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!

By Brandon Friedman and Howard Berkenblit

The Nasdaq Stock Market is temporarily providing an exception from shareholder approval requirements for certain common stock issuances, permitting companies to raise capital quickly to continue running their businesses. The exception is effective immediately and valid for transactions entered into through June 30, 2020 (and completed within 30 days).

The exception applies to shareholder approvals for the issuance of common stock (or securities convertible or exercisable into common stock) in connection with an issuance of 20% or more of pre-transaction shares outstanding at a price less than the minimum price, as defined by Nasdaq rules.

However, reliance on the exception must be publicly announced and the exception is limited to situations where the need for the transaction is due to circumstances related to COVID-19. In addition, the exception only applies to circumstances where the delay in securing shareholder approval would have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan, result in workforce reductions, adversely impact the company’s ability to undertake new initiatives in response to COVID-19, or seriously jeopardize the financial viability of the business.

https://www.sec.gov/rules/sro/nasdaq/2020/34-88805.pdf

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.

In light of coronavirus concerns, the SEC issued some 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, as well as encouraging companies to allow proponents of shareholder proposals to present their proposals remotely rather than in person:

https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns?auHash=zrsDVFen7QmUL6Xou7EIHYov4Y6IfrRTjW3KPSVukQs