As we first noted in our March 2018 blog post, available here, and further discussed in our July 2018 client alert discussing shareholder proposals submitted to public companies during the 2018 proxy season, available here, both institutional and individual investors increasingly have used Notices of Exempt Solicitations under Exchange Act Rule 14a-6(g) as a means of publicizing shareholder proposals or addressing other matters being voted on at annual meetings. Rule 14a-6(g) requires a person who owns more than $5 million of a company's stock and who conducts an exempt solicitation of the company's shareholders (in which the person does not seek to have proxies granted to them) to file with the Securities and Exchange Commission (the “Commission") all written materials used in the solicitation.

As we have previously discussed, Notices of Exempt Solicitation, which appear on a company's EDGAR page as a PX14A6G filing, can be confusing to shareholders and other stakeholders because the Division of Corporation Finance (the “Staff") of the Commission has not previously addressed whether such filings must include a cover page containing information about the filer that clearly demonstrates that the notice was not filed by the company (in contrast to, for example, Schedule 13Gs and 13Ds). Moreover, filers have not been required to provide basic information in the notice, such as what interest they may have in the matter they are soliciting on or their share ownership in the company (or even to demonstrate that they are, in fact, a shareholder).

On July 31, the Staff released two new Compliance and Disclosure Interpretations (“C&DIs"), available here, providing guidance on the use of Notices of Exempt Solicitations.

The first C&DI, Question 126.06, confirms that “voluntary" Notices of Exempt Solicitations can be filed. Accordingly the Staff will continue to permit filers who do not own more than $5 million of a company's securities to use EDGAR as a means to draw attention to their views on various matters. However, under the Staff's new guidance, the filer must specifically state that its Notice of Exempt Solicitation is a voluntary filing. As a result, observers who know the intricacies of the securities laws will be informed that the filer owns $5 million or less of the company's stock.

The second C&DI, Question 126.07, clarifies that each Notice of Exempt Solicitation, whether filed voluntarily or because it is required under Rule 14a-6(g), must include a notice page setting forth the information required under Rule 14a-103. Rule 14a-103 requires that the filer disclose the name of the company with respect to which the filing is made and the name and address of the person making the exempt solicitation. The filer's soliciting materials should then be “attached" to the cover page. In C&DI Question 126.07, the Staff indicates that a Notice of Exempt Solicitation that consists only of the text of the soliciting material and that is not attached to such a cover page may be misleading under Rule 14a-9.

While these new C&DIs provide helpful guidance on the use of voluntary Notices of Exempt Solicitations, the C&DIs may not go far enough to address potential abuses that increasingly are arising when the EDGAR system is used as a platform for disseminating a filer's views. For example, C&DI Question 126.06 does not expressly require that the filer represent that it is in fact a shareholder. Absent further guidance from or review and comment on such filings by the Staff, the process allows anyone with EDGAR codes to submit filings unrelated (or only tangentially related) to a proposal, or to set forth disparaging or inflammatory views, subject only to the Rule 14a-9 standard governing false and misleading statements. For example, John Chevedden, who as of July 31 has made 21 of these filings in 2018, filed a Notice of Exempt Solicitation at Netflix, Inc., available here, a week after the company's annual meeting, which contained only a vague and confusing voting recommendation at the very end, and instead was devoted largely to criticizing the company's decision to hold a virtual annual meeting. However, the Staff has informally indicated that companies should contact them if they believe the PX14A6G process is being abused, and the new interpretations hopefully indicate that the Staff will be more proactive in reviewing and possibly commenting on such filings.

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We would like to thank Geoff Walter in our Washington DC office for his assistance on this article.

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