As the Covid-19 pandemic continues to disrupt normal business operations and impede a third proxy/annual meeting season, the SEC has issued guidance regarding compliance with the federal proxy rules for upcoming annual meetings considering health, transportation, and other logistical issues raised by the spread of Covid. Layering onto the guidance directed at extra-ordinary circumstances is the growing underlying belief that virtual and hybrid meetings are here to stay and public America must navigate a new road map.
On January 19, 2022, the SEC Divisions of Corporation Finance (“CorpFin”) and of Investment Management issued guidance related to meeting the requirements of the federal proxy rules for holding annual meetings in light of Covid disruptions. In addition to the specific guidelines, the SEC strongly encourages all market participants, including broker-dealers, transfer agents, and proxy service providers to be flexible and work collaboratively with one another with the goal of facilitating a company’s obligation to hold an annual meeting.
In late October the SEC issued its first updated Staff Legal Bulletin on shareholder proposals in years – Staff Legal Bulletin No. 14H (“SLB 14H”). The legal bulletin comes on the heels of the SEC’s announcement on January 16, 2015, that it would no longer respond to no-action letters seeking exclusion of shareholder proposals on the grounds that the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders and the same meeting, as further discussed herein. SLB 14H will only allow exclusion of a shareholder proposal if “a reasonable shareholder could not logically vote in favor of both proposals.” As a result of the restrictive language in SLB 14H, it is likely that the direct conflict standard will rarely be used as a basis for excluding shareholder proposals going forward. With the publication of SLB 14H, the SEC will once again entertain and review no-action requests under the “direct conflict” grounds for exclusion.
Although in the small cap marketplace, proxy season really spreads all year, the majority of issuers hold annual meetings in connection with the issuance of their annual reports and the majority of issuers have a December 31 fiscal year end. Accordingly, in the coming months, public companies will be preparing their annual shareholder meeting notices and be dealing with the associated shareholder proposals.
The regulation of corporate law rests primarily within the power and authority of the states. However, for public companies, the federal government imposes various corporate law mandates including those related to matters of corporate governance. While state law may dictate that shareholders have the right to elect directors, the minimum and maximum time allowed for notice of shareholder meetings, and what matters may be properly considered by shareholders at annual meeting, Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules promulgated thereunder, govern the proxy process itself for publicly reporting companies.
A spin-off is when a parent company distributes shares of a subsidiary to the parent company’s shareholders such that the subsidiary separates from the parent and is no longer a subsidiary. The distribution normally takes the form of a dividend by the parent corporation. In Staff Legal Bulletin No. 4, the Securities and Exchange Commission (SEC) explains how and under what circumstances a spin-off can be completed without the necessity of filing a registration statement.
In particular, the subsidiary shares (the shares distributed to the parent company shareholders) do not need to be registered if the following five conditions are met: (i) the parent shareholders do not provide consideration for the spun-off shares; (ii) the spin-off is pro-rata to the parent shareholders; (iii)