On August 25, 2022, the SEC issued three Compliance and Disclosure Interpretations (CDIs) regarding the universal proxy rule (Rule 14a-19). Two of the CDIs (139.01 and 139.02) relate solely to proxy contests and will be covered in a separate post. This post addresses new CDI 139.03, which should be considered by any company filing a proxy statement, regardless of whether the proxy statement relates to a contested solicitation. CDI 139.03 addresses disclosure of the Rule 14a-19 universal proxy notice deadline when a company's advance notice bylaw imposes a deadline that is earlier than the deadline imposed by Rule 14a-19, which is the case for many public companies.
Item 1 of Schedule 14A requires disclosure pursuant to Rule 14a-5(e). That Rule requires a company to disclose in its proxy statement the deadline, under Rule 14a-19, for a dissident shareholder to provide notice of its proxy solicitation in support of its director nominees for election at the next annual meeting. Rule 14a-19(b)(1) requires that such dissident shareholder provide notice of its election contest, generally, no later than 60 calendar days before the anniversary of the prior year's annual meeting date. CDI 139.03 provides that where a company's advance notice bylaw requires notice earlier than the time required by Rule 14a-19(b)(1), a company is permitted to disclose only its earlier advance notice bylaw deadline to satisfy Rule 14a-5(e)(4). Importantly, the CDI also notes that, to the extent that the company's advance notice bylaw does not set forth the same requirements outlined in Rule 14a-19(b), the company's proxy statement must clearly state the need for the dissident shareholder to comply with the additional requirements of Rule 14a-19(b).
Many public companies' advance notice bylaw requires notice to be provided no earlier than 120 days and no later than 90 days prior to the first anniversary of the prior year's annual meeting. In addition, in our experience, many companies' bylaws do not mandate that a nominating sharheolder provide all of the information required by Rule 14a-19(b) because they do not include the 67% percent solicitation requirement of such Rule. While some companies have amended their bylaws to include such requirement, many have not, given that the universal proxy rule was adopted less than a year ago.
Given the foregoing, where applicable, we recommend that public companies add the following sentence to their proxy statements, in the section disclosing the various deadlines required by Rule 14a-5(e): “In addition, shareholders who intend to solicit proxies in support of director nominees other than the company's nominees must also comply with the additional requirements of Rule 14a-19(b)”.
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