SEC Votes to Propose New Rules Providing Shareholders Access to Proxy Statements
June 1, 2009
On May 20, 2009, the SEC voted to propose rule amendments that would facilitate the rights of shareholders to nominate directors to corporate boards. The proposed rule amendments would create new Exchange Act Rule 14a-11, which would allow shareholders to include nominees in the company’s proxy materials unless otherwise prohibited by state law or a company’s charter/bylaws. Under the proposed rule, shareholders would be eligible to have their nominees included in the proxy materials if they own at least:
- 1% of the voting securities of a large accelerated filer
- 3% of the voting securities of an accelerated filer
- 5% of the voting securities of a non-accelerated filer
To achieve these thresholds, shareholders would be able to aggregate holdings, but would be required to have held the shares for at least one year. Shareholders would also be required to certify that they are not holding their stock for the purpose of changing control of the company or to gain more than a minority representation on the board of directors. Shareholders would be required to sign a statement with their intent to continue to own the shares through the annual meeting at which directors are elected. In addition, a shareholder would only be permitted to include the greater of one shareholder nominee, or a number of nominees that represents up to 25% of the company’s board of directors, in the company’s proxy materials.
The proposed rule amendments also contemplate a new Schedule 14N which a nominating shareholder would be required to file with the SEC and submit to the company. The nominating shareholder would have to disclose on Schedule 14N the amount and percentage of securities owned by the nominating shareholder and the length of time of ownership as well as the shareholder certification and statement referenced above. The proposed rule amendments would provide that a company is not liable for information provided by a nominating shareholder, unless the company knows or has reason to know that the information provided was false.
The proposals also amend Exchange Act Rule 14a-8(i)(8). Rule 14a-8(i)(8) currently permits companies to exclude shareholder proposals that “relate to an election.” Under the proposal, this exclusion would be narrowed to require companies to include in their proxy materials shareholder proposals, submitted by eligible shareholders, that would address a company’s nomination procedures or other director nomination disclosure provisions (as long as it does not conflict with proposed Rule 14a-11). The current eligibility provisions of Rule 14a-8 would govern which shareholders could submit a proposal. These provisions provide that a shareholder proponent must have continuously held at least $2,000 in market value (or 1%, whichever is less) of the company’s securities for a period of one year prior to submitting the proposal.
The actual text of the proposed rules has not yet been released by the SEC. However, public comments on the proposed rule amendments must be received by the commission within 60 days after their publication in the Federal Register.
http://www.sec.gov/news/press/2009/2009-116.htm
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