Final SEC Proxy Access Rules: SEC Publishes Rules Enabling Shareholders to Use Company Proxy Statements for Director Nominations; 3% Shareholder or Group with a Three-Year Holding Period Can Nominate Up to 25% of the Board

Sullivan & Cromwell LLP - September 3, 2010

The SEC has published the text of its new proxy access rules and related rule amendments, providing shareholders with the ability to nominate directors to corporate boards using the company’s own proxy statement. The new rules were approved at an open meeting on August 25, 2010 by a 3 to 2 vote. The rules will be effective 60 days after their publication in the Federal Register, which is expected to occur shortly. Proxy access will generally apply for a company’s 2011 annual meeting if the deadline for submitting nominations (that is, the 120th day prior to the anniversary of the mailing date for the company’s 2010 proxy materials) occurs on or after the effective date of the rules. The proxy access regime set out in new Rule 14a-11 under the Securities Exchange Act of 1934 is mandatory, not simply a default rule ? companies or shareholders are not permitted to opt out or select a more restrictive mechanism.

The new rules apply to all companies (including controlled companies) that have a class of equity securities subject to the SEC’s proxy rules, including investment companies registered under the Investment Company Act of 1940. The proxy access rules provide for a three-year delay in effectiveness for “smaller reporting companies” ? generally, those that have a public float of less than $75 million. Like the other proxy rules, the new rules do not apply to foreign private issuers; the rules will, however, apply to non-U.S. companies that do not qualify as foreign private issuers if the law of their jurisdiction of organization permits shareholders to nominate directors.

This memorandum describes the provisions of the new rules and concludes by discussing a number of implications and practical issues for companies and shareholders to consider.