The Securities and Exchange Commission has made it easier for shareholders to nominate directors by changing the rules under which companies must include information about shareholder nominations in their proxy materials. Under new 1934 Act Rule 14a-11, companies must include shareholder nominees under certain conditions. Shareholders will have their nominees in the company’s proxy materials if they own at least 3% of the total voting power of securities eligible to vote, and if they have held their shares for at least three years. They must hold these securities through the date of the meeting of the election. Shareholders will not be eligible for access to the company’s proxy materials if they are holding the securities for the purpose of changing control of the company, or to gain a number of seats on the board that exceeds the number of nominees a company is required to include under Rule 14a-11. The SEC approved this new rulemaking on August 25.

The nominating shareholder or group will provide notice to the company on a new Schedule 14N outlining the intention to require the company to include that shareholder’s or that group’s nominee or nominees in the company’s proxy materials. The shareholder notice on Schedule 14N would need to be filed with the Commission on the date it is first sent to the company. The date for the filing of the Schedule 14N will differ by company. Some companies have a date specified in their advance notice by-law provision. If the company has no such date, then the deadline is no later than 120 calendar days before the date the company mailed its proxy materials for the prior year’s annual meeting. If there was no annual meeting during the prior year, or if the date of the meeting changes by more than 30 calendar days from the prior year, the rule calls for the nominating shareholder to provide "reasonable time" before the company mails the proxy materials. The company will need to file a Form 8-K under Item 5.07 within four business days after the company determines the anticipated meeting date.

The Schedule 14N would include disclosure on the nominating shareholder’s or group’s interest in the company, length of ownership and eligibility to use Rule 14a-11. The Schedule 14N will also have disclosure required by new Rule 14a-18 about nominators and the nominees, as well as the relationship between these parties. These disclosures are similar to the previous requirements for contested election disclosure and will be included in the proxy materials.

Schedule 14N will also include a representation from the nominator that the nominee’s candidacy and board membership would not violate controlling state or federal law or exchange or securities association rules. The filing must also indicate that the nominator satisfied the eligibility conditions of Rule 14a-11. A second required representation for companies other than investment companies is that the nominee meets the objective criteria for independence of the relevant exchange or securities association. For an investment company, the filing must indicate that the nominee is not an "interested person" as defined by Section 2(1)(19) of the Investment Company Act. Finally, the filing must represent that neither the nominee nor the nominating shareholder (or any member of a nominating shareholder group) has an agreement with the company regarding the nomination of the nominee.

Schedule 14N will require the names of the nominee and the shareholder or group making the nomination. It will include information about the amount and percentage of securities held and entitled to vote on the election of directors at the meeting and the voting power derived from securities that have been loaned or sold in a short sale that remain open, as specified in Instruction 3 to Rule 14a-11(b)(1). Also required is a written statement from the registered holder of the shares held by the nominating shareholder or group, or the brokers or banks through which such shares are held, verifying that within seven calendar days prior to submitting the notice on Schedule 14N to the company the shareholders continuously had held the qualifying amount of securities for at least three years.

The nominators will provide a written statement of intent to hold the shares through the shareholder meeting where the election will take place, and will also provide a statement of their intentions with respect to continued ownership after the election. The nominee must state willingness to be named in the proxy material and to serve. The filing will contain disclosure about any legal proceedings involving the nominators, as specified in Item 401(f) of Regulation S-K.

There will need to be disclosure about any direct or indirect material interest in any contract or agreement between the nominating shareholder or group, the nominee, and/or the company or any affiliate, including any employment agreement, collective bargaining agreement or consulting agreement. Any material or threatened litigation involving the nominators or nominee and the company, its officers, directors or affiliates must be disclosed.

The nominating shareholders may set up a Web site, and this will be included in the filing. Also included will be any statement of support by those making the nomination, not to exceed 500 words.