29106 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

1 17 CFR 240.14a–8.

2 17 CFR 240.14a–4.

3 17 CFR 240.14a–5.

4 15 U.S.C. 78a et seq.

5See our Proposing Release, Exchange Act

Release No. 29093 (Sept. 18, 1997) [62 Fed. Reg.

50682].

6The comment letters are available for inspection

and copying in the Commission’s Public Reference

Room in file number S7–25–97. Comments that

were submitted electronically are available on the

Commission’s website (www.sec.gov).

7See, e.g., Comment Letters From Teachers

Insurance and Annuity Assoc./College Retirement

Equities Fund, Nov. 19, 1997 (‘‘TIAA–CREF

Letter’’); California Public Employees’ Retirement

System, Nov. 10, 1997 (‘‘CALPERS Letter’’);

American Society of Corporate Secretaries, Dec. 8,

1997 (‘‘ASCS Letter’’); the Business Roundtable,

Dec. 9, 1997 (‘‘BRT Letter’’); Barclays Global

Investors, Dec. 4, 1997; Georgeson & Company Inc.,

Dec. 31, 1997 (‘‘Georgeson Letter’’).

8See, e.g., New York City Employees Retirement

System, Nov. 5, 1997 (‘‘NYCERS Letter’’); Interfaith

Center on Corporate Responsibility, Dec. 23, 1997

(‘‘ICCR Letter’’); American Bar Ass’n, Dec. 23, 1997

(‘‘ABA Letter’’); Labor Policy Ass’n, Nov. 17, 1997

(‘‘LPA Letter’’).

9See paragraph (12) under Question 9, formerly

rule 14a–8(c)(12) [17 CFR 240.14a–8(c)(12)].

10Paragraph (5) under Question 9, former rule

14a–8(c)(5)[17 CFR 240.14a–8(c)(5)].

11Paragraph (4) under Question 9, former rule

14a–8(c)(4)[17 CFR 240.14a–8(c)(4)].

12The mechanism had been included in

Paragraph 10 of rule 14a–8 as proposed to be

amended. See Proposing Release.

13Unless specifically indicated otherwise, none

of these revisions are intended to signal a change

in our current interpretations.

electronic format. Paper copies of the

EDGAR Filer Manual may be obtained at

the following address: Public Reference

Room, U.S. Securities and Exchange

Commission, Mail Stop 1–2, 450 5th

Street, NW., Washington, DC 20549.

They also may be obtained from

Disclosure Incorporated by calling (800)

638–8241. Electronic format copies are

available through the EDGAR electronic

bulletin board and posted to the SEC’s

Web Site. The SEC’s Web site address

for the Manual is http://www.sec.gov/

asec/ofis/filerman.htm. Information on

becoming an EDGAR E-mail/electronic

bulletin board subscriber is available by

contacting CompuServe Inc. at (800)

576–4247.

Dated: May 19, 1998.

By the commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–13876 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–U

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 240

[Release No. 34–40018; IC–23200; File No.

S7–25–97]

RIN 3235–AH20

Amendments To Rules On Shareholder

Proposals

AGENCY: Securities and Exchange

Commission.

ACTION: Final Rule.

SUMMARY: The Securities and Exchange

Commission (‘‘we’’ or ‘‘Commission’’) is

adopting amendments to its rules on

shareholder proposals. The amendments

recast rule 14a–8 into a Question &

Answer Format that both shareholders

and companies should find easier to

follow, and make other modifications to

existing interpretations of the rule. We

are also amending rule 14a–4 to provide

clearer ground rules for companies’

exercise of discretionary voting

authority, and making related

amendments to rule 14a–5.

EFFECTIVE DATE: The amendments are

effective June 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Frank G. Zarb, Jr., of Sanjay M.

Shirodkar, Division of Corporation

Finance, (202) 942–2900, or Doretha M.

VanSlyke, Division of Investment

Management, at (202) 942–0721,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549.

SUPPLEMENTARY INFORMATION: The

Commission is adopting amendments to

rules 14a–8,1 14a–4,2 and 14a–5 3 under

the Securities Exchange Act of 1934 (the

‘‘Exchange Act’’).4

I. Executive Summary

With modifications, we are adopting

some of the amendments to our rules on

shareholder proposals that we initially

proposed on September 18, 1997.5 As

explained more fully in this release, we

modified our original proposals based

on our consideration of the more than

2,000 comment letters we received from

the public.6

Our proposed changes evoked

considerable public controversy, as have

our earlier efforts to reform these rules.

Some shareholders and companies

expressed overall support for our

proposals.7 Certain of our proposals,

however, were viewed as especially

controversial, and generated strong

comments in favor, as well as heavy

opposition.8

The amendments adopted today:

• Recast rule 14a–8 into a Question &

Answer format that is easier to read;

• Reverse the Cracker Barrel noaction letter on employment-related

proposals raising social policy issues;

• Adopt other less significant

amendments to rule 14a–8; and

• Amend rule 14a–4 to provide

shareholders and companies with

clearer guidance on companies’ exercise

of discretionary voting authority.

These reforms, in our view, will help

to improve the operation of the rules

governing shareholder proposals and

will address some of he concerns raised

by shareholders and companies over the

last several years on the operation of the

proxy process.

We have decided not to adopt other

elements of our original proposals, due

in part to strong concerns expressed by

commenters. We are not adopting our

original proposals to increase the

percentage of the vote a proposal needs

before it can be resubmitted in future

years; 9 to streamline the exclusion for

matters considered irrelevant to

corporate business;10 or to modify our

administration of the rule that permits

companies to exclude proposals that

further personal grievances or special

interests.11 We are also not adopting the

proposed ‘‘override’’ mechanism that

would have permitted 3% of the

shareownership to override a company’s

decision to exclude proposals under

certain of the bases for exclusion set

forth under Question 9 of amended rule

14a–8.12

Some of the proposals we are not

adopting share a common theme: to

reduce the Commission’s and its staff’s

role in the process and to provide

shareholders and companies with a

greater opportunity to decide for

themselves which proposals are

sufficiently important and relevant to

the company’s business to justify

inclusion in its proxy materials.

However, a number of commenters

resisted the idea of significantly

decreasing the role of the Commission

and its staff as informal arbiters through

the administration of the no-action letter

process. Consistent with these views,

commenters were equally unsupportive

of fundamental alternatives to the

existing rule and process that, in

different degrees, would have decreased

the Commission’s overall participation.

While we have tried to provide the

most fair, predictable, and efficient

system possible, these rules, even as

amended, will continue to require us to

make difficult judgments about

interpretations of proposals, the motives

of those submitting them, and the

policies to which they relate. We will

continue to explore ways to improve the

process as opportunities present

themselves.

II. Plain-English Question & Answer

Format

We had proposed to recast rule 14a–

8 into a more plain-English Question &

Answer format.13 We are adopting that

proposal, and the amended rule will be
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29107

14See, e.g., CALPERS Letter; State Teachers’

Retirement Sys. (California), Jan. 12, 1998; Ethics in

Investment Committee of the Sisters of Charity of

Saint Elizabeth Station, Nov. 19, 1997; Mr. H. Carl

McCall, Comptroller of the State of New York, Dec.

24, 1997; American Corporate Counsel Assoc., Dec.

31, 1997 (‘‘ACCA Letter’’); ASCS Letter; Eastman

Kodak Co., Nov. 25, 1997; Banc One Corp., Dec. 9,

1998. Some commenters, however, did not believe

that the new format would significantly improve

the rule’s operation. See, e.g., ABA Letter; New

York State Bar Assoc., Dec. 10, 1997 (‘‘New York

State Bar Letter’’).

15Rule 14–8(c)(1) [17 CFR 240.14a–8(c)(1)].

16See ABA Letter; ICCR Letter; Investment

Company Institute, Dec. 30, 1997 (‘‘ICI Letter’’).

17Rule 14a–8(c)(2) [17 CFR 240.14a–8(c)(2)].

18Rule 14a–8(c)(3) [17 CFR 240.14a–8(c)(3)].

19Rule 14a–8(c)(6) [17 CFR 240.14a–8(c)(6)].

20One commenter thought the proposed language

could be read as precluding companies from

excluding proposals that companies lack power to

implement. See ABA Letter. To the contrary, the

revised rule continues to refer to situations where

a company lacks ‘‘power’’ to implement the

proposal. Thus, for example, exclusion may be

justified where implementing the proposal would

require intervening actions by independent third

parties. See, e.g., SCEcorp (Dec. 20, 1995) (proposal

that unaffiliated fiduciary trustees amend voting

agreements). Under current staff interpretations,

however, exclusion would not normally be justified

if the proposal merely requires the company to ask

for cooperation from a third party. See, e.g.,

Northeast Utilities System (Nov. 7, 1996) (proposal

that the company ask a third party to coordinate

annual meetings held by public companies).

21Rule 14a–8(c)(7) [17 CFR 240.14a–8(c)(7)].

22Two commenters suggested that we include a

non-exclusive list of examples of matters particular

to investment companies that would be excludable

per se under the ordinary business exception. See

ICI Letter; Gordon Altman Butowsky Weitzen

Shalov & Wein, Dec. 16, 1997. We have not

followed the suggestion. We believe that investment

companies are not sufficiently different from other

types of issuers to make it appropriate for us to

designate a predefined set of topics that would be

excepted from the shareholder proposal process

established under Rule 14a–8.

23See, e.g., ICCR Letter; Jessie Smith Noyes

Foundation, Nov. 14, 1997 (‘‘Jessie Smith Noyes

Letter’’); Long View Collective Investment Fund,

Jan. 5, 1998 (‘‘Long View Letter’’); ABA Letter; The

Chase Manhattan Corp., Jan. 14, 1998 (‘‘Chase

Manhattan Letter’’).

24Rule 14a–8(c)(8) [17 CFR 240.14a–8(c)(8)].

25See ABA Letter.

26Rule 14a–8(c)(9) [17 CFR 240.14a–8(c)(9)].

27One commenter thought that the word

‘‘directly’’ may appear to signal a narrowing of the

exclusion. See ABA Letter. We believe that the

revisions accurately convey our current

interpretations of the rule; of course, by revising the

rule we do not intend to imply that proposals must

be identical in scope or focus for the exclusion to

be available. See, e.g., SBC Communications (Feb.

2, 1996) (shareholder proposal on calculation of

non-cash compensation directly conflicted with

company’s proposal on a stock and incentive plan).

28Rule 14a–8(c)(10) [17 CFR 240.14a–8(c)(10)].

29Rule 14a–8(c)(11) [17 CFR 240.14a–8(c)(11)].

30 In Exchange Act Release No. 20091 (Aug. 16,

1983) [48 FR 38218], we stated that a proposal may

be excluded under the rule if it has been

‘‘substantially implemented.’’

31As explained in Section VI below, we have

decided not to modify the percentage of the

shareholder vote that a proposal must receive in

order to be entitled to re-submission in future years.

32See Cracker Barrel Old Country Stores, Inc.

(Oct. 13, 1992).

the Commission’s first in question and

answer format. Most commenters who

addressed this proposal expressed

favorable views, believing that it would

make the rule easier for shareholders

and companies to understand and

follow.14

In addition to the other amendments

described in this release, we have made

some minor revisions to the language

we had proposed to conform with the

new plain English format. For example,

on the proposed revisions to paragraph

(1) under Question 9, which is former

rule 14a–8(c)(1),15 commenters stated,

and we agree, that the reference to ‘‘the

state of the company’s incorporation’’

may appear narrower than the actual

scope of the rule because some entities

that may be subject to the rule, such as

partnerships, are not ‘‘incorporated.’’ 16

Accordingly, the rule as adopted refers

to ‘‘the laws of the jurisdiction of the

company’s organization.’’

We are adopting minor plain—English

revisions to paragraphs (2), (3), and (4)

under Question 9, former rules 14a–

8(c)(2),17 (c)(3),18 and (c)(4). Because we

are not adopting the proposed

substantive amendments to paragraph

(5), former rule 14a–8(c)(5), we are

making only minor, non-substantive

modifications to the language of that

rule so that it conforms to the new

plain-English approach.

We are adopting the revisions to

former rule 14a–8(c)(6),19 now

paragraph (6) under Question 9, as

proposed.20

While we are making minor

conforming changes to the language of

paragraph (7) under Question 9,

formerly rule 14a–8(c)(7),21 we have

decided not to adopt the proposed

language changes to this rule, or the list

of illustrative examples, other than to

replace the reference to ‘‘registrant’’

with ‘‘company.’’ 22 We had proposed to

revise the rule’s language because we

thought that the legal term-of-art

‘‘ordinary business’’ might be confusing

to some shareholders and companies.

The term refers to matters that are not

necessarily ‘‘ordinary’’ in the common

meaning of the word, and is rooted in

the corporate law concept providing

management with flexibility in directing

certain core matters involving the

company’s business and operations.

Several companies and shareholders

nonetheless objected to the proposed

revisions, particularly the elimination of

the ‘‘ordinary business’’ language, on

the ground that most participants in the

shareholder proposal process are now so

familiar with the ‘‘ordinary business’’

language that they might misconstrue

the revisions as signaling an interpretive

change.23 Indeed, since the meaning of

the phrase ‘‘ordinary business’’ has been

developed by the courts over the years

through costly litigation and essentially

has become a term-0f-art in the proxy

area, we recognize the possibility that

the adoption of a new term could inject

needless costs and other inefficiencies

into the shareholder proposal process.

We are adopting with one

modification the proposed language

changes to paragraph (8) under Question

9, formerly rule 14a–8(c)(8).24 The rule

as proposed would have permitted

companies to exclude a proposal that

‘‘relates to an election for membership

on the company’s board of directors.’’

Based on a suggestion from one

commenter, in order to account for noncorporate entities with principal

governing bodies bearing names other

than the ‘‘board of directors,’’ the rule

as adopted refers explicitly to elections

to an ‘‘analogous governing body.’’ 25

We are adopting as proposed our

revisions to paragraph (9) under

Question 9, formerly rule 14a–8(c)(9).26

As amended, the rule permits a

company to exclude a proposal that

‘‘directly conflicts with one of the

company’s own proposals to be

submitted to shareholders at the same

meeting.’’ 27

We are adopting as proposed the

revisions to paragraphs (10) and (11)

under Question 9, formerly rules 14a–

8(c)(10) 28 and 14a–8(c)(11).29 The

revisions to paragraph (10) reflect an

interpretation that we adopted in

1983.30

Although we are not adopting

proposed substantive revisions to

paragraph (12), formerly rule 14a–

8(c)(12),31 we are adopting nonsubstantive revisions to conform the

rule to the new plain-English approach.

The Commission, through the

Division of Corporation Finance (the

‘‘Division’’), anticipates establishing a

special electronic mailbox only for rule

14a–8 correspondence through which

both shareholders and companies will

be permitted to make electronic

submissions under this rule, including

follow-up correspondence.

III. The Interpretation of Rule 14a–

8(c)(7): The ‘‘Ordinary Business’’

Exclusion

We proposed to reverse the position

announced in the 1992 Cracker Barrel

no-action letter concerning the

Division’s approach to employmentrelated shareholder proposals raising

social policy issues.32 In that letter, the

Division announced that

The fact that a shareholder proposal

concerning a company’s employment
29108 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

33The reversal is effective as of May 21, 1998, and

will apply to future Division no-action responses.

It will apply to any rule 14a–8 no-action submission

that the Division has received before May 21, 1998

if the Division has not issued a corresponding noaction response by the close of business on May 20,

1998.

34See Pacific Telesis Group (Feb. 2, 1989).

35See Phillip Morris Companies, Inc. (Feb. 13,

1990).

36See Reebok Int’l Ltd. (Mar. 16, 1992).

37See Transamerica Corp. (Jan. 10, 1990).

38See Letter dated January 15, 1993 from

Jonathan G. Katz, Secretary to the Commission, to

Sue Ellen Dodell, Deputy Counsel, Office of

Comptroller, City of New York.

39See e.g., Investors Focus on Diversity at Texaco

Annual Meeting: Company Faces 94 Discrimination

Filings, The Washington Post, May 14, 1997;

Shareholders Press Shoney’s on Bias Issue, The

New York Times, Dec. 26, 1976).

40See Exchange Act Release No. 12999 (Nov. 22,

1976) [41 FR 52994].

41See e.g., Calvert Group, Nov. 26, 1997 (‘‘Calvert

Letter’’); Center for Responsible Investing, Rec’d

Nov. 3, 1997; Captains Endowment Assoc., Rec’d

Nov. 6, 1997; Social Investment Forum, Jan. 2, 1998

(‘‘Social Investment Forum Letter’’).

42See, e.g., ASCS Letter; ACCA Letter; BRT

Letter; AlliedSignal Inc., Nov. 24, 1997; Ashland

Inc., Nov. 21, 1997; LPA Letter; Sullivan &

Cromwell, Dec. 29, 1997 (‘‘Sullivan & Cromwell

Letter’’).

43See, e.g., Reebok Int’l Ltd. (Mar. 16, 1992)

(noting that a proposal concerning senior executive

compensation could not be excluded pursuant to

rule 14a–8(c)(7)).

44Exchange Act Release No. 12999 (Nov. 22,

1976).

45The exclusion has been interpreted previously

by the Commission. See, e.g., Exchange Act Release

No. 20091 (Aug. 16, 1983) [48 FR 38218]; Exchange

Act Release No. 12999 (Nov. 22, 1976) [41 FR

52994]; Exchange Act Release No. 4950 (Oct. 9,

1953) [18 FR 6646]. It has also been interpreted by

the courts. See, e.g., Grimes v. Ohio Edison Co., 992

F.2d 455 (2d Cir. 1993); Roosevelt v. E.I. Du Pont

De Nemours & Co., 958 F.2d 416 (D.C. Cir. 1992);

policies and practices for the general

workforce is tied to a social issue will no

longer be viewed as removing the proposal

from the realm of ordinary business

operations of the registrant. Rather,

determinations with respect to any such

proposals are properly governed by the

employment-based nature of the proposal.

We are adopting our proposal to

reverse the Cracker Barrel position,

which provided that all employmentrelated shareholder proposals raising

social policy issues would be

excludable under the ‘‘ordinary

business’’ exclusion.33 The Division

will return to its case-by-case approach

that prevailed prior to the Cracker

Barrel no-action letter.

In applying the ‘‘ordinary business’’

exclusion to proposals that raise social

policy issues, the Division seeks to use

the most well-reasoned and consistent

standards possible, given the inherent

complexity of the task. From time to

time, in light of experience dealing with

proposals in specific subject areas, and

reflecting changing societal views, the

Division adjusts its view with respect to

‘‘social policy’’ proposals involving

ordinary business. Over the years, the

Division has reversed its position on the

excludability of a number of types of

proposals, including plant closings,34

the manufacture of tobacco products,35

executive compensation,36 and golden

parachutes.37

We believe that reversal of the

Division’s Cracker Barrel no-action

letter, which the Commission had

subsequently affirmed,38 is warranted.

Since 1992, the relative importance of

certain social issues relating to

employment matters has reemerged as a

consistent topic of widespread public

debate.39 In addition, as a result of the

extensive policy discussions that the

Cracker Barrel position engendered, and

through the rulemaking notice and

comment process, we have gained a

better understanding of the depth of

interest among shareholders in having

an opportunity to express their views to

company management on employmentrelated proposals that raise sufficiently

significant social policy issues.

Reversal of the Cracker Barrel noaction position will result in a return to

a case-by-case analytical approach. In

making distinctions in this area, the

Division and the Commission will

continue to apply the applicable

standard for determining when a

proposal relates to ‘‘ordinary business.’’

The standard, originally articulated in

the Commission’s 1976 release,

provided an exception for certain

proposals that raise significant social

policy issues.40

While we acknowledge that there is

no bright-line test to determine when

employment-related shareholder

proposals raising social issues fall

within the scope of the ‘‘ordinary

business’’ exclusion, the staff will make

reasoned distinctions in deciding

whether to furnish ‘‘no-action’’ relief.

Although a few of the distinctions made

in those cases may be somewhat

tenuous, we believe that on the whole

the benefit to shareholders and

companies in providing guidance and

informal resolutions will outweigh the

problematic aspects of the few decisions

in the middle ground.

Nearly all commenters from the

shareholder community who addressed

the matter supported the reversal of this

position.41 Most commenters from the

corporate community did not favor the

proposal to reverse Cracker Barrel,

though many indicated that the change

would be acceptable as part of a broader

set of reforms.42

Going forward, companies and

shareholders should bear in mind that

the Cracker Barrel position related only

to employment-related proposals raising

certain social policy issues. Reversal of

the position does not affect the

Division’s analysis of any other category

of proposals under the exclusion, such

as proposals on general business

operations.

Finally, we believe that it would be

useful to summarize the principal

considerations in the Division’s

application, under the Commission’s

oversight, of the ‘‘ordinary business’’

exclusion. The general underlying

policy of this exclusion is consistent

with the policy of most state corporate

laws: to confine the resolution of

ordinary business problems to

management and the board of directors,

since it is impracticable for shareholders

to decide how to solve such problems at

an annual shareholders meeting.

The policy underlying the ordinary

business exclusion rests on two central

considerations. The first relates to the

subject matter of the proposal. Certain

tasks are so fundamental to

management’s ability to run a company

on a day-to-day basis that they could

not, as a practical matter, be subject to

direct shareholder oversight. Examples

include the management of the

workforce, such as the hiring,

promotion, and termination of

employees, decisions on production

quality and quantity, and the retention

of suppliers. However, proposals

relating to such matters but focusing on

sufficiently significant social policy

issues (e.g., significant discrimination

matters) generally would not be

considered to be excludable, because

the proposals would transcend the dayto-day business matters and raise policy

issues so significant that it would be

appropriate for a shareholder vote.43

The second consideration relates to

the degree to which the proposal seeks

to ‘‘micro-manage’’ the company by

probing too deeply into matters of a

complex nature upon which

shareholders, as a group, would not be

in a position to make an informed

judgment.44 This consideration may

come into play in a number of

circumstances, such as where the

proposal involves intricate detail, or

seeks to impose specific time-frames or

methods for implementing complex

policies.

A similar discussion in the Proposing

Release of the primary considerations

underlying our interpretation of the

‘‘ordinary business’’ exclusion as

applied to such proposals raised some

questions and concerns among some of

the commenters. Because of that

concern, we are providing clarification

of that position.45 One aspect of that
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29109

Medical Committee for Human Rights v. SEC, 432

F.2d 659 (D.C. Cir. 1970); New York City

Employee’s Retirement Sys. v. SEC, 843 F. Supp.

858, rev’d 45 F.3d 7 (2d Cir. 1995); Amalgamated

Clothing and Textile Workers Union v. Wal-Mart

Stores, Inc., 821 F. Supp. 877, 891 (S.D.N.Y. 1993).

46See, e.g., ICCR Letter; LongView Letter; Letter

from Professor Harvey J. Goldschmid of Columbia

University School of Law, and Ira M. Millstein,

Senior Partner, Weil, Gotshal & Manges LLP, Dec.

23, 1997 (‘‘Goldschmid and Millstein Letter’’).

Compare Chase Manhattan Letter.

47See, e.g., Roosevelt v. E.I. Du Pont De Nemours

& Co., 958 F.2d at 424–427 (one-year difference in

timing of CFC production phase-out does not

implicate significant policy, but longer period

might implicate significant policy). In

Amalgamated Clothing and Textile Workers Union,

821 F. Supp. at 891, the court required Wal-Mart

to include a proposal in its proxy materials that

sought information on the company’s affirmative

action policies and practices, although it also

required the proponents to make certain revisions

designed to ensure that the proposal did not seek

excessive detail.

48See Proposing Release, Footnote 79.

49 Discretionary voting authority is the ability to

vote proxies that shareholders have executed and

returned to the company, on matters not

specifically reflected on the proxy card, and on

which shareholders have not had an opportunity to

vote by proxy. While not necessarily limited to

annual meetings involving the election of directors,

this has been the context in which companies have

expressed concerns about proponents’ attempts to

‘‘end run’’ around the rule 14a–8 process.

50See, e.g., ICCR Letter; TIAA–CREF Letter;

LongView Letter, BRT Letter; ACCA Letter; Barclays

Global Investors, Dec. 4, 1997; United Brotherhood

of Carpenters and Joiners of America (‘‘Carpenters

Letter’’); International Union of Operating

Engineers, Dec. 29, 1997 (‘‘Engineers Letter’’);

International Brotherhood of Teamsters, Dec. 23,

1997 (‘‘Teamsters Letter’’). A few commenters did

not favor the proposal. See e.g., Gannett Corp., Nov.

20, 1997; CALPERS Letter; Union of Needletrades,

Industrial and Textile Employees, Jan. 2, 1998

(‘‘UNITE Letter’’).

51An advance notice provision is a requirement

in a company’s charter or bylaws that a shareholder

proponent notify the company of his/her intention

to present a proposal a certain number of days or

weeks prior to the shareholders’ meeting or the

mailing of proxies.

52As amended, rule 14a–5(e) requires companies

to disclose this date in each annual meeting proxy

statement or its equivalent. See Section V below.

53See, e.g., ACCA Letter; Citicorp, Dec. 23, 1997

(‘‘Citicorp Letter’’).

54See, e.g., Air Products and Chemicals, Inc., Dec.

22, 1997; NationsBank, Nov. 21, 1997; BRT Letter;

Sullivan & Cromwell Letter. Other commenters who

generally supported proposed new paragraph 14a–

4(c)(1) did not note an objection to this aspect of

the rules operation. See e.g., Carpenters Letter,

Longview Letter; Engineers Letter; ICCR Letter;

TIAA–CREF Letter.

discussion was the basis for some

commenters’ concern that the reversal of

Cracker Barrel might be only a partial

one. More specifically, in the Proposing

Release we explained that one of the

considerations in making the ordinary

business determination was the degree

to which the proposal seeks to micromanage the company. We cited

examples such as where the proposal

seeks intricate detail, or seeks to impose

specific time-frames or to impose

specific methods for implementing

complex policies. Some commenters

thought that the examples cited seemed

to imply that all proposals seeking

detail, or seeking to promote timeframes or methods, necessarily amount

to ‘‘ordinary business.’’ 46 We did not

intend such an implication. Timing

questions, for instance, could involve

significant policy where large

differences are at stake, and proposals

may seek a reasonable level of detail

without running afoul of these

considerations.47

Further, in a footnote to the same

sentence citing examples of

‘‘micromanagement,’’ we included a

citation to Capital Cities/ABC, Inc.,

(Apr. 4, 1991) involving a proposal on

the company’s affirmative action

policies and practices.48 Some

commenters were concerned that the

citation might imply that proposals

similar to the Capital Cities proposal

today would automatically be

excludable under ‘‘ordinary business’’

on grounds that they seek excessive

detail. Such a position, in their view,

might offset the impact of reversing the

Cracker Barrel position. However, we

cited Capital Cities/ABC, Inc. only to

support the general proposition that

some proposals may intrude unduly on

a company’s ‘‘ordinary business’’

operations by virtue of the level of detail

that they seek. We did not intend to

imply that the proposal addressed in

Capital Cities, or similar proposals,

would automatically amount to

‘‘ordinary business.’’ Those

determinations will be made on a caseby-case basis, taking into account factors

such as the nature of the proposal and

the circumstances of the company to

which it is directed.

IV. Rule 14a–4: Discretionary Voting

Authority

We had proposed amendments to rule

14a–4, and related amendments to rule

14a–5, to provide clearer guidelines for

companies’ exercise of discretionary

voting authority in connection with

annual shareholder meetings.49 We are

adopting our proposals with some

modifications.

As we explained in the Proposing

Release, rule 14a–4 did not clearly

address the exercise of discretionary

voting authority if a shareholder

proponent chooses not to use rule 14a–

8’s procedures for placing his or her

proposal in the company’s proxy

materials. This may occur if the

proponent notifies the company in

advance of the meeting of his or her

intention to present the proposal from

the floor of the meeting, and commences

his or her own proxy solicitation,

without ever invoking rule 14a–8’s

procedures. Our amendments to rule

14a–4(c)(1), and new paragraphs 14a–4

(c)(2) and (c)(3), are designed to provide

companies with clearer guidance on the

scope of permissible discretionary

voting power in the context of a non14a–8 proposal.

A. Rule 14a–4(c)(1)

We are adopting essentially as

proposed new rule 14a–4(c)(1), which

replaces a ‘‘reasonable time’’ standard

with a clear date after which notice to

the company of a possible shareholder

proposal would not jeopardize a

company’s ability to exercise

discretionary voting authority on that

new matter when and if raised at the

annual meeting. Most commenters who

addressed this proposal expressed

favorable views.50 Amended paragraph

14a–4(c)(1) allows a company voting

discretionary authority where the

company did not have notice of the

matter by a date more than 45 days

before the month and day in the current

year corresponding to the date on which

the company first mailed its proxy

materials for the prior year’s annual

meeting of the shareholders, or by a date

established by an overriding advance

notice provision.51

As an example, assume a company

mailed this year’s proxy materials on

March 31, 1998 for an annual meeting

on May 1, 1998. Next year, the company

also schedules an early May annual

meeting. The notice date established by

new rule 14a–4(c)(1) for non-14a–8

proposals is 45 days before March 31, or

February 14. Thus February 14, 1999

would represent the notice date for the

purposes of amended rule 14a–4(c)(1)

unless a different date is established by

an overriding advance notice provision

in the company’s charter or bylaws.52

A few commenters thought that

advance notice of 45 days might provide

an insufficient amount of time for some

companies with longer printing and

mailing schedules.53 However, we do

not believe that it is necessary to extend

the 45-day advance notice period, since

most companies should have some

flexibility under state law to prolong the

period through advance notice

provisions. We stated in the Proposing

Release that we did not intend to

interfere with the operations of state law

authorized definitions of advance notice

set forth in corporate bylaws and/or

articles of incorporation, and a number

of commenters supported this

approach.54 Accordingly, an advance

notice provision would override the 45-

day period under rule 14a–4, resulting
29110 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

55A company that mails its proxy materials

before the expiration of the period established by

an advance notice bylaw would continue to be

subject to the notice even though it has already

mailed its proxies.

56One commenter suggested that we move the

parenthetical referring to the effect of advance

notice provisions from the middle of the first

sentence of paragraph 14a–4(c)(1) as proposed to

the end of that sentence in order to clarify that an

advance notice provision would override the 45-day

period established by the rule whether the

provision runs from the meeting date or from the

mailing date. See Sullivan & Cromwell Letter. We

agree and have made the revision.

57See Sullivan & Cromwell Letter.

58A few commenters also thought that we should

further clarify that new paragraph 14a–4(c)(2)

comes into play only if the company receives timely

notice of a non-14a–8 proposal for the purposes of

paragraph (c)(1). We added clarifying language to

the end of paragraph (c)(1) and the beginning of

paragraph (c)(2) in response to these comments.

59See e.g., Chevron Corp, Nov. 25, 1997; USX

Corp., Dec. 18, 1997.

60 Idaho Power Co. (Mar 13, 1996); Borg-Warner

Security Corp. (Mar. 14, 1996).

61See rule 14a–9 [17 CFR 240.14a–9].

62See, e.g., Georgeson Letter; ICCR Letter; UNITE

Letter; Davis, Cowell & Bowe, LLP, Jan. 2, 1998.

One commenter gave the following example. An

insurgent sends out a proxy card seeking

shareholder votes on its shareholder resolution. A

shareholder who receives the insurgent’s card votes

in favor of the proposal, and executes and returns

the insurgent’s card. But then the company either

solicits, or resolicits, the same shareholder, and

includes a ‘‘withhold’’ box on management’s proxy

card relating to the same non-14a–8 proposal. Since

the shareholder does not wish to grant management

discretionary voting authority on the proposal, it

checks the box. But then, in the commenter’s view,

it may be unclear whether the shareholder has

executed a subsequent proxy that revokes the

shareholder’s execution of the insurgent’s card

under applicable state law. See ICCR Letter at 32–

33.

63A few commenters from the shareholder

community suggested that we overcome possible

confusion by requiring companies to permit

shareholders to vote ‘‘for’’ or ‘‘against’’ non-14a–8

proposals. Commenters from the corporate

community that addressed the matter opposed such

an approach, and we believe that the amendments

adopted today adequately accomplish our goal of

providing clearer guidelines in this area. Contrary

to the statements by some commenters, it is not

necessarily a precondition for the exercise of

discretionary voting authority under the Division’s

current no-action letters that companies include an

extra item on their proxy cards permitting

shareholders to vote ‘‘for’’ or ‘‘against’’ non-14a–8

proposals. See Idaho Power and Borg-Warner.

64See, eg., BRT Letter; ASCS Letter; J.C. Penny

Company, Dec. 19, 1997; Champion Int’l Corp., Dec.

18, 1997; International Paper, Nov. 19, 1997.

65See, e.g., Mr. Jack Sheinkman, Vice-Chair

Amalgamated Bank of New York, and President

Emeritus Amalgamated Clothing and Textile

Workers Union AFL–CIO, CLC, Nov. 7, 1997;

Service Employees Int’l Union, Dec. 31, 1997;

Engineers Letter; Carpenters Letter; National

Electrical Benefit Fund, Dec. 22, 1997 (‘‘NEBF

Letter’’).

in a shorter 55 or longer period.56 The

rule continues to require inclusion of a

specific statement, in either the proxy

statement or proxy card, of an intent to

exercise discretionary voting authority

in these circumstances.

Paragraph 14a–4(c)(1) as adopted

continues to incorporate a ‘‘reasonable

time’’ standard if the company did not

hold an annual meeting of shareholders

during the prior year, or if the date of

the annual meeting has changed by

more than 30 days from the prior year.

While one commenter suggested an

alternative mechanism designed to

provide a more specific ‘‘default’’ date,

we were concerned that such an

alternative approach might make the

rule unjustifiable complex.57

B. Rule 14a–4(c)(2)

Proposed new paragraph 14a–4(c)(2)

addressed a company’s ability to

exercise discretionary voting authority

for an annual shareholders’ meeting

notwithstanding its receipt of ‘‘timely’’

advance notice of a non-14a–8

shareholder proposal as defined by

paragraph 14a–4(c)(1).58 We are

adopting new paragraph (c)(2), but with

some modifications of the original

proposal.

As originally proposed, paragraph

14a–4(c)(2) would have permitted the

exercise of discretionary voting

authority by company management if

the company’s proxy materials were to

include: (i) in the proxy statement, a

discussion of the nature of the matters

as to which adequate advance notice has

been received, and how the company

intends to exercise its discretion to vote

on each such matter should it be

presented to shareholders at the

meeting, and (ii) on the proxy card, a

cross-reference to the discussion in the

proxy statement and a box allowing

shareholders to withhold discretionary

authority from management to vote on

the designated matter(s). The preconditions to reliance on the rule are

discussed below.

1. Proxy Statement Disclosure

On the first pre-condition of the

proposed rule, requiring disclosure of

the nature of potential non-14a–8

shareholder proposals, a number of

commenters objected to our use of the

word ‘‘discussion.’’ 59 In their view, the

word ‘‘discussion’’ appears to signal a

departure from the Division’s current

position expressed in its Idaho Power

and Borg-Warner no action letter

responses.60 Under those no-action

responses, companies must only

‘‘advise’’ shareholders of, rather than

‘‘discuss,’’ the nature of proposals that

may be raised. Because we intended no

departure from the disclosure element

of the Division’s no-action position,

paragraph (c)(2) as adopted replaces the

word ‘‘discussion’’ with ‘‘advice.’’ We

remind you that the disclosure

prescribed by amended rule 14a–4(c)(2),

as with any disclosure item, must take

into account the disclosure

requirements of the proxy anti-fraud

rule.61

2. No Separate Voting Box

On the second pre-condition of

proposed paragraph 14a–4(c)(2), a

number of commenters objected to the

inclusion of a separate voting ‘‘box’’

permitting shareholders to withhold

discretionary authority from

management on a non-14a–8

shareholder proposal as to which

adequate advance notice had been

received in the context of an annual

meeting or its equivalent. Some stated

that a voting box permitting

shareholders to withhold discretionary

voting authority in some circumstances

may be confusing if shareholders are

also independently solicited by the

proponent in support of the same

proposal.62 We agree that inclusion of

the proposed box on companies’ proxy

cares may be confusing in some

circumstances.63

Other commenters objected to the

separate voting box because they believe

that the potential availability of the box

would in effect create a new system for

submitting shareholder proposals

without having to comply with the

restrictions under rule 14a–8.64 In their

view, the prospect of obtaining a voting

box with a cross-reference to disclosure

of the nature of the potential proposal

in the proxy statement would encourage

the submission of more shareholder

proposals outside rule 14a–8’s

mechanisms.

Accordingly, we have decided not to

include the new voting box as part of

new rule 14a–4(c)(2). A shareholder’s

execution of a proxy card will confer

discretionary voting authority if the

requirements of the rule are satisfied.

3. Percentage of Shareholders to be

Solicited

Several commenters also objected to

proposed new paragraph 14a–4(c)(2) on

grounds that it would permit a company

to exercise discretionary voting

authority at an annual shareholders

meeting even if the shareholder

proponent had independently solicited

the percentage of shareholders required

to carry the proposal.65 These

commenters believe that a company

should not be permitted to vote

uninstructed proxies if the proponent

has put the proposal ‘‘in play’’ by

providing a proxy statement and form of

proxy to a significant percentage of the

company’s sharehownership. On this

point, proposed paragraph 14a–4(c)(2)

represented a departure from the
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29111

66See, e.g., NEBF Letter, Carpenters Letter;

UNITE Letter, Engineers Letter; Long View Letter;

Citicorp Letter; Questar Corp., Dec. 31, 1997;

Harrah’s Entertainment, Inc., Dec. 31, 1997; see also

Goldschmid and Millstein Letter.

67See United Mine Workers versus Pittston Co.,

[1989–1990 Transfer Binder] Fed. Sec. L. Rep.

(CCH) P 94,946 (D.D.C. Nov. 24, 1989); and Larkin

versus Baltimore Bancorp, 769 F. Supp. 919 (D. Md.

1991).

68See, e.g., ABA Letter; BRT Letter; ASCS Letter;

Goldschmid and Millstein Letter. A few

commenters within the shareholder community

supported reversal of the position. See, e.g.,

Engineers Letter; Carpenters Letter.

69For favorable comments, see, e.g., TIAA–CREF

Letter; ABA Letter; GE Stockholders’ Alliance, Oct.

16, 1997. But see, e.g., ICCR Letter.

70See Calvert Letter.

71See The answer to Question 2.

‘‘percentage of shares solicited’’

standard articulated in the Division’s

Idaho Power and Borg-Warner no-action

positions.

In response to these comments, and in

light of our decision not to adopt the

proposal to require that the Company

include an additional box on its proxy

cards for withholding discretionary

voting authority, we have decided to

codify the ‘‘percentage of shares

solicited’’ standard of the Division’s

current no-action positions. The final

rule therefore precludes a company

from exercising discretionary voting

authority on matters as to which it has

received adequate advance notice if the

proponent provides the company as part

of that notice with a statement that it

intends to solicit the percentage of

shareholder votes required to carry the

proposal, followed with specified

evidence that the stated percentage had

actually been solicited.

As we explained in the Proposing

Release, this aspect of the Division’s noaction position had been the source of

uncertainty for companies. A company

may not know whether a shareholder

intends to begin to solicit proxies

independently, or how many

shareholders will be solicited if a

solicitation is actually commenced. We

understand that in a number of

instances companies were forced to

guess whether its ability to exercise

discretionary authority had been

restricted. A number of commenters

from both the corporate and shareholder

communities suggested that we

overcome the potential for uncertainty

by requiring proponents to provide

advance written notice if they intend to

deliver a proxy statement and form of

proxy to holders of at least the

minimum number of the company’s

voting shares that is required to carry

the proposal, including measures to

help ensure that such notice is bona

fide.66

We have revised new paragraph (c)(2)

to reflect these comments, and the rule

as adopted requires a shareholder

proponent to provide the company with

written notice within the timeframe

established by paragraph 14a–4(c)(1),

that is, earlier than 45 days or in

compliance with advance notice

provisions. In order to help ensure that

the notice has been provided in good

faith, paragraph 14a–4(c)(2) as adopted

also requires the proponent to repeat the

statement (that it intends to solicit

proxies to prevail) in its proxy materials

to underscore the applicability of rule

14a–9, the anti-fraud rule. To further

emphasize this point, and to provide

interested parties with the ability to

proceed against a proponent that does

not fulfill its good faith promise to

solicit the required number of

shareholders, the rule requires the

proponent to provide the company with

a statement from the solicitor or other

person with knowledge indicating that

the proponent has taken the steps

necessary to solicit the percentage of the

company’s shareownership required to

approve the proposal. A statement

executed by the shareholder insurgent

will satisfy this requirement only to the

extent that it was actually involved in

carrying out the solicitation.

C. Rule 14a–4(c)(3)

We are also adopting a new paragraph

14a–4(c)(3) to further clarify the rule’s

operation in connection with special

shareholders’ meetings and other

solicitations. Rules 14a–4(c)(1) and 14a–

4(c)(2) as proposed to be amended, and

as adopted, establish a clearer

framework for companies’ exercise of

discretionary voting authority for

annual shareholder meetings or their

functional equivalents. We did not

intend for that framework to apply to

other solicitations, or to solicitations by

persons other than management, such as

special meetings or consent solicitations

unrelated to the election of directors,

which would continue to be governed

by the ‘‘reasonable time’’ standard that

had applied to all solicitations under

former rule 14a–4(c)(1). Although there

does not appear to have been confusion

among commenters on this point, new

paragraph (c)(3), and new introductory

language to new paragraphs (c)(1) and

(c)(2), should help clarify the point.

Tracking much of the language of

former paragraph 14a–4(c)(1), new

paragraph (c)(3) provides for the

exercise of discretionary voting

authority ‘‘[f]or solicitations other than

for annual meetings or for solicitations

by persons other than the registrant, [on]

matters which the persons making the

solicitation do not know, a reasonable

time before the solicitation, are to be

presented at the meeting, if a specific

statement to that effect is made in the

proxy statement or form of proxy.’’ 67

D. Filing in Preliminary Form

Finally, in the Proposing Release, we

stated that during the 1996 proxy season

the Division permitted several

companies to avoid filing proxy

materials in preliminary form despite

receipt of adequate advance notification

of a non-14a–8 shareholder proposal, so

long as these companies disclosed in

their proxy statements the nature of the

proposal and how management

intended to exercise discretionary

voting authority if the proposal were

actually to be presented to a vote at the

meeting. We also stated that, in light of

the proposed amendments to rule 14a–

4, we might reverse that informal

position, so that companies receiving

notice of a non-14a–8 proposal before

the filing of their proxy materials would

be required to file their materials in

preliminary form to preserve

discretionary voting authority under

rule 14a–4(c)(2). A number of

commenters opposed reversal of the

position, stating that in ordinary

circumstances little would be gained by

staff review of this material, and that

potential delays resulting from

preliminary filings could unjustifiably

interfere with companies’ mailing

schedules.68 The Division has decided

not to reverse its position at this time,

but may evaluate the position again in

the future after monitoring proxy filings

under the amended rules.

V. Other Amendments

We are adopting other modifications

to rules 14a–8 and 14a–5.

We are adopting as proposed the

answer to Question 1 of the amended

rule defining a proposal as a request or

requirement that the board of directors

take an action.69 One commenter

objected to the proposal on grounds that

the definition appeared to preclude all

shareholder proposals seeking

information.70 In formulating the

definition, it was not our intention to

preclude proposals merely because they

seek information, and the fact that a

proposal seeks only information will not

alone justify exclusion under the

definition.

Also as proposed, we are increasing

the dollar value of a company’s voting

shares that a shareholder must own in

order to be eligible to submit a

shareholder proposal—from $1,000 to

$2,000—to adjust for the effects of

inflation since the rule was last

revised.71 There was little opposition to
29112 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

72See, e.g., ASCS Letter; ABA Letter; BRT Letter;

see also ICCR Letter.

73See, e.g., ABA Letter; ASCS Letter; TIAA–CREF

Letter; GE Stockholders’ Alliance, Oct. 16, 1997.

But see ICCR Letter; Carpenters Letter.

74See Rule 14a–8(j)(Question10).

75See Section IV above. The new information, if

applicable, would be disclosed under Item 5 of

Form 10–Q or 10–QSB (‘‘Other Information’’).

76See ABA Letter; New York State Bar Letter.

77See W.R. Grace & Co., Oct. 28, 1997.

78See, e.g., CALPERS Letter; ICCR Letter; ASCS

Letter.

79See e.g., ICCR Letter; Teamsters Letter; Captains

Endowment Ass’n, rec’d Nov. 6, 1997; Davis,

Cowell & Bowe LLP, Jan. 2, 1998 (‘‘Davis, Cowell

& Bowe Letter’’).

80Social issue proposals are generally not

excludable under paragraph (4). In 1983, we

amended the rule to clarify that it would not apply,

without other factors, to exclude a proposal

‘‘relating to an issue in which proponent was

personally committed or intellectually and

emotionally interested.’’ Exchange Act Release No.

20091 (Aug. 16, 1983)[48 FR 38218].

81See, e.g., ICCR Letter; NYCERS Letter; Calvert

Letter; Social Investment Forum Letter; the School

Sisters of Notre Dame, Oct. 20, 1997; the Conference

on Corporate Responsibility of Indiana and

Michigan, Oct. 14, 1997; CALPERS Letter

(indicating that it might support more modest

the proposed increase among

commenters, although several do not

believe the increase is great enough to

be meaningful, especially in light of the

overall increase in stock prices over the

last few years.72 Nonetheless, we have

decided to limit the increase to $2,000

for now, in light of rule 14a–8’s goal of

providing an avenue of communication

for small investors. There was no

significant support for any

modifications to the rule’s other

eligibility criteria, such as the one-year

continuous ownership requirement.

A number of commenters supported,

and few opposed, our proposal to

establish a uniform 14-day period in

which shareholders would be required

to respond to a company’s notification

that the shareholder has failed to

comply with one or more procedures

under rule 14a–8, such as the

submission deadlines and the rule’s for

establishing proponent eligibility.73 We

are adopting the 14-day period as

proposed. In response to one

commenter’s suggestion, we have added

a sentence to the rule clarifying that a

company need not provide notice of a

deficiency that cannot be remedied. If

the company intends to exclude the

proposal, it nonetheless would later

have to make a submission under rule

14a–8, and provide a copy to the

proponent.74

We are also adopting amendments to

rule 14a–5(e), with a few modifications

from our proposals. As proposed to be

amended, that rule would require

companies to disclose the date after

which proposals submitted outside the

framework of rule 14a–8 are considered

untimely for the purposes of amended

rule 14a–4(c)(1).75

Two commenters objected to our

proposal to amend rule 14a–5(e) to

require disclosure of the date by which

shareholders must notify the company

of any non-14a–8 proposals under

amended rule 14a–4(c)(1).76 They were

concerned that disclosure of the date

would appear to formalize a new system

for submitting shareholder proposals in

competition with the mechanisms of

rule 14a–8, and would encourage the

submission of proposals outside of that

process. We do not agree that mere

disclosure of the date would likely have

that effect, and we believe that

disclosure is necessary because

shareholders often would not have

enough information to deduce the date

reliably on their own. We are also

adopting the other proposed

modifications to rule 14a–5(e) designed

to streamline the rule’s operation.

One commenter pointed out that it is

unclear from the rule as drafted whether

the new disclosure in the company’s

proxy statement should reflect the

‘‘default’’ date under amended rule 14a–

4(c)(1), or instead the date established

by an overriding advance notice

provision, if any.77 We have revised the

rule to clarify that companies should

disclose the date established by an

overriding advance notice provision,

and in the absence of such a provision,

the ‘‘default’’ date for submitting non14a–8 proposals, which normally would

be 45 days before the date the company

mailed its proxy materials for the prior

year. Because the rule also requires

companies to disclose the deadline for

submitting rule 14a–8 proposals,

companies’ disclosure should clearly

distinguish between the two dates.

Finally, in the answer to Question 8

of amended rule 14a–8, we proposed to

include an advisory that the proponent

or the proponent’s representative make

sure that he/she follows applicable

procedures proper under state law for

appearing at the meeting and/or

presenting the proposal. Most

commenters who addressed the

proposal viewed the advisory as a

helpful aid.78 We have included the

advisory as proposed.

VI. Proposals Not Adopted

We have decided not to adopt some

of our original proposals, due in part to

concerns expressed by some

commenters. These proposals generally

received support from some

commenters, but equally strong

opposition from others.

Personal Grievance Exclusion

Paragraph (4) under Question 9,

formerly rule 14a–8(c)(4), permits

companies to exclude proposals

furthering personal grievances or special

interests. We had proposed to modify

the way the Division administers the

rule so that the staff would concur in

the exclusion of a proposal on this

ground only if the proposal on its face

were to relate to a personal grievance or

special interest. In other circumstances,

under our proposal, the Division would

express ‘‘no view’’ in its no-action

response. The proposal reflected our

view that the Division’s ability to make

the necessary factual findings is limited

in the context of evaluating an

otherwise ‘‘facially neutral’’ proposal,

and that companies and shareholders

themselves possess much of the factual

information relevant to the applicability

of the ‘‘personal grievance’’ exclusion.

Shareholders expressed serious

concerns about this proposal.79 A

number of commenters from the

shareholder community were concerned

that companies might use the increased

flexibility provided by a ‘‘no view’’ noaction response to exclude proposals

that do not in actuality further personal

grievances of special interests. In their

view, a shareholder, in these

circumstances, might be forced to incur

the expense of litigation to prevent

exclusion of the proposal. Some

shareholders, for instance, were

concerned that companies might rely on

the rule to exclude proposals focusing

on social policy matters.80 We agree that

the proposal might increase the

likelihood of disputes between

shareholders and companies. We have

therefore decided not to implement the

proposal, and will continue to

administer the rule consistently with

our current practice of making case-bycase determinations on whether the rule

permits exclusion of particular

proposals.

Resubmission Thresholds

If a proposal fails to receive a

specified level of support, paragraph

(12) under Question 9, formerly rule

14a–8(c)(12), permits a company to

exclude a proposal focusing on

substantially the same subject matter for

a three-year period. In order to avoid

possible exclusion, a proposal must

receive at least 3% of the vote on its first

submission, 6% on the second, and 10%

on the third. We had proposed to raise

the percentage thresholds respectively

to 6%, 15%, and 30%.

Many commenters from the

shareholder community expressed

serious concerns about this proposal.81
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29113

increases in the thresholds); but see TIAA–CREF

Letter (supporting the increases at the levels

proposed). These commenters were concerned that

the increases would operate to exclude too great a

percentage of proposals—particularly those

focusing on social policy issues which tend to

receive lower percentages of the shareholder vote.

82Former paragraphs (c)(7) and (c)(5) of rule 14a–

8. See, e.g., ABA Letter; ACCA Letter; LPA Letter;

AT&T, Dec. 24, 1997; Household Int’l, Inc., Jan. 6,

1998; Federal Express Corp., Jan. 2, 1998; ICI Letter

(concerned that proposal if adopted might be costly

and disruptive for investment companies).

83See, e.g., ASCS Letter; BRT Letter; FMC Corp.,

Dec. 5, 1997; Ford Motor Company, Dec. 23, 1997;

New York State Bar Letter.

84See, e.g., ASCS Letter; BRT Letter; Unocal

Corp., Nov. 24, 1997.

85See, e.g., TIAA–CREF Letter; CALPERS Letter;

Carpenters Letter; Jessie Smith Noyes Letter;

NYCERS Letter; ICCR Letter.

86See, e.g., ICCR Letter; LongView Letter. See

also ICI Letter.

87See Proposing Release, Section V.

88 15 U.S.C. 78m, 78n, & 78u.

89 15 U.S.C. 80a–1 et seq.

90Paragraph (5) under Question 9, former rule

14a–8(c)(5).

91Because we are not adopting the proposed

‘‘override’’, we also are not adopting certain

measures, designed to enable shareholders to use it,

including the proposed qualified exemption from

the proxy rules, and safe harbor from beneficial

ownership reporting obligations under Section

13(d) of the Exchange Act.

We have decided not to adopt the

proposal, and to leave the thresholds at

their current levels.

Proposed Override Mechanism

We had proposed a new mechanism

that would have permitted 3% of a

company’s shareownership to override

the ‘‘ordinary business’’ exclusion and

the ‘‘relevance’’ exclusion, paragraphs

(7) and (5) under Question 9.

Several commenters opposed the

proposal.82 Other commenters

supported the override concept as

proposed, but expressed concerns about

specific aspects, including whether the

proposed 3% threshold may be too low

and lead to erosion of the ‘‘ordinary

business’’ and ‘‘relevance’’ exclusions

that would be subject to an override.83

Some shareholders thought the

opposite, that 3% support of a

company’s shareownership would be

too difficult for a shareholder proponent

to obtain.

We have decided not to adopt the

proposed ‘‘override’’ mechanism.

Because we are not adopting the

‘‘override,’’ we also are not adopting

ancillary amendments designed to help

implement the mechanism, including

the proposed qualified exemption under

the proxy rules, the proposed safe

harbor from the beneficial ownership

reporting requirements under section

13(d) of the Exchange Act, and the

proposed shortening of companies’

deadlines for making their rule 14a–8

no-action submissions to the Division.

The ‘‘Relevance’’ Exclusion

Paragraph (5) under Question 9

permits companies to exclude proposals

Relating to operations which account for

less than 5 percent of the registrant’s total

assets at the end of its most recent fiscal year,

and for less than 5 percent of its net earnings

and gross sales for its most recent fiscal year,

and is not otherwise significantly related to

the registrant’s business.

We had proposed to revise the rule to

apply a purely economic standard.

Under the proposal, the exception for

proposals that are ‘‘otherwise

significantly related’’ would have be

deleted. A company would have been

permitted to exclude proposals relating

to matters involving the purchase or sale

of services or products that represent

$10 million or less in gross revenue or

total costs, whichever is appropriate, for

the company’s most recently completed

fiscal year.

Few commenters indicated strong

support for the proposed amendments,

and we are not making any substantive

changes to the rule. Many commenters

within the corporate community agreed

in concept with our proposal to base the

rule on an objective economic standard,

and to eliminate the subjective ‘‘not

otherwise significantly related’’ part of

the rule.84 But most of those

commenters thought that the proposed

$10 million threshold was so low that

companies would too infrequently be in

a position to rely on the exclusion.

Comments from the shareholder

community were mixed.85 Some

shareholders opposed the elimination of

the ‘‘not otherwise significantly related’’

part of the rule, while other

shareholders expressed varying degrees

of support for the approach, with some

expressing concern that companies

might apply the rule to exclude

proposals on subjects that are difficult

to quantify, despite the ‘‘safeguards’’

that we included as part of the proposed

amendments.

Statements in Opposition: Commission

Review

Finally, we had proposed eliminating

rule 14a–8(e), which requires a

company to provide a proponent with

an advance copy of any statement in

opposition to the proposal that it

intends to include in its proxy

materials. This provision also provides

a mechanism for shareholders to bring

materially false or misleading

statements to the Division’s attention. A

number of commenters from the

shareholder community opposed

elimination of these procedures because

they believed that the potential for

proponent objections deters companies

from making materially false or

misleading statements, and encourages

negotiation between the company and

proponent.86 We have decided not to

adopt that proposal, and are retaining

the mechanisms of former rule 14a–8(e)

in the context of the answer to Question

13 of amended rule 14a–8.

VII. Final Regulatory Flexibility

Analysis

We have prepared this Final

Regulatory Flexibility Analysis under 5

U.S.C. 603 concerning the amendments

to rules 14a–8, 14a–4, and 14a–5 as a

follow-up to the Initial Regulatory

Flexibility Analysis (‘‘IRFA’’) that we

prepared in connection with the

Proposing Release.87 We received few

comments, and no significant empirical

data, in response to the requests for

further information included in the

IRFA.

The purpose of the amendments is to

streamline the operation of the rule, and

address concerns raised by both

shareholder and corporate participants.

We are adopting the amendments

pursuant to Sections 14 and 23 of the

Exchange Act 88 and Section 20(a) of the

Investment Company Act of 1940 89

(Investment Company Act’’).

Specifically, we are:

• Recasting rule 14a–8 into a more

plain-English Question & Answer

format;

• Reversing the Craker Barrel

interpretive position on employmentrelated proposals raising significant

social policy issues; and

• Amending rule 14a–4 to provide

shareholders and companies with

clearer guidance on companies’ exercise

of discretionary voting authority.

We have decided not to adopt other

elements of our original proposals. We

are not adopting our original proposals

to:

• Increase the percentage of the vote

a proposal must receive before it can be

resubmitted in future years if it is not

approved;

• Streamline the exclusion for matters

considered irrelevant to corporate

business,90

• Modify our administration of the

rule permitting companies to exclude

proposals furthering personal grievances

of special interests; or

• Implement an ‘‘override’’

mechanism that would have permitted

3% of the share ownership to override

a company’s decision to exclude a

proposal under certain of the bases for

exclusion set forth under Question 9 of

amended rule 14a–8.91
29114 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

92 17 CFR 240.0–10.

93 17 CFR 270.0–10.

94See Proposing Release, Footnote 14.

95This average is based on respondents reporting

costs greater than zero. Reported costs ranged from

a low of $10 to a high of approximately $1,200,000.

The median cost was $10,000.

96 ICCR Letter at 9.

97This average is based on respondents reporting

costs greater than zero. Reported costs ranged from

a low of $200 to a high of nearly $900,000. The

median cost was $10,000.

98See ICCR Letter at 9–10.

99No commenters provided information on the

likely impact reversal of the position will have on

the number of shareholder proposals submitted to

companies each year.

The amendments will affect small

entities that are required to file proxy

materials under the Exchange Act or the

Investment Company Act. Exchange Act

rule 0–10 defines ‘‘small business’’ as a

company whose total assets on the last

day of its most recent fiscal year were

$5 million or less.92 Investment

Company Act rule 0–10 defines ‘‘small

entity’’ as an investment company with

net assets of $50 million or less as of

that date.93 We are currently aware of

approximately 1,000 reporting

companies that are not investment

companies with assets of $5 million or

less. There are approximately 800

investment companies that satisfy the

‘‘small entity’’ definition. Only

approximately one-third of all

investment companies have shareholder

meetings and file proxy materials

annually.

Therefore, we believe approximately

250 small entity investment companies

may be affected by the amendments.

Plain-English Question & Answer

Format

Our revision of rule 14a–8 to create a

more understandable Question &

Answer format should help decrease the

time and expense incurred by both

shareholders and companies attempting

to comply with its provisions

companies frequently consult with legal

counsel in preparing no-action

submissions under rule 14a–8. The

rule’s added clarity may obviate the

need for a shareholder or company to

consult with counsel, depending on the

issues raised by the submission. Under

some circumstances, however,

companies’ submissions must include

supporting opinions of counsel.

No comments submitted empirical

data demonstrating how much it costs

companies to consider and prepare an

individual no-action submission under

rule 14a–8. Question 13 of a

Questionnaire that we made available in

February 1997 94 asked respondent

companies how much money they

spend on average each year determining

whether to include or exclude

shareholder proposals and following

Commission procedures in connection

with any proposal that they wish to

exclude (including internal costs as well

as any outside legal and other fees).

While responses may have accounted

for consideration of more than one

proposal, the costs of making a

determination whether to include a

proposal reported by 80 companies

averaged approximately $37,000.95 We

do not believe, however, that the cost is

likely to vary depending on the size of

the company. That is, the cost to a small

entity is likely to be the same as the cost

to a larger entity, depending on the

number of proposals received and how

many the company seeks to exclude

under the staff no-action letter process.

Because the rule’s added clarity may

make it easier for shareholders to

understand the procedures for

submitting shareholder proposals, the

amendments may encourage

shareholders to submit more

shareholder proposals to companies

each year. In turn, companies may be

required to make more rule 14a–8 noaction submissions to the Commission.

In the period from September 30,

1996 to September 30, 1997, we

received submissions from a total of 245

companies, and only 6 (i.e., 2%) were

‘‘small businesses.’’ While we received

no empirical data on the number of

small businesses that receive

shareholder proposals each year, one

commenter with substantial experience

submitting shareholder proposals to

companies reported that small

companies seldom receive shareholder

proposals.96

We also received no empirical

information in response to our request

for data on the marginal cost of

including an additional shareholder

proposal in companies’ proxy materials.

However, the Questionnaire asked each

company respondent how much money

on average it spends in the aggregate on

printing costs (plus any directly related

costs, such as additional postage and

tabulation expenses) to include

shareholder proposals in its proxy

materials. While individual responses

may have accounted for the printing of

more than one proposal, the average

cost reported by 67 companies was

approximately $50,000.97 By contrast,

one commenter noted that the cost for

companies, excluding the largest

corporations, should average about

$10,000 per proposal.98 We expect that

any additional printing costs are lower

for small entities, since small entities

typically should have to print fewer

copies of their proxy materials because

they have fewer shareholders.

A company that receives a proposal

has no obligation to make a submission

under rule 14a–8 unless it intends to

exclude the proposal from its proxy

materials. Accordingly, any costs of

including an additional proposal should

be offset, at least partially, by not having

to make a rule 14a–8 submission. No

commenters responded to our request

for empirical data on the potential cost

savings.

Reversal of Cracker Barrel

In the 1992 Cracker Barrel no-action

letter, the Division stated that

henceforth it would concur in the

exclusion of all employment-related

shareholder proposals raising social

policy issues under rule 14a–8(c)(7), the

‘‘ordinary business’’ exclusion. Before

the announcement of the position, the

Division analyzed employment related

proposals tied to social issues on a caseby-case basis, concurring in the

exclusion of some, but not others.

Reversal of the position will result in a

return to the case-by-case analysis that

prevailed before the position was

announced.

Our decision to reverse the Cracker

Barrel position on employment-related

shareholder proposals may therefore

result in an increase in the number of

employment-related proposals tied to

social issues that are submitted to

companies each year, and that

companies must include in their proxy

materials. During the 1997 proxy

season, the Division received

approximately 30 submissions involving

employment-related proposals tied to

social issues, none from ‘‘small

businesses.’’ 99

While it is unclear whether the

number of proposals submitted to small

businesses and included in their proxy

statements will increase as a result of

the reversal of Cracker Barrel, we have

analyzed under ‘‘Plain English Question

& Answer Format’’ above the potential

costs to companies of considering and

including additional proposals in their

proxy materials.

Discretionary Voting Authority

The amendments to rule 14a–4 should

favorably affect companies, including

‘‘small businesses,’’ because they would

provide clearer ground rules as to the

ability to exercise discretionary voting

power when a shareholder presents a

proposal without invoking rule 14a–8.

We do not routinely record information

on the number of ‘‘small businesses’’

that receive non-rule 14a–8 proposals
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29115

100UNITE Letter.

101 In order to comply, an insurgent is required

to send to the company advance written notice of

its intention to solicit the percentage of a company’s

shareownership required to carry the proposal,

followed by evidence of the solicitation, and to

include what should in most cases amount to little

more than an additional sentence in the insurgent’s

proxy statement. 102See Proposing Release, Section VI.

each year, since non-14a–8 proposals do

not necessarily lead to a submission to

the Commission. The Investor

Responsibility Research Center (‘‘IRRC’’)

has reported to the Commission staff,

however, that it is aware of a total of 19

independent proxy solicitations during

calendar years 1996 and 1997 in support

of non-14a–8 proposals, and none

appear to have involved ‘‘small

businesses.’’ In addition, one

commenter indicated that, since 1991,

there have been 66 independent

shareholder solicitations in support of

shareholder resolutions.110 None of the

companies subject to the 66 solicitations

appear to have been ‘‘small businesses.’’

To the extent that ‘‘small businesses’’

receive such proposals, we believe that

the amendments to rule 14a–4 will

favorably affect them by reducing

uncertainty, and decreasing the

likelihood that such companies would

have to incur the delay and expense of

rescheduling the shareholders meeting,

or resoliciting shareholders. Some

commenters thought that the proposal to

require companies wishing to preserve

voting authority to include an extra

voting box on their proxy cards might

encourage the submission of more non14a–8 shareholder proposals. We have

decided not to adopt that aspect of our

original proposal. Some shareholders

thought that the amendments as

proposed might effectively inhibit

independent proxy solicitations because

they would have permitted companies

to retain voting authority even if the

shareholder solicited the percentage of

shareownership required to carry the

proposal. We also have decided not to

adopt that aspect of our original

proposal.

Under our amendments to rule 14a–

4, a company wishing to preserve

discretionary voting authority on certain

proposals that might be presented to a

vote may be required to advise

shareholders of the nature of such

proposals. We note, however, that this

precondition is consistent with the

Division’s no-action positions predating

the adoption of the amendments. No

commenters provided empirical data on

incremental costs likely to result from

this amendment to rule 14a–4. Daniels

Financial Printing informed the staff

that in most cases adding up to threefourths of a page in the proxy statement

would not increase the cost to the

company, and that adding more than

three-fourths of a page could increase

costs by about $1,500 for an average

sized company.

Under our amendments to rule 14a–

4, a shareholder undertaking an

independent proxy solicitation would

be required to provide a company with

advance written notice of its intention

to solicit the percentage of the

company’s shareownership to carry the

proposal, followed by other measures to

help ensure that the notice has been

provided in good faith. These

amendments would impose no

additional costs on companies receiving

such notice, since no action by them is

required. The amendments should

impose only de minimis additional

costs on shareholders who undertake

independent proxy solicitations.101

Our amendment to rule 14a–5 would

require companies to disclose an

additional date in their proxy

statements. Disclosure of the date

should require no more than an

additional sentence, and therefore

should result in no, or negligible,

additional printing costs.

We considered significant alternatives

to the proposed amendments for small

entities with a class of securities

registered under the Exchange Act. We

considered, for instance, exempting

small businesses from any obligation to

include shareholder proposals in their

proxy materials. Such an exemption,

however, would be inconsistent with

the current purpose of the proxy rules,

which is to provide and regulate a

channel of communication among

shareholders and public companies.

Exempting small entities would deprive

their shareholders of this channel of

communication.

We also considered other alternatives

identified in Section 603 of the

Regulatory Flexibility Act to minimize

the economic impact of the amendments

on small entities. We considered the

establishment of different compliance

requirements or timetables that take into

account the resources available to small

entities. Different timetables, however,

may make it difficult for the Division to

issue responses in a timely manner, and

could otherwise impede the efficient

operation of the rule.

We also considered the clarification,

consolidation, or simplification of the

rule’s compliance requirements for

small entities. As explained more fully

in section II of this release, we are

recasting and reformatting rule 14a–8

into a more understandable, Question &

Answer format. As explained in Section

IV above, we are adopting clearer

guidelines for companies’ exercise of

discretionary voting authority under

rule 14a–4. These modifications should

simplify and facilitate compliance by all

companies, including small entities. We

do not believe that there is any

appropriate way further to facilitate

compliance by small entities without

compromising the current purposes of

the proxy rules.

We also considered the use of

performance rather than design

standards. The rules that we are

amending are not specifically designed

to achieve certain levels of performance.

Rather, they are designed to serve other

policies, such as to ensure adequate

disclosure of material information, and

to provide a mechanism for

shareholders to present important and

relevant matters for a vote by fellow

shareholders. Performance standards

accordingly would not directly serve the

policies underlying the rules. We do not

believe that any current federal rules

duplicate, overlap, or conflict with the

rules that we propose to amend.

VIII. Cost-Benefit Analysis

This cost-benefit analysis follows a

preliminary analysis request for

comments and empirical information

included in the Proposing Release.102

We received few comments and no

significant empirical data, in response

to our requests for further information.

The amendments to the rules on

shareholder proposals should improve

the efficiency of the process for

determining which shareholder

proposals must be included in proxy

materials distributed by companies.

They should help to make the rule

understandable to the numerous

shareholders and companies that refer

to the rule each year, ensure that

companies include certain employmentrelated proposals raising significant

social policy issues in their proxy

materials, and provide clearer

guidelines for a company’s exercise of

discretionary voting authority when

notified that a shareholder intends to

present a proposal without invoking

rule 14a–8’s mechanisms.

Specifically, we are:

• Recasting rule 14a–8 into a more

plain-English Question & Answer

format;

• Reversing the Cracker Barrel

interpretive position on employmentrelated proposals raising significant

social policy issues; and

• Amending rule 14a–4 to provide

shareholders and companies with

clearer guidance on companies’ exercise

of discretionary voting authority.
29116 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

103Paragraph (5) under Question 9, former rule

14a–8(c)(5).

104Because we are not adopting the proposed

‘‘override’’, we also are not adopting certain

measures designed to enable shareholders to use it,

including the proposed qualified exemption from

the proxy rules, and safe harbor from beneficial

ownership reporting obligations under Section

13(d) of the Exchange Act.

105This average is based on respondents reporting

costs greater than zero. Reported costs ranged from

a low of $10 to a high of approximately $1,200,000.

The median cost was $10,000.

106See Shareholder Rights Analysis: The Impact

of Proposed SEC Rules on Resubmission of

Shareholder Resolutions, Social Investment Forum

Foundation, Dec. 10, 1997.

107This average is based on respondents reporting

costs greater than zero. Reported costs ranged from

a low of $200 to a high of nearly $900,000. The

median cost was $10,000.

108See ICCR Letter at 9–10.

109 In the period from September 30, 1996 to

September 30, 1997, we received approximately 400

submissions under rule 14a–8.

110No commenters provided information on the

likely impact reversal of the position will have on

the number of shareholder proposals submitted to

companies each year.

111See, e.g., Michael P. Smith, Shareholder

Activism by Institutional Investors: Evidence from

CalPERS, The Journal of Finance, Vol. LI, No. 1,

March 1996; Sunil Wahal, Pension Fund Activism

and Firm Peformance, Journal of Financial and

Quantitative Analysis, Vol. 31, No. 1, March 1996.

112Even if a proposal does not obtain shareholder

approval, however, it may nonetheless influence

management, especially if it receives substantial

shareholder support. A proposal may also influence

management even if it is not put to a shareholder

vote. We understand that in some instances

management has made concessions to shareholders

in return for the withdrawal of a proposal.

We have decided not to adopt other

elements of our original proposals. We

are not adopting our original proposals

to:

• Increase the percentage of the vote

a proposal must receive before it can be

resubmitted in future years if it is not

approved;

• Streamline the exclusion for matters

considered irrelevant to corporate

business;103

• Modify our administration of the

rule permitting companies to exclude

proposals furthering personal grievances

of special interests; or

• Implement an ‘‘override’’

mechanism that would have permitted

3% of the share ownership to override

a company’s decision to exclude a

proposal under certain of the bases for

exclusion set forth under Question 9 of

amended rule 14a–8.104

We have considered whether the

amendments we are adopting would

promote efficiency, competition and

capital formation. Rule 14a–8 requires

companies to include shareholder

proposals in their proxy materials,

subject to specific bases for excluding

them. We believe that the rule enhances

investor confidence in the securities

markets by providing a means for

shareholders to communicate with

management and among themselves on

significant matters.

Plain-English Question & Answer

Format

Our revision of the rule to create a

more understandable Question &

Answer format should help decrease the

time and expense incurred by both

shareholders and companies attempting

to comply with its provisions.

Companies frequently consult with legal

counsel in preparing no-action

submissions under rule 14a–8. The

rule’s added clarity may obviate the

need for a shareholder or company to

consult with counsel, depending on the

issues raised by the submission. Under

some circumstances, however,

companies’ submissions must include

supporting opinions of counsel.

No commenters submitted empirical

data demonstrating how much it costs

companies to consider and prepare an

individual no-action submission under

rule 14a–8. Question 13 of the

Questionnaire asked respondent

companies how much money they

spend on average each year determining

whether to include or exclude

shareholder proposals and following

Commission procedures in connection

with any proposal that they wish to

exclude (including internal costs as well

as any outside legal and other fees).

While responses may have accounted

for consideration of more than one

proposal, the costs reported by 80

companies averaged approximately

$37,000.105

Because the revised rule’s added

clarity may make it easier for

shareholders to understand the

procedures for submitting shareholder

proposals, the amendments may

encourage shareholders to submit more

shareholder proposals to companies

each year. In turn, companies may be

required to make more rule 14a–8 noaction submissions to the Commission.

A study conducted by one commenter

reports that, each year, shareholder

proposals come to a vote at 226

companies from among the 1,500 largest

U.S. companies.106

We also received no information in

response to our request for data on the

marginal cost of including an additional

shareholder proposal in companies’

proxy materials. However, the

Questionnaire asked each company

respondent how much money on

average it spends in the aggregate on

printing costs (plus any directly related

costs, such as additional postage and

tabulation expenses) to include

shareholder proposals in its proxy

materials. While individual responses

may have accounted for the printing of

more than one proposal, the average

cost reported by 67 companies was

approximately $50,000.107 By contrast,

one commenter thought that this

estimate is too high, although large

companies in his view would incur

relatively higher costs.108

A company that receives a proposal

has no obligation to make a submission

under rule 14a–8 unless it intends to

exclude the proposal from its proxy

materials.109 Accordingly, any costs of

including an additional proposal should

be offset, at least partially, by not having

to make a rule 14a–8 submission. No

commenters responded to our request

for empirical data on the potential cost

savings.

Reversal of Cracker Barrel

In the 1992 Cracker Barrel no-action

letter, the Division stated that

henceforth it would concur in the

exclusion of all employment-related

shareholder proposals raising social

policy issues under rule 14a–8(c)(7), the

‘‘ordinary business’’ exclusion. Before

the announcement of the position, the

Division analyzed employment related

proposals tied to social issues on a caseby-case basis, concurring in the

exclusion of some, but not others.

Reversal of the position will result in a

return to the case-by-case analysis that

prevailed before the position was

announced.

Our decision to reverse the Cracker

Barrel position on employment-related

shareholder proposals may therefore

result in an increase in the number of

employment-related proposals tied to

social issues that are submitted to

companies each year, and that

companies must include in their proxy

materials. During the 1997 proxy

season, the Division received

approximately 30 submissions involving

employment-related proposals tied to

social issues.110

We have analyzed under ‘‘Plain

English Question & Answer Format’’

above the potential costs to companies

of considering and including additional

proposals in their proxy materials.

Shareholder proposals could have a

positive or negative impact, or no

impact, on the price of a company’s

securities.111 Relatively few shareholder

proposals are approved by shareholders

each year, and the few that are approved

typically focus on corporate governance

matters rather than social issues.112

Based on information provided to us by

IRRC, we understand that for calendar

year 1997, 22 proposals obtained
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29117

113UNITE Letter.

114See Harrah’s Entertainment, Inc., Dec. 31,

1997

115We have no basis for estimating reliably how

many resolicitations, if any, are likely to be avoided

in any given year as a result of the amendments.

116 Davis, Cowell & Bowe Letter at 4.

117 In order to comply, an insurgent is required

to send to the company advance written notice of

its intention to solicit the percentage of a company’s

shareownership required to carry the proposal,

followed by evidence of the solicition, and to

include what should in most cases amount to little

more than an additional sentence in the insurgent’s

proxy statement.

118 15 U.S.C. 78w(a)

119 17 CFR 240.14a-101.

shareholder approval out of a total of

376 proposals submitted to shareholder

votes. Ten were proposals to repeal

classified boards (i.e., boards with

staggered terms). Ten sought

redemption of companies’ shareholder

rights plans. One focused on ‘‘golden

parachute’’ payments to executives (i.e.,

large payments typically contingent

upon corporate change of control). One

sought to restrict director pension

benefits.

Proposals addressing corporate

governance matters tend to receive the

most substantial shareholder support

and may have an identifiable impact on

shareholder wealth. Examples are

proposals on voting and nomination

procedures for board members, and

proposals to restrict or eliminate

companies’ shareholder rights plans

(i.e., ‘‘posion pills’’). The amendments

we are adopting do not focus on those

type of proposals, and should not affect

shareholders’ ability to include them in

companies proxy materials.

Additionally, shareholder proposals on

social issues may improve investor

confidence in the securities markets by

providing investors with a sense that as

shareholders they have a means to

express their views to the management

of the companies in which they invest.

Discretionary Voting Authority

The amendments to rule 14a-4 should

favorably affect companies because they

should provide clearer ground rules as

to the ability to exercise discretionary

voting power when a shareholder

presents a proposal without invoking

rule 14a-8.

We do not collect information on the

number of companies that receive nonrule 14a-8 proposals each year, since

such proposals do not necessarily lead

to a submission to the Commission.

However, IRRC has reported to the

Commission staff that, during the 1997

calendar year, it is aware of only two

independent solicitations in support of

non-14a-8 shareholder resolutions,

down from 17 solicitations for calendar

year 1996. In addition, one commenter

indicated that, since 1991, there have

been 66 independent shareholder

solicitations in support of shareholder

resolutions.113

To the extent ‘‘small businesses’’

receive such proposals, we believe that

the amendments to rule 14a-4 will

favorably affect them by reducing

uncertainty, and decreasing the

likelihood of incurring the delay and

expense of rescheduling the

shareholders meeting and/or resoliciting

shareholders. Reducing the potential for

uncertainty should also help to decrease

the likelihood of related litigation.

One company estimated the cost of

sending supplemental proxy material to

its shareholders at about $170,000.114

Thus, if the amendments permit

companies to avoid resolicitations on

five occasions, the savings would

amount to about $850,000.115

Another commenter submitted

information on the legal costs of

representing insurgent shareholders in

connection with court actions under the

proxy rules.116 According to that

commenter, attorneys’ fees and costs

incurred by the insurgent ranged from

$17,517 to $75,421. It is not clear

whether these actions involved rule 14a5 or discretionary voting authority, and

they do not include the legal costs of

other parties or any other associated

expenses.

Some commenters thought that the

proposal to require companies wishing

to preserve voting authority to include

an extra voting box on their proxy cards

might encourage the submission of more

non-14a.8 shareholder proposals, as

well as confusion among shareholders.

We have decided not to adopt that

aspect of our original proposal. Other

commenters thought that the proposals

might effectively inhibit independent

proxy solicitations because they would

have provided companies with a means

to retain voting authority even if the

shareholder solicited the percentage of

shareownership required to carry the

proposal. We also have decided not to

adopt that aspect of our original

proposal.

Under our amendments to rule 14a-4,

a company, wishing to preserve

discretionary voting authority on certain

proposals that might be presented to a

vote, may be required to advise

shareholders of the nature of such

proposals. We note, however, that this

precondition is consistent with the

Division’s no-action positions predating

the adoption of these amendments. No

commenters provided empirical data on

incremental costs likely to result from

these amendments to rule 14a-4. Daniels

Financial Printing informed the staff

that is most cases adding up to threefourths of a page in the proxy statement

would not increase the cost to the

company, and that adding more than

three-fourths of a page could increase

costs by about $1,500 for an average

sized company.

Under our amendments to rule 14a-4,

a shareholder undertaking an

independent proxy solicitation would

be required to provide a company with

advance written notice of its intention

to solicit the percentage of the

company’s shareownership to carry the

proposal, followed by other measures to

help ensure that the notice has been

provided in good faith. These

amendments would impose no

additional costs on companies receiving

such notice, since no action by them is

required. The amendments should

impose only de minimis additional

costs on a shareholder undertaking an

independent proxy solicitation.117

Our amendment to rule 14a-5 would

require companies to disclose an

additional data in their proxy

statements. Disclosure of the date

should require no more than an

additional sentence, and therefore

should result in no, or negligible,

additional printing costs.

Section 23(a) of the Exchange Act 118

requires the Commission to consider

any anti-competitive effects of any rules

it adopts thereunder and the reasons for

its determination that any burden on

competition imposed by such rules is

necessary or appropriate to further the

purposes of the Exchange Act. The

Commission has considered the impact

this rulemaking will have on

competition and believes that the

amendments will not impose a

significant burden on competition.

IX. Paperwork Reduction Act

Regulation 14A 119 and the

Commission’s related proxy rules,

including rules 14a-8, 14a-4, and 14a-5,

were adopted pursuant to Section 14(a)

of the Exchange Act. Section 14(a)

directs the Commission to adopt rules

‘‘as necessary or appropriate in the

public interest or for the protection of

investors, to solicit or to permit the use

of his name to solicit any proxy or

consent or authorization in respect of

any security (other than an exempted

security) registered pursuant to section

12 of this title.’’ Schedule 14A

prescribes information that a company

must include in its proxy statement to

ensure that shareholders are provided

material information relating to voting

decisions.
29118 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

120See Proposing Release, Section VII.

121 17 CFR 240.14a–101.

122See Section IV above.

123 Id.

The amendments to rules 14a-8, 14a4(c), and 14a-5 should make it easier for

shareholder proponents to include in

companies’ proxy materials

employment-related shareholder

proposals raising significant social

policy matters, and provide companies

subject to the proxy rules with clearer

ground rules for the exercise of

discretionary voting authority. The

amendments should also make rule 14a8 easier to understand the follow. The

amendments focus primarily on rule

14a-8, which requires companies to

include shareholder proposals in their

proxy materials, subject to certain bases

for excluding them. We received no

Paperwork Reduction Act comments

relating to the amendments.

As set forth in the Proposing

Release,120 certain provisions of rules

14a–8, 14a–4, and 14a–5 contain

‘‘collection of information’’

requirements within the meaning of the

Paperwork Reduction Act of 1995 (44

U.S.C. § 3501 et seq.). The Commission

had submitted the amendments to those

rules to the Office of Management and

Budget (‘‘OMB’’) for review in

accordance with 44 U.S.C. § 3507(d) and

5 CFR. 1320.11. The title for the

collection of information is ‘‘Regulation

14A.’’ Except as explained below, the

amendments should have no impact on

the total estimated burden hours for

Regulation 14A.121

As originally proposed, amended rule

14a–4 would have in some

circumstances required companies to

include an extra voting box in their

proxy cards in order to preserve

discretionary voting authority. We are

not, however, adopting that

requirement, which we believe would

have increased the total annual burden

by only a negligible amount, or not at

all.122 We are adopting a requirement

under rule 14a–4 that a shareholder

insurgent in some circumstances

provide a company with advance

written notice of its intention to solicit

the percentage of a company’s

shareownership necessary to approve

the proposal, followed by evidence of

the solicitation, and by negligible

additional disclosures in the insurgent’s

proxy statement.123 We estimate that

these additional requirements, in the

context of other amendments adopted

today, will increase the annual burden

under Regulation 14A for a shareholder

insurgent by approximately one hour

per shareholder proponent, and that

approximately 10 proponents will have

to comply each year. Accordingly, we

have increased our estimated total

compliance burden for Regulation 14A

by a total of 10 hours, to 810,935 hours.

Providing the information required by

Regulation 14A is mandatory under

Section 14(a) of the Exchange Act. The

information will not be kept

confidential. Unless a currently valid

OMB control number is displayed on

the Schedule 14A, the Commission may

not sponsor or conduct or require

response to an information collection.

The OMB control number is 3235–0059.

The collection is in accordance with 44

U.S.C. § 3507.

X. Statutory Basis And Text of

Amendments

We are adopting amendments to Rules

14a–8, 14a–4, and 14a–5 under the

authority set forth in Sections 13, 14

and 23 of the Securities Exchange Act

of 1943, and Section 20(a) of the

Investment Company Act.

List of Subjects in 17 CFR Part 240

Reporting and recordkeeping

requirements, Securities.

Text of Amendments

In accordance with the foregoing,

Title 17, Chapter II of the Code of

Federal Regulations is amended as

follows:

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

1. The authority citation for part 240

continues to read, in part, as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt,

78c, 78d, 78f, 78i, 78j, 78j–1, 78k, 78k–1, 78l,

78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w,

78x, 78ll(d), 78mm, 79q, 79t, 80a–20, 80a–23,

80a–29, 80a–37, 80b–3, 80b–4 and 80b–11,

unless otherwise noted.

* * * * *

a. By amending § 240.14a–4 by revising the

introductory text of paragraph (c) and

paragraph (c)(1), redesignating paragraphs

(c)(2) through (c)(5) as paragraphs (c)(4)

through (c)(7), and adding new paragraphs

(c)(2) and (c)(3), to read as follows:

§ 240.14a–4 Requirements as to proxy.

* * * * *

(c) A proxy may confer discretionary

authority to vote on any of the following

matters:

(1) For an annual meeting of

shareholders, if the registrant did not

have notice of the matter at least 45 days

before the date on which the registrant

first mailed its proxy materials for the

prior year’s annual meeting of

shareholders (or date specified by an

advance notice provision), and a

specific statement to that effect is made

in the proxy statement or form of proxy.

If during the prior year the registrant did

not hold an annual meeting, or if the

date of the meeting has changed more

than 30 days from the prior year, then

notice must not have been received a

reasonable time before the registrant

mails its proxy materials for the current

year.

(2) In the case in which the registrant

has received timely notice in connection

with an annual meeting of shareholders

(as determined under paragraph (c)(1) of

this section), if the registrant includes,

in the proxy statement, advice on the

nature of the matter and how the

registrant intends to exercise its

discretion to vote on each matter.

However, even if the registrant includes

this information in its proxy statement,

it may not exercise discretionary voting

authority on a particular proposal if the

proponent:

(i) Provides the registrant with a

written statement, within the time-frame

determined under paragraph (c)(1) of

this section, that the proponent intends

to deliver a proxy statement and form of

proxy to holders of at least the

percentage of the company’s voting

shares required under applicable law to

carry the proposal;

(ii) Includes the same statement in its

proxy materials filed under § 240.14a–6;

and

(iii) Immediately after soliciting the

percentage of shareholders required to

carry the proposal, provides the

registrant with a statement from any

solicitor or other person with

knowledge that the necessary steps have

been taken to deliver a proxy statement

and form of proxy to holders of at least

the percentage of the company’s voting

shares required under applicable law to

carry out the proposal.

(3) For solicitations other than for

annual meetings or for solicitations by

persons other than the registrant,

matters which the persons making the

solicitation do not know, a reasonable

time before the solicitation, are to be

presented at the meeting, if a specific

statement to that effect is made in the

proxy statement or form of proxy.

3. By amending § 240.14a-5 by

revising paragraph (e), and adding

paragraph (f), to read as follows:

§ 240.14a-5 Presentation of information in

proxy statement.

* * * * *

(e) All proxy statements shall

disclose, under an appropriate caption,

the following dates:

(1) The deadline for submitting

shareholder proposals for inclusion in

the registrant’s proxy statement and
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29119

form of proxy for the registrant’s next

annual meeting, calculated in the

manner provided in § 240.14a8(d)(Question 4); and

(2) The date after which notice of a

shareholder proposal submitted outside

the processes of § 240.14a-8 is

considered untimely, either calculated

in the manner provided by § 240.14a4(c)(1) or as established by the

registrant’s advance notice provision, if

any, authorized by applicable state law.

(f) If the date of the next annual

meeting is subsequently advanced or

delayed by more than 30 calendar days

from the date of the annual meeting to

which the proxy statement relates, the

registrant shall, in a timely manner,

inform shareholders of such change, and

the new dates referred to in paragraphs

(e)(1) and (e)(2) of this section, by

including a notice, under Item 5, in its

earliest possible quarterly report on

Form 10–Q (§ 249.308a of this chapter)

or Form 10–QSB (§ 249.308b of this

chapter), or, in the case of investment

companies, in a shareholder report

under § 270.30d-1 of this chapter under

the Investment Company Act of 1940,

or, if impracticable, any means

reasonably calculated to inform

shareholders.

4. By revising § 240.14a-8 to read as

follows:

§ 240.14a-8 Shareholder proposals.

This section addresses when a

company must include a shareholder’s

proposal in its proxy statement and

identify the proposal in its form of

proxy when the company holds an

annual or special meeting of

shareholders. In summary, in order to

have your shareholder proposal

included on a company’s proxy card,

and included along with any supporting

statement in its proxy statement, you

must be eligible and follow certain

procedures. Under a few specific

circumstances, the company is

permitted to exclude your proposal, but

only after submitting its reasons to the

Commission. We structured this section

in a question-and-answer format so that

it is easier to understand. The references

to ‘‘you’’ are to a shareholder seeking to

submit the proposal.

(a) Question 1: What is a proposal? A

shareholder proposal is your

recommendation or requirement that the

company and/or its board of directors

take action, which you intend to present

at a meeting of the company’s

shareholders. Your proposal should

state as clearly as possible the course of

action that you believe the company

should follow. If your proposal is placed

on the company’s proxy card, the

company must also provide in the form

of proxy means for shareholders to

specify by boxes a choice between

approval or disapproval, or abstention.

Unless otherwise indicated, the word

‘‘proposal’’ as used in this section refers

both to your proposal, and to your

corresponding statement in support of

your proposal (if any).

(b) Question 2: Who is eligible to

submit a proposal, and how do I

demonstrate to the company that I am

eligible? (1) In order to be eligible to

submit a proposal, you must have

continuously held at least $2,000 in

market value, or 1%, of the company’s

securities entitled to be voted on the

proposal at the meeting for at least one

year by the date you submit the

proposal. You must continue to hold

those securities through the date of the

meeting.

(2) If you are the registered holder of

your securities, which means that your

name appears in the company’s records

as a shareholder, the company can

verify your eligibility on its own,

although you will still have to provide

the company with a written statement

that you intend to continue to hold the

securities through the date of the

meeting of shareholders. However, if

like many shareholders you are not a

registered holder, the company likely

does not know that you are a

shareholder, or how many shares you

own. In this case, at the time you submit

your proposal, you must prove your

eligibility to the company in one of two

ways:

(i) The first way is to submit to the

company a written statement from the

‘‘record’’ holder of your securities

(usually a broker or bank) verifying that,

at the time you submitted your

proposal, you continuously held the

securities for at least one year. You must

also include your own written statement

that you intend to continue to hold the

securities through the date of the

meeting of shareholders; or

(ii) The second way to prove

ownership applies only if you have filed

a Schedule 13D (§ 240.13d–101),

Schedule 13G (§ 240.13d–102), Form 3

(§ 249.103 of this chapter), Form 4

(§ 249.104 of this chapter) and/or Form

5 (§ 249.105 of this chapter), or

amendments to those documents or

updated forms, reflecting your

ownership of the shares as of or before

the date on which the one-year

eligibility period begins. If you have

filed one of these documents with the

SEC, you may demonstrate your

eligibility by submitting to the

company:

(A) A copy of the schedule and/or

form, and any subsequent amendments

reporting a change in your ownership

level;

(B) Your written statement that you

continuously held the required number

of shares for the one-year period as of

the date of the statement; and

(C) Your written statement that you

intend to continue ownership of the

shares through the date of the

company’s annual or special meeting.

(c) Question 3: How many proposals

may I submit: Each shareholder may

submit no more than one proposal to a

company for a particular shareholders’

meeting.

(d) Question 4: How long can my

proposal be? The proposal, including

any accompanying supporting

statement, may not exceed 500 words.

(e) Question 5: What is the deadline

for submitting a proposal? (1) If you are

submitting your proposal for the

company’s annual meeting, you can in

most cases find the deadline in last

year’s proxy statement. However, if the

company did not hold an annual

meeting last year, or has changed the

date of its meeting for this year more

than 30 days from last year’s meeting,

you can usually find the deadline in one

of the company’s quarterly reports on

Form 10–Q (§ 249.308a of this chapter)

or 10–QSB (§ 249.308b of this chapter),

or in shareholder reports of investment

companies under § 270.30d–1 of this

chapter of the Investment Company Act

of 1940. In order to avoid controversy,

shareholders should submit their

proposals by means, including

electronic means, that permit them to

prove the date of delivery.

(2) The deadline is calculated in the

following manner if the proposal is

submitted for a regularly scheduled

annual meeting. The proposal must be

received at the company’s principal

executive offices not less than 120

calendar days before the date of the

company’s proxy statement released to

shareholders in connection with the

previous year’s annual meeting.

However, if the company did not hold

an annual meeting the previous year, or

if the date of this year’s annual meeting

has been changed by more than 30 days

from the date of the previous year’s

meeting, then the deadline is a

reasonable time before the company

begins to print and mail its proxy

materials.

(3) If you are submitting your

proposal for a meeting of shareholders

other than a regularly scheduled annual

meeting, the deadline is a reasonable

time before the company begins to print

and mail its proxy materials.

(f) Question 6: What if I fail to follow

one of the eligibility or procedural

requirements explained in answers to
29120 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

Questions 1 through 4 of this section?

(1) The company may exclude your

proposal, but only after it has notified

you of the problem, and you have failed

adequately to correct it. Within 14

calendar days of receiving your

proposal, the company must notify you

in writing of any procedural or

eligibility deficiencies, as well as of the

time frame for your response. Your

response must be postmarked, or

transmitted electronically, no later than

14 days from the date you received the

company’s notification. A company

need not provide you such notice of a

deficiency if the deficiency cannot be

remedied, such as if you fail to submit

a proposal by the company’s properly

determined deadline. If the company

intends to exclude the proposal, it will

later have to make a submission under

§ 240.14a–8 and provide you with a

copy under Question 10 below,

§ 240.14a–8(j).

(2) If you fail in your promise to hold

the required number of securities

through the date of the meeting of

shareholders, then the company will be

permitted to exclude all of your

proposals from its proxy materials for

any meeting held in the following two

calendar years.

(g) Question 7: Who has the burden of

persuading the Commission or its staff

that my proposal can be excluded?

Except as otherwise noted, the burden is

on the company to demonstrate that it

is entitled to exclude a proposal.

(h) Question 8: Must I appear

personally at the shareholders’ meeting

to present the proposal? (1) Either you,

or your representative who is qualified

under state law to present the proposal

on your behalf, must attend the meeting

to present the proposal. Whether you

attend the meeting yourself or send a

qualified representative to the meeting

in your place, you should make sure

that you, or your representative, follow

the proper state law procedures for

attending the meeting and/or presenting

your proposal.

(2) If the company holds it

shareholder meeting in whole or in part

via electronic media, and the company

permits you or your representative to

present your proposal via such media,

then you may appear through electronic

media rather than traveling to the

meeting to appear in person.

(3) If you or your qualified

representative fail to appear and present

the proposal, without good cause, the

company will be permitted to exclude

all of your proposals from its proxy

materials for any meetings held in the

following two calendar years.

(i) Question 9: If I have complied with

the procedural requirements, on what

other bases may a company rely to

exclude my proposal? (1) Improper

under state law: If the proposal is not a

proper subject for action by

shareholders under the laws of the

jurisdiction of the company’s

organization;

Note to paragraph (i)(1): Depending on the

subject matter, some proposals are not

considered proper under state law if they

would be binding on the company if

approved by shareholders. In our experience,

most proposals that are cast as

recommendations or requests that the board

of directors take specified action are proper

under state law. Accordingly, we will assume

that a proposal drafted as a recommendation

or suggestion is proper unless the company

demonstrates otherwise.

(2) Violation of law: If the proposal

would, if implemented, cause the

company to violate any state, federal, or

foreign law to which it is subject;

Note to paragraph (i)(2): We will not apply

this basis for exclusion to permit exclusion

of a proposal on grounds that it would violate

foreign law if compliance with the foreign

law could result in a violation of any state

or federal law.

(3) Violation of proxy rules: If the

proposal or supporting statement is

contrary to any of the Commission’s

proxy rules, including § 240.14a-9,

which prohibits materially false or

misleading statements in proxy

soliciting materials;

(4) Personal grievance; special

interest: If the proposal relates to the

redress of a personal claim or grievance

against the company or any other

person, or if it is designed to result in

a benefit to you, or to further a personal

interest, which is not shared by the

other shareholders at large;

(5) Relevance: If the proposal relates

to operations which account for less

than 5 percent of the company’s total

assets at the end of its most recent fiscal

year, and for less than 5 percent of its

net earning sand gross sales for its most

recent fiscal year, and is not otherwise

significantly related to the company’s

business;

(6) Absence of power/authority: If the

company would lack the power or

authority to implement the proposal;

(7) Management functions: If the

proposal deals with a matter relating to

the company’s ordinary business

operations;

(8) Relates to election: If the proposal

relates to an election for membership on

the company’s board of directors or

analogous governing body;

(9) Conflicts with company’s

proposal: If the proposal directly

conflicts with one of the company’s own

proposals to be submitted to

shareholders at the same meeting.

Note to paragraph (i)(9): A company’s

submission to the Commission under this

section should specify the points of conflict

with the company’s proposal.

(10) Substantially implemented: If the

company has already substantially

implemented the proposal;

(11) Duplication: If the proposal

substantially duplicates another

proposal previously submitted to the

company by another proponent that will

be included in the company’s proxy

materials for the same meeting;

(12) Resubmissions: If the proposal

deals with substantially the same

subject matter as another proposal or

proposals that has or have been

previously included in the company’s

proxy materials within the preceding 5

calendar years, a company may exclude

it from its proxy materials for any

meeting held within 3 calendar years of

the last time it was included if the

proposal received:

(i) Less than 3% of the vote if

proposed once within the preceding 5

calendar years;

(ii) Less than 6% of the vote on its last

submission to shareholders if proposed

twice previously within the preceding 5

calendar years; or

(iii) Less than 10% of the vote on its

last submission to shareholders if

proposed three times or more previously

within the preceding 5 calendar years;

and

(13) Specific amount of dividends: If

the proposal relates to specific amounts

of cash or stock dividends.

(j) Question 10: What procedures

must the company follow if it intends to

exclude my proposal? (1) If the

company intends to exclude a proposal

from its proxy materials, it must file its

reasons with the Commission no later

than 80 calendar days before it files its

definitive proxy statement and form of

proxy with the Commission. The

company must simultaneously provide

you with a copy of its submission. The

Commission staff may permit the

company to make its submission later

than 80 days before the company files

its definitive proxy statement and form

of proxy, if the company demonstrates

good cause for missing the deadline.

(2) The company must file six paper

copies of the following:

(i) The proposal;

(ii) An explanation of why the

company believes that it may exclude

the proposal, which should, if possible,

refer to the most recent applicable

authority, such as prior Division letters

issued under the rule; and

(iii) A supporting opinion of counsel

when such reasons are based on matters

of state or foreign law.
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29121

(k) Question 11: May I submit my own

statement to the Commission

responding to the company’s

arguments?

Yes, you may submit a response, but

it is not required. You should try to

submit any response to us, with a copy

to the company, as soon as possible after

the company makes its submission. This

way, the Commission staff will have

time to consider fully your submission

before it issues its response. You should

submit six paper copies of your

response.

(l) Question 12: If the company

includes my shareholder proposal in its

proxy materials, what information about

me must it include along with the

proposal itself?

(1) The company’s proxy statement

must include your name and address, as

well as the number of the company’s

voting securities that you hold.

However, instead of providing that

information, the company may instead

include a statement that it will provide

the information to shareholders

promptly upon receiving an oral or

written request.

(2) The company is not responsible

for the contents of your proposal or

supporting statement.

(m) Question 13: What can I do if the

company includes in its proxy

statement reasons why it believes

shareholders should not vote in favor of

my proposal, and I disagree with some

of its statements?

(1) The company may elect to include

in its proxy statement reasons why it

believes shareholders should vote

against your proposal. The company is

allowed to make arguments reflecting its

own point of view, just as you may

express your own point of view in your

proposal’s supporting statement.

(2) However, if you believe that the

company’s opposition to your proposal

contains materially false or misleading

statements that may violate our antifraud rule, § 240.142–9, you should

promptly send to the Commission staff

and the company a letter explaining the

reasons for your view, along with a copy

of the company’s statements opposing

your proposal. To the extent possible,

your letter should include specific

factual information demonstrating the

inaccuracy of the company’s claims.

Time permitting, you may wish to try to

work out your differences with the

company by yourself before contacting

the Commission staff.

(3) We require the company to send

you a copy of its statements opposing

your proposal before it mails its proxy

materials, so that you may bring to our

attention any materially false or

misleading statements, under the

following timeframes:

(i) If our no-action response requires

that you make revisions to your

proposal or supporting statement as a

condition to requiring the company to

include it in its proxy materials, then

the company must provide you with a

copy of its opposition statements no

later than 5 calendar days after the

company receives a copy of your revised

proposal; or

(ii) In all other cases, the company

must provide you with a copy of its

opposition statements no later than 30

calendar days before its files definitive

copies of its proxy statement and form

of proxy under § 240.14a–6.

Dated: May 21, 1998.

By the Commission.

Margaret McFarland,

Deputy Secretary.

[FR Doc. 98–14121 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–P

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 12

[T.D. 98–50]

RIN 1515–AC28

Emissions Standards for Imported

Nonroad Engines

AGENCY: U.S. Customs Service,

Department of the Treasury.

ACTION: Final rule.

SUMMARY: This document amends the

Customs Regulations, in conformance

with regulations of the U.S.

Environmental Protection Agency

(EPA), in order to include marine sparkignition engines among those imported

nonroad engines that are subject to

compliance with applicable EPA

emissions standards required by law. In

addition, the Customs Regulations in

this regard are further amended by

eliminating the unnecessary, extensive

replication of the particular admission

requirements for subject nonroad

engines that are already contained in the

EPA regulations.

EFFECTIVE DATE: May 28, 1998.

FOR FURTHER INFORMATION CONTACT: Brad

Lund, Office of Field Operations, (202–

927–0192).

SUPPLEMENTARY INFORMATION:

Background

The Clean Air Act, as amended (42

U.S.C. 7401 et seq.), which has long

authorized the Environmental

Protection Agency (EPA) to regulate onhighway motor vehicle and engine

emissions, was amended in 1990 to

extend EPA’s regulatory authority to

include as well nonroad engines and

related vehicles and equipment (see 42

U.S.C. 7521–7525, 7541–7543, 7547,

7549, 7550, 7601(a)).

In brief, EPA was given authority,

inter alia, to regulate those classes or

categories of new nonroad engines and

associated vehicles and equipment that

contribute to air pollution, if such

nonroad emissions were determined to

be significant.

To this end, the EPA issued

regulations in 40 CFR parts 89 and 90

that established emissions standards for

new nonroad compression-ignition

engines at or above 50 horsepower (37

kilowatts) as well as new nonroad

spark-ignition engines at or below 25

horsepower (19 kilowatts) (see 59 FR

31306 (June 17, 1994) and 60 FR 34582

(July 3, 1995), respectively, for the

background and development of these

EPA regulations).

By a final rule document published in

the Federal Register on August 27, 1996

(61 FR 43960), Customs amended its

regulations to add a new § 12.74 (19

CFR 12.74) that conformed to the

regulations adopted by the EPA in order

to ensure the compliance of the

aforementioned imported nonroad

engines with applicable EPA emissions

standards required by law.

The EPA has now issued regulations

in 40 CFR part 91, establishing

emissions standards as well for new

marine spark-ignition engines (see 61

FR 52088 (October 4, 1996) for the

background and development of the

EPA regulations).

Accordingly, § 12.74 is hereby

amended to include marine sparkignition engines among those imported

nonroad engines that are subject to

applicable EPA emissions standards.

Furthermore, Customs has determined

to abbreviate significantly § 12.74 by

simply referencing the EPA regulations

concerned, and eliminating the

unnecessary, extensive replication of

the particular admission requirements

for subject nonroad engines that are

already contained in the EPA

regulations.

Inapplicability of Public Notice and

Comment and Delayed Effective Date

Requirements, the Regulatory

Flexibility Act, and Executive Order

12866

Inasmuch as these amendments

merely conform the Customs

Regulations to existing law and

regulation as noted above, pursuant to 5

U.S.C. 553(b)(B), notice and public