The SEC adopted amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders. The main changes were:

• amend Rule 14a-8(b) by:
  • replacing the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:
    • $2,000 of the company’s securities for at least three years;
    • $15,000 of the company’s securities for at least two years; or
    • $25,000 of the company’s securities for at least one year.
  • prohibiting the aggregation of holdings for purposes of satisfying the amended ownership thresholds;
  • requiring that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the shareholder’s behalf and to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
  • requiring that each shareholder state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.
    
• amend Rule 14a-8(c) by:
  • applying the one-proposal rule to "each person" rather than "each shareholder" who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting. Likewise, a representative will not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.
    
• amend Rule 14a-8(i)(12) by:
  • revising the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings from 3%, 6% and 10% for matters previously voted on once, twice or three or more times in the last five years, respectively, with thresholds of 5%, 15% and 25%, respectively. For example, a proposal would need to achieve support by at least 5% of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15% and 25% support, respectively, in order to be eligible for resubmission in the following three years.

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

In his remarks, the SEC Chair noted that he believes that additional changes to the proxy process still need attention such as the rules around counting of votes and so-called proxy plumbing – stay tuned!

Effective October 1^st, the SEC registration fee will decrease to $109.10 per million dollars registered from the current rate of $129.80 per million dollars.

The SEC has proposed to amend Form 13F to update the reporting threshold for institutional investment managers from $100 million to $3.5 billion. The threshold has not been adjusted in over 40 years. Section 13(f) of the Exchange Act requires an investment manager to file a report with the SEC if the manager exercises investment discretion with respect to accounts holding certain equity securities having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100 million. If the amendments are approved, that threshold would be raised substantially. The proposal would also require SEC review of the Form 13F reporting threshold every five years and would eliminate the ability of managers to omit certain small positions.

The SEC staff has issued new guidance regarding companies’ disclosure considerations regarding operations, liquidity and capital resources in light of COVID-19. The guidance, which largely reiterates the same themes as the staff’s prior guidance, encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 “through the eyes of management” and to proactively revise and update disclosures as facts and circumstances change.

The new guidance focuses on three areas:

1. Operations, liquidity and capital resources – this part of the guidance focuses on disclosures about the impact of adjustments being made by companies such as teleworking, supply chain and distribution adjustments, suspension of repurchase plans and dividends and changes in response to health and safety guidelines. In particular, the guidance contains a number of “considerations” in the form of questions for companies to consider addressing in their disclosures with respect to financing activities, short- and long-term liquidity risks and alternative funding sources.
2. Government assistance – CARES Act – this part of the guidance focuses on disclosure considerations about the impact of government assistance to those companies receiving COVID-19-related loans, tax relief or other benefits, including the impact on related critical accounting estimates and assumptions.
3. Ability to continue as a going concern – this part of the guidance focuses on whether the conditions and events surrounding COVID-19 raise substantial doubt about a company’s ability to meet its obligations.

Companies offering securities or preparing disclosure documents such as upcoming quarterly reports should carefully review and apply the new guidance (it’s quite short and clear!) (and of course continue to apply prior SEC guidance to updated changing circumstances).

The SEC staff is providing temporary relief to those affected by COVID-19 regarding Forms 144 submitted for the period from and including April 10, 2020 to June 30, 2020. The Division of Corporation Finance staff will allow Forms 144 that would otherwise be filed in hard copy (or by EDGAR, which remains an alternative) to be submitted via email in lieu of mailing or delivering the paper form to the SEC if the filer or submitter attaches a complete Form 144 as a PDF attachment to an email sent to PaperForms144@SEC.gov. If the filer or submitter is unable to provide a manual signature on the Form 144 submitted by email, the relief allows the filer or submitter to provide a typed form of signature in lieu of the manual signature, as long as (1) he or she retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic submission and provides such document, as promptly as practicable, upon request by the SEC staff; (2) such document indicates the date and time when the signature was executed; and (3) the filer or submitter (with the exception of natural persons) establishes and maintains policies and procedures governing this process.

The SEC staff has further updated its relief and guidance for public company shareholder meetings in light of COVID-19 concerns (see: https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns). In March, the SEC had issued guidance and relief from filing conditions for companies thinking of switching to virtual shareholder meetings or delaying their meetings after their initial proxy materials have been sent (see our client advisory at: https://www.sullivanlaw.com/news-SEC-Provides-Conditional-Regulatory-Relief-for-Public-Companies-Impacted-by-Coronavirus.html). In the updated guidance, among other things, the SEC provides further relief from some of the requirements for companies switching from “full set delivery” (i.e., physical mailing of all proxy materials), due to delays in printing and mailing as a result of the impact of COVID-19, to “notice and access” (i.e., physical mailing of only a notice of availability of online proxy materials), including relaxing the normal requirement for the notice of availability of proxy materials to be mailed at least 40 calendar days before the applicable shareholder meeting where unavoidable delays in printing and mailing make that time requirement no feasible. The updates also make clear that the guidance applies to special meetings of shareholders, not just annual meetings.

The Chair of the SEC and the Director of the SEC’s Division of Corporation Finance put out an unusual joint statement emphasizing the importance of disclosures about the potential impacts of COVID-19, particularly in light of upcoming earnings releases and analyst and investor calls. They "urge companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning." Disclosures should respond to investor interest in: (1) where the company stands today, operationally and financially, (2) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as collective efforts to fight COVID-19 progress. Among other things, the statement stresses the need for forward-looking information about the possible consequences to each company (and promises not to second guess companies’ good faith efforts). Notably the statement observes that "Historical information may be relatively less significant." We recommend as each public company considers its upcoming public disclosures to review this statement in detail and try to respond to the expectations and requests that it contains.

As a follow up to the SEC’s previous acknowledgement of processing challenges due to coronavirus issues in preparing Form IDs to obtain EDGAR codes, the SEC has adopted a temporary final rule that provides relief from the notarization requirement from March 26, 2020 through July 1, 2020, subject to certain conditions. Among those conditions are that the filer indicates on its manually signed Form ID that it could not provide the required notarization due to circumstances relating to COVID-19, and that the filer submits a PDF copy of the notarized manually signed document within 90 days of obtaining an EDGAR account.

The SEC’s Division of Corporation Finance has issued updated disclosure guidance (https://www.sec.gov/news/press-release/2020-73) providing the SEC staff’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The guidance again reminds companies that where a company has become aware of a risk related to the Coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and discourage directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk. To the extent the company or insiders are engaged in transactions, or circumstances otherwise warrant it, the company should consider what disclosures are required in order to inform the public of its financial condition. When companies do disclose material information related to the impacts of the Coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate. Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the Coronavirus, can take steps to avail themselves of the normal safe harbor for this information.

Among the areas the guidance discusses for companies to consider are the impact of Coronavirus on:

• financial condition and results of operations, plus future operating results and near-and-long-term financial condition;
• capital and financial resources, including overall liquidity position and outlook (and if a material liquidity deficiency has been identified, what course of action the company has taken or proposes to take to remedy the deficiency);
• cost of or access to capital and funding sources, such as revolving credit facilities or other sources, and access to cash;
• material uncertainty about the ongoing ability to meet the covenants of credit agreements;
• the ability to service debt or other financial obligations, access the debt markets, including commercial paper or other short-term financing arrangements, maturity mismatches between borrowing sources and the assets funded by those sources, changes in terms requested by counterparties, changes in the valuation of collateral, and counterparty or customer risk;
• expected incurrence of any material COVID-19-related contingencies, impairments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on the company’s financial statements;
• the ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures, and any changes in controls that occurred during the current period that materially affect or are reasonably likely to materially affect the company’s internal control over financial reporting;
• implementing business continuity plans or required material expenditures to do so;
• demand for products or services;
• supply chain or the methods used to distribute products or services;
• human capital resources and productivity; and
• the ability to operate and achieve business goals due to travel restrictions and border closures.

The guidance also reminds companies of their obligations with respect to the presentation of non-GAAP financial measures, noting that to the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations. The guidance acknowledges that there may be instances where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete. In these situations, the guidance states that the Division of Corporation Finance would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results. The provisional amount or range should reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges. In addition, the guidance states that if a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors. If a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting.

In addition, as further detailed in our client advisory from last week (https://www.sullivanlaw.com/news-SEC-Provides-Conditional-Regulatory-Relief-for-Public-Companies-Impacted-by-Coronavirus.html), the SEC had offered public companies impacted by coronavirus extensions on their periodic report deadlines for reports due between March 1 and April 30, subject to meeting certain conditions (as described in our advisory). Today, the SEC further extended its relief to filings due between March and July 1.

The SEC has also encouraged companies facing other administrative difficulties in the filing process (e.g., inability to obtain a required signature due to an executive officer being located in a quarantined zone) to contact the staff who will help address these issues on a case-by-case basis in light of their fact-specific nature.

https://www.sec.gov/news/press-release/2020-73

The SEC has acknowledged that the COVID-19 public health crisis is presenting challenges for some entities and individuals applying for EDGAR codes. In particular, they are having difficulty meeting the notary requirement in the Form ID access application process and other EDGAR access processes that require notarization. The SEC has stated that it is “considering options to address this matter”. In the meantime they encourage anyone experiencing difficulties in meeting the notarization requirement in Form ID or related access processes due to the COVID-19 crisis to contact Filer Support at 202-551-8900 option 3.