September 19, 2016
Say-on-Frequency: EGCs
– Broc Romanek
A member recently posted this query in our “Q&A Forum” (#1147):
Generally, a former EGC must hold a say-on-pay vote no later than one year after it ceases to be an EGC (except if a company was an EGC for less than two years after the company’s IPO, it has up to three years after the IPO to hold the vote). The JOBS Act is silent as to when the frequency of say-on-pay vote is required to take place after a company ceases to be an EGC.
SCENARIO 1: If an EGC IPOs in 2012, but in 2016 ceases to be an EGC (because it becomes a large accelerated filer due to its public equity float), then it must hold a say-on-pay vote in 2017. At the same meeting, the issuer would also hold its say-on-frequency vote.
SCENARIO 2: If an EGC IPOs in 2015, but in 2016 ceases to be an EGC (because it becomes a large accelerated filer due to its public equity float ) and therefore was an EGC for less than 2 years, then it would be required to hold a say-on-pay vote in 2018. The say-on-frequency vote would be required at the first annual meeting that takes place after the issuer ceases to be an EGC — in 2017. The frequency vote would thus be required before the say-on-pay vote.
Presumably, the issuer would voluntarily hold its first say-on-pay vote as a non-EGC at the same meeting as the frequency vote, but is there any guidance that would counsel a different result – e.g., it would be OK for the issuer to hold its frequency vote in 2018 when it is required to hold its first say-on-pay vote as a non-EGC?
Here’s the answer that I posted from Mark Borges:
While many of us may have assumed that, in the case of emerging growth companies, the relief from “Say-on-Pay” under section 14A(e)(2)(B) applied equally to the “Say-on-Frequency” vote, it is my understanding that the SEC Staff never agreed with that interpretation and that, if asked, would indicate that an EGC that lost this status within two years of its IPO date had to conduct a “Say-on-Frequency” vote in the first year following the loss of status. In fact, I believe that the JCEB received a response to that effect last year.
Thus, in Scenario #1, the initial “Say-on-Pay” vote and “Say-on-Frequency” vote would occur in 2017.
As for Scenario #2, the “Say-on-Frequency” vote would clearly precede the initial “Say-on-Pay” vote, and I believe it would need to be conducted in 2017.