On June 10, 2009, the SEC published a proxy access rule proposal for public comment. The Commission’s release, entitled “Facilitating Shareholder Director Nominations,” gives concrete form to the broad objectives the Commission outlined at its May 20, 2009 open meeting (at which it approved publication of the rule by three votes to two).
As expected, the SEC is proposing to:
· create a new Rule 14a-11 that would require companies to include shareholder nominees for directors in company proxy materials under prescribed circumstances, and
· revise existing Rule 14a-8(i)(8) to allow shareholder proposals to amend a company’s governing documents regarding nominating procedures or disclosure related to shareholder nominations, thus reversing the SEC’s 2007 prohibition on using Rule 14a-8 for shareholder proxy access proposals.
Proposed Rule 14a-11
The key features of the proposed rule are as follows:
· Companies Subject to Proxy Access: The proposed rule would apply to all Exchange Act reporting companies subject to the proxy rules, regardless of their size, including investment companies and companies that have voluntarily registered their stock (under Section 12(g)) but excluding debt-only issuers and foreign private issuers.
· Minimum Ownership: The proposed rule would set a tiered minimum-ownership requirement for shareholders seeking to nominate directors:
· 1 percent of the shares of a large accelerated filer (net assets of $700 million or more),
· 3 percent of the shares of an accelerated filer (net assets of $75 million or more, but less than $700 million), and
· 5 percent of the shares of a non-accelerated filer (net assets less than $75 million).
· Minimum Holding Period: Each nominating shareholder would be required continuously to have held the requisite number of shares for at least one year prior to the date it notifies the company of its intent to nominate a director, and must intend to hold the shares at least through the date of the annual or special meeting.
· Aggregation: Unaffiliated shareholders would be permitted to aggregate their holdings to meet the minimum share ownership threshold. There is no limit on the size of a nominating group. Communications for the purpose of forming a nominating group would be exempt from the proxy rules, provided they are limited in scope, do not request or solicit actual proxies and are filed with the Commission.
· Beneficial Ownership Reporting: The formation of a nominating group holding in excess of 5 percent of an issuer’s equity securities would still be required to be reported under Regulation 13D. However, the formation of a nominating group would not affect any group member’s otherwise existing eligibility to file on Schedule 13G rather than 13D. Moreover, an amendment to Rule 13d-1 would specifically allow groups formed solely to nominate a director pursuant to Rule 14a-11 to file on Schedule 13G.
· Timing of Nomination: Nominations would need to be submitted to the company on the same time schedule as Rule 14a-8 proposals (i.e., no later than 120 days prior to the date of publication of the prior year’s proxy material), unless a company’s advance notice bylaws provided for a shorter period.
· Mandated Disclosure and Filing: Each nominating shareholder (including each shareholder within a nominating group) would be required to represent as to a number of items, including that:
· the shareholder intends to hold its shares through the date of the annual meeting, as well as its intent with respect to continued ownership following the meeting (although the proposed rule is silent as to whether and how the shareholder’s lending of its shares during this period would affect either of these statements),
· the shareholder’s nominees are in compliance with applicable objective stock exchange independence requirements,
· neither the nominee nor the nominating shareholder has an agreement with the company regarding the nomination,
· the shareholder is not attempting to effect a change of control (or to gain more than a minority of directors),
· the candidate’s nomination to or initial service on the board, if elected, would not violate controlling state or federal law or applicable listing standards, and
· the shareholder or shareholder nominating group is eligible to use Rule 14a-11 in terms of the minimum share ownership requirements.
…continue reading: Proxy Access Proposed Rules Published by SEC