DealLawyers.com Blog

For companies that elected to put off considering UPC bylaw amendments and officer exculpation proposals until after this proxy season, White & Case recently released the results of a survey of developments in both these areas through June 1st. Two hundred companies in the S&P 500 have recently amended their bylaws for UPC (and shareholder activism generally), and the survey included an in-depth review of 100 of those bylaw amendments. The UPC-focused amendments were meant to ensure that the bylaws properly address the process and mechanics in the event of a contested election using UPC. Here’s an excerpt:

In our in-depth survey of 100 S&P 500 companies that amended their bylaws, we found that 90 percent or more did so to:

– Provide that a nominating shareholder must satisfy all of the requirements of Rule 14a-19 in order to be eligible to nominate directors. If these requirements are not met, the company may disregard the shareholder’s nominees and not include them on a universal proxy card.
– Specifically require that the dissident shareholder’s notice include a statement of the shareholder’s intent to comply with Rule 14a-19, including referencing Rule 14a-19(a)(3) or specifically setting forth the requirement that the shareholder solicit the holders of shares representing at least 67% of the voting power of outstanding shares.
– Require that the nominating shareholder provide reasonable evidence of compliance with the requirements of Rule 14a-19 before the shareholders’ meeting.

Moreover, the surveyed amendments generally clarify that a shareholder nominating directors pursuant to the universal proxy rule is subject to the company’s existing advance notice deadline (typically at least 90 days before the one-year anniversary of the prior year’s annual meeting), rather than the 60-day minimum set forth in Rule 14a-19(b)(1).

What about other activism-related amendments? Here are stats from the survey:

– 45% added a requirement that a shareholder soliciting proxies in a proxy contest must use a proxy card color other than white, in order to distinguish its proxy card from that of the company.
– 17% added language to limit the number of directors that can be nominated by a shareholder to the number of directors up for re-election. This type of provision could block a dissident from first identifying a longer list in its notice and delaying the identification of which specific nominees it will choose to stand for election until it files its proxy statement.
– 5% added language to provide that if the company receives proxies for disqualified or withdrawn nominees, such votes will be treated as abstentions. This provision allows such abstention votes to be counted towards a quorum at a shareholders’ meeting.

– Meredith Ervine