New SEC Updates on Universal Proxy

We knew the SEC would need to address gaps in the new regulation. Last week it issued three interpretations, or CD&Is, that cover some glaring ones. Scroll down to Section 139 of the release for the specific language.

Of the three, one clarifies nicely some (but not all) of the confusion around multiple activists. Another prompts a neat idea about how to build in a contingency plan for changing nominees. The third is rather technical, about what information companies should include in proxy materials pertaining to UPC notice deadlines.

Multiple Activists

We noted earlier how this could become a messy, confusing problem. Among other difficulties, the rule is silent on how multiple activists and the company should communicate nominees among themselves, pursuant to the 60- and 50-day notice deadlines for exchanging that information.

The new interpretation clears this up: the company serves as the locus of communication. It notifies all activists of all nominees at the same time it sends out the company's nominees, at the 50-day notice deadline. In this way, individual activists need not communicate with each other separately from communicating with the company. The company will similarly convey changes in nominees among the different activists.

The interpretation does not cover two other gaps we identified: how the proxy card should list nominees from different activists, and how proxy materials should refer shareholders to further information about nominees from different activists. We await guidance from the staff.

More Nominees than Available Seats

Some clever party, probably a resourceful activist, asks a good question: can an activist notify a company of more nominees that there are available seats? Suppose a BoD has three seats available in the election. Can an activist send notice of four candidates?

An activist would do this to change nominees after the 60-day notice period passes, say if a nominee declines to finish the proxy contest. Maybe the company expands the size of the BoD and more seats become available.

The SEC will allow an activist to submit more nominees than available seats. The activist should specify the candidates that it nominates for the available seats, and separately list the additional or alternate candidates. This interpretation pertains only to the notice. The proxy card would list only the nominees identified, and not the additional or alternate candidates.

This is interesting! An activist would demonstrate foresight and strength to include extra well-qualified candidates in its notice to the company. Also, omitting these extra candidates does not preclude changes to an activist slate. It just makes it a little easier to change it.

UPC notice deadlines in proxy materials

Shareholders should see by now that companies have started to include future UPC notice dates in the section of the proxy materials that sets forth other similar deadlines. Buried somewhere in a proxy statement are the expected dates for advance notice of proposals and nominations, and for including proposals in proxy statements. Companies now must include the expected UPC filing deadlines.

Advance notice dates usually occur earlier than the 60-day notice for nominees under UPC, typically at least 120 days before the expected annual shareholder meeting. For a company with an advance notice date that is earlier than the 60-day UPC notice date, the SEC determined it can disclose only the advance notice date, and dispense with disclosing the 60-day UPC notice date. Note, this interpretation is for companies only; we include it here for completeness.

More to come, on the other multiple activist questions, complying with the 67% solicitation requirement, and many others...