Notice of Exempt Solicitations are under scrutiny

By Sanjay Shirodkar & Jenna Fontenot on February 18, 2025

Posted in Annual meetings, Corporate governance, Proxy solicitations, Proxy voting, SEC developments, Shareholder engagement

It may now be more difficult to use the exempt solicitation process as a messaging tool. As one of the first acts of the new US Securities and Exchange Commission (SEC) Administration, the staff of the SEC revised certain Compliance and Disclosure Interpretations (C&DIs) related to the use of Notice of Exempt Solicitation (PX14A6G) filings under Rule 14a-6(g) of the Securities Exchange Act of 1934 (the Exchange Act). PX14A6G filings via Electronic Data Gathering, Analysis, and Retrieval (EDGAR) are a relatively low-cost method of publicly stating a party’s views and lobbying other stockholders on specific issues that are subject to an upcoming vote. In this post, we unpack the guidance and provide considerations about how the landscape has changed.

On January 27, 2025, the SEC staff revised two C&DIs, and added three new C&DIs related to Proxy Rules and Schedules 14A/14C, which are available here. The SEC staff has also provided redlines to the revised C&DIs (Question 126.06 and Question 126.07) to show what was changed.

Public companies and their directors will likely welcome these changes because there has been an explosion of exempt solicitation filings, among other matters, by third parties that are not affiliated with shareholder proponents, and these filings have been used by such parties to voice their grievances beyond the scope of shareholder proposals. Whereas in the past, many companies did not actively engage with parties using such filings, it is possible that now more public companies will seek assistance from their SEC counsel and, perhaps the SEC staff, to make sure that such filings comply with the revised interpretations, are not materially false and misleading, and are narrowly tailored to the issues in front of their stockholders.

The basics

In 1992, the SEC approved a package of changes that were designed to, among other matters, reduce proxy filings for stockholders. Rule 14a-2(b) of the Exchange Act was amended in 1992 to create an exemption from the proxy delivery and disclosure requirements for communications with stockholders, where the party soliciting was not seeking proxy authority and did not have a substantial interest in the matter subject to a vote.

It is believed that the revised guidance is intended to curtail a potentially abusive practice that took off after 2018 when the SEC staff issued two C&DIs that provided guidance and clarity on the use of Notice of Exempt Solicitation voluntarily. For example, based on data that we reviewed from Deal Point as of February 6, 2025, in 2018 there were 168 such filings. In 2024, there were 414 such filings. Further, there were 24 such solicitations by advocacy organizations (or about 14.3 percent of the total) in 2018. In calendar year 2024, these organizations submitted 187 such solicitations (or about 58 percent of the total). Similarly, ESG-focused asset managers accounted for about 24 (14.3 percent) of such solicitations in 2018 but accounted for about 66 (20.5 percent) of such solicitations in 2024. At an individual level, in 2018, there were about 30 such solicitation (about 18 percent). In 2024, for individuals we saw that there were about 51 such proposals (approximately 16 percent).

Benefits to a proponent using an exempt solicitation may include:

There are no word count limitations, such as the 500-word limit under Rule 14a-8 of the Exchange Act
The solicitation may address multiple issues
The solicitation is not subject to any advance notice requirement
The solicitation may be used to solicit against directors nominated by management, and
The solicitation may be used to oppose a management-proposed sale or a merger transaction.

These filings are also made shortly before the stockholder meeting so they may influence stockholder voting.

It is believed that the most recent SEC staff guidance may curtail the number of exempt solicitation filings.

Revised C&DIs

Additional disclosure for voluntary filers. Depending on the situation, the revision to this C&DI requires voluntary filers to specifically state on the cover page of the filing that the soliciting person does not beneficially own more than $5 million of the class of subject securities, and that the notice is being provided voluntarily. (revised Question 126.06)

Implication: The revision may help a reader understand whether the party making the voluntary filing has a shared interest in the matter with the company’s shareholders.

Cover page requirement. Rule 14a-6(g)(1) requires a Notice of Exempt Solicitation to contain the information specified in Rule 14a-103, including the name and address of the person relying on the exemption in Rule 14a-2(b)(1), and that the written soliciting material be attached to the notice. (revised Question 126.07)

Implication: The revision merely restates the SEC staff’s view that Rule 14a-103 information must precede any soliciting materials.

New C&DIs

Requirement to provide written soliciting materials. This significant new interpretation clarifies that written soliciting materials under the cover of a Notice of Exempt Solicitation on EDGAR are intended to notify the public of the written soliciting material that the person has sent or given to security holders through other means. (new Question 126.08)

Implication: This new interpretation is a reminder that PX14A6G filings are only available when the soliciting person has distributed the materials before filing them on EDGAR under Rule 14a-6(g).

Restrict use of solicitations. This new interpretation provides that only written communications that constitute a “solicitation” can be submitted under the cover of a PX14A6G. (new Question 126.09).

Implication: This new interpretation clarifies that “a written communication solely about matters that are not the subject of a solicitation by the registrant or a third party for an upcoming shareholder meeting generally would not be viewed as a solicitation and, therefore, should not be submitted under the cover of a Notice of Exempt Solicitation.”

Reminder of Rule 14a-9 liability. This new interpretation reminds users that a Notice of Exempt Solicitation is subject to liability under Rule 14a-9 of the Exchange Act. (new Question 126.10)

Implication: The SEC staff reminds us that exempt solicitations are subject to Rule 14a-9, which prohibits materially false or misleading statements. We have seen filings that address extraneous issues – ie, issues that are not directly in front of the company’s stockholders. It is believed that the new interpretations correctly limit what can be discussed in such PX14A6G filings and present an opportunity for public companies to challenge assertions made in such filings.

While we have not confirmed with the SEC staff, they will likely be taking an active role in asking some difficult questions to any party using these solicitations. Meaning, if parties are planning to use exempt solicitations, they are encouraged to be familiar with these new and revised C&DIs, as the SEC staff may be monitoring such filings. Public companies that are the subject of exempt solicitations that do not comply with the revised SEC staff guidance are advised to consult with their SEC counsel. There may be an opportunity to raise this issue with the SEC staff.