SEC Adopts Final Rules Regarding Proxy Access

The SEC recently adopted amendments to the proxy rules, generally set forth in Rule 14a-11 of the Exchange Act, permitting shareholders to nominate directors in the company's proxy materials thereby providing shareholders with an alternative to the expensive and complicated process of preparing their own proxy materials. The new rules also modify the provisions of Rule 14a-8 that in the past have allowed companies to exclude from their proxy materials shareholder proposals that relate to the nomination and election of directors. 

 

The rules become effective November 15, 2010 (November 15, 2013 for smaller reporting companies). Under the new rules, shareholders must submit nominees and file Schedule 14N (discussed below) no earlier than 150 calendar days and no later than 120 calendar days before the anniversary date that the company mailed its proxy materials for the prior year's annual meeting.

 

Rule 14a-11 permits a shareholder (or group of shareholders) who (i) hold at least three percent of the total voting power of the company's securities entitled to vote on the election of directors and (ii) has held such percentage of shares continuously for at least three years, to use the company's proxy materials to submit director nominations. Nominating shareholders are required to certify that they are not attempting a change of control of the company or seeking to gain more board seats than the maximum provided for by the rule. The shareholder must have held such shares continuously for three years as of the date of filing the Schedule 14N and must continue to hold such shares through the date of the meeting. For shareholders that form a group to satisfy the three percent threshold, each member must satisfy the three year holding requirement.

 

Ownership, for purposes of determining the eligibility of shareholders, requires the shareholder hold, directly or through a person acting on its behalf, both investment and voting power over the shares. So shares such as those acquired in a short sale, shares that could be acquired (e.g. securities underlying exercisable options that have not been exercised) and borrowed shares should not be counted towards ownership for purposes of the rule.  More...

If you have any questions, please contact Joseph P. Kubarek at 716.843.3862 or jkubarek@jaeckle.com, Michael C. Donlon at 716.843.3881 or mdonlon@jaeckle.com or Kayla E. Klos at 716.843.3858 or kklos@jaeckle.com.