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Federated National Holding Company Allowed to Exclude Proposal to Make Changes to By-Laws

In Federated National Holding Company, 2015 BL 327418 (Oct. 2, 2015), the SEC issued a no-action letter permitting Federated National Holding Company (“FNHC”) to exclude several   shareholder proposals submitted by Larry Seal (“Seal”).

Rule 14a-8 gives shareholders the right to include proposals in the company’s proxy statement.  17 CFR 240.14a-8.  The rule includes 13 substantive grounds of excluding a proposal.  A company seeking to exclude a proposal must submit its reasons for doing so to the Securities and Exchange Commission (“SEC”).  In addition, the rule also permits exclusion on a number of procedural grounds. 

Specifically Rule 14a-8(e) provides that a shareholder proposal must be received at the company’s principal executive offices not less than 120 calendar days before the company’s release of the proxy statement in connection with the previous year's annual meeting. The date for submission must be disclosed in the company’s proxy statement. 

The shareholder proposal requested that FNHC change the by-laws in regards to its directors and officers. In particular, the proposal sought to (1) change the minimum number of directors to seven members, (2) require a minimum percentage of the directors be independent, and (3) to modify the titles and who occupies specific offices on the board of directors.  The proposal specifically requests:

  • ·      “The Company’s Board of Directors shall consist of not less than seven (7) nor more than 15 members…”
  • ·      “[a]t least 66% of the directors shall be independent as defined in the NASDAQ listing standards”; and
  • ·      “[t]he offices of President and Chairman shall be separate and shall not be held by the same person.”

 FNHC argued that the company did not receive the proposal by the deadline it set forth in Rule 14a-8(e).  FHNC did not receive Seal’s proposal until July 24, 2015, well after the deadline.  Ultimately, the SEC agreed with FNHC’s reasoning. On October 2, 2015, the SEC announced it would not seek enforcement action should FHNC omit the proposal from their proxy statement under 14a-8(e)(2).

The primary materials for this post can be found on the SEC Website.

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