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Examples of Proxy Statements After SEC Stay of Rule 14a-11

By | October 13, 2010

 The SEC has stayed the application of proxy access rules set forth in Rule 14a-11.  The question remains whether issuers should make any Rule 14a-11 disclosures in their proxy statements at this time.  We reviewed 14 proxy statements filed between October 6, 2010 and October 12, 2010.  That review indicated eleven issuers did not make any Rule 14a-11 disclosures while three did.  The results could also be somewhat skewed as perhaps issuers chose not to make disclosures as Rule 14a-11 was not effective until November 15, 2010 in any event.

Of the three issuers choosing to make disclosures, we found two made useful disclosures about the application of the SEC stay.  Those examples are set forth below.

Globecomm Systems Inc. (filed October 8, 2010)

On August 25, 2010, the SEC adopted amendments to the federal proxy rules that will implement a new system of “proxy access,” under which a shareholder or group of shareholders meeting eligibility requirements can require the Company to include a limited number of director nominees proposed by the shareholder in management’s proxy materials. The proxy access procedure is in addition to the director nomination procedure described in the preceding paragraphs and nomination provisions set forth in the Company’s Bylaws. The proxy access rules are principally set forth in SEC Rule 14a-11, which was originally set to become effective on November 15, 2010. On September 29, 2010, the Business Roundtable and the Chamber of Commerce of the United States of America (the “Petitioners”) filed a petition with the US Court of Appeals for the District of Columbia Circuit (the “Court”) seeking a review of the proxy access and related rules. On the same date, the Petitioners filed with the SEC a motion to stay the effect of Rule 14a-11 and associated amendments pending the Court’s review. On October 4, 2010, the SEC issued an order granting a stay of the proxy access and related rules, pending judicial review. Although the SEC and the Petititoners will seek expedited review of the Petitioners’ challenge, the timing for the Court’s review is unclear. Accordingly, it is uncertain whether the proxy access rules will be available to eligible shareholders of the Company in connection with the Company’s 2011 annual meeting of shareholders.

If it is effective and available to eligible shareholders of the Company in connection with the Company’s 2011 annual meeting of shareholders, Rule 14a-11 will require a company to include in its proxy materials director nominees proposed by any owner of at least 3% of the total voting power of the company’s securities entitled to be voted in the election of directors who has held the securities continuously for at least three years. A nominating shareholder will be required to continue to own the required amount of securities at least through the date of the meeting at which directors are elected. Shareholders may aggregate holdings to establish sufficient ownership. The nominating shareholder or group must hold both voting and investment power, either directly or through any person acting on their behalf, in order to satisfy the 3% ownership and three continuous year holding thresholds. Nominating shareholders or groups will be required to file a new form, Schedule 14N, to provide information relating to eligibility and nominees. The notice on Schedule 14N to the company and the filing with the SEC must be made on the same day, no earlier than 150 calendar days (i.e., May 11, 2011), and no later than 120 calendar days (i.e., June 10, 2011) prior to the anniversary of the prior year’s proxy material mail date. If multiple shareholders or groups submit nominations and the number of nominees surpasses the maximum number required to be included by Rule 14a-11, the nominating shareholder or group of nominating shareholders with the highest percentage of the company’s voting power will have its nominee or nominees included in the company’s proxy materials.

A qualifying shareholder or group may nominate the greater of one nominee and a number of nominees equal to no more than 25% (rounded down) of the Board of Directors’ total membership. Any person may be nominated under the proxy access rule if that person’s candidacy or, if elected, board membership would not violate controlling state, federal or foreign law, or the applicable standards of a national securities exchange or national securities association (i.e., NASDAQ, in the case of the Company), other than rules relating to director independence that rely on a subjective determination by the Board of Directors. The nominee must, however, satisfy objective independence standards of the applicable national securities exchange or national securities association.

The foregoing is a summary of the new proxy access rules, and any shareholder nominee(s) submitted pursuant to those rules will be required to meet all of the eligibility rules applicable to the nominee(s) and the nominating shareholder or nominating shareholder group.

Green Earth Technologies, Inc. (filed October 6, 2010)

On August 25, 2010, the SEC adopted new Exchange Act Rule 14a-11, which will permit stockholders or groups holding 3% of the voting power of U.S. public companies who have held their shares for at least three years to include director nominees in company proxy materials.  In addition, the SEC also amended Rule 14a-8 to provide that companies may not exclude from their proxy materials stockholder proposals that seek to establish less restrictive proxy access procedures, and adopted a number of related rule amendments intended to facilitate proxy access.  The new rules will be effective 60 days after their publication in the Federal Register, and rule 14a-11 will apply for a company’s 2011 annual meeting if the first anniversary of the mailing of the 2010 proxy materials occurs within 120 days of effectiveness.  However, the compliance date of Rule 14a-11 for smaller reporting companies has been delayed for a period of three years from the effective date.  On October 4, 2010, the SEC delayed the effective date of Rule 14a-11 and the amendments to Rule 14a-8 indefinitely, pending review of Rule 14a-11 by the United States Court of Appeals of the District of Colombia.

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Contact Jill Radloff for more information.