By Julius J. Brecht
For the Journal

Those of you who hold equity investments in companies know that at least once a year - and more frequently if the company holds special meetings - you are courted to give your proxy to management for an annual meeting.

Before summarily relegating the proxy solicitation to your "round file," consider the following.

The solicitation is typically justified by management as a means of assuring that a quorum is present so that business may be conducted at the meeting. The quorum may be met by the equity owners each appearing in person or executing a proxy which is then presented at the meeting.

The concept of company equity-owner meetings, which apply to corporations, has been around for some time. It can, depending upon the circumstances, apply to limited liability companies and other business forms. Each has its origins in state statutory law. The ground rules for noticing and holding an equity-owner meeting are dictated by the laws of the state in which the company is organized.

For simplicity sake, let's focus on an annual meeting of equity owners of an Alaska corporation. Here, the corporation is subject to the Alaska Corporations Code. The equity holders are identified under the code as shareholders.

The Alaska code is similar, but not identical, to the corporate codes of other states. To minimize challenges to one's proxy solicitation efforts, the rules set forth in the code must be carefully followed.

The Alaska code requires that a corporation subject to it hold at least an annual meeting of shareholders. The code also requires an annual election of directors.

A company's board of directors must determine shareholders entitled to notice of, and to vote at, a meeting. Under the Alaska code, this task is accomplished by either closing the stock transfer book for a stated period or by identifying a record date for the meeting. The record date is the date on which the board determines who are the holders of the outstanding company shares. These persons are the ones entitled to receive notice of, and to attend and vote at the meeting. Under the code, the record date cannot be more than 60 days or less than 20 days prior to the meeting date.

The Alaska code requires a notice of annual meeting which includes an announcement of the date, time and location of the meeting. In the case of a special meeting, the notice must also state the purpose of the meeting. A typical notice may also set forth the agenda for an annual meeting, especially if management intends to address issues beyond the election of directors.

A form proxy for execution by a shareholder may accompany the notice. The Alaska code provides each person who is entitled to vote shares at a meeting may authorize another person to act by proxy with respect to those shares. In the context of a management proxy solicitation, the proxy holder is usually a member of the board. That is, such a solicitation is made on behalf of the board.

A letter from the president or board chair inviting the shareholders to the meeting may also accompany the notice. The letter may request that the shareholder complete and execute the proxy. By completing the proxy, the shareholder can specifically direct the way in which the proxy is to be voted. For example, the shareholder may mark the proxy as voting the shareholder's shares for candidate A but not for candidate B.

The Alaska code does not provide much guidance as to the form of proxy. However, the code does limit the use and effectiveness of a proxy. For example, a proxy is, with limited exception, only valid for up to 11 months. The exception is for a qualified irrevocable proxy under specific conditions set forth in the code.

In a proxy solicitation, the notice should be accompanied by a proxy statement which describes the issues to be addressed at the meeting. The Alaska code does not provide much in the way of guidance as to the content of the statement. Furthermore, much is left to the discretion of the proxy holder as to the method of proxy solicitation.

Should the company be incorporated in Alaska and be a registrant under the Securities Exchange Act of 1934, the story is decidedly different. In addition to the requirements as to a proxy provided in the Alaska code, such a registrant must satisfy numerous, detailed and lengthy rules for the preparation of the proxy, the proxy statement, the notice of meeting and the manner in which a proxy solicitation may be carried out.

Under these federal rules, the proxy materials must be filed with the Securities and Exchange Commission at least simultaneously with their distribution to shareholders. The most recent company annual report as filed with the SEC must also accompany this distribution.

In recent years, the SEC rules have further permeated and set forth requirements for the structure of the board, independence of directors, compensation of officers and directors, audit and nominating committees and ethics codes. They have also set forth detailed guidelines for various other issues pertaining to the relationships of executive officers and board members to shareholders and rights to address issues at a shareholder meeting.

As a result, the proxy solicitation process involving an exchange act registrant has become far more complex than it was only a few years ago. All of these new requirements funnel down to an impact on the process through which management may solicit proxies in compliance with the exchange act.

For the past number of years, all registrants filing proxy solicitation materials with the SEC have been required to do so in electronic form using its Electronic Data Gathering, Analysis and Retrieval System. These registrants are typically companies whose stock is also registered on the Nasdaq Stock Market or one of various stock exchanges around the country.

The system also contains numerous other required filings by exchange act registrants and is accessible through the SEC Web site. It provides a wealth of information on the filers. The SEC's Web site is www.sec.gov.

Now that you have received a management proxy solicitation, what do you do with it? If you know that you are going to attend the meeting and vote in person, you need do nothing, other than show up and participate in the meeting.

What happens if you end up not going to the meeting? The company, after going to considerable expense to organize and hold the meeting, may not be able to muster a quorum. In this instance, the meeting would be adjourned to a time when a quorum could be obtained. Alternatively, the company may be required to start all over again by noticing a new meeting - an expensive process.

A different course for you to consider is to complete and timely execute the proxy and return it to management to ensure a quorum. Then you can choose not to attend knowing that the meeting should not be adjourned for lack of your shares being counted to establish a quorum. Alternatively, you can attend, and, under the rules established by the company, revoke your proxy and vote your shares in person. In fact, the Alaska code gives a shareholder that revocation right.

Either way, you are able to participate in the meeting process in the best interest of your shares being counted on the issues before the shareholders. To do otherwise simply places the future of your investment in the control of others who may not have your best interests in mind.

Julius Brecht is managing shareholder of, and an attorney in private practice with the law firm of Wohlforth, Johnson, Brecht, Cartledge & Brooking, A Professional Corporation, with offices in Anchorage. Brecht's concentration of practice is in state and federal securities law and corporate and finance law. The content of this article was not prepared as, and must not be construed as, legal or investment advice to anyone. He may be reached at jbrecht@wvjb.com.