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On September 15, 2011, the Securities and Exchange Commission ("SEC") issued an effectiveness order confirming that the existing stay of the changes to Rule 14a-8(i)(8) had expired. As amended, Rule 14a-8 now allows shareholders to use a company's proxy materials to propose proxy access bylaws and other director nomination and election procedures. These amendments effectively provide shareholders a private order mechanism for adopting proxy access procedures on a company-by-company basis, starting with the upcoming 2012 proxy season.

It is difficult to predict whether shareholder proposals on proxy access, now permitted under Rule 14a-8(i)(8), will become common or what support such proposals will receive. We do expect to see variety, in both substance and form, in shareholder proposals on proxy access until a market practice develops over time.

The amendments to Rule 14a-8 were adopted by the SEC in August 2010 in connection with the SEC's adoption of its mandatory proxy access rules under Rule 14a-11. After Rule 14a-11 was challenged, the SEC stayed the effectiveness of the Rule 14a-8 amendments pending resolution of the challenge to Rule 14a-11. Rule 14a-11 was subsequently vacated earlier this year by the U.S. Court of Appeals, and the SEC, in an announcement on September 7, 2011, opted not to appeal the decision. On September 15, 2011, the SEC issued an effectiveness order confirming that the stay had expired.

Prior to these amendments, Rule 14a-8(i)(8) permitted companies to exclude from their proxy materials shareholder proposals related to election for membership on the company's board of directors. The amendments eliminate that exception by requiring a company include shareholder proposals in its proxy materials that amend or request that the board amend the company's governing documents regarding director nomination procedures or disclosures related to shareholder nominations. These could include, among other things, standards regarding when shareholders would be able to include their nominees in the company's proxy statement. The amendments to Rule 14a-8(i)(8) continue to restrict a shareholder’s ability to initiate an election contest between the company and shareholder nominees, and have codified certain SEC staff interpretations regarding situations in which a company may still exclude a director nomination-related proposal, including proposals that:

    • Would disqualify a nominee who is standing for election.

    • Would remove a director from office before his or her term expired.

    • Question the competence, business judgment, or character of one or more nominees or directors.

    • Seek to include a specific individual in the company’s proxy materials for election to the board of directors.

    • Otherwise could affect the outcome of the upcoming election of directors.
The SEC's effectiveness order also lifts the stay of other rules proposed in connection with Rule 14a-11. While many of the other proposed rules no longer make sense, parts of new Rule 14a-18 and amendments to Rule 14a-6 will have an impact on nominees included in a proxy statement through a company-adopted proxy access procedure. Under new Rule 14a-18, if a shareholder-proposed nominee is included in a company's proxy statement as permitted by that company's bylaws, the nominating shareholder must submit to the company a Schedule 14N (and file Schedule 14N with the SEC) containing specified information and representations relating to that shareholder's nominee. Amendments to Rule 14a-6 confirm that the inclusion of a shareholder-proposed nominee in a company's proxy statement will not require the company to file a preliminary proxy statement with the SEC under Rule 14a-6.

Rule 14a-8 requires submission of shareholder proposals no later than 120 calendar days before the anniversary of the date on which the company's proxy statement for the prior year was released to shareholders or, if the date of annual meeting has changed from the prior year by more than 30 days, a reasonable time before the company begins to print and send its proxy materials. For most calendar year companies, this deadline falls in November or December 2011.

For questions or more information, contact one of the members of the firm's Securities/SEC Practice Group including:

Lewis U. Davis, Jr. – 412 562 8953 ::
Jeremiah G. Garvey – 412 562 8811 ::
Jennifer R. Minter – 412 562 8444 ::
Brian S. North – 215 665 3828 ::
Brian S. Novosel – 412 562 5266 ::