SEC Grants No-Action Relief to Activist Shareholders Seeking to “Round Out” Short Slates With Each Other’s Nominees

April 2, 2009


On March 30, 2009, the SEC staff issued two no-action letters[1] regarding the solicitation of proxies to vote in the election of directors in a situation where two dissident shareholders had submitted separate "short slates" of director nominees for election at the same annual meeting.  The no-action letters permit a soliciting shareholder to "round out" its short slate of directors with the nominees of other dissident shareholders, under an expansive reading of the proviso to the "bona fide nominee" rule in Exchange Act Rule 14a-4(d).  Such proviso had historically been interpreted only to permit a soliciting shareholder to "round out" its short slate with nominees of the registrant.

The effect of the no-action letters is to facilitate the ability of shareholders to elect non-incumbent directors in situations where more than one dissident shareholder is running a short slate.  The SEC staff conditioned its relief on a number of requirements, including that any such dissidents must not have agreed to, and must have no intention of, forming a "group" as determined under Regulation 13D-G.


In recent years it has become increasingly more common for dissident shareholders to run a "short slate" of directors for election at annual meetings – that is, a dissident slate for less than a majority of the registrant’s board of directors.  This is becoming the preferred approach for dissidents seeking board representation for two primary reasons.  First, proxy advisory firms such as RiskMetrics and large institutional investors have historically proven to be more supportive of short slates than of dissident efforts that seek to replace a majority of the board.  Second, running short slates avoids the risk of triggering so-called "poison puts" – provisions in a registrant’s debt documents which would require the registrant to repurchase outstanding debt obligations upon the occurrence of certain defined events, which sometimes include incumbent directors ceasing to constitute a majority of the board.

SEC rules require that each nominee named in a proxy card must be a "bona fide nominee."  Prior to the adoption by the SEC of the shareholder communications rules in 1992, in order to qualify as a "bona fide nominee," each nominee had to consent to being named in a proxy card.  This unqualified requirement effectively prevented a dissident’s proxy card from conferring authority to vote for a registrant’s nominees, because registrant nominees were unlikely to consent to being named on a dissident’s proxy card.  The rule placed dissident shareholders running short slates of directors at a disadvantage to registrants – shareholders effectively faced a choice between voting for the registrant’s full slate of nominees, in order to exercise their full voting rights, or voting for a less than full slate of dissident nominees.  However, in 1992, the SEC added the so-called "short slate rule" – really an exception to the bona fide nominee rule — which allows a dissident shareholder’s proxy card to "round out" a short slate of nominees by obtaining authority to vote for some of the registrant’s own nominees.

With the proliferation of activists’ campaigns and their use of short slates, shareholders now face the most real prospect of having to choose directors among more than one short slate, in addition to the full slate typically nominated by the incumbent board.  This is currently the case with Amylin Pharmaceuticals, Inc., which has received notices of nominations of short slates from both Eastbourne Capital Management L.L.C. and funds affiliated with Carl Icahn.  Each of Eastbourne and the Icahn funds have nominated 5 individuals to join Amylin’s twelve member board.  As customary, the company has nominated its own 12-person slate.  Under the historical reading of the short slate rule, the dissidents’ supporters would have been forced to choose between submitting proxies to support either Eastbourne’s short slate rounded out by Amylin’s incumbent directors, or Icahn’s short slate rounded out by Amylin’s incumbent directors.  The Amylin directors would have appeared on the proxy cards of both Eastbourne and the Icahn funds, as well as in Amylin’s own proxy card, whereas the Eastbourne and Icahn nominees would each only appear on one of the three proxy cards.

The SEC staff issued no-action letters to Eastbourne and Icahn clarifying that in order to round out a short slate, in addition to obtaining authority to vote for some of the registrant’s nominees, a dissident shareholder can obtain authority to vote for the nominees of another dissident shareholder.  Thus some or all of Eastbourne’s and Icahn’s nominees can appear on each other’s proxy cards.

As a condition to granting relief, the SEC stipulated, among other things, that Eastbourne and Icahn must not have expressly or impliedly agreed, and must have no present intention, to form a "group" as determined under Regulation 13D-G.  The SEC staff also relied on a representation that each dissident will not actively recommend, and will direct its proxy solicitors not to actively recommend, the election of the other’s nominees, but will only state its intention to vote for the other’s expected nominees other than those nominees specifically named on the dissident’s proxy card.  The SEC staff also specified that Eastbourne and Icahn must comply with the other procedural requirements of the short slate rule with respect to the "rounding out" of their short slates.

[1]  Application of Rule 14a-4(d)(4) to Solicitation for Proposed Minority Slate of Icahn, SEC No-Action Letter (Mar. 30, 2009), available at; and Application of Rule 14a-4(d)(4) to Solicitation for Proposed Minority Slate of Eastbourne Capital, L.L.C., SEC No-Action Letter (Mar. 30, 2009), available at

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s lawyers are  available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following:

John F. Olson – Washington, D.C. (202-955-8522, [email protected])
Dennis J. Friedman – New York (212-351-3900, [email protected])
Ronald O.  Mueller – Washington, D.C. (202-955-8671, [email protected])
Amy L. Goodman– Washington, D.C.  (202-955-8653, [email protected])
James J. Moloney – Orange County (949-451-4343, [email protected])
Eduardo Gallardo – New York  (212-351-3847, [email protected])

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