SEC Upholds Rule 14a-8’s One-Year Holding Period for Newly-Public Company

The following post comes to us from Bradley P. Goldberg, Counsel in the Corporate Department and member of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP, and is based on a Simpson Thacher memorandum by Mr. Goldberg and Yafit Cohn.

On March 10, 2014, in a no-action letter to SeaWorld Entertainment, Inc. (the “Company”), the Securities and Exchange Commission (“SEC”) signaled its position that shareholders seeking to submit proposals for inclusion in the proxy materials of newly-public companies are not exempt from the requirement in Rule 14a-8(b)(1) that proponents must hold the requisite amount of stock in the company for at least one year by the date on which they have submitted their proposal.

On January 8, 2014, despite having completed its initial public offering of common stock approximately nine months earlier, the Company received a shareholder proposal for inclusion in the proxy materials to be distributed by the Company in connection with its 2014 Annual Shareholder Meeting. In a letter seeking no-action relief from the SEC, the Company took the position that because the proponent had not (and could not have) held shares in the Company for at least one year prior to the date on which it submitted the proposal, it was ineligible to submit a shareholder proposal at that time. The SEC concurred that the Company may properly exclude the shareholder proposal from its proxy materials, noting that “the proponent does not satisfy the minimum ownership requirement for the one-year period specified in rule 14a-8(b).” The SEC thus clarified the position it took in a no-action letter to Meridian Interstate Bancorp, Inc. (avail. June 17, 2008), in which the SEC similarly granted the requesting company no-action relief where the proponent purchased the company’s common stock on the date of the company’s initial public offering and submitted a shareholder proposal less than one year later.

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