this schedule, the information called for by such other items also shall be given. For example, where a solicitation of security holders is for the purpose of approving the authorization of additional securities which are to be used to acquire another specified company, and the registrants’ security holders will not have a separate opportunity to vote upon the transaction, the solicitation to authorize the securities is also a solicitation with respect to the acquisition. Under those facts, information required by Items 11, 13 and 14 shall be furnished.”

In other words, if you are filing a Schedule 14C for a pre-merger or acquisition recapitalization, you must provide all the information related to that merger or acquisition as if the shareholders were voting on the merger or acquisition even though the shareholders are only voting on the recapitalization and even though the shareholders have no legal right to vote on the merger or acquisition itself.

Specific Disclosure Requirements in the Pre-Merger 14C

As enumerated in Note A to Schedule 14A, a pre-merger recapitalization 14C Information Statement must include the information required by Items 11, 13 and 14 of Schedule 14A.  Items 11, 13 and 14 of Schedule 14A require in-depth disclosures on the merger or acquisition transaction itself and on both the target and acquiring companies, including audited financial statements and stub periods to date and pro forma financial statements on the combined entities.  Management discussion and analysis must also be provided for both entities.

In addition to financial information, Item 14 also requires, for example, in-depth disclosure regarding the business operations and disclosures related to regulatory approvals, transaction negotiations and property descriptions.  Many reading this will notice that the disclosures are analogous to a Super 8-K. The analogy is accurate, although the Super 8-K has additional requirements as well.

For entities engaging in a merger or acquisition transaction that would require the filing of a Super 8-K (i.e., where the public company is a shell company), the positive side is that the attorneys, accountants and auditors are putting together documents and information and engaging in efforts that would need to be completed for the Super 8-K in any event, just with an altered earlier timeline.  The efforts can be seen as a head start on the Super 8-K preparation.

However, for entities that would not be required to file a Super 8-K, such as where the public company is not a shell company, the efforts and altered timeline are substantially different.  When a public company that is not a shell company completes a merger or acquisition that requires the preparation and filing of financial statements on the acquired company (the determination of financial statement requirements is beyond the scope of this blog), it has 71 days following the closing to file such financial information via Form 8-K.  In the case of a pre-merger recapitalization 14C filing, the financial information, including audited financial statements, must be completed and filed prior to the closing.


Companies with securities registered under the Securities Exchange Act of 1934 and the target companies that they are planning to acquire or merge with must be prepared to file audited financial statements, pro forma financial statements, management discussion and analysis and other in-depth disclosure in a pre-merger 14C Information Statement where such Information Statement is for the purpose of a pre-merger recapitalization.

The Author

Attorney Laura Anthony

Founding Partner, Legal & Compliance, LLC

Securities, Reverse Merger and Corporate Attorneys

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size OTC issuers as well as private companies going public on the over-the-counter market, such as the OTCBB, OTCQB and OTCQX. For nearly two decades Ms. Anthony has structured her securities law practice as the “Big Firm Alternative.” Clients receive fast, personalized, cutting-edge legal service without the inherent delays and unnecessary expenses associated with “partner-heavy” securities law firms.

Ms. Anthony’s focus includes, but is not limited to, registration statements, including Forms 10, S-1, S-8 and S-4, compliance with the reporting requirements of the Securities Exchange Act of 1934, including Forms 10-Q, 10-K and 8-K, 14C Information Statements and 14A Proxy Statements, going public transactions, mergers and acquisitions including both reverse mergers and forward mergers, private placements, PIPE transactions, Regulation A offerings, and crowdfunding. Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as Merger Agreements, Share Exchange Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile.

Contact Legal & Compliance LLC. Technical inquiries are always encouraged.

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