In response to no-action requests by Eastbourne Capital Management LLC (“ECM”) and certain entities affiliated with Carl Icahn (the “Icahn Funds”) (collectively, the “Dissident Shareholders”), the staff in the Division of Corporate Finance of the SEC (the “Commission Staff”) granted no-action relief under the “short slate rule”1 permitting the Dissident Shareholders to not only solicit votes for their own nominees, but also to seek authority to vote for nominees of an unrelated dissident. The Commission Staff strictly conditioned this relief on the Dissident Shareholder’s representations that they have not, and would not, agree to act or act as a “group” as determined under Section 13(d)(3) and in Regulation 13D-G. The Commission Staff’s response also indicates that, to exercise this right, the dissident may not actively recommend the election of each other’s nominees, but may only state their intention to vote for each other’s nominees, except to the extent otherwise stated in the Dissident Shareholder’s respective proxy cards.
Overview of the “Short Slate Rule”
On March 30, 2009, ECM and the Icahn Funds each sent similar no-action requests for relief concerning the proviso contained in Rule 14a-4(d), better known as the “short slate rule,” in connection with the solicitation of proxies to vote in the election of directors at the 2009 annual stockholder meeting of Amylin Pharmaceuticals Inc. (“Amylin”). The short slate rule, an amendment to the “bona fide nominee rule”2 in 14a-4(d)(1) contained in the proviso to Rule 14a-4(d), was adopted by the SEC in 1992. It allows a dissident that nominates a slate of directors which, if elected, would constitute a minority of the board, to simultaneously seek authority to vote for nominees named in management’s proxy statement (without obtaining such nominees’ consent) so long as, among other requirements, (i) the soliciting shareholder seeks authority to vote in the aggregate for the full number of director positions being filled in the election, (ii) the soliciting shareholder represents that it will vote for all of the registrant nominees other than those it discloses it will not vote for, (iii) the soliciting shareholder provides shareholders with the opportunity to withhold authority with respect to any other registrant nominees, and (iv) both the proxy card and proxy statement disclose that there is no assurance that management’s nominees, if elected, will serve with any of the dissident’s nominees.3 The rule was created to address an unintended consequence of the “bona fide nominee rule” which was effectively to force shareholders to choose between voting for the management slate in order to exercise their full voting rights and voting for a less than full complement of directors.4 Under the short slate rule, soliciting parties can identify the registrant’s nominees they will not vote for and can indicate that they will vote for the rest of the registrant’s slate, but the soliciting party cannot include the registrant’s nominees on its proxy statement and form of proxy.5
Amylin Proxy Contest
The Dissident Shareholders are preparing to separately run their own proxy contests at the Amylin 2009 annual stockholder meeting. As a result, there are expected to be three separate slates of nominees—two shareholder sponsored minority slates (each nominating five directors) and the management slate—seeking election to the twelve seats on Amylin’s Board. In their no-action requests, ECM and the Icahn Funds sought authority to solicit proxies for each other’s nominees as well as certain of the management nominees named in Amylin’s proxy statement,6 while still availing themselves of the short slate rule. Both no-action letters argued that applying the proposed rule would actually further the intention of the Commission Staff to “eliminate unnecessary impediments” to short slate elections and ameliorate “the difficulty experienced by shareholders in gaining a voice in determining the composition of the board of directors” especially those seeking minority representation.7
As mentioned above, the Commission Staff granted relief under 14a-4(d), permitting the Dissident Shareholders to solicit votes for their own nominees, but also to seek authority to vote for nominees of an unrelated dissident as well as for the nominees in management’s proxy statement.
The Commission Staff’s grant of relief to ECM and the Icahn Funds will further enable soliciting stockholders who are seeking to elect a short slate to “round out” their slate with candidates from the full selection of nominees, even those proposed by another dissident. This new interpretation will allow activists to pursue their goal of achieving better shareholder representation, will allow shareholders to vote for the directors of their choice, and will keep management slates from gaining an advantage when there are multiple dissident slates nominated by unrelated shareholders. Going forward, this scenario may become more common in the activist community. However, activist investors must be careful not to run afoul of the Commission Staff’s response by acting as a group or otherwise engaging in any activities that would be deemed to cause the formation of a “group” as determined under Section 13(d)(3) and in Regulation 13D-G.