29024 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

1 17 CFR 200.82a. 

2 17 CFR 240.14a–11. 

3 17 CFR 240.14a–18. 

4 17 CFR 240.14a–19. 

5 17 CFR 240.14n et seq. 

6 17 CFR 240.14n–101. 

7 17 CFR 232.13. 

8 17 CFR 232.10 et seq. 

9 17 CFR 240.13a–11. 

10 17 CFR 240.13d–1. 

11 17 CFR 240.14a–2. 

12 17 CFR 240.14a–4. 

13 17 CFR 240.14a–6. 

14 17 CFR 240.14a–8. 

15 17 CFR 240.14a–9. 

16 17 CFR 240.14a–12. 

17 17 CFR 240.15d–11. 

18 17 CFR 240.14a–101. 

19 17 CFR 249.308. 

20 15 U.S.C. 78a et seq. 

21 17 CFR 240.14c–101. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 200, 232, 240, 249 and 

274 

[Release Nos. 33–9046; 34–60089; IC– 

28765; File No. S7–10–09] 

RIN 3235–AK27 

Facilitating Shareholder Director 

Nominations 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: We are proposing changes to 

the federal proxy rules to remove 

impediments to the exercise of 

shareholders’ rights to nominate and 

elect directors to company boards of 

directors. The new rules would require, 

under certain circumstances, a company 

to include in the company’s proxy 

materials a shareholder’s, or group of 

shareholders’, nominees for director. 

The proposal includes certain 

requirements, key among which are a 

requirement that use of the new 

procedures be in accordance with state 

law, and provisions regarding the 

disclosures required to be made 

concerning nominating shareholders or 

groups and their nominees. In addition, 

the new rules would require companies 

to include in their proxy materials, 

under certain circumstances, 

shareholder proposals that would 

amend, or that request an amendment 

to, a company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, provided the proposal 

does not conflict with the Commission’s 

disclosure rules—including the 

proposed new rules. We also are 

proposing changes to certain of our 

other rules and regulations—including 

the existing exemptions from our proxy 

rules and the beneficial ownership 

reporting requirements—that may be 

affected by the new proposed 

procedures. 

DATES: Comments should be received on 

or before August 17, 2009. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–10–09 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–10–09. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/final.shtml). 

Comments are also available for public 

inspection and copying in the 

Commission’s Public Reference Room, 

100 F Street, NE., Washington, DC 

20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

All comments received will be posted 

without change; we do not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Lillian Brown, Tamara Brightwell, or 

Eduardo Aleman, Division of 

Corporation Finance, at (202) 551–3200, 

or, with regard to investment 

companies, Kieran G. Brown, Division 

of Investment Management, at (202) 

551–6784, U.S. Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: We are 

proposing new Rule 82a of Part 200 

Subpart D—Information and Requests,1

and new Rules 14a–11,2 14a–18,3 and 

14a–19,4 new Regulation 14N 5 and 

Schedule 14N,6 and amendments to 

Rule 13 7 of Regulation S–T,8 Rules 13a– 

11,9 13d–1,10 14a–2,11 14a–4,12 14a–6,13

14a–8,14 14a–9,15 14a–12,16 and 15d– 

11,17 Schedule 14A,18 and Form 8–K,19

under the Securities Exchange Act of 

1934.20 Although we are not proposing 

amendments to Schedule 14C21 under 

the Exchange Act, the proposed 

amendments would affect the disclosure 

provided in Schedule 14C, as Schedule 

14C requires disclosure of some items of 

Schedule 14A. 

Table of Contents 

Facilitating Shareholder Director 

Nominations 

I. The Need for Reforms to the Federal Proxy 

Rules 

A. Overview 

B. Shareholder Participation in the 

Nomination and Election Process 

1. Existing Shareholder Options 

2. Recent Corporate Governance and Other 

Reforms 

II. Recent Commission Consideration of the 

Proxy Rules and Regulations Addressing 

the Election of Directors 

A. 2003 Review of the Proxy Process and 

Subsequent Rulemaking 

B. 2007 Rulemaking Concerning 

Shareholder Proposals Seeking To 

Establish Bylaw Procedures for 

Shareholder Director Nominations 

III. Proposed Changes to the Proxy Rules 

A. Introduction 

B. Proposed Exchange Act Rule 14a–11 

1. Overview 

2. Application of Exchange Act Rule 14a– 

11 

3. Eligibility To Use Exchange Act Rule 

14a–11 

4. Shareholder Nominee Requirements 

5. Maximum Number of Shareholder 

Nominees To Be Included in Company 

Proxy Materials 

6. Notice and Disclosure Requirements 

7. Requirements for a Company That 

Receives a Notice From a Nominating 

Shareholder or Group 

8. Application of the Other Proxy Rules to 

Solicitations by the Nominating 

Shareholder or Group 

C. Amendments to Exchange Act Rule 

14a–8(i)(8) 

1. Background 

2. Proposed Amendment to Rule 

14a–8(i)(8) 

3. Disclosure Requirements 

4. Codification of Prior Staff Interpretations 

D. Other Rule Changes 

1. Beneficial Ownership Reporting 

Requirements 

2. Exchange Act Section 16 

E. Application of the Liability Provisions 

in the Federal Securities Laws to 

Statements Made by a Nominating 

Shareholder or Nominating Shareholder 

Group 

F. General Request for Comment 

IV. Paperwork Reduction Act 

A. Background 

B. Summary of Proposed Amendments 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29025 

22 15 U.S.C. 78n(a). 

23H.R. Rep. No. 1383, 73d Cong., 2d Sess., 13. See 

also Mills v. Electric Auto-Lite Co., 396 U.S. 375, 

381 (1970); J. I. Case Co. v. Borak, 377 U.S. 426, 

431 (1964). 

24S. Rep. No. 792, 73d Cong., 2d Sess., 12 (1934). 

25H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 

(1934). The same report demonstrated a 

congressional intent to prevent frustration of the 

‘‘free exercise of the voting rights of stockholders.’’ 

Id. Courts have found that the relevant legislative 

history also demonstrates an ‘‘intent to bolster the 

intelligent exercise of shareholder rights granted by 

state corporate law.’’ Roosevelt v. E.I. Du Pont de 

Nemours & Co., 958 F.2d 416, 421 (D.C. Cir. 1992); 

see Borak, 377 U.S. at 431. 

26 15 U.S.C. 78n(a). 

27For example, as discussed in further detail 

below, the Commission has considered changes to 

the proxy rules in recent years. See Security Holder 

Director Nominations, Release No. 34–48626 

(October 14, 2003) [68 FR 60784] (‘‘2003 Proposal’’); 

Shareholder Proposals, Release No. 34–56160 (July 

27, 2007) [72 FR 43466] (‘‘Shareholder Proposals 

Proposing Release’’); Shareholder Proposals 

Relating to the Election of Directors, Release No. 

34–56161 (July 27, 2007) [72 FR 43488] (‘‘Election 

of Directors Proposing Release’’); and Shareholder 

Proposals Relating to the Election of Directors, 

Release No. 34–56914 (December 6, 2007) [72 FR 

70450] (Election of Directors Adopting Release’’). 

When we refer to the ‘‘2007 Proposals’’ and the 

comments received in 2007, we are referring to the 

Shareholder Proposals Proposing Release and the 

Election of Directors Proposing Release and the 

comments received on those proposals, unless 

otherwise specified. 

28 17 CFR 240.14a–8. 

29 17 CFR 240.14a–8(i)(1). 

30 17 CFR 240.14a–8(i)(2). 

31Securit[ies] and Exchange Commission Proxy 

Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 

2019 before the House Committee on Interstate and 

Foreign Commerce, 78th Cong., 1st Sess. 172 (1943) 

(statement of SEC Chairman Ganson Purcell). 

32See, e.g., Securit[ies] and Exchange 

Commission Proxy Rules: Hearings on H.R. 1493, 

H.R. 1821, and H.R. 2019 Before the House Comm. 

on Interstate and Foreign Commerce, 78th Cong., 

Continued 

C. Paperwork Reduction Act Burden 

Estimates 

1. Proposed Rule 14a–11 

2. Proposed Amendment to Rule 14a– 

8(i)(8) 

3. Proposed Schedule 14N and Proposed 

Exchange Act Rules 14a–18 and 14a–19 

4. Proposed Amendments to Exchange Act 

Form 8–K 

5. Form ID Filings 

D. Revisions to PRA Reporting and Cost 

Burden Estimates 

E. Solicitation of Comment 

V. Cost-Benefit Analysis 

A. Background 

B. Benefits 

1. Reduction in Costs Related to 

Shareholder Nominations 

2. Improved Disclosure of Shareholder 

Nominated Director Candidates 

3. Potential Improved Board Performance 

and Company Performance 

4. Enhanced Ability for Shareholders and 

Companies To Adopt Procedures 

C. Costs 

1. Costs Related to Potential Adverse 

Effects on Company and Board 

Performance 

2. Costs Related to Potential Complexity of 

Proxy Process 

3. Costs Related to Preparing Disclosure, 

Printing and Mailing and Costs of 

Additional Solicitations 

D. Small Business Issuers 

E. Request for Comment 

VI. Consideration of Burden on Competition 

and Promotion of Efficiency, 

Competition and Capital Formation 

VII. Initial Regulatory Flexibility Act 

Analysis 

A. Reasons for, and Objectives of, the 

Proposed Action 

B. Legal Basis 

C. Small Entities Subject to the Proposed 

Rules 

D. Reporting, Recordkeeping and Other 

Compliance Requirements 

E. Duplicative, Overlapping or Conflicting 

Federal Rules 

F. Significant Alternatives 

G. Solicitation of Comment 

VIII. Small Business Regulatory Enforcement 

Fairness Act 

IX. Statutory Basis and Text of Proposed 

Amendments 

I. The Need for Reforms to the Federal 

Proxy Rules 

A. Overview 

The nation and the markets have 

recently experienced, and remain in the 

midst of, one of the most serious 

economic crises of the past century. 

This crisis has led many to raise serious 

concerns about the accountability and 

responsiveness of some companies and 

boards of directors to the interests of 

shareholders, and has resulted in a loss 

of investor confidence. These concerns 

have included questions about whether 

boards are exercising appropriate 

oversight of management, whether 

boards are appropriately focused on 

shareholder interests, and whether 

boards need to be more accountable for 

their decisions regarding such issues as 

compensation structures and risk 

management. In light of the current 

economic crisis and these continuing 

concerns, the Commission has 

determined to revisit whether and how 

the federal proxy rules may be impeding 

the ability of shareholders to hold 

boards accountable through the exercise 

of their fundamental right to nominate 

and elect members to company boards 

of directors. 

Regulation of the proxy process and 

disclosure is a core function of the 

Commission and is one of the original 

responsibilities that Congress assigned 

to the Commission in 1934. Section 

14(a) of the Exchange Act 22 stemmed 

from a Congressional belief that ‘‘[f]air 

corporate suffrage is an important right 

that should attach to every equity 

security bought on a public 

exchange.’’ 23 The Congressional 

committees recommending passage of 

Section 14(a) proposed that ‘‘the 

solicitation and issuance of proxies be 

left to regulation by the Commission’’ 24

and explained that Section 14(a) would 

give the Commission the ‘‘power to 

control the conditions under which 

proxies may be solicited.’’ 25 Congress 

thus recognized a federal interest in the 

way public corporations handle the 

proxy process, and granted the 

Commission authority to prescribe rules 

to regulate the solicitation of proxies ‘‘as 

necessary or appropriate in the public 

interest or for the protection of 

investors.’’ 26

Responding to the Commission’s 

mandate from Congress, the 

Commission has actively overseen the 

development of the proxy process since 

1934. The Commission has monitored 

the process and has considered changes 

when it appeared that the process was 

not functioning in a manner that 

adequately protected the interests of 

investors.27 At the same time, the 

Commission has been mindful of the 

traditional role of the states in 

regulating corporate governance. For 

example, Exchange Act Rule 14a–8,28

the shareholder proposal rule, explicitly 

provides that a company is permitted to 

exclude a shareholder proposal if it ‘‘is 

not a proper subject for action by 

shareholders under the laws of the 

jurisdiction of the company’s 

organization’’ 29 or ‘‘[i]f the proposal 

would, if implemented, cause the 

company to violate any state, federal, or 

foreign law to which it is subject.’’ 30

In identifying the rights that the proxy 

process should protect, the Commission 

has sought to take as a touchstone the 

rights of shareholders under state 

corporate law. As Chairman Ganson 

Purcell explained to a committee of the 

House of Representatives in 1943: 

The rights that we are endeavoring to 

assure to the stockholders are those rights 

that he has traditionally had under State law, 

to appear at the meeting; to make a proposal; 

to speak on that proposal at appropriate 

length; and to have his proposal voted on.31

This principle has given rise to a 

shorthand that explains much of the 

Commission’s activity in regulating the 

proxy process. The proxy rules seek to 

improve the corporate proxy process so 

that it functions, as nearly as possible, 

as a replacement for an actual in-person 

meeting of shareholders. 

Refining the proxy process so that it 

replicates, as nearly as possible, the 

annual meeting is particularly important 

given that the proxy process has become 

the primary way for shareholders to 

learn about the matters to be decided by 

the shareholders and to make their 

views known to company 

management.32 Our recent examinations 

29026 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

1st Sess., at 17–19 (1943) (Statement of the 

Honorable Ganson Purcell, Chairman, Securities 

and Exchange Commission) (Explaining the initial 

Commission rules requiring the inclusion of 

shareholder proposals in the company proxy 

materials: ‘‘We give [a stockholder] the right in the 

rules to put his proposal before all of his fellow 

stockholders along with all other proposals * * * 

so that they can see then what they are and vote 

accordingly. * * * The rights that we are 

endeavoring to assure to the stockholders are those 

rights that he has traditionally had under State law, 

to appear at the meeting; to make a proposal; to 

speak on that proposal at appropriate length; and 

to have his proposal voted on. But those rights have 

been rendered largely meaningless through the 

process of dispersion of security ownership 

through[out] the country. * * * [T]he assurance of 

these fundamental rights under State laws which 

have been, as I say, completely ineffective * * * 

because of the very dispersion of the stockholders’ 

interests throughout the country[;] whereas 

formerly * * * a stockholder might appear at the 

meeting and address his fellow stockholders[, 

t]oday he can only address the assembled proxies 

which are lying at the head of the table. The only 

opportunity that the stockholder has today of 

expressing his judgment comes at the time he 

considers the execution of his proxy form, and we 

believe * * * that this is the time when he should 

have the full information before him and ability to 

take action as he sees fit.’’); see also S. Rep. 792. 

73d Cong., 2d Sess., 12 (1934) (‘‘[I]t is essential that 

[the stockholder] be enlightened not only as to the 

financial condition of the corporation, but also as 

to the major questions of policy, which are decided 

at stockholders’ meetings.’’). 

33See, e.g., Unofficial Transcript of the 

Roundtable Discussion on Proposals for 

Shareholders, May 25, 2007, comments of Leo E. 

Strine Jr., Vice Chancellor, Court of Chancery of the 

State of Delaware (Vice Chancellor Strine), at 112, 

available at: http://www.sec.gov/news/ 

openmeetings/2007/openmtg_trans052507.pdf 

(observing that it is ‘‘a little bit perverse’’ that ‘‘a 

bylaw dealing with the election process that might 

well have been viable under state law was kept off 

the ballot when you could have something that was 

precatory mandated to be on the ballot’’). 

34See, e.g., comment letters on the 2007 

Proposals (SEC File Nos. S7–16–07 and S7–17–07) 

from James McRitchie, Corporate Governance 

(October 1, 2007) (‘‘McRitchie 2007’’); and Stephen 

Abrecht, Executive Director, SEIU Master Trust 

(October 1, 2007) (‘‘SEIU’’). 

35See, e.g., 2004 Roundtable Submission of 

Lucian Bebchuk: Lucian Arye Bebchuk, The Case 

for Shareholder Access to the Ballot, 59 The 

Business Lawyer 43, 49 (2003) (‘‘Bebchuk 2003 

Article’’) (‘‘Suppose that there is a widespread 

concern among shareholders that a board with a 

majority of independent directors is failing to serve 

shareholder interests. It is precisely under such 

circumstances that the nominating committee 

cannot be relied on to make desirable replacements 

of members of the board or even of members of the 

committee itself—at least not unless shareholders 

have adequate means of applying pressure on the 

committee.’’). 

36See, e.g., comment letter on 2007 Proposals 

(SEC File Nos. S7–16–07 and S7–17–07) from 

William Apfel, et al., Walden Asset Management 

(September 11, 2007). 

37Comment letter on 2007 Proposals (SEC File 

Nos. S7–16–07 and S7–17–07) from Michael 

O’Sullivan, President, Australian Council of Super 

Investors, et al. (October 2, 2007). See also Michelle 

Edkins, Acting Chairman, International Corporate 

Governance Network Shareholder Rights Committee 

(October 2, 2007) and Knut Kjer, CEO, Norges Bank 

Investment Management, et al. (September 28, 

2007). 

38Committee on Capital Markets Regulation, 

Interim Report (November 30, 2006) at 109, 

available at: http://www.capmktsreg.org/pdfs/ 

11.30Committee_Interim_ReportREV2.pdf. 

39See comment letter on 2007 Proposals (SEC 

File Nos. S7–16–07 and S7–17–07) from Carl Levin, 

United States Senator, (September 27, 2007) at page 

6. 

40See, e.g., Michael E. Murphy, The Nominating 

Process for Corporate Boards of Directors—A 

Decision-Making Analysis, 5 Berkeley Bus. L.J. 131 

(2008). 41See, e.g., Section 301 of the Sarbanes-Oxley Act 

of 2002, inserting Section 10A(m) to the Exchange 

Act, which directed the Commission to promulgate 

rules requiring the national securities exchanges to 

‘‘prohibit the listing of any security of an issuer that 

is not in compliance’’ with the Act’s audit 

committee provisions. As a consequence, listed 

companies are now required to have audit 

committees composed solely of independent 

directors. 42See generally Bebchuk 2003 Article. See also In 

re Oracle Corp. Derivative Litigation, 824 A.2d 917, 

941 (Del. Ch. 2003) (‘‘The recent reforms enacted by 

Congress and by the stock exchanges reflect a 

narrower conception of who they believe can be an 

independent director. These definitions, however, 

are blanket labels that do not take into account the 

decision at issue. Nonetheless, the definitions 

recognize that factors other than the ones explicitly 

identified in the new exchange rules might 

compromise a director’s independence, depending 

on the circumstances.’’). 

43See, e.g., comment letters on 2007 Proposals 

from Thomas Wilson, President, The Allstate 

Corporation (October 2, 2007) and David T. 

Hirschmann, Senior Vice President, U.S. Chamber 

of Commerce (October 2, 2007). 

44See, e.g., comment letter on 2007 Proposals 

from Anne M. Mulcahy, Chairman, Business 

Roundtable Corporate Governance Task Force, 

Business Roundtable (October 1, 2007) (‘‘Mulcahy, 

BRT’’). 

45 Id. 

of the proxy process and the comments 

that we have received in the course of 

these examinations suggest that the 

director nomination and shareholder 

proposal processes are two areas in 

which our current proxy rules pose 

impediments to the exercise of 

shareholders’ rights.33 These proposed 

amendments are intended to remove 

impediments so shareholders may more 

effectively exercise their rights under 

state law to nominate and elect directors 

at meetings of shareholders. 

There are many competing policy 

arguments about the effect that 

shareholder-nominated directors or 

shareholder-proposed nomination 

procedures might have on a company 

and its governance. Some commenters 

believe that the presence of shareholdernominated directors would make boards 

more accountable to the shareholders 

who own the company and that this 

accountability would improve corporate 

governance and make companies more 

responsive to shareholder concerns.34

Some commenters further express the 

belief that, absent an effective way for 

shareholders to exercise rights to 

nominate and elect directors that state 

corporate law presumes shareholders 

have, the election of directors is a selfsustaining process of the board 

determining its members, with little 

actual input from shareholders.35

Commenters have noted that without 

competition for director elections, 

directors are effectively unaccountable 

to shareholders and may lose sight of 

their proper role as representatives of 

the company.36

Similarly, foreign investors have 

noted the lack of accountability of 

directors in the United States compared 

with other countries, stating among 

other things that ‘‘[t]he harsh reality is 

that U.S. corporate governance practices 

are on a relative decline compared to 

other leading markets.’’ 37 In that vein, 

the Committee on Capital Markets 

Regulation has observed that this 

‘‘difference creates an important 

potential competitiveness problem for 

U.S. companies.’’ 38 Other commenters 

have expressed concern that the relative 

inability of shareholders of U.S. 

companies to participate in the selection 

of directors compared with shareholders 

of their foreign competitors creates a 

competitiveness problem for U.S. 

companies.39

Academic literature also has 

highlighted the roles of boards of 

directors at companies that have 

demonstrated corporate governance 

failings. Such literature points to a link 

between board accountability and 

company performance.40 In recognition 

of this link, Congress passed the 

Sarbanes-Oxley Act of 2002 to help 

strengthen corporate governance at 

public companies.41 Commenters 

additionally have argued that 

competition for board seats might lead 

companies to nominate directors who 

are better qualified and more 

independent.42

On the other side of the debate, some 

commenters have raised concerns that 

shareholder-nominated directors could 

impede the proper functioning of 

companies and cause inefficiencies. For 

example, some argue that a shareholdernominated director may be beholden to 

and focused solely on the concerns of 

the nominating shareholder or group, 

with the potential result being that a 

small number of shareholders could 

impose their unique concerns on the 

company and the rest of shareholders.43

Additionally, some commenters have 

suggested that the presence of a 

shareholder-nominated director could 

disrupt the functioning of the board and 

could even lead to the company moving 

in a direction that does not reflect the 

interests of its shareholders overall.44

Others have raised concerns that the 

possibility of a contested election could 

deter qualified candidates from seeking 

to serve as members of a board.45

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29027 

46See, e.g., Unofficial Transcript of the 

Roundtable on the Federal Proxy Rules and State 

Corporation Law (May 7, 2007), comments of R. 

Franklin Balotti, Director, Richards, Layton & 

Finger, P.A., at 14–17, available at: http:// 

www.sec.gov/spotlight/proxyprocess/proxytranscript050707.pdf; Unofficial Transcript of the 

Roundtable on the Federal Proxy Rules and State 

Corporation Law (May 7, 2007), comments of Vice 

Chancellor Strine, at 18–23; and Unofficial 

Transcript of the Roundtable on the Federal Proxy 

Rules and State Corporation Law (May 7, 2007), 

comments of Stanley Keller, Edwards Angell 

Palmer & Dodge LLP, at 142–143. 

47See, e.g., Durkin v. Nat’l Bank of Olyphant, 772 

F.2d 55, 59 (3d Cir. 1985) (stating that ‘‘the 

unadorned right to cast a ballot in a contest for 

office, a vehicle for participatory decisionmaking 

and the exercise of choice, is meaningless without 

the right to participate in selecting the contestants. 

As the nominating process circumscribes the range 

of the choice to be made, it is a fundamental and 

outcome-determinative step in the election of 

officeholders. To allow for voting while 

maintaining a closed candidate selection process 

thus renders the former an empty exercise. This is 

as true in the corporate suffrage context as it is in 

civic elections, where federal law recognizes that 

access to the candidate selection process is a 

component of constitutionally-mandated voting 

rights. See United States v. Classic, 313 U.S. 299, 

316–317, 85 L.Ed. 1368, 61 S.Ct. 1031 (1941) (article 

I, section 2, right to choose congressional 

representatives includes the right to participate in 

primary elections); Smith v. Allwright, 321 U.S. 

649, 661–662, 88 L.Ed. 987, 64 S.Ct. 757 (1944) 

(fifteenth amendment prohibition of race-based 

abridgement of voting rights applies to primary as 

well as general elections). Banks do not exist for the 

purpose of creating an aristocracy of directors and 

officers which can continue in office indefinitely, 

immune from the wishes of the shareholder-owners 

of the corporation. And there is no more 

justification for precluding shareholders from 

nominating candidates for their board of directors 

than there would be for public officials to deny 

citizens the right to vote because of their race, 

poverty or sex. Cf. U.S. Const. amends. XV, XXIV, 

and XIX.’’ id. at 59 (emphasis added)); and Hubbard 

v. Hollywood Park Realty Enterprises, Inc., 1991 

Del. Ch. LEXIS 9 (Del. Ch. Jan. 14, 1991) (quoting 

Durkin). 

48Shoen v. Amerco, 885 F.Supp. 1332, 1342 (D. 

Nev. 1994) (‘‘unadorned right to cast a ballot in a 

contest for office, after all, is meaningless without 

the right to participate in selecting the contestants’’ 

(internal quotation marks omitted)). 

49Historically, a shareholder’s voting rights 

generally were exercised at a shareholder meeting. 

As discussed above, in passing the Securities 

Exchange Act, Congress understood that many 

companies had become held nationwide through 

dispersed ownership, at least in part facilitated by 

stock exchange listing of shares. Although voting 

rights in public companies technically continued to 

be exercised at a meeting, the votes cast at the 

meeting were by proxy and the voting decision was 

made during the proxy solicitation process. This 

structure persists to this day. 

50The Commission’s proxy rules have required 

shareholder proposals on certain matters to be 

included in company proxy materials since 1940 

(see Release No. 34–2376 (January 12, 1940)), 

subject to amendment from time to time pursuant 

to the Commission’s dynamic regulation of the 

proxy process. 

51See 2003 Proposal; Shareholder Proposals 

Proposing Release; Election of Directors Proposing 

Release; and Election of Directors Adopting Release. 

See also, Section II, below, regarding the 

Commission’s consideration of the proxy rules. 

52See, e.g., 2003 Staff Report and summary of 

comments in response to the Commission’s May 1, 

2003 solicitation of comments. 

53Commenters on the 2003 Proposal discussed 

the range of options currently available. See, e.g., 

comment letters from Ashland, Inc. (December 17, 

2003) (‘‘Ashland’’); Conoco-Phillips (December 31, 

2003); Delphi Corporation (December 10, 2003); 

Emerson Electric Co. (December 15, 2003); 

Financial Services Roundtable (December 22, 2003); 

Kerr-McGee Corporation (December 22, 2003) 

(‘‘Kerr-McGee’’); Independent Community Bankers 

of America (December 22, 2003); Letter Type D; 

Malcom S. Morris (November 6, 2003) (‘‘Morris’’); 

Office Depot, Inc. (December 22, 2003) (‘‘Office 

Depot’’); Valero Energy Corporation (December 18, 

2003) (‘‘Valero’’); and Wachtell Lipton Rosen & Katz 

(November 14, 2003) (‘‘Wachtell’’). Cf. Blasius, 564 

A.2d at 659 (‘‘Generally, shareholders have only 

two protections against perceived inadequate 

business performance. They may sell their stock 

(which, if done in sufficient numbers, may so affect 

security prices as to create an incentive for altered 

managerial performance), or they may vote to 

replace incumbent board members.’’). 

54 In the case of plurality voting, shareholders 

may vote in the election of directors for, or 

withhold authority to vote for, each nominee rather 

than vote for, against or abstain, as is the case for 

other matters to be voted on by shareholders. See 

Exchange Act Rule 14a–4(b)(2). 

We recognize that there are long-held 

and deeply felt views on both sides of 

these issues. The action we take today 

is focused on removing burdens that the 

federal proxy process currently places 

on the ability of shareholders to exercise 

their basic rights to nominate and elect 

directors. If we adopted rules to remove 

those burdens, we believe that these 

rules would facilitate shareholders’ 

ability to participate more fully in the 

debates surrounding these issues. To the 

extent shareholders have the right to 

nominate directors at meetings of 

shareholders, the federal proxy rules 

should not impose unnecessary barriers 

to the exercise of this right.46 The SEC’s 

mission is investor protection, and we 

believe that investors are best protected 

when they can exercise the rights they 

have as shareholders, without 

unnecessary obstacles imposed by the 

federal proxy rules. 

Based on the staff’s and Commission’s 

review of the proxy solicitation process 

and the extensive public input that we 

have received over the past several years 

on the topic of shareholders’ ability to 

meaningfully exercise their rights to 

vote for and nominate directors of the 

companies in which they invest, we 

have decided to propose changes to the 

current proxy rules relating to the 

nomination of directors. First, we 

believe that we can and should structure 

the proxy rules to better facilitate the 

exercise of shareholders’ rights to 

nominate and elect directors. The right 

to nominate is inextricably linked to, 

and essential to the vitality of, a right to 

vote for a nominee.47 The failure of the 

proxy process to adequately facilitate 

shareholder nomination rights has a 

direct and practical effect on the right to 

elect directors.48 As noted, the proxy 

rules have been designed to improve the 

proxy process so that it functions, as 

nearly as possible, as a replacement for 

an in-person meeting of shareholders. 

This is important because the proxy 

process today represents shareholders’ 

principal means of participating 

effectively at an annual or special 

meeting of shareholders.49 Based on the 

feedback we have received over the last 

few years, it appears that the federal 

proxy process may not be adequately 

replicating the conditions of the 

shareholder meeting. Second, we 

believe that parts of the federal proxy 

process may unintentionally frustrate 

voting rights arising under state law, 

and thereby fail to provide fair corporate 

suffrage. These two potential 

shortcomings in our regulations provide 

compelling reasons for us to reform the 

proxy process and our disclosure 

requirements relating to director 

nominations.50 The comments received 

on the Commission’s recent proposals 

on this topic in 2003 and in 2007, as 

well as the Roundtables held by the 

Commission in 2004 and 2007, helped 

form the basis for our beliefs.51

B. Shareholder Participation in the 

Nomination and Election Process 

1. Existing Shareholder Options 

Many commenters have noted that 

current procedures available for director 

nominations afford little practical 

ability for shareholders to participate 

effectively in the nomination process 

and, through that process, exercise their 

rights and responsibilities as owners of 

their companies.52 If shareholders are 

dissatisfied with their company’s 

performance and believe that the 

problem lies with the ineffectiveness of 

the company’s board of directors, the 

existing proxy process provides 

shareholders with three principal 

options to attempt to effect change.53

First, shareholders can mount a proxy 

contest in accordance with our proxy 

rules. Second, shareholders can use the 

shareholder proposal procedure in Rule 

14a–8 to submit proposals and have a 

vote on topics that are important to 

them. Third, shareholders can conduct 

a ‘‘withhold vote’’ or ‘‘vote no’’ 

campaign against one or more 

directors.54

Shareholders also can use options that 

exist outside of the proxy process. For 

example, shareholders can sell their 

shares (sometimes referred to as the 

‘‘Wall Street Walk’’); they can engage in 

a dialogue with management (including 

recommending a candidate to the 

29028 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

55See, e.g., comment letter on the 2003 Proposal 

from The Corporate Library (December 22, 2003) 

(‘‘Corporate Library’’) (‘‘Shareholders can sell the 

stock at what they perceive to be a substantial 

discount. Or they can run their own slate of 

candidates, paying 100 percent of the costs, which 

may come to hundreds of thousands or even 

millions of dollars, for only a pro rata share of any 

increase in shareholder value as a result of the 

contested election. Meanwhile, management will 

spend the shareholders’ money to fight them. This 

is not a level playing field. It is close to 

perpendicular.’’). 

56See, e.g., Corporate Library. See also Bebchuk 

2003 Article at 46. Surveying data from contested 

elections from 1996 to 2002, Professor Bebchuk 

concludes that ‘‘the safety valve of potential ouster 

via the ballot is currently not working. In the 

absence of an attempt to acquire the company, the 

prospect of being removed in a proxy contest is far 

too remote to provide directors with incentives to 

serve shareholders.’’ The principal reason the costs 

could be better justified in the corporate control 

context is because benefits that are expected to arise 

from a successful contest are internalized by the 

shareholder undertaking the contest. 

57Exchange Act Rule 14a–8(i)(8). 

58See, e.g., Unofficial Transcript of the Security 

Holder Director Nominations Roundtable (March 

10, 2004) (‘‘2004 Roundtable Transcript’’), 

comments of Ira M. Millstein, Weil, Gotshal & 

Manges, available at: http://www.sec.gov/spotlight/ 

dir-nominations/transcript03102004.txt. 

59Under plurality voting, the nominee with the 

greatest number of votes is elected. But see footnote 

69, below (noting that some companies using a 

plurality standard have adopted policies requiring 

incumbent directors to resign if they receive less 

than majority support). Shareholders at companies 

using majority voting, or some other voting method 

other than plurality voting, may be better able to 

express dissatisfaction with a company’s nominee 

or nominees. As discussed, in recent years, many 

companies have adopted a majority voting standard. 

60See 2003 Summary of Comments, text at notes 

9–10. Although the AFL–CIO noted that active 

managers of mutual funds can sell their shares in 

a company with an ‘‘ineffective or unresponsive 

board,’’ pension fund managers, including the AFL– 

CIO and Amalgamated Bank Longview Fund, noted 

that the issue of director accountability is more 

important to them because they may manage index 

funds that are necessarily long-term investors who 

cannot easily sell. See comment letters from 

American Federation of Labor and Congress of 

Industrial Organizations (December 19, 2003) 

(‘‘AFL–CIO’’) and Amalgamated Bank LongView 

Funds (December 21, 2003) (‘‘LongView’’). See also 

2004 Roundtable Transcript, comments of Richard 

H. Moore, Treasurer of North Carolina. 

61See 2004 Roundtable Transcript, comments of 

Peter J. Wallison, American Enterprise Institute. 

62See, e.g., comment letters on the 2003 Proposal 

from Lucian A. Bebchuk (December 22, 2003) 

(‘‘Bebchuk’’); California Public Employees’ 

Retirement System (‘‘CalPERS’’); California State 

Teachers’ Retirement System (‘‘CalSTRS’’) 

(December 4, 2003); Charles Capito (October 20, 

2003); Council of Institutional Investors (‘‘CII’’) 

(December 12, 2003); Creative Investment Research 

(‘‘CIR’’) (December 22, 2003); Corporate Library; 

and Aaron Rosenthal (October 20, 2003). 

63See, e.g., Division of Corporation Finance, U.S. 

Securities and Exchange Commission, Staff Report: 

Review of the Proxy Process Regarding the 

Nomination and Election of Directors (July 15, 

2003), available at: http://www.sec.gov/news/ 

studies/proxyreport.pdf; see also, comment letter on 

the 2003 Proposal from CII; and Michael E. Murphy, 

The Nominating Process for Corporate Boards of 

Directors—A Decision-Making Analysis, 5 Berkeley 

Bus. L.J. 131 (2008). 

64See, e.g., comment letter on the 2003 Proposal 

from CII; comment letter on 2007 Proposals from 

SEIU. See also Michael E. Murphy, The Nominating 

Process for Corporate Boards of Directors—A 

Decision-Making Analysis, 5 Berkeley Bus. L.J. 131 

(2008). See also Division of Corporation Finance, 

U.S. Securities and Exchange Commission, Staff 

Report: Review of the Proxy Process Regarding the 

Nomination and Election of Directors (July 15, 

2003), available at: http://www.sec.gov/news/ 

studies/proxyreport.pdf. 

65See Unofficial Transcript of the Roundtable 

Discussion Regarding the Federal Proxy Rules and 

State Corporation Law (May 7, 2007), comments of 

Vice Chancellor Strine at 79 (commenting that ‘‘this 

annual meeting thing could be a fix’’ where the 

most active shareholder institutions gain 

representation on the board through other means 

such as through litigation settlement); see generally, 

5 Fletcher Cyclopedia of Corporations § 2049.10 

(Perm. Ed.) (‘‘In large corporations, the 

shareholders’ meeting is now only a necessary 

formality; the shareholders’ expression can only be 

had by the statutory device of proxies and 

solicitation of proxies.’’). 

nominating committee); or they can 

propose a board nominee at a 

shareholder meeting. Each of these 

options has drawbacks that limit its 

effectiveness.55

a. Options Using the Proxy Process 

Shareholders’ existing options under 

the proxy rules to exercise their 

ownership rights are often criticized. 

The chief complaint from shareholders 

about the existing options is the high 

cost involved in mounting a proxy 

contest under the Commission’s proxy 

rules. Because this cost must be borne 

by the shareholders undertaking the 

contest, the option generally is not used 

outside the corporate-control context, 

where the cost may be better justified.56

A shareholder or group of shareholders 

that is dissatisfied with the leadership 

of a company generally, but is not 

seeking a change in control must, as a 

result of our proxy rules, nevertheless 

undertake a proxy contest, along with 

its related expenses and other burdens, 

to put nominees before the shareholders 

for a vote. The shareholder proposal 

process in Rule 14a–8, under which a 

company may be required to include a 

shareholder proposal in the company 

proxy materials, also has been criticized 

as an ineffective tool for exercising 

ownership rights, as Rule 14a–8 is not 

available for proposals that relate to 

director elections.57 With regard to 

withhold vote and vote no campaigns, 

because some companies use plurality 

voting for board elections and therefore 

candidates can be elected regardless of 

whether they receive more than 50% of 

the shareholder vote, withhold vote 

campaigns may be limited in their 

effectiveness. In addition, restrictions 

under the proxy rules may limit the 

effectiveness of withhold vote and vote 

no campaigns because shareholders 

cannot solicit proxy authority through 

these campaigns. 

Further, in any vote for the election of 

directors, customary election processes 

may serve to amplify the practical effect 

that the proxy rules have in impeding 

shareholder nominees.58 In particular, 

as noted with regard to withhold vote 

campaigns, for companies using 

plurality rather than majority voting for 

board elections, nominees generally can 

be elected as director regardless of 

whether they receive a majority of the 

shareholder vote.59 Therefore, in an 

election in which there are the same 

number of nominees as there are board 

positions open, each nominee receiving 

even a single vote will be elected, 

regardless of the number of votes 

withheld from a nominee. 

b. Options Outside the Proxy Process 

Shareholders also are critical of the 

options available to them outside the 

proxy process. The ‘‘Wall Street Walk’’ 

is not an optimal solution because it 

may not be practical for large 

institutional shareholders and others 

who follow a passive management or 

indexing strategy, and it may require 

investors to lock in a loss.60 Selling 

shares may be very costly for these types 

of investors because they may face 

liquidity issues as a result of the size of 

their holdings and may be forced to sell 

their holdings in a manner that results 

in capital gains and therefore is not tax 

efficient. In addition, while selling 

shares may depress the stock price, 

leading to higher cost of capital for the 

firm and thus may ultimately spur 

management changes,61 the investor 

who sold its shares will not benefit from 

any improvement that follows the 

management change. 

Engaging management in a dialogue 

also may not be an effective option for 

shareholders because company 

management may be unresponsive to 

investor concerns.62 While shareholders 

can recommend an individual for 

nomination as director to a company’s 

nominating committee, we understand 

these recommendations are rarely 

accepted by nominating committees.63

Moreover, in some cases, shareholders 

may not be able to exercise their state 

law rights effectively because they have 

had difficulty gaining access to 

members of company boards and their 

committees.64

Finally, given the near universal use 

of proxy voting and the inability of 

shareholders to use the company proxy 

to vote for shareholder nominees, it can 

be futile to nominate a director in 

person at a shareholder meeting.65

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29029 

66See, e.g., comment letter from American Bar 

Association (January 7, 2004) (‘‘ABA’’). 

67 2004 Roundtable Transcript, comments of Nell 

Minow and Ralph V. Whitworth. 

68See generally, Bebchuk. See also In re Oracle 

Corp., 824 A.2d at 941. See footnote 42, above. 

69The Corporate Library reports that as of 

December 2008, 49.5 percent of companies in the 

S&P 500 had made the switch to majority voting for 

director elections and another 18.4 percent had, 

while retaining a plurality standard, adopted a 

policy requiring that a director that does not receive 

majority support must submit his or her resignation. 

On the other hand, the plurality voting standard is 

still the standard at the majority of smaller 

companies in the Russell 1000 and 3000 indices, 

with 54.5 percent of companies in the Russell 1000 

and 74.9 percent of the companies in the Russell 

3000 still using a straight plurality voting standard. 

The Corporate Library Analyst Alert, December 

2008. See also Broadridge letter dated March 27, 

2009 and attached analysis in response to File No. 

SR–NYSE–2006–92 (stating that in calendar year 

2007, 373 NYSE-listed companies had a majority 

vote standard for the election of directors). 

70 In CA, Inc. v. AFSCME, 953 A.2d 227 (Del. 

2008), the Delaware Supreme Court held that 

shareholders can propose and adopt a bylaw 

regulating the process by which directors are 

elected. In light of this ruling, Delaware recently 

amended the Delaware General Corporation Law to 

add new Section 112, effective August 1, 2009, 

clarifying that the bylaws of a Delaware corporation 

may provide that, if the corporation solicits proxies 

with respect to an election of directors, the 

corporation may be required to include in its 

solicitation materials one or more individuals 

nominated by a stockholder in addition to the 

individuals nominated by the board of directors. 

The obligation of the corporation to include such 

stockholder nominees will be subject to the 

procedures and conditions set forth in the bylaw 

adopted under Section 112. Delaware also added 

new Section 113, which will allow a Delaware 

corporation’s bylaws to include a provision that the 

corporation, under certain circumstances, will 

reimburse a stockholder for the expenses incurred 

in soliciting proxies in connection with an election 

of directors. In addition, the American Bar 

Association’s Committee on Corporate Laws, which 

is responsible for the Model Business Corporation 

Act, is considering similar changes to the Model 

Act. See American Bar Association, Section of 

Business Law, ‘‘Corporate Laws Committee To 

Address Current Governance Issues,’’ April 29, 

2009 (noting that Delaware’s recent statutory 

amendments ‘‘are being actively considered by the 

Committee’’) (available at: http://www.abanet.org/ 

abanet/media/release/ 

news_release.cfm?releaseid=662). Thirty states have 

adopted all or substantially all of the Model Act as 

their general corporation statute. 

Also, in 2007, North Dakota amended its 

corporate code to permit five percent shareholders 

to provide a company notice of intent to nominate 

directors and require the company to include each 

such shareholder nominee in its proxy statement 

and form of proxy. N.D. Cent. Code § 10–35–08 

(2009); see North Dakota Publicly Traded 

Corporations Act, N.D. Cent. Code section 10–35 et 

al. (2007). 

71See Disclosure Regarding Nominating 

Committee Functions and Communications 

Between Security Holders and Boards of Directors, 

Release No. 33–8340 (December 11, 2003) [68 FR 

69204]. 

72See Electronic Shareholder Forums, Release 

No. 34–57172 (January 18, 2008) [73 FR 4450] 

(‘‘Electronic Shareholder Forums Release’’). 

73The Commission also has considered the topic 

on at least three earlier occasions—in 1942, 1977, 

and 1992. For a discussion, see 2003 Proposal. 

74See Press Release No. 2003–46 (April 14, 2003). 

75See Release No. 34–47778 (May 1, 2003) [68 FR 

24530] and comment file number S7–10–03. 

76See Staff Report: Review of the Proxy Process 

Regarding the Nomination and Election of 

Directors, Division of Corporation Finance (July 15, 

2003) (‘‘2003 Staff Report’’), available at: http:// 

www.sec.gov/news/studies/proxyrpt.htm. See also 

Summary of Comments in Response to the 

Commission’s Solicitation of Public Views 

Regarding Possible Changes to the Proxy Rules (July 

15, 2003), attached as Appendix A to the Staff 

Report. 

77See 2003 Staff Report. 

78 Disclosure Regarding Nominating Committee 

Functions and Communications Between Security 

Holders and Boards of Directors, Release No. 33– 

8340 (December 11, 2003) [68 FR 69204]. 

79See 2003 Proposal. The proposal would have 

required shareholders to have held the requisite 

amount of securities to meet the ownership 

Continued 

2. Recent Corporate Governance and 

Other Reforms 

Over the past several years there have 

been a number of changes in corporate 

governance practices and the federal 

securities laws that may have mitigated 

some of the concerns expressed by 

commenters in 2003 and 2007 but, in 

our view, have not sufficiently 

addressed the central problem that we 

are seeking to solve—shareholders’ 

limited ability to exercise their rights to 

nominate directors and have the 

nominations disclosed to and 

considered by the shareholders. For 

example, some commenters on the 2003 

Proposal urged the Commission to defer 

action in order to assess the 

effectiveness of the then recentlyenacted Sarbanes-Oxley Act of 2002 and 

other reforms, including enhanced 

director independence requirements 

and expansion of the nominating 

committee function at public 

companies.66 Other commenters, while 

praising these reforms, doubted that 

they would be sufficient to address the 

problems that they hoped would be 

remedied through reform of the proxy 

process itself.67 In particular, 

commenters in 2003 argued that 

objective independence standards for 

directors and the use of independent 

nominating committees, without more, 

may not counteract the perceived 

tendency of some boards to defer to 

management, given factors such as the 

significant personal relationships that 

can exist between directors and 

officers.68 Therefore, shareholders may 

still want, but currently may not be able, 

to effectively nominate and elect 

directors that satisfy independence 

concerns specific to the companies in 

which they invest. 

Since the 2003 Proposal, a number of 

other changes in the governance 

landscape have occurred, including a 

significant movement by larger 

companies toward majority voting 

rather than plurality voting in director 

elections,69 and changes in state law to 

more expressly indicate that corporate 

governing documents may set out 

shareholders’ right to nominate 

directors.70 The Commission also has 

adopted changes to our rules, including 

enhanced disclosure requirements 

concerning nominating committees 71

and changes to our proxy rules to 

facilitate the use of electronic 

shareholder forums.72 While these and 

other changes have been significant, 

after considering the views discussed 

throughout the release, we believe the 

federal proxy process could still be 

improved to further remove 

impediments to the exercise of 

shareholders’ rights under state law to 

nominate directors. 

II. Recent Commission Consideration of 

the Proxy Rules and Regulations 

Addressing the Election of Directors73

A. 2003 Review of the Proxy Process and 

Subsequent Rulemaking 

In April 2003, the Commission 

directed the Division of Corporation 

Finance to review the proxy rules and 

regulations and interpretations 

regarding procedures for the nomination 

and election of corporate directors74 and 

on May 1, 2003, the Commission 

solicited public input with respect to 

the Division’s review.75 Commenters 

generally supported the Commission’s 

decision to review the proxy rules and 

regulations with respect to director 

nominations and elections and, in July 

2003, the Division of Corporation 

Finance provided to the Commission its 

report and recommended changes to the 

proxy rules related to the nomination 

and election of directors.76

The Division recommended proposed 

changes in two areas: (1) Disclosure 

related to nominating committee 

functions and shareholder 

communications with boards of 

directors; and (2) enhanced shareholder 

access to the proxy process relating to 

the nomination of directors.77 The 

Commission proposed and adopted the 

recommended disclosure requirements 

concerning nominating committee 

functions and shareholder 

communications with boards of 

directors.78 In addition, in October 

2003, the Commission proposed rules 

that would have created a mechanism 

for nominees of long-term shareholders, 

or groups of long-term shareholders, 

with significant shareholdings to be 

included in company proxy materials.79

29030 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

threshold for two years as of the date of the 

nomination. 

80See 2003 Proposal (explaining that the proposal 

would ‘‘apply only in those instances where criteria 

suggest that the company has been unresponsive to 

security holder concerns as they relate to the proxy 

process’’). 

81See 2003 Summary of Comments. 

82Rule 14a–8(i)(8) provides that a company need 

not include a proposal that ‘‘relates to a nomination 

or an election for membership on the company’s 

board of directors or analogous governing body or 

a procedure for such nomination or election[.]’’ 

83See Election of Directors Adopting Release 

(citing Commission statements made in Release No. 

34–12598 (July 7, 1976) (‘‘[T]he principal purpose 

of [Rule 14a–8(i)(8)] is to make clear, with respect 

to corporate elections, that Rule 14a–8 is not the 

proper means for conducting campaigns or effecting 

reforms in elections of that nature, since other 

proxy rules, including Rule 14a–[12], are applicable 

thereto.’’)). See also Division of Corporation 

Finance no-action letters to Citigroup, Inc. (January 

31, 2003) and AOL Time Warner (February 29, 

2003). As noted in the Election of Directors 

Proposing Release, in each of 1993 and 1995, the 

Division issued one letter that took a contrary view. 

See Dravo Corp. (February 21, 1995); and Pinnacle 

West Capital Corp. (March 26, 1993) (not permitting 

exclusion under Rule 14a–8(i)(8) of proposals 

seeking to include qualified nominees in the 

company’s proxy statement). 

84 462 F.3d 121 (2d Cir. 2006) (AFSCME). 

85At the time of the AFSCME decision, Rule 14a– 

8(i)(8) provided that a company need not include 

a proposal that ‘‘relates to an election for 

membership on the company’s board of directors or 

analogous governing body.’’ See id. at 125. This 

language was amended in 2007. See Election of 

Directors Adopting Release. 

86 462 F.3d at 128. 

87Exchange Act Rule 14a–12(c) [17 CFR 240.14a– 

12(c)] defines an election contest as ‘‘[s]olicitations 

by any person or group of persons for the purposes 

of opposing a solicitation subject to this regulation 

by any other person or group of persons with 

respect to the election or removal of directors at any 

annual or special meeting of security holders 

* * *.’’ Items 4(b) and 5(b) of Exchange Act 

Schedule 14A set out special disclosure 

requirements for solicitations subject to Rule 14a– 

12(c). 

88See Election of Directors Proposing Release. In 

this regard, the Commission was concerned that 

shareholders and companies would be unable to 

know with certainty whether a proposal that could 

result in an election contest may be excluded under 

Rule 14a–8(i)(8), depending on where the company 

was incorporated or conducting business, and that 

the staff would be severely limited in their ability 

to interpret Rule 14a–8 in responding to companies’ 

notices of intent to exclude shareholder proposals. 

89Although the Second Circuit’s decision was 

binding only within that Circuit, it created 

uncertainty elsewhere about the continuing validity 

of the interpretation of Rule 14a–8(i)(8). After the 

AFSCME decision and prior to the Commission’s 

codification of the interpretation in December 2007, 

the staff of the Division of Corporation Finance 

received three no-action requests seeking to exclude 

similar proposals under Rule 14a–8(i)(8). In 

Hewlett-Packard (January 22, 2007), the staff took 

a position of ‘‘no view’’ on the company’s request 

for no-action relief. A second request for no-action 

relief was submitted by Reliant Energy. Subsequent 

to the staff of the Division of Corporation Finance 

taking a ‘‘no view’’ position on Hewlett-Packard’s 

request, Reliant Energy filed a complaint in the U.S. 

District Court for the Southern District of Texas 

seeking a declaratory judgment that the company 

could properly omit a similar proposal that it had 

received for inclusion in its proxy materials. During 

the pendency of this litigation and prior to the 

staff’s response to Reliant’s no-action request, the 

shareholder withdrew the proposal and the 

company therefore withdrew its no-action request. 

(See Reliant Energy, Inc. (February 23, 2007)). A 

third request for no-action relief from UnitedHealth 

Group, Inc. was withdrawn after the company 

agreed to include the proposal in its proxy 

materials. (See UnitedHealth Group, Inc. (March 29, 

2007)). 

90Roundtable on the Federal Proxy Rules and 

State Corporation Law (May 7, 2007). Materials 

related to the roundtable, including an archived 

broadcast and a transcript of the roundtable, are 

available at: http://www.sec.gov/spotlight/ 

proxyprocess.htm. 

91Roundtable on Proxy Voting Mechanics (May 

24, 2007). Materials related to the roundtable, 

including an archived broadcast and a transcript of 

the roundtable, are available at: http:// 

www.sec.gov/spotlight/proxyprocess.htm. 

92Roundtable on Proposals of Shareholders (May 

25, 2007). Materials related to the roundtable, 

including an archived broadcast and a transcript of 

the roundtable, are available at: http:// 

www.sec.gov/spotlight/proxyprocess.htm. 

The proposed new rules were intended 

to address perceived inadequacies in the 

proxy process with respect to director 

nominations and elections.80 The 

proposal generated significant public 

comment, with shareholders generally 

supporting adoption of rules that would 

facilitate their right to nominate 

directors and companies and their 

advisors generally opposing such rules 

because of concerns that a requirement 

to include shareholder director 

nominees in the company’s proxy 

materials would impede the proper 

functioning of boards and cause 

inefficiencies.81 The Commission did 

not adopt final rules based on the 

proposal. 

B. 2007 Rulemaking Concerning 

Shareholder Proposals Seeking to 

Establish Bylaw Procedures for 

Shareholder Director Nominations 

One of the means that shareholders 

use to express their views on the 

management and affairs of a company is 

through shareholder proposals, which 

are addressed in Rule 14a–8. Rule 14a– 

8 provides shareholders with an 

opportunity to place a proposal in a 

company’s proxy materials for a vote at 

an annual or special meeting of 

shareholders. Under this rule, a 

company generally is required to 

include the proposal unless the 

shareholder has not complied with the 

rule’s procedural requirements or the 

proposal falls within one of the rule’s 13 

substantive bases for exclusion. One of 

the substantive bases that a company 

may rely on in excluding a shareholder 

proposal is Rule 14a–8(i)(8), which 

addresses shareholder proposals 

concerning director elections.82 This 

provision frequently is referred to as the 

‘‘election exclusion.’’ In interpreting 

this provision, the Commission took the 

position in 2007 that Rule 14a–8(i)(8) 

permits exclusion of a proposal that 

would establish a procedure that may 

result in contested elections to the 

board.83

In 2006, the U.S. Court of Appeals for 

the Second Circuit, in American 

Federation of State, County and 

Municipal Employees, Employees 

Pension Plan v. American International 

Group, Inc.,84 held that AIG could not 

rely on Rule 14a–8(i)(8) to exclude a 

shareholder proposal that, if adopted, 

would have amended AIG’s bylaws to 

require the company, under specified 

circumstances, to include shareholder 

nominees for director in the company’s 

proxy materials at subsequent meetings. 

The Second Circuit interpreted the 

language of the rule 85 and the 

Commission’s statements in adopting 

the rule in 1976 as limiting the election 

exclusion ‘‘to shareholder proposals 

used to oppose solicitations dealing 

with an identified board seat in an 

upcoming election and reject[ing] the 

somewhat broader interpretation that 

the election exclusion applies to 

shareholder proposals that would 

institute procedures making such 

election contests more likely.’’ 86 The 

effect of the AFSCME decision was to 

permit the bylaw proposal to be 

included in company proxy materials 

and, had the bylaw been approved by 

shareholders, for subsequent election 

contests conducted under it to take 

place in the company’s proxy materials 

without compliance with the disclosure 

requirements applicable to election 

contests under the Commission’s other 

proxy rules.87 The Commission was 

concerned that the Second Circuit’s 

decision resulted in uncertainty and 

confusion with respect to the 

appropriate application of Rule 14a– 

8(i)(8), and that it could lead to 

contested elections for directors without 

the disclosure otherwise required under 

the proxy rules for contested elections.88

This concern led the Commission to 

reopen the issue of shareholder 

involvement in the nomination and 

election process.89

In May 2007, the Commission hosted 

three roundtables on the proxy process 

during which a number of individuals 

and representatives from the public and 

private sector focused on the 

relationship between the proxy rules 

and state corporate law,90 proxy voting 

mechanics,91 and shareholder 

proposals.92 Following the roundtables, 

in July 2007, the Commission published 

for comment two alternative proposals 

addressing the election exclusion in 

Rule 14a–8. The first would have 

amended Rule 14a–8 to enable 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29031 

93See Shareholder Proposals Proposing Release. 

94See Election of Directors Proposing Release. 

95See Election of Directors Adopting Release. 

96See Electronic Shareholder Forums Release. 

97A change in control could include any number 

of extraordinary transactions, including a sale of 

substantially all of the company’s assets. See, e.g., 

Item 14(a) of Schedule 14A. 

98Under state law, a company’s governing 

documents may have various names. When we refer 

to governing documents throughout the release, we 

generally are referring to a company’s charter, 

articles of incorporation, certificate of 

incorporation, and/or bylaws, as applicable. 

99We are not aware of any law in any state or in 

the District of Columbia that prohibits shareholders 

from nominating directors. Nonetheless, should any 

such law be enacted in the future, then this 

condition would not be satisfied. 

shareholders to include proposals on 

shareholder director nomination bylaws 

in company proxy materials where 

certain conditions were met.93 The 

conditions that could be included in 

such a proposal would not have been 

limited under the rule proposal so long 

as they complied with applicable state 

law and governing corporate 

documents. As noted in the proposing 

release, the goal underlying the proposal 

was to better align the proxy rules with 

shareholders’ rights under state law, in 

particular the right to nominate 

directors. The Commission’s alternative 

proposal sought to amend Rule 14a–8 so 

that a shareholder nomination bylaw 

proposal could be excluded by a 

company.94 The Commission adopted 

this proposal in December 2007 to 

provide certainty to companies and 

shareholders in light of the AFSCME 

decision.95 The Commission did not 

take final action on the first proposal, 

with the exception of the portion of the 

first proposal intended to facilitate the 

creation and use of electronic 

shareholder forums, which the 

Commission adopted in January 2008.96

III. Proposed Changes to The Proxy 

Rules 

A. Introduction 

We are proposing amendments to the 

proxy rules to require companies to 

include disclosures about shareholder 

nominees for director in the companies’ 

proxy materials, under certain 

circumstances, so long as the 

shareholders are not seeking to change 

the control 97 of the issuer or to gain 

more than a limited number of seats on 

the board. These proposed amendments 

build on the Commission’s 2003 and 

2007 proposals. They also reflect our 

experience with, and continued 

consideration of, the issue of 

shareholder involvement in the proxy 

process, the interaction between the 

proxy rules and state law, and the 

extensive comment that we have 

received over the past six years on these 

topics. As stated previously, due to 

dispersed ownership, director elections 

are largely conducted by proxy rather 

than in person and, as a result, 

impediments that the Federal proxy 

rules create to shareholders nominating 

directors through the proxy process 

translate into the inability of 

shareholders to effectively exercise their 

rights to nominate and to elect those 

directors. We believe the proposed rule 

changes will provide shareholders with 

a greater voice and an avenue to 

exercise the rights they have to effect 

change on the boards of the companies 

in which they invest that they no longer 

can exercise effectively through 

attending a shareholder meeting in 

person. 

The Commission’s proposals would 

provide shareholders with two ways to 

more fully exercise their rights to 

nominate directors. First, we are 

proposing a new proxy rule (Exchange 

Act Rule 14a–11) that would, under 

certain circumstances, require 

companies to include shareholder 

nominees for director in the companies’ 

proxy materials. This requirement 

would apply unless state law or a 

company’s governing documents98

prohibits shareholders from nominating 

directors.99 In this regard, state law or 

a company’s governing documents may 

provide for nomination or disclosure 

rights in addition to those provided 

pursuant to Rule 14a–11 (e.g., a 

company could choose to provide a 

right for shareholders to have their 

nominees disclosed in the company’s 

proxy materials regardless of share 

ownership—in that instance, the 

company’s provision would apply for 

certain shareholders who would not 

otherwise have their nominees included 

in the company’s proxy materials 

pursuant to Rule 14a–11). Second, we 

are proposing an amendment to 

Exchange Act Rule 14a–8(i)(8), the 

election exclusion, to preclude 

companies from relying on Rule 14a– 

8(i)(8) to exclude from their proxy 

materials shareholder proposals by 

qualifying shareholders that would 

amend, or that request an amendment 

to, a company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, provided the proposal 

does not conflict with proposed Rule 

14a–11. 

Request for Comment 

A.1. Does the Commission need to 

facilitate shareholder director 

nominations or remove impediments to 

help make the proxy process better 

reflect the rights a shareholder would 

have at a shareholder meeting? 

A.2. Should the Commission adopt 

revisions to the proxy rules to facilitate 

the inclusion of shareholder nominees 

in company proxy materials, or are the 

existing means that are available to 

shareholders to exercise their rights to 

nominate directors adequate? How have 

changes in corporate governance over 

the past six years, including the move 

by many companies away from plurality 

voting to majority voting, affected a 

shareholder’s ability to place nominees 

in company proxy materials? How have 

other developments, as well as ongoing 

developments such as some states 

adopting statutes allowing companies to 

reimburse shareholders who conduct 

director election contests and enabling 

companies to include in their bylaws 

provisions for inclusion of shareholder 

director nominees in company proxy 

materials, affected a shareholder’s 

ability to nominate directors? Have 

other changes in law or practice created 

a greater or lesser need for such a rule? 

A.3. Would the proposed 

amendments enable shareholders to 

effect change in a company’s board of 

directors? Please explain and provide 

any empirical data in support of any 

arguments or analyses. 

A.4. What would be the costs and 

benefits to companies and shareholders 

if the Commission adopted new proxy 

rules that would facilitate the inclusion 

of shareholder director nominees in 

company proxy materials? What would 

be the costs and benefits to companies 

if the Commission adopted the proposed 

amendment to Rule 14a–8(i)(8)? 

A.5. What direct or indirect effect, if 

any, would the proposed changes to the 

proxy rules have on companies’ 

corporate governance policies relating to 

the election of directors? 

A.6. Could the proposed amendments 

to the proxy rules be modified to better 

meet the Commission’s stated intent? If 

so, how? Please explain and provide 

empirical data or other specific 

information in support of any arguments 

or analyses. Please identify and discuss 

any other rules that would need to be 

amended. 

A.7. We note concerns regarding 

investor confidence. Would amending 

the proxy rules as proposed help restore 

investor confidence? Why or why not? 

Please explain and provide empirical 

data or other specific information in 

support of any arguments or analyses. 

A.8. We also note concerns about 

board accountability and shareholder 

participation in the proxy process. 

Would the proposed amendments to the 

proxy rules address concerns about 

board accountability and shareholder 

29032 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

100See 2003 Summary of Comments. 

101See id. 

102See proposed Exchange Act Rule 14a–11. 

103See proposed amendment to Rule 14a–4. 

104Exchange Act Rule 3a12–3 [17 CFR 240.3a12– 

3] exempts foreign private issuers from the 

Commission’s proxy rules. As such, the proposed 

rule would not apply to foreign private issuers. 

105 15 U.S.C. 80a et seq. Investment companies 

currently are required to comply with the proxy 

rules under the Exchange Act when soliciting 

proxies, including proxies relating to the election of 

directors. See Investment Company Act Rule 20a– 

1 [17 CFR 270.20a–1] (requiring registered 

investment companies to comply with regulations 

adopted pursuant to Section 14(a) of the Exchange 

Act that would be applicable to a proxy solicitation 

if it were made in respect of a security registered 

pursuant to Section 12 of the Exchange Act). 

106A company generally would not be permitted 

to exclude such a shareholder proposal under our 

proposed amendment to Rule 14a–8(i)(8), discussed 

in Section III.C., below. 

107Only votes for and against a proposal would 

have been included in the calculation of the 

shareholder vote. 

participation on the one hand, and 

board dynamics, on the other? If so, 

how? If not, why not? Please explain 

and provide empirical data in support of 

any arguments or analyses. 

A.9. Would adoption of only 

proposed Rule 14a–11 meet the 

Commission’s stated objectives? If so, 

why? If not, why not? What 

modifications to the proposed rule and 

related disclosure requirements would 

be necessary, if any? 

A.10. Would adoption of only the 

proposed amendment to Rule 14a– 

8(i)(8) and the related disclosure 

requirements meet the Commission’s 

stated objectives? If so, why? If not, why 

not? What modifications to the 

proposed rule amendment and related 

disclosure requirements would be 

necessary, if any? 

A.11. Would other revisions to our 

proxy rules achieve the same or similar 

objectives as the Commission’s 

proposal? For example, regardless of 

what other action the Commission may 

take in this area, should we adopt new 

disclosure requirements and liability 

provisions to address recent changes in 

some state laws concerning the 

inclusion of shareholder nominees for 

director in company proxy materials 

pursuant to a company’s governing 

documents? 

A.12. Are there any states that 

prohibit, or permit companies to 

prohibit, shareholders from nominating 

a candidate or candidates for election as 

director? 

B. Proposed Exchange Act Rule 14a–11 

1. Overview 

As discussed, currently, a shareholder 

or group of shareholders must undertake 

a proxy contest and incur the related 

expenses to have any reasonable chance 

at successfully putting director 

nominees before the shareholders for a 

vote. A board’s nominees, on the other 

hand, are listed in the company’s proxy 

materials, which are funded out of 

corporate assets. 

We believe it is an appropriate time 

for us to revisit whether and how the 

federal proxy rules may be impeding the 

ability of shareholders to exercise their 

fundamental rights to nominate and 

elect board members. As mentioned 

above, we are aware of the concerns and 

questions about the accountability and 

responsiveness of some companies and 

boards of directors to the interests of 

shareholders, particularly in the current 

market environment. Additionally, 

based on the comments received in 

response to our solicitation of public 

input on the topic in prior releases and 

roundtables, we have learned that 

shareholders face significant obstacles 

to efficiently exercising their right to 

determine the leadership of the 

companies in which they invest. Much 

of the public input that we have 

received suggests that including 

shareholder nominees for director in 

company proxy materials would be the 

most direct and effective method of 

facilitating shareholders’ rights in 

connection with the nomination and 

election of directors.100

On the other hand, the business 

community and many of its legal 

advisors have expressed concern that 

mandating shareholder access to 

company proxy materials could turn 

every election of directors into a contest, 

which would be costly and disruptive to 

companies and could discourage some 

qualified board candidates from 

agreeing to appear on a company’s slate 

of nominees. Because the composition 

of the board of directors is fundamental 

to a company’s governance, the current 

filing and other requirements applicable 

to shareholders who wish to propose an 

alternate slate are, in the view of these 

commenters, more appropriate than 

including shareholder nominees for 

director in company proxy materials.101

In light of the erosion of investor 

confidence that has taken place over the 

past several months, and after further 

consideration of the issue, we have 

determined to propose a rule that would 

require companies to include disclosure 

about shareholder nominees for director 

in company proxy materials under 

specified conditions.102 These nominees 

would then also be included on a 

company’s form of proxy in accordance 

with the requirements of Rule 14a–4.103

Rule 14a–11 would not apply where 

shareholders relying on the rule are 

seeking to change the control of the 

issuer or to gain more than a limited 

number of seats on the board of 

directors. In this regard, we believe that 

shareholders who are seeking such a 

change should continue to use the 

procedures currently available for 

election contests. 

2. Application of Exchange Act Rule 

14a–11 

Proposed Rule 14a–11 would apply to 

all companies subject to the Exchange 

Act proxy rules 104 (including 

investment companies registered under 

Section 8 of the Investment Company 

Act of 1940),105 other than companies 

that are subject to the proxy rules solely 

because they have a class of debt 

registered under Section 12 of the 

Exchange Act. As proposed, a company 

would be subject to Rule 14a–11 unless 

applicable state law or a company’s 

governing documents prohibits 

shareholders from nominating 

candidates for the board of directors. 

When a company’s governing 

documents do prohibit nomination 

rights, shareholders who want to amend 

the provision may seek to do so by 

submitting a shareholder proposal.106

In the 2003 Proposal, the Commission 

proposed to make the new requirement 

concerning shareholder director 

nominations operative for a company 

only after the occurrence of one or both 

of two possible triggering events. The 

first triggering event was that at least 

one of the company’s nominees for the 

board of directors for whom the 

company solicited proxies received 

withhold votes from more than 35% of 

the votes cast at an annual meeting of 

shareholders at which directors were 

elected (provided, that this triggering 

event could not occur in a contested 

election to which Rule 14a–12(c) would 

apply or an election to which the 

proposed shareholder nomination 

procedure would have applied). The 

second proposed triggering event was 

that a shareholder proposal submitted 

under Rule 14a–8 providing that the 

company become subject to the 

proposed shareholder nomination 

procedure was submitted for a vote of 

shareholders at an annual meeting by a 

shareholder or group of shareholders 

that (1) held more than 1% of the 

company’s securities entitled to vote on 

the proposal and (2) held those 

securities for one year as of the date the 

proposal was submitted, and the 

proposal received more than 50% of the 

votes cast on that proposal at that 

meeting.107

Today’s proposal does not require a 

triggering event. Instead, Rule 14a–11 

would apply to all companies subject to 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29033 

108See 2003 Summary of Comments and Letter 

Type I from 5,858 individuals or entities. 

109See 2003 Summary of Comments; see also 

comment letter from American Federation of State, 

County, and Municipal Employees (September 24, 

2003) (‘‘AFSCME 2003’’). 

110See Release No. 34–59464 (February 26, 2009) 

[74 FR 9864]. 

Exchange Act Section 14(a), other than 

companies that are subject to the proxy 

rules solely because they have a class of 

debt registered under Exchange Act 

Section 12. Accordingly, a company 

would be required to disclose the 

nominee or nominees of any 

shareholder or shareholder group 

meeting the proposed eligibility 

standards and other conditions in Rule 

14a–11, discussed below. Our decision 

not to include triggering events in the 

current proposal reflects our concern 

that the federal proxy rules may be 

impeding the exercise of shareholders’ 

ability under state law to nominate 

directors at all companies, not just those 

with demonstrated governance issues. 

In addition, we note that many 

commenters on the 2003 Proposal 

expressed concern about that proposal’s 

complexity 108 and indicated that the 

multi-year process created by the trigger 

requirement could make it more 

difficult for shareholders to efficiently 

effect change in the composition of 

boards of directors.109 Finally, in light 

of our concerns about restoring investor 

confidence to the greatest number of 

shareholders as quickly as possible, we 

do not want to add a layer of complexity 

and delay to the operation of the 

proposed rule that would frustrate our 

stated objectives. 

Request for Comment 

B.1. Would adoption of Rule 14a–11 

conflict with any state law, federal law, 

or rule of a national securities exchange 

or national securities association? To 

the extent you indicate that the rule 

would conflict with any of these 

provisions, please be specific in your 

discussion of those provisions that you 

believe would conflict. How should the 

Commission address these conflicts? 

Should the rule also address conflicts 

with a company’s country of 

incorporation where the company is 

organized in a non-U.S. jurisdiction but 

does not meet the definition of foreign 

private issuer? Should the rule also 

explicitly refer to conflicts with laws of 

U.S. possessions or territories? 

B.2. Should Rule 14a–11 apply as 

proposed? Is it appropriate for proposed 

Rule 14a–11 to be unavailable where 

state law or a company’s governing 

documents prohibit shareholders from 

nominating candidates for director? 

Would the proposed rule effectively 

facilitate shareholders’ basic rights, 

particularly the right to nominate 

directors? 

B.3. As proposed, Rule 14a–11 would 

apply to all companies subject to the 

proxy rules, other than companies that 

are subject to the proxy rules solely 

because they have a class of debt 

registered under Exchange Act Section 

12. What effect, if any, will this 

application have on any particular 

group of companies (e.g., on smaller 

reporting companies)? Are there 

modifications that would accommodate 

the needs of a particular group of 

companies (e.g., smaller reporting 

companies) while accomplishing the 

goals of the proposal? Would it instead 

be more appropriate to exclude from 

operation of the procedure smaller 

reporting companies, either on a 

temporary basis through staggered 

compliance dates based on company 

size, or on a permanent basis? Should 

any other groups of companies be 

excluded from operation of the rule 

(e.g., companies subject to the proxy 

rules for less than a specified period of 

time (e.g., one year, two years, or three 

years))? If so, for what period of time 

should the companies be excluded from 

operation of the rule (e.g., one year, two 

years, three years, permanently)? 

B.4. Should proposed Rule 14a–11 

apply to registered investment 

companies? Are there any aspects of the 

proposed nomination procedure that 

should be modified in the case of 

registered investment companies? 

B.5. Should companies that are 

subject to the proxy rules solely because 

they have a class of debt registered 

under Exchange Act Section 12 be 

excluded from application of Rule 14a– 

11, as proposed? Please explain why or 

why not. 

B.6. As proposed, Rule 14a–11 would 

apply to companies that have 

voluntarily registered a class of equity 

securities pursuant to Exchange Act 

Section 12(g). Should companies that 

have registered on a voluntary basis be 

subject to Rule 14a–11? If so, should 

nominating shareholders of these 

companies be subject to the same 

ownership eligibility thresholds as those 

shareholders of companies that were 

required to register a class of equity 

securities pursuant to Section 12? 

Should we adjust any other aspects of 

Rule 14a–11 for companies that have 

voluntarily registered a class of equity 

securities pursuant to Section 12(g)? 

B.7. Should proposed Rule 14a–11 be 

inapplicable to a company that has or 

adopts a provision in its governing 

documents that provides for or prohibits 

the inclusion of shareholder director 

nominees in the company proxy 

materials? Should the Commission’s 

rules respond to variations in 

shareholder director nomination 

disclosures and procedures adopted, for 

example, under state corporate laws that 

specify that a company’s governing 

documents may address the use of a 

company’s proxy materials for 

shareholder nominees to the board of 

directors? Would it be more appropriate 

to only permit companies to comply 

with governing document provisions or 

state laws where those provisions or 

laws provide shareholders with greater 

nomination or proxy disclosure rights 

than those provided under proposed 

Rule 14a–11? Should Rule 14a–11 

provide that a company’s governing 

documents may render the rule 

inapplicable to a company only if the 

shareholders have approved, as 

contrasted to the board implementing 

without shareholder approval, a 

provision in the company’s governing 

documents addressing the inclusion of 

shareholder nominees in company 

proxy materials? Should Rule 14a–11 be 

inapplicable if such shareholderapproved provisions are more restrictive 

than Rule 14a–11? Should Rule 14a–11 

be inapplicable if such shareholderapproved provisions are less restrictive 

than Rule 14a–11? Or both? 

B.8. The New York Stock Exchange 

has filed with the Commission a 

proposed rule change to amend NYSE 

Rule 452 and corresponding Section 

402.08 of the Listed Company Manual to 

eliminate broker discretionary voting for 

the election of directors. The 

Commission published the proposed 

rule change, as amended on February 

26, 2009, for comment in the Federal 

Register on March 6, 2009.110 If the 

amendment to Rule 452 is approved, 

what would be its effect on operation of 

proposed Rule 14a–11? Would any 

changes to Rule 14a–11 be required? 

Please be specific in your response. 

B.9. Should proposed Rule 14a–11 

exempt companies where state law or 

the company’s governing documents 

require that directors be elected by a 

majority of shares present in person or 

represented by proxy at the meeting and 

entitled to vote? What specific issues 

would arise in an election where state 

law or the company’s governing 

documents provided for other than 

plurality voting (e.g., majority voting)? 

What specific issues would arise in an 

election that is conducted by 

cumulative voting? Would these issues 

need to be addressed in revisions to the 

proposed rule text? If so, how? 

B.10. Should companies be able to 

take specified steps or actions, such as 

29034 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

111 17 CFR 249.308a. 

112 17 CFR 249.310. 

113 17 CFR 249.308. 

114 17 CFR 249.331 and 17 CFR 274.128. 

115 Item 4 of Part II to Exchange Act Form 10–Q 

and Item 4 of Part I to Exchange Act Form 10–K 

currently require that companies disclose the 

results of the voting on all matters submitted to a 

vote of shareholders during the period covered by 

the report. We could add a provision to these items 

that would require disclosure of specific 

information relating to the application of Rule 14a– 

11 or a shareholder director nomination process 

provided for under applicable state law or in a 

company’s governing documents. 

adopting a majority vote standard or 

bylaw specifying procedures for the 

inclusion of shareholder nominees in 

company proxy materials, to prevent 

application of proposed Rule 14a–11 

where it otherwise would apply? If so, 

what such steps or actions would be 

appropriate and why would they be 

appropriate? For example, should 

companies that agree with a shareholder 

proponent not to exclude a shareholder 

proposal submitted by an eligible 

shareholder pursuant to Rule 14a–8 be 

exempted from application of the 

proposed rule for a specified period of 

time? Should a company that 

implements any shareholder proposals 

that receive a majority of votes cast in 

a given year be exempted? 

B.11. Should companies subject to 

Rule 14a–11 be permitted to exclude 

certain shareholder proposals that they 

otherwise would be required to include? 

If so, what categories of proposals? For 

example, should the company be able to 

exclude proposals that are non-binding, 

proposals that relate to corporate 

governance matters generally, proposals 

that relate to the structure or 

composition of boards of directors, or 

other proposals? 

B.12. One concern that has been 

raised about the effectiveness of the 

present proxy rules is the high cost to 

a shareholder to conduct a solicitation 

to nominate a director. Should the 

proposed rule provide that it does not 

apply to a company whose governing 

documents include a provision for 

reimbursement of expenses incurred by 

a participant or participants in the 

course of a solicitation in opposition as 

defined in Rule 14a–12(c)? If so, should 

the rule specify what manner of 

reimbursement would be sufficient for 

proposed Rule 14a–11 not to apply? 

B.13. Should Rule 14a–11 be widely 

available, as proposed, or should 

application of the rule be limited to 

companies where specific events have 

occurred to trigger operation of the rule? 

If so, what events should trigger 

operation of the rule? 

B.14. If the Commission were to 

include triggering events in Rule 14a– 

11, would either of the triggering events 

proposed in 2003 and described above 

be appropriate? In responding, please 

discuss how any changes in corporate 

governance practices over the past six 

years have affected the usefulness of the 

triggering events proposed in 2003. For 

example, over the past six years many 

companies have adopted majority 

voting. If the triggering events proposed 

in 2003 are not appropriate, are there 

alternative events that the Commission 

should consider in place of, or in 

addition to, the above events? For 

example, should application of Rule 

14a–11 be triggered by other factors 

such as economic performance (e.g., 

lagging a peer index for a specified 

number of consecutive years), being 

delisted by an exchange, being 

sanctioned by the Commission or other 

regulators, being indicted on criminal 

charges, having to restate earnings, 

having to restate earnings more than 

once in a specified period, or failing to 

take action on a shareholder proposal 

that received a majority shareholder 

vote? 

B.15. In the 2003 Proposal, the rule 

proposed would have been triggered by 

withhold votes for one or more directors 

of more than 35% of the votes cast. Is 

it appropriate to apply such a trigger to 

current proposed Rule 14a–11? If so, 

what would be an appropriate 

percentage and why? Would it be 

appropriate to base this trigger on votes 

cast rather than votes outstanding? 

Please provide a basis for any alternate 

recommendations, including numeric 

data, where available. Is the percentage 

of withhold votes the appropriate 

standard in all cases? For example, what 

standard is appropriate for companies 

that do not use plurality voting? If your 

comments are based upon data with 

regard to withhold votes for individual 

directors, please provide such data in 

your response. 

B.16. If the Commission were to 

include a triggering event requirement, 

for what period of time after a triggering 

event should Rule 14a–11 apply (e.g., 

one year, two years, three years, or 

permanently)? Should there be a means 

other than the adoption of a provision 

in the company’s governing documents 

for the company or shareholders to 

terminate application of the requirement 

at a company? If so, what other means 

would be appropriate? 

B.17. What would be the possible 

consequences of the use of triggering 

events? Would the withhold vote trigger 

result in more campaigns seeking 

withhold votes? How would any such 

consequences affect the operation and 

governance of companies? 

B.18. If the proposed requirement 

applied only after a specified triggering 

event, how would the company make 

shareholders aware when a triggering 

event has occurred? If the rule became 

operative based on the occurrence of 

triggering events, should the rule 

require additional disclosures in a 

company’s Exchange Act Form 10–Q,111

10–K,112 or 8–K 113 or, in the case of a 

registered investment company, Form 

N–CSR? 114 For example, the rule could 

require the following: 

• A company would be required to 

disclose the shareholder vote with 

regard to the directors receiving a 

withhold vote or a shareholder 

proposal, either of which may result in 

a triggering event, in its quarterly report 

on Form 10–Q for the period in which 

the matter was submitted to a vote of 

shareholders or, where the triggering 

event occurred during the fourth quarter 

of the fiscal year, on Form 10–K; 115 and 

• A company would be required to 

include in that Form 10–Q or 10–K 

information disclosing that it would be 

subject to Rule 14a–11 as a result of 

such vote, if applicable. 

B.19. Should the company’s 

disclosure regarding the applicability of 

Rule 14a–11 be filed or made public in 

some other manner? If so, what manner 

would be appropriate? 

B.20. Should companies be exempted 

from complying with Rule 14a–11 for 

any election of directors in which 

another party commences or evidences 

its intent to commence a solicitation in 

opposition subject to Rule 14a–12(c) 

prior to the company mailing its proxy 

materials? What should be the effect if 

another party commences a solicitation 

in opposition after the company has 

mailed its proxy materials? 

B.21. If a triggering event is required 

and companies are exempted from 

complying with Rule 14a–11 because 

another party has commenced or 

evidenced its intent to commence a 

solicitation in opposition subject to Rule 

14a–12(c), should the period in which 

Rule 14a–11 applies be extended to the 

next year? What should be the effect if 

another party commences a solicitation 

in opposition after the company has 

mailed its proxy materials? 

B.22. What provisions, if any, would 

the Commission need to make for the 

transition period after adoption of a rule 

based on this proposal? Would it be 

necessary to adjust the timing 

requirements of the rule depending on 

the effective date of the rule (e.g., if the 

rules are adopted shortly before a proxy 

season)? 

B.23. Should the Commission 

consider rulemaking under Section 

19(c) of the Exchange Act to amend the 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29035 

116The manner in which a nominating 

shareholder or group would establish its eligibility 

to use proposed Rule 14a–11 is discussed further, 

below. 

117 17 CFR 240.12b–2. 

118See proposed Rule 14a–11(b)(1)(i). 

119See proposed Rule 14a–11(b)(1)(ii). 

120See proposed Rule 14a–11(b)(1)(iii). 

121See proposed Rule 14a–11(b)(2). The one-year 

holding period requirement applies only to the 

securities that are used for purposes of determining 

the ownership threshold. 

122 Id. Pursuant to proposed Rule 14a–18(b), the 

nominating shareholder or group would be required 

to include in its notice to the company of the intent 

to nominate a representation that the nominating 

shareholder or group satisfies the conditions in 

Rule 14a–11(b). 

123See 2003 Summary of Comments; comment 

letter on the Shareholder Proposals Proposing 

Release from California Public Employees’ 

Retirement System (September 26, 2007) (‘‘CalPERS 

2007’’) (noting that a 2003 analysis of the holdings 

of three of the largest public pension funds showed 

that their combined ownership exceeded 2% in 

only one instance, and exceeded 1.5% in only 12 

instances). 

124See 2003 Summary of Comments. 

125See id. 

126See id. 

127See id. 

128 In this regard, we believe that the relative 

resource requirement for larger issuers to fund and 

administer the process would be smaller. Therefore, 

the thresholds we are proposing will more likely 

result in more large accelerated and accelerated 

filers receiving qualifying nominations than nonaccelerated filers. 

129The staff received beneficial ownership 

information for these companies aggregated at 

various thresholds and matched the information on 

market value of the float (obtained from 

Datastream). The sample excludes mutual funds. 

130 Institutional investment managers who 

exercise investment discretion over $100 million or 

more in Section 13(f) securities must report their 

holdings on Form 13F with the SEC. The sample 

includes 6,700 companies that are referenced in the 

Form 13F form that have common equity and are 

traded on NYSE, NYSE Amex Equities, or 

NASDAQ. Of these we were able to match the 

information on the market value of float (obtained 

from Datastream) for 5,877 observations. 

131Under Rule 12b–2, a large accelerated filer 

must have an aggregate worldwide market value of 

Continued 

listing standards of registered exchanges 

to require that shareholders have access 

to the company’s proxy materials to 

nominate directors under the 

requirements and procedures described 

in connection with proposed Rule 14a– 

11 to reflect, for example, changes the 

Sarbanes-Oxley Act made to director 

and independence requirements, among 

other matters? 

3. Eligibility To Use Exchange Act Rule 

14a–11 

In seeking to balance shareholders’ 

ability to participate more fully in the 

nomination and election process against 

the potential cost and disruption to 

companies subject to the proposed new 

rule, we are proposing that only holders 

of a significant, long-term interest in a 

company be able to rely on Rule 14a– 

11 to have disclosure about their 

nominees for director included in 

company proxy materials. We are 

proposing that the requirement for a 

company to include a shareholder’s 

nominee or nominees for director in the 

company’s proxy materials and on its 

form of proxy be based on a minimum 

ownership threshold, which would be 

tiered according to company size. 

Assuming the other conditions of 

proposed Rule 14a–11 are met, 

companies would not be able to exclude 

a shareholder nominee or nominees if 

the nominating shareholder or group: 

• Beneficially owns, as of the date of 

the shareholder notice on Schedule 

14N, either individually or in the 

aggregate: 116

• For large accelerated filers as 

defined in Exchange Act Rule 12b–2,117

and registered investment companies 

with net assets of $700 million or more, 

at least 1% of the company’s securities 

that are entitled to be voted on the 

election of directors at the annual 

meeting of shareholders (or, in lieu of 

such an annual meeting, a special 

meeting of shareholders); 118

• For accelerated filers as defined in 

Rule 12b–2, and registered investment 

companies with net assets of $75 

million or more but less than $700 

million, at least 3% of the company’s 

securities that are entitled to be voted 

on the election of directors at the annual 

meeting of shareholders (or, in lieu of 

such an annual meeting, a special 

meeting of shareholders); 119 and 

• For non-accelerated filers as 

defined in Rule 12b–2, and registered 

investment companies with net assets of 

less than $75 million, at least 5% of the 

company’s securities that are entitled to 

be voted on the election of directors at 

the annual meeting of shareholders (or, 

in lieu of such an annual meeting, a 

special meeting of shareholders); 120

• Has beneficially owned the 

securities that are used for purposes of 

determining the ownership threshold 

continuously for at least one year as of 

the date of the shareholder notice on 

Schedule 14N (in the case of a 

shareholder group, each member of the 

group must have held the securities that 

are used for purposes of determining the 

ownership threshold for at least one 

year as of the date of the shareholder 

notice on Schedule 14N); 121 and 

• Represents that it intends to 

continue to own those securities 

through the date of the annual or special 

meeting.122

The issue of the appropriate eligibility 

ownership threshold generated a great 

deal of comment when proposed in the 

2003 Proposal.123 While some 

commenters believed that all 

shareholders, regardless of the amount 

of shares owned, should be able to 

include nominees in the company proxy 

materials for the purpose of nominating 

one or more directors, others advocated 

share ownership thresholds ranging 

from the $2,000 threshold required to 

submit a Rule 14a–8 proposal to share 

ownership percentages such as 3%, 5% 

or 10% of a company’s outstanding 

common stock.124 Those who advocated 

no threshold or a nominal dollar 

amount argued that the imposition of a 

threshold would discriminate against 

smaller investors or unfairly advantage 

larger shareholders who already may 

have the resources to run their own 

slates using the existing rules for 

contested elections.125 Those who 

advocated a larger share ownership 

threshold argued that a nominating 

shareholder should have a substantial, 

long-term stake in the company in order 

to require the use of company funds to 

nominate a candidate.126 In addition, 

advocates of a larger share ownership 

threshold pointed out that the 

composition of the board of directors is 

critical to a corporation’s functions and, 

accordingly, shareholders should have 

to evidence a significant financial 

interest by satisfying a substantial 

ownership threshold in order to require 

a company to include in its proxy 

materials a shareholder director 

nominee or nominees.127

The tiered beneficial ownership 

thresholds that we are proposing 

represent an effort to balance the 

varying considerations and address the 

possibility that certain companies could 

be impacted disproportionately based 

on their size.128 In determining the 

proposed ownership thresholds, we 

considered two different samples of data 

on security ownership as an indicator of 

the ownership of securities that are 

entitled to be voted on the election of 

directors. First, we considered the 

current ownership make-up of a sample 

provided by an outside source of 5,327 

companies that have held meetings 

between January 1, 2008 and April 15, 

2009.129 In this sample, roughly 26% of 

the firms are classified as large 

accelerated filers, 35% are classified as 

accelerated filers, and 38% are 

classified as non-accelerated filers. The 

second sample is derived from CDA 

Spectrum and is based on filings of 

Forms 13F in the third quarter of 

2008.130 In this sample, roughly 26% of 

the firms are classified as large 

accelerated filers, 33% are classified as 

accelerated filers, and 40% are 

classified as non-accelerated filers.131

29036 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

the voting and non-voting common equity held by 

its non-affiliates of $700 million or more, and an 

accelerated filer must have an aggregate worldwide 

market value of the voting and non-voting common 

equity held by its non-affiliates of $75 million or 

more but less than $700 million. Filers that do not 

meet the criteria for accelerated or large accelerated 

filer status are classified as non-accelerated filers. 

132The staff did not have information regarding 

the beneficial ownership for the 3.5% threshold. 

133 In the case of a registered investment 

company, in determining the securities that are 

entitled to be voted on the election of directors for 

purposes of establishing whether the applicable 

threshold has been met, the nominating shareholder 

or group may rely on information set forth in the 

following documents, unless the nominating 

shareholder or group knows or has reason to know 

that the information contained therein is inaccurate: 

(1) In the case of a series company, a Form 8–K that 

would be required to be filed in connection with 

the meeting where directors are to be elected (for 

a further discussion of Form 8–K filing 

requirements for registered investment companies, 

see footnote 138, below, and accompanying text); or 

(2) in the case of other registered investment 

companies, the company’s most recent annual or 

semi-annual report filed with the Commission on 

Form N–CSR. See Instruction 1 to proposed Rule 

14a–11(b). 

134See Instruction 2 to proposed Rule 14a–11(b). 

For registered investment companies that are 

organized in series form, we are proposing that the 

net assets thresholds apply to the company as a 

whole, and not on a series by series basis, because 

directors are elected for the company by the 

shareholders of all series rather than separately for 

each series of the company. See Investment 

Company Act Rule 18f–2(g) [17 CFR 270.18f–2(g)]. 

135See footnote 131, above. 

136See Instructions 2 and 3 to proposed Rule 

14a–11(b). 

137See Rule 12b–2. 

In the first sample, nearly all (above 

99%) of large accelerated filers have at 

least one shareholder that could meet 

the 1% threshold individually, while a 

somewhat greater number of large 

accelerated filers (also above 99%) have 

two or more shareholders that each have 

held at least 0.5% of the shares 

outstanding for the appropriate period 

and, thus, could more easily aggregate 

their securities in order to meet the 1% 

ownership requirement. In the CDA 

sample, 98% of large accelerated filers 

have at least one shareholder that could 

meet the 1% threshold individually, 

while 99% of large accelerated filers 

have two or more shareholders that each 

have held at least 0.5% of the shares 

outstanding for the appropriate period. 

By contrast, based on the first sample, 

using an ownership threshold of 3% 

would reduce the number of large 

accelerated filers where a single 

shareholder could make a nomination to 

77% of large accelerated filers and 

reduce the number of large accelerated 

filers that have two or more 

shareholders that have held at least 

1.5% of the shares for the appropriate 

period to 89%. Using the CDA sample 

these numbers would drop to 96% and 

97% respectively. 

With regard to accelerated filers, 

roughly 85% of filers have at least one 

shareholder that could meet the 3% 

threshold individually, while roughly 

92% of accelerated filers have two or 

more shareholders that each have held 

at least 1.5% of the shares outstanding 

for the appropriate period and, thus, 

could more easily aggregate their 

securities in order to meet the 3% 

ownership requirement. In the CDA 

sample, 91% of accelerated filers have 

at least one shareholder that could meet 

the 3% threshold individually, while 

93% of accelerated filers have two or 

more shareholders that each have held 

at least 1.5% of the shares outstanding 

for the appropriate period. By contrast, 

based on the first sample, using an 

ownership threshold of 5% would 

reduce the number of accelerated filers 

where a single shareholder could make 

a nomination to 58% of accelerated 

filers. Further, 78% of accelerated filers 

have two or more shareholders that have 

held at least 2.5% of the shares for the 

appropriate period. Using the CDA 

sample these numbers would drop to 

66% and 88% respectively. 

With regard to non-accelerated filers, 

roughly 59% of filers in the first sample 

have at least one shareholder that could 

meet the 5% threshold individually, 

while roughly 71% of non-accelerated 

filers have two or more shareholders 

that each have held at least 2.5% of the 

shares outstanding for the appropriate 

period and, thus, could more easily 

aggregate their securities in order to 

meet the 5% ownership requirement. In 

the CDA sample, 41% of nonaccelerated filers have at least one 

shareholder that could meet the 5% 

threshold individually, while 49% of 

non-accelerated filers have two or more 

shareholders that each have held at least 

2.5% of the shares outstanding for the 

appropriate period. By contrast, based 

on the first sample, using an ownership 

threshold of 7% would reduce the 

number of non-accelerated filers where 

a single shareholder could make a 

nomination to 41% of non-accelerated 

filers. Further, only 43% of nonaccelerated filers have two or more 

shareholders that have held at least 4% 

and 62% have two or more shareholders 

that have held at least 3% of the shares 

for the appropriate period.132 Using the 

CDA sample these numbers would drop 

to 33%, 37% and 45% respectively. 

With regard to registered investment 

companies, we are proposing tiered 

thresholds based on the net assets of the 

companies.133 Consistent with our 

approach to reporting companies (other 

than registered investment companies), 

the tiered beneficial ownership 

thresholds that we are proposing 

represent an effort to balance the 

various competing views and address 

the possibility that certain registered 

investment companies could be 

impacted disproportionately based on 

their size. Because registered investment 

companies are not classified as large 

accelerated filers, accelerated filers, and 

non-accelerated filers, we propose to 

base the tiers on the net assets of the 

companies.134 In particular, we are 

proposing tiers for registered investment 

companies that are based on the 

worldwide market value levels used by 

reporting companies (other than 

registered investment companies) to 

determine filing status.135 Under the 

proposal, the amount of net assets of a 

registered investment company for these 

purposes would be the amount of net 

assets of the company as of the end of 

the company’s second fiscal quarter in 

the fiscal year immediately preceding 

the fiscal year of the meeting, as 

disclosed in the company’s Form N– 

CSR filed with the Commission, except 

that, for a series investment company 

the amount of net assets would be the 

company’s net assets as of June 30 of the 

calendar year immediately preceding 

the calendar year of the meeting, as 

disclosed in a Form 8–K filed in 

connection with the meeting where 

directors are to be elected.136

The requirement that the net asset 

determination for investment companies 

other than series investment companies 

be made as of the end of the company’s 

second fiscal quarter in the fiscal year 

immediately preceding the fiscal year of 

the meeting is similar to the 

requirements for reporting companies 

(other than registered investment 

companies), which determine large 

accelerated filer, accelerated filer, and 

non-accelerated filer status as of the end 

of the fiscal year, using the market value 

of the issuer’s common equity as of the 

last business day of the immediately 

preceding second fiscal quarter.137

However, we have chosen a single date, 

June 30 of the calendar year 

immediately preceding the calendar 

year of the meeting, for series 

investment companies, due to the fact 

that different series of a series company 

may have different fiscal year and semiannual period ending dates. Moreover, 

although registered investment 

companies generally are not required to 

file Form 8–K, we are proposing to 

require a registered investment 

company that is a series company to file 

Form 8–K within four business days 

after the company determines the 

anticipated meeting date, disclosing the 

company’s net assets as of June 30 of the 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29037 

138See proposed General Instruction B.1 and 

proposed Item 5.07(b) of Form 8–K; proposed Rules 

13a–11(b)(3) and 15d–11(b)(3); and Instruction 3 to 

proposed Rule 14a–11(b). 

139See 2003 Summary of Comments; see also 

comment letters from AFL–CIO; Alliance Capital 

Management L.P. (December 15, 2003) (‘‘Alliance 

Capital’’); American Society of Corporate 

Secretaries (December 22, 2003) (‘‘ASCS’’); Henry 

A. McKinnell, Chairman, The Business Roundtable 

(December 22, 2003) (‘‘McKinnell, BRT’’); United 

States Chamber of Commerce (December 19, 2003) 

(‘‘Chamber’’); Carl T. Hagberg (December 22, 2003); 

Committee on Securities Regulation, New York 

State Bar Association (December 22, 2003) (‘‘NYS 

Bar’’); State Teachers Retirement System of Ohio 

(December 18, 2003) (‘‘STRS Ohio’’); Sullivan & 

Cromwell LLP (December 22, 2003) (‘‘Sullivan’’); T. 

Rowe Price Associates, Inc. (December 24, 2003) 

(‘‘T. Rowe’’); Valero; and Wachtell. 

140See 2003 Summary of Comments; see also 

comment letters from CalPERS; CIR; Gary K. 

Duberstein (December 22, 2003) (‘‘Duberstein’’); 

Gary Tannahill (December 6, 2003) (‘‘Tannahill’’); 

and Wolf Haldenstein Adler Freeman & Herz LLP 

(December 19, 2003) (‘‘Wolf Haldenstein’’). 

141See 2003 Summary of Comments; see also 

letters from Compass Bancshares, Inc. (December 

22, 2003) (‘‘Compass’’); and W. Paul Fitzgerald, 

Director, EMC Corporation (December 19, 2003), 

Gail Deegan, Director, EMC Corporation (December 

22, 2003), and Alfred Zeien, Director, EMC 

Corporation (December 22, 2003) (collectively, 

‘‘EMC Corporation’’). 

142See 2003 Summary of Comments; see also 

comment letters from CalPERS; CIR; Duberstein; 

Tannahill; and Wolf Haldenstein. 

143See 2003 Summary of Comments; see also 

comment letters from America’s Community 

Bankers (December 18, 2003) (‘‘ACB’’); Alliance 

Capital; ASCS; Blackwell Sanders Peper Martin LLP 

(December 22, 2003) (‘‘Blackwell Sanders’’); 

McKinnell, BRT; CalPERS; Chamber; CIR; Compass; 

FedEx Corporation (December 19, 2003) (‘‘FedEx’’); 

Intel Corporation (December 22, 2003) (‘‘Intel’’); 

International Paper Company (December 22, 2003) 

(‘‘International Paper’’); Peter O. Clauss and J. Peter 

Wolf of Pepper Hamilton, LLP (December 16, 2003) 

(‘‘Clauss & Wolf’’); Sullivan; Tannahill; Valero; 

Wachtell; and Wells Fargo & Company (December 

19, 2003) (‘‘Wells Fargo’’). 

144See 2003 Summary of Comments; see also 

comment letters from ACB; McKinnell, BRT; 

Chamber; Compass; FedEx; Intel; International 

Paper; Clauss & Wolf; Sullivan; Valero; Wachtell; 

and Wells Fargo. 

145See proposed Rule 14a–18(f) and proposed 

Item 5(b) of Schedule 14N. 

146See Section III.B.6. for a discussion of 

Schedule 14N and the disclosure required to be 

filed. 

147This date would be calculated by determining 

the release date disclosed in the previous year’s 

proxy statement, increasing the year by one, and 

counting back 120 calendar days. 

148See proposed Instruction 2 to paragraph (a) of 

Rule 14a–11 and proposed General Instruction B.1. 

Continued 

calendar year immediately preceding 

the calendar year of the meeting and the 

total number of the company’s shares 

that are entitled to vote for the election 

of directors (or if votes are to be cast on 

a basis other than one vote per share, 

then the total number of votes entitled 

to be voted and the basis for allocating 

such votes) at the annual meeting of 

shareholders (or, in lieu of such an 

annual meeting, a special meeting of 

shareholders) as of the end of the most 

recent calendar quarter.138 Registered 

investment companies, including series 

investment companies, currently 

disclose net asset and outstanding share 

information in their annual and semiannual reports filed on Form N–CSR, 

but we believe that the additional Form 

8–K filing is necessary for series 

companies because a series company 

may file multiple Form N–CSRs with 

respect to different series covering 

different fiscal year and semi-annual 

period ending dates and is required to 

disclose net asset and outstanding share 

information on a series by series basis, 

rather than for the company as a whole. 

The purpose of the proposed rule 

would be to remove impediments the 

federal proxy rules create to 

shareholders’ exercise of their rights to 

nominate and elect members of boards 

of directors. At the same time, we 

recognize that there are competing 

concerns that also need to be taken into 

account, such as the potential cost and 

disruption to the company of a rule with 

no shareholder eligibility requirements. 

To balance those interests, we are 

proposing a rule that includes 

shareholder eligibility requirements. In 

particular, we are proposing eligibility 

requirements based on the duration of 

ownership and minimum ownership 

levels. 

With respect to duration of ownership 

eligibility criteria, we believe that longterm shareholders are more likely to 

have interests that are better aligned 

with other shareholders and are less 

likely to use the rule solely for shortterm gain. We are proposing a one year 

holding requirement for each 

nominating shareholder or member of a 

nominating group rather than the two 

year requirement proposed in 2003. The 

holding period generated less comment 

in 2003 than the ownership threshold, 

with the majority of commenters that 

addressed the topic supporting the 

proposed holding period.139 Some 

commenters, however, advocated either 

lowering the holding period to one 

year,140 or raising it (e.g., to 5 years).141

Some of these commenters suggested 

that the two year holding period was too 

onerous.142 After further consideration, 

we believe that a one year holding 

requirement would be sufficient to 

appropriately limit use of Rule 14a–11 

to long-term shareholders without 

placing an undue burden on 

shareholders seeking to use the rule. In 

addition, a one year requirement is 

consistent with the existing eligibility 

requirement for shareholders to submit 

proposals under Rule 14a–8. 

With regard to a minimum ownership 

level as a shareholder eligibility 

requirement, we believe it is important 

that any shareholder or group that 

intends to submit a nominee to a 

company for inclusion in the company’s 

proxy materials continue to have a 

significant economic interest in the 

company. Therefore, we have proposed 

the requirement that a nominating 

shareholder or group provide a 

statement as to the nominating 

shareholder’s or group’s intent to 

continue to hold the requisite amount of 

securities through the date of the 

meeting. Commenters in 2003 generally 

supported a holding requirement 

through the date of the meeting,143 with 

some suggesting an even longer holding 

period (e.g., through the term of the 

nominee’s service on the board, if 

elected).144 We continue to believe that 

a requirement to hold the securities 

through the date of the meeting is 

appropriate to demonstrate the 

nominating shareholder’s commitment 

to the director nominee and the election 

process; however, we also have 

proposed a disclosure requirement 

under which a nominating shareholder 

or group would state their intent with 

respect to continued ownership of their 

shares after the election.145

In addition, to rely on proposed Rule 

14a–11 to have disclosure about their 

nominee or nominees included in the 

company proxy materials, a nominating 

shareholder or group must: 

• Not acquire or hold the securities 

for the purpose of or with the effect of 

changing control of the company or to 

gain more than a limited number of 

seats on the board; 

• Provide and file with the 

Commission a notice to the company on 

proposed new Schedule 14N 146 of the 

nominating shareholder’s or group’s 

intent to require that the company 

include that nominating shareholder’s 

or group’s nominee in the company’s 

proxy materials by the date specified by 

the company’s advance notice provision 

or, where no such provision is in place, 

no later than 120 calendar days before 

the date that the company mailed its 

proxy materials for the prior year’s 

annual meeting,147 except that if the 

company did not hold an annual 

meeting during the prior year, or if the 

date of the meeting has changed by 

more than 30 days from the prior year, 

then the nominating shareholder or 

group must provide notice a reasonable 

time before the company mails its proxy 

materials, as specified by the company 

in a Form 8–K filed within four business 

days after the company determines the 

anticipated meeting date pursuant to 

proposed Item 5.07; 148 and 

29038 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

to Form 8–K. A late filing of such form would result 

in the registrant losing eligibility to file on Form S– 

3. 

149See proposed Exchange Act Rules 14a–18 and 

14n–1. See discussion in Section III.B.5. regarding 

proposed Rule 14a–11(d), which limits the number 

of nominees a company would be required to 

include in its proxy materials. 

• Include in the shareholder notice 

on Schedule 14N disclosure about the 

amount and percentage of securities 

owned by the nominating shareholder 

or group, length of ownership of such 

securities, and the nominating 

shareholder’s or group’s intent to 

continue to hold the securities through 

the date of the meeting as well as intent 

with respect to continued ownership 

after the election, a certification that the 

nominating shareholder or group is not 

seeking to change the control of the 

company or to gain more than a limited 

number of seats on the board of 

directors, and disclosure meeting the 

requirements of Rule 14a–18.149

Request for Comment 

C.1. Are the proposed shareholder 

eligibility criteria for Rule 14a–11 

necessary or appropriate? If not, why 

not? Should there be any restrictions 

regarding which shareholders can use 

proposed Rule 14a–11 to nominate 

directors for inclusion in company 

proxy materials? Should those 

restrictions be consistent with the 

requirements of Rule 14a–8 or should 

they be more extensive than the 

minimum requirements in Rule 14a–8? 

C.2. The proposed eligibility 

threshold is based on the percentage of 

securities owned and entitled to vote on 

the election of directors. This threshold 

is based on current Rule 14a–8 and 

reflects our intent to focus on those 

shareholders eligible to vote for 

directors. Is the proposed threshold 

appropriate or could it be better focused 

to accomplish our objective? For 

example, should eligibility instead be 

based on record ownership? Should 

eligibility be based on the value of 

shares owned? If so, on what date 

should the value be measured? What 

would be an appropriate value amount? 

Is there another standard or criteria? Is 

submission of the nomination the 

correct date on which to make these 

eligibility determinations? If not, what 

date should be used? 

C.3. For companies that have more 

than one class of securities entitled to 

vote on the election of directors, does 

the rule provide adequate guidance on 

how to determine whether a shareholder 

meets the requisite ownership 

thresholds? Should the rule specifically 

address how to make this determination 

if one class of securities has greater 

voting rights than another class? 

C.4. What other criteria or alternatives 

should the Commission consider to 

determine the eligibility standards for 

shareholders to nominate directors? 

C.5. Is it appropriate to use a tiered 

approach to the ownership threshold for 

reporting companies (other than 

registered investment companies)? If so, 

is it appropriate and workable to use 

large accelerated filer, accelerated filer, 

and non-accelerated filer to define the 

three tiers? Are there aspects of the 

definitions of these groups that do not 

work with the proposed rule? Should 

we instead define the tiers strictly by 

public float or strictly by market 

capitalization? If so, what should the 

public float or market capitalization 

thresholds be (e.g., 5% for companies 

with less than $75,000,000 in public 

float; 3% for companies with more than 

$75,000,000 but less than $700,000,000 

in public float; 1% for companies with 

greater than $700,000,000 in public 

float)? 

C.6. Is the 1% standard that we have 

proposed for large accelerated filers 

appropriate? Should the standard be 

lower (e.g., $2,000 or 0.5%) or higher 

(e.g., 2%, 3%, 4%, 5%, 6%, 7%, 8%, 

9%, 10%, 15%, 20%, or 25%)? Is the 

3% standard that we have proposed for 

accelerated filers appropriate? Should 

the standard be lower (e.g., 1% or 2%) 

or higher (e.g., 4%, 5%, 6%, 7%, 8%, 

9%, 10%, 15%, 20%, or 25%)? Is the 

5% standard that we have proposed for 

non-accelerated filers appropriate? 

Should the standard be lower (e.g., 1%, 

2%, 3%, or 4%) or higher (e.g., 6%, 7%, 

8%, 9%, 10%, 15%, 20%, or 25%)? 

C.7. Should groups of shareholders 

composed of a large number of 

beneficial holders, but who collectively 

own a percentage of shares below the 

proposed thresholds, be permitted to 

have a nominee included in the 

company proxy materials? If so, what 

would be a sufficiently large group? 

Would a group composed of over 1%, 

3%, 5% or 10% of the number of 

beneficial holders be sufficient? Should 

there be different disclosure 

requirements for a large shareholder 

group? 

C.8. Is it appropriate to use a tiered 

approach to the ownership threshold for 

registered investment companies? 

Should the tiers and ownership 

percentages for registered investment 

companies be similar to those for 

reporting companies other than 

registered investment companies, as 

proposed, or should they be different? Is 

it appropriate and workable to base the 

tiers on a registered investment 

company’s net assets? Should another 

measure be used instead? Should the 

determination of which tier a series 

investment company belongs to be made 

on a series by series basis, rather than 

for the company as a whole? Should the 

levels of net assets for each category be 

higher or lower? If so, why? 

C.9. Should the determination of 

which tier a series investment company 

is in be based on the company’s net 

assets as of June 30 of the calendar year 

immediately preceding the calendar 

year of the meeting, as disclosed in a 

Form 8–K filed in connection with the 

meeting at which directors are to be 

elected? Should the determination of 

which tier other registered investment 

companies are in be based on the net 

assets of the company as of the end of 

the company’s second fiscal quarter in 

the fiscal year immediately preceding 

the fiscal year of the meeting, as 

disclosed in the company’s Form N– 

CSR? If not, as of what date should net 

assets be determined for these purposes? 

Should all registered investment 

companies use a single date for 

purposes of making this determination? 

C.10. Should a registered investment 

company that is a series company be 

required to file a Form 8–K disclosing 

the company’s net assets as of June 30 

of the calendar year immediately 

preceding the calendar year of the 

meeting and the total number of shares 

of the company that are entitled to vote 

for the election of directors (or if votes 

are to be cast on a basis other than one 

vote per share, then the total number of 

votes entitled to be voted and the basis 

for allocating such votes) at the annual 

meeting of shareholders (or, in lieu of 

such an annual meeting, a special 

meeting of shareholders) as of the end 

of the most recent calendar quarter? If 

not, how should shareholders of a series 

company determine whether they meet 

the applicable ownership threshold? 

C.11. Is the 1% standard that we have 

proposed for registered investment 

companies with net assets of $700 

million or more appropriate? Should the 

standard be lower (e.g., $2,000 or 0.5%) 

or higher (e.g., 2%, 3%, 4%, 5%, 6%, 

7%, 8%, 9%, 10%, 15%, 20%, or 25%)? 

Is the 3% standard that we have 

proposed for registered investment 

companies with net assets of $75 

million or more, but less than $700 

million, appropriate? Should the 

standard be lower (e.g., 1% or 2%) or 

higher (e.g., 4%, 5%, 6%, 7%, 8%, 9%, 

10%, 15%, 20%, or 25%)? Is the 5% 

standard that we have proposed for 

registered investment companies with 

net assets of less than $75 million 

appropriate? Should the standard be 

lower (e.g., 1%, 2%, 3%, or 4%) or 

higher (e.g., 6%, 7%, 8%, 9%, 10%, 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29039 

150Business development companies are a 

category of closed-end investment companies that 

are not registered under the Investment Company 

Act, but are subject to certain provisions of that Act. 

See Sections 2(a)(48) and 54–65 of the Investment 

Company Act [15 U.S.C. 80a–2(a)(48) and 80a–53– 

64]. 

151See 2003 Summary of Comments; see also 

comment letters from CalPERS, CII, and CIR 

(objecting to resubmission standards); and comment 

letters from ASCS, Blackwell Sanders, Investment 

Company Institute (December 22, 2003) (‘‘ICI’’), The 

New York City Bar Association (December 22, 2003) 

(‘‘NYC Bar’’), and Wells Fargo (expressing support 

for a resubmission standard). 

15%, 20%, or 25%)? Should the 

determination of whether a shareholder 

or shareholder group beneficially owns 

a sufficient percentage of a series 

company’s securities to nominate a 

director be made on a series by series 

basis, rather than for the company as a 

whole (i.e., should a shareholder be 

permitted to take advantage of the 

nomination process contained in 

proposed Rule 14a–11 if he or she owns 

the applicable percentage of shares of a 

series of the company, but does not own 

the applicable percentage of the 

company as a whole)? Should closedend investment companies be subject to 

the same standards as open-end 

investment companies? As proposed, 

business development companies would 

be treated in the same manner as 

reporting companies (other than 

registered investment companies).150

Should business development 

companies be subject to the same tiered 

approach as reporting companies (other 

than registered investment companies)? 

Why or why not? 

C.12. In determining the securities 

that are entitled to be voted on the 

election of directors of a registered 

investment company for purposes of 

establishing whether the applicable 

threshold has been met, should the 

nominating shareholder or group be 

permitted to rely on information set 

forth in a Form 8–K filed in connection 

with the meeting where directors are to 

be elected (in the case of a series 

company) or the company’s most recent 

annual or semi-annual report filed with 

the Commission on Form N–CSR (in the 

case of other investment companies), 

unless the nominating shareholder or 

group knows or has reason to know that 

the information contained therein is 

inaccurate? 

C.13. Voting rights for some registered 

investment companies are based on the 

net asset value of the shareholder’s 

securities rather than the number of 

securities. Does the rule provide 

adequate guidance on how to determine 

whether a shareholder meets the 

requisite ownership threshold in such a 

case? Should the rule specifically 

address how to make the ownership 

threshold determination in cases where 

different securities of the same 

investment company have different 

voting rights on a per share basis? 

C.14. Should there be a restriction on 

shareholder eligibility that is based on 

the length of time securities have been 

held? If so, is one year the proper 

standard? Should the standard be longer 

(e.g., two years, three years, four years, 

or five years)? Should the standard be 

shorter (e.g., six months)? Should the 

standard be measured by a different date 

(e.g., one year as of the date of the 

meeting, rather than the date of the 

notice)? 

C.15. Should eligibility be 

conditioned on meeting the required 

ownership threshold by holding a net 

long position for the required time 

period? If the Commission were to adopt 

such a requirement, would this require 

other modifications to the proposal? 

C.16. As proposed, a nominating 

shareholder would be required to 

represent its intent to hold the securities 

until the date of the election of 

directors. Is it appropriate to include 

such a requirement? What should be the 

remedy if the nominating shareholder or 

group represents its intent to hold the 

securities through the date of the 

meeting for the election of directors and 

fails to do so? Should the company be 

permitted to exclude any nominations 

from that nominating shareholder or 

member of a group for some period of 

time afterward (e.g., one year, two years, 

three years)? If the nominating 

shareholder or group fails to hold the 

securities through the date of the 

meeting, what, if anything, should the 

effect be on the election? Should the 

nominee submitted by the shareholder 

or group be disqualified? 

C.17. We are proposing that a 

nominating shareholder represent an 

intent to hold through the date of the 

meeting because we believe it is 

important that the nominating 

shareholder or group have a significant 

economic interest in the company. Is it 

appropriate to require the shareholder to 

provide a statement regarding its intent 

with regard to continued ownership of 

the securities beyond the election of 

directors? Should a nominating 

shareholder be required to represent 

that it will hold the securities beyond 

the election if the nominating 

shareholder’s nominee is elected (e.g., 

for six months after the election, one 

year after the election, or two years after 

the election)? Would the answer be 

different if the nominating shareholder’s 

nominee is not elected? 

C.18. In the 2003 Proposal the 

Commission solicited comment on 

whether the rule should include a 

provision that would deny eligibility for 

any nominating shareholder or group 

that has had a nominee included in the 

company materials where that nominee 

did not receive a sufficient percentage of 

the votes. Commenters were mixed in 

their responses 151 so we have not 

proposed a requirement in this regard, 

but are again requesting comment as to 

whether the rule should include a 

provision denying eligibility for any 

nominating shareholder or group who 

has had a nominee included in the 

company materials where that nominee 

did not receive a sufficient percentage of 

the votes (e.g., 5%, 10%, 15%, 25%, or 

35%) within a specified period of time 

in the past (e.g., one year, two years, 

three years, four years, five years). If 

there should be such an eligibility 

standard, how long should the 

prohibition last (e.g., one year, two 

years, three years)? Similarly, we are 

again requesting comment (see also 

Request for Comment D.16.) as to 

whether the rule should include a 

provision that would deny eligibility for 

any nominee that has been included in 

the company proxy materials within a 

specified period of time in the past (e.g., 

one year, two years, three year, four 

years, five years) where that nominee 

did not receive at least a specified 

percentage of the votes (e.g., 5%, 10%, 

15%, 25%, or 35%). How long should 

any such prohibition last (e.g., one year, 

two years, three years)? 

C.19. As proposed, shareholders may 

aggregate their holdings in order to meet 

the ownership eligibility requirement. 

The shares held by each member of a 

group that are used to satisfy the 

ownership threshold must meet the 

minimum holding period. Should 

shareholders be allowed to aggregate 

their holdings in order to meet the 

ownership eligibility requirement to 

nominate directors? 

C.20. If shareholders should be able to 

aggregate their holdings, is it 

appropriate to require that all members 

of a nominating shareholder group 

whose shares are used to satisfy the 

ownership threshold to meet the 

minimum holding period individually? 

If aggregation is not appropriate, what 

ownership threshold would be 

appropriate for an individual 

shareholder? 

C.21. If a nominating shareholder sells 

any shares of the company that are in 

excess of the amount needed to satisfy 

the ownership threshold, should that 

shareholder not be eligible under the 

rule? Would it matter when the 

nominating shareholder sold the shares 

in relation to the nomination process? 

29040 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

152Rule 14a–11, as proposed, would permit a 

company to exclude a shareholder nominee from its 

proxy materials if the nominee’s candidacy or, if 

elected, board membership would violate 

controlling state or federal law. If a company’s 

governing documents permit the inclusion of 

shareholder nominees in the company’s proxy 

materials but impose more restrictive eligibility 

standards or mandate more extensive disclosures 

than those required by Rule 14a–11, the company 

could not exclude a nominee submitted by a 

shareholder in compliance with Rule 14a–11 on the 

grounds that the shareholder or the nominee fails 

to meet the more restrictive standards included in 

the company’s governing documents. In other 

words, companies may not opt out of Rule 14a–11 

by adopting alternate requirements for inclusion of 

shareholder nominees for director in the company’s 

proxy materials. 

153For example, in response to our 2003 

Proposal, one commenter noted that without such 

a requirement, a shareholder could nominate and 

have elected a director who was employed by a 

company’s competitor thereby ‘‘potentially causing 

the company to violate Section 8 of the Clayton Act 

of 1914.’’ See 2003 Summary of Comments; see also 

comment letter from McKinnell, BRT. 

154This requirement is set forth in proposed 

Exchange Act Rule 14a–11(a)(2). Pursuant to 

proposed Exchange Act Rule 14a–18(a), the notice 

to the company by the nominating shareholder or 

group would be required to include a representation 

that, to the knowledge of the nominating 

shareholder or group, the nominee’s candidacy or, 

if elected, board membership would not violate any 

of the specified provisions. 

155Compliance with these existing independence 

standards would be established through the 

inclusion in the notice to the company by the 

nominating shareholder or group of a representation 

that the nominee satisfies the existing standard. 

This representation is required in proposed 

Exchange Act Rule 14a–18(c). In the case of a 

registered investment company or a business 

development company, a nominating shareholder 

or group would be required to represent that its 

nominee is not an ‘‘interested person’’ of the 

company as defined in Section 2(a)(19) of the 

Investment Company Act. [15 U.S.C. 80a–2(a)(19)]. 

156See proposed Rule 14a–18(c) and the 

Instruction to paragraph (c). For example, the NYSE 

listing standards include both subjective and 

objective components in defining an ‘‘independent 

director.’’ As an example of a subjective 

determination, Section 303A.02(a) of the NYSE 

Listed Company Manual provides that no director 

will qualify as ‘‘independent’’ unless the board of 

directors ‘‘affirmatively determines that the director 

has no material relationship with the listed 

company (either directly or as a partner, 

shareholder or officer of an organization that has a 

relationship with the company).’’ Section 

303A.02(b) of the NYSE Listed Company Manual 

provides that a director is not independent if the 

director has any of several specified relationships 

with the company. On the other hand, Section 

303A.02(b) provides that a director is not 

independent if he or she has any of several 

specified relationships with the company that can 

be determined by a ‘‘bright-line’’ objective test. For 

example, a director is not independent if ‘‘the 

director has received, or has an immediate family 

member who has received, during any twelvemonth period within the last three years, more than 

$120,000 in direct compensation from the listed 

company, other than director and committee fees 

and pension or other forms of deferred 

compensation for prior service (provided such 

compensation is not contingent in any way on 

continued service).’’ 157See Instruction to proposed Rule 14a–18(c). 158See proposed Rule 14n–101. 159See proposed Rule 14a–18(a). We note that our 

proposal addresses only the requirements under 

Rule 14a-11 to be included in a company’s proxy 

materials—the proposal would not preclude a 

nominee from ultimately being subject to the 

subjective determination test of independence for 

board committee positions. A company could 

include disclosure in its proxy materials advising 

shareholders that the shareholder nominee for 

director would not meet the company’s subjective 

criteria, as appropriate. 

C.22. Would shareholder groups 

effectively be able to form to satisfy the 

ownership thresholds? If not, what 

impediments exist? What, if anything, 

would be appropriate to lessen or 

eliminate such impediments? 

C.23. What would be an appropriate 

method of establishing the beneficial 

ownership level of a nominating 

shareholder or group? What would be 

sufficient evidence of ownership? For 

example, if the nominating shareholder 

is not the registered holder of the 

securities, should the nominating 

shareholder be required to provide a 

written statement from the ‘‘record’’ 

holder of the securities (usually a broker 

or bank), verifying that at the time the 

nominating shareholder submitted its 

notice to the company, the nominating 

shareholder continuously held the 

securities for at least one year? 

C.24. Should the Commission limit 

use of the rule, as proposed, to 

shareholders that are not seeking to 

change the control of the company or to 

gain more than a limited number of 

seats on the board of directors? Why or 

why not? Would it be appropriate to 

require the shareholder to represent that 

it will not seek to change the control of 

a company or to gain more than a 

limited number of seats on the board for 

a period of time beyond the election of 

directors? How should the rules address 

the possibility that a nominating 

shareholder’s or group’s intent may 

change over time? 

4. Shareholder Nominee Requirements 

a. The Nomination Must Be Consistent 

With Applicable Law and Regulation 

A company would not be required to 

include a shareholder nominee in its 

proxy materials if the nominee’s 

candidacy or, if elected, board 

membership would violate controlling 

state law,152 federal law,153 or rules of 

a national securities exchange or 

national securities association (other 

than rules of a national securities 

exchange or national securities 

association that set forth requirements 

regarding the independence of 

directors), and such violation could not 

be cured.154 Because compliance with 

independence standards can depend on 

the overall make-up of a board, we have 

excluded independence standards from 

this requirement and have, instead, 

proposed a separate provision 

addressing independence standards. 

The nominating shareholder or group 

would be required to make a 

representation that the shareholder 

nominee is in compliance with the 

generally applicable independence 

requirements of a national securities 

exchange or national securities 

association that sets forth objective 

standards.155 The representation would 

not be required in instances where a 

company is not subject to the 

requirements of a national securities 

exchange or a national securities 

association. We recognize that exchange 

rules regarding director independence 

generally include some standards that 

depend on an objective determination of 

facts and other standards that depend 

on subjective determinations.156 As 

proposed, however, to comply with 

Rule 14a–11 the nominating shareholder 

or group would only be required to 

represent that the nominee meets the 

objective criteria for ‘‘independence’’ in 

any generally applicable national 

securities exchange or national 

securities association rules.157 For this 

purpose, the nominee would be 

required to meet the definition of 

‘‘independent’’ that is applicable to 

directors of the company generally and 

not any particular definition of 

independence applicable to members of 

the audit committee of the company’s 

board of directors. To the extent a rule 

imposes a standard regarding 

independence that requires a subjective 

determination by the board or a group 

or committee of the board (for example, 

requiring that the board of directors or 

any group or committee of the board of 

directors make a determination that the 

nominee has no material relationship 

with the listed company), this element 

of an independence standard would not 

have to be satisfied. 

Specifically, as proposed, each 

nominating shareholder or each member 

of the nominating shareholder group 

would be required to represent in its 

notice to the company on Schedule 

14N 158 that, to the knowledge of the 

nominating shareholder or group, the 

nominee, in the case of a registrant other 

than an investment company, satisfies 

the standards of a national securities 

exchange or national securities 

association regarding director 

independence that apply to the 

company, if any, except that, where a 

rule imposes a standard regarding 

independence that requires a subjective 

determination by the board or a group 

or committee of the board, this element 

of an independence standard would not 

have to be satisfied.159 Where a 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29041 

160 15 U.S.C. 80a–2(a)(19). 

161See proposed Rule 14a–18(c). 

162See 2003 Summary of Comments; see also 

comment letters from ABA; Agilent Technologies, 

Inc. (December 19, 2003) (‘‘Agilent’’); McKinnell, 

BRT; Chamber; Richard Hall (December 22, 2003) 

(‘‘Hall’’); ICI; Intel; NYC Bar; Software & 

Information Industry Association (December 22, 

2003) (‘‘SIIA’’); Sullivan; Valero; and Wells Fargo. 

163This representation would be required in the 

nominating shareholder’s notice to the company on 

Schedule 14N, pursuant to proposed Exchange Act 

Rule 14a–18(d). Instruction 2 to proposed Exchange 

Act Rule 14a–11(d) clarifies that if a nominee, 

nominating shareholder or any member of a 

nominating group has an agreement with the 

company or an affiliate of the company regarding 

the nomination of a candidate for election, any 

nominee or nominees from such shareholder or 

group shall not be counted in calculating the 

number of shareholder nominees for purposes of 

proposed Rule 14a–11(d). 

164See proposed Rule 14a–18(d). 

165The nominating shareholder and each member 

of the nominating shareholder group would be 

subject to liability pursuant to a proposed 

amendment to Rule 14a–9 with respect to the 

representation and disclosure included in the 

company’s proxy materials. 

166See 2003 Summary of Comments; see also 

comment letters from McKinnell, BRT; CalPERS; 

CII; CIR; and Wells Fargo. 

167See 2003 Summary of Comments; see also 

comment letters from McKinnell, BRT and Wells 

Fargo. 

168See proposed Instruction 1 to Rule 14a–18(d). 

169See, e.g., comment letter on 2007 Proposals 

from Mulcahy, BRT. 

170See comment letters on 2007 Proposals from 

Keith F. Higgins, Committee Chair, American Bar 

Association, Section of Business Law (October 2, 

2007) (‘‘ABA 2007’’); and Mulcahy, BRT. See also 

2003 Summary of Comments and comment letters 

from ABA; ASCS; McKinnell, BRT; Blackwell 

Sanders; Sullivan; and Valero. 

171See 2003 Summary of Comments; see also 

comment letters from BellTel Retirees Inc. (January 

12, 2004); AFL–CIO; Association for Investment 

Management and Research (December 22, 2003); 

Association of US West Retirees (January 13, 2004); 

CalPERS; CalSTRS; CII; CIR; Corporate Library; 

Domini Social Investments LLC (December 22, 

2003); Duberstein; State Board of Administration of 

Florida (December 19, 2003); Mark S. Gardiner 

(December 22, 2003); Hermes Pensions Management 

Limited (December 22, 2003); Alan G. Hevesi, 

Comptroller, State of New York (December 19, 

2003) (‘‘Hevesi’’); Institutional Shareholder Services 

(December 18, 2003); Lawndale Capital 

Management, LLC (December 22, 2003) 

(‘‘Lawndale’’); LongView; LSV Asset Management 

(December 22, 2003); James McRitchie, Editor, 

Corporate Governance (November 16, 2003, 

December 22, 2003, and March 29, 2004) 

(‘‘McRitchie 2003’’); State Retirement and Pension 

System of Maryland (December 16, 2003); STRS 

Ohio; Ohio Public Employees Retirement System 

(December 22, 2003); Relational Investors LLC 

Continued 

company is not subject to the standards 

of a national securities exchange or 

national securities association, the 

representation would not be required. 

The proposals would require any 

nominating shareholder or group of 

shareholders of a registered investment 

company or a business development 

company to represent that its nominee 

to the board of the company is not an 

‘‘interested person’’ of the company as 

defined in Section 2(a)(19) of the 

Investment Company Act,160 rather than 

representing that the nominee satisfies 

the generally applicable objective 

standards of a national securities 

exchange or national securities 

association regarding director 

independence.161 We are proposing to 

incorporate the Section 2(a)(19) test 

rather than the test applied to other 

companies because the Section 2(a)(19) 

test is tailored to capture the broad 

range of affiliations with investment 

advisers, principal underwriters, and 

others that are relevant to 

‘‘independence’’ in the case of 

investment companies. 

Some commenters on the 2003 

Proposal stated that nominating 

committees should be able to apply 

their own director qualifications criteria 

to shareholder nominees; 162 however, a 

nominee required to be included by the 

company pursuant to Exchange Act 

Rule 14a–11 would be, notwithstanding 

the conditions in the proposal, the 

nominating shareholder’s or group’s 

nominee, not the company’s nominee. 

Therefore, we do not believe it is 

appropriate that shareholder nominees 

be required to meet the nominating 

committee’s or board’s criteria. 

b. Relationships Between the Nominee, 

the Nominating Shareholder or Group, 

and the Company 

We recognize that a shareholder 

nomination process presents the 

potential risk of nominating 

shareholders or groups acting merely as 

a surrogate for the company or its 

management in order to block usage of 

the rule by another nominating 

shareholder or group. To balance the 

benefits of the new rule against these 

concerns, we propose that the 

nominating shareholder or group be 

required to represent that no 

relationships or agreements between the 

nominee and the company and its 

management, and between the 

nominating shareholder or group and 

the company and its management 

exist.163 Specifically, as proposed, each 

nominating shareholder or each member 

of the nominating shareholder group 

would be required to represent in its 

notice to the company on Schedule 14N 

that neither the nominee nor the 

nominating shareholder (or any member 

of the nominating shareholder group, if 

applicable) has an agreement with the 

company regarding the nomination of 

the nominee.164 This representation, 

along with the required disclosure, 

would provide some assurance to 

shareholders that certain shareholders 

or groups are not receiving special 

treatment by the company or acting on 

the company’s behalf.165 This proposed 

requirement also was included in the 

2003 proposal. Commenters generally 

supported the proposed requirement,166

though some suggested that the 

Commission provide an exception for 

negotiations and other communications 

between the nominating shareholder or 

group and the company regarding 

potential nominees.167 Accordingly, we 

have proposed a clarifying instruction to 

proposed Rule 14a–18(d), which states 

that negotiations with the nominating 

committee of the company to have the 

nominee included on the company’s 

proxy card as a management nominee, 

where those negotiations are 

unsuccessful, or negotiations that are 

limited to whether the company is 

required to include the shareholder 

nominee for director on the company’s 

proxy card in accordance with Rule 

14a–11, would not be considered a 

direct or indirect agreement with the 

company for purposes of the rule.168

The Commission also recognizes that 

some commenters feel that inclusion of 

shareholder nominees for director in 

company proxy materials could have a 

disruptive effect on board dynamics and 

board operation.169 For example, we 

have heard from some commenters 

concerns about the possibility of 

‘‘special interest’’ or ‘‘single issue’’ 

directors that would advance the 

interests of the nominating shareholder 

over the interests of shareholders as a 

group.170 In response to this concern, in 

2003, the Commission proposed a 

limitation on relationships between a 

nominating shareholder or group and 

the director nominee that is included in 

company proxy materials. For example, 

where the nominating shareholder or 

members of the nominating shareholder 

group were natural persons, the 

nominating shareholder or group would 

not have been able to nominate 

themselves or any member of the 

nominating shareholder group, or any 

member of the immediate family of the 

nominating shareholder or any member 

of the group. In addition, a nominating 

shareholder would not have been able to 

nominate an individual who had been 

employed by, or whose immediate 

family member had been employed by, 

the nominating shareholder or any 

member of the nominating shareholder 

group, or who had accepted consulting, 

advisory, or other compensatory fees 

from the nominating shareholder or any 

member of the nominating shareholder 

group. A number of commenters 

expressed concern about these 

requirements,171 and questioned the 

29042 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

(December 21, 2003) (‘‘Relational’’); Kurt Schacht, 

J.D., CFA, Wyser-Pratte & Co. (November 13, 2003); 

San Diego City Employees’ Retirement System 

(December 17, 2003); Social Investment Forum Ltd. 

(December 22, 2003); and Tannahill. 

172See 2003 Summary of Comments; see also 

comment letters from CalPERS; CII; Hevesi; 

Lawndale; and Relational. 

173See id. 

174See 2003 Summary of Comments; see also 

comment letters from CalPERS; CII; Lawndale; 

McRitchie 2003; and Relational. 

175See 2003 Summary of Comments; see also 

comment letter from Richard Moore, North Carolina 

Treasurer; Sean Harrigan, President, CalPERS; and 

Alan G. Hevesi, New York State Comptroller, on 

behalf of National Coalition for Corporate Reform 

(December 18, 2003) (‘‘NCCR’’). 

176See 2003 Summary of Comments; see also 

comment letters from ABA; ASCS; Blackwell 

Sanders; Hall; and Sullivan. 

177See 2003 Summary of Comments; see also 

comment letters from CalPERS and NCCR. 

178 15 U.S.C. 77a et seq. 179This safe harbor is set forth in Instruction 1 

to proposed Rule 14a–11(a). The safe harbor is 

intended to operate such that the determination of 

whether a shareholder or group is an ‘‘affiliate’’ of 

the company would continue to be made based 

upon all of the facts and circumstances regarding 

the relationship of the shareholder or group to the 

company, but a shareholder or group will not be 

deemed an affiliate ‘‘solely’’ by virtue of having 

nominated that director. 

180See Instruction 1 to proposed Rule 14a–11(a). 

fairness and wisdom of the 

limitations.172 These commenters did 

not believe that it was fair to subject 

shareholder nominees for director to a 

different standard than board 

nominees 173 and felt that the 

requirements would inhibit significant 

holders from seeking seats on boards,174

thus excluding particularly desirable 

director candidates from being 

nominated under the rule.175 While 

some commenters supported the 

proposed limitations (e.g., to address the 

special interest concern),176 others 

noted that any nominees that were 

included in the company’s proxy 

materials would still have to be elected 

by the shareholders and, if elected, 

would be subject to State law fiduciary 

duties.177

After further consideration and 

review of the comments on the 2003 

Proposal, we have determined not to 

propose limitations on the relationships 

between a nominating shareholder or 

group and their director nominee or 

nominees. We agree with those 

commenters that opposed the proposed 

limitations and believe that such 

limitations may not be appropriate or 

necessary. Rather, we believe that Rule 

14a–11, as proposed, should facilitate 

exercises of state law rights and afford 

a shareholder or group meeting the 

proposed standards the ability to 

propose a nominee for director that, in 

the nominating shareholder’s view, 

better represents the interests of 

shareholders than those put forward by 

the nominating committee or board. We 

note that once a nominee is elected to 

the board of directors, that director will 

be subject to state law fiduciary duties 

and owe the same duty to the 

corporation as any other director on the 

board. 

c. Nominating Shareholder or Group 

Will Not Be Deemed Affiliates of the 

Company 

It is our view that the mere use of 

proposed Rule 14a–11, by itself, should 

not be deemed to establish a 

relationship between the nominating 

shareholder or group and the company 

that would result in that holder or group 

being deemed an ‘‘affiliate’’ of the 

company for purposes of the federal 

securities laws. Accordingly, proposed 

Rule 14a–11(a) would include an 

instruction making clear that a 

nominating shareholder will not be 

deemed an ‘‘affiliate’’ of the company 

under the Securities Act of 1933 178 or 

the Exchange Act solely as a result of 

nominating a director or soliciting for 

the election of such a director nominee 

or against a company nominee pursuant 

to Rule 14a–11.179 In addition, where a 

shareholder nominee is elected, and the 

nominating shareholder or group does 

not have an agreement or relationship 

with that director, other than relating to 

the nomination, the nominating 

shareholder or group would not be 

deemed an affiliate solely by virtue of 

having nominated that director under 

the proposed rules.180

Request for Comment 

D.1. Is it appropriate to use 

compliance with state law, federal law, 

and listing standards as a condition for 

eligibility? 

D.2. Should there be any other or 

additional limitations regarding 

nominee eligibility? Would any such 

limitations undercut the stated purposes 

of the proposed rule? Are any such 

limitations necessary? If so, why? 

D.3. Should there be requirements 

regarding independence of the nominee 

and nominating shareholder or group 

and the company and its management? 

If so, are the proposed limitations 

appropriate? What other or additional 

limitations would be appropriate? If 

these limitations generally are 

appropriate, are there instances where 

they should not apply? Should the fact 

that the nominee is being nominated by 

a shareholder or group, combined with 

the absence of any agreement with the 

company or its management, be a 

sufficient independence requirement? 

D.4. How should any independence 

standards be applied? Should the 

nominee and the nominating 

shareholder or group have the full 

burden of determining the effect of the 

nominee’s election on the company’s 

compliance with any independence 

requirements, even though those 

consequences may depend on the 

outcome of any election and may relate 

to the outcome of the election with 

regard to nominees other than 

shareholder nominees? Should the rules 

specify that the nominating shareholder 

or group may rely on information 

disclosed in the company’s Commission 

filings in making this determination? 

How should the independence 

standards be applied when the entity is 

not a corporation—for example, a 

limited partnership? 

D.5. Where a company is subject to an 

independence standard of a national 

securities exchange or national 

securities association that includes a 

subjective component (e.g., subjective 

determinations by a board of directors 

or a group or committee of the board of 

directors), should the shareholder 

nominee be subject to those same 

requirements as a condition to 

nomination? 

D.6. As proposed, a nominating 

shareholder or group would be required 

to represent that the shareholder 

nominee satisfies generally applicable 

objective standards of a national 

securities exchange or national 

securities association that are applicable 

to directors of the company generally 

and not any particular definition of 

independence applicable to members of 

the audit committee of the company’s 

board of directors. Should the proposal 

clarify that the nominee must meet the 

applicable objective standards of the 

company’s primary listing exchange? 

D.7. Should the company or its 

nominating committee have any role in 

determining whether a shareholder 

nominee satisfies the generally 

applicable objective standards for 

director independence of any exchange 

on which the company’s securities are 

listed? 

D.8. If a company has more stringent 

independence requirements than the 

listing standards applicable to the 

company, should the company’s 

requirements apply? Or should the 

listing standards apply? 

D.9. If a company is not subject to an 

independence standard, should 

shareholder nominees to the board of 

directors under Rule 14a–11 be required 

to provide disclosure concerning 

whether they would be independent? If 

so, what standard should apply? Should 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29043 

181 17 CFR 240.10A–3. 182See, e.g., Exchange Act Rule 14a–12(c). 

183See proposed Rule 14a–11(d)(1). According to 

information from RiskMetrics, based on a sample of 

1,431 public companies, in 2007, the median board 

size was 9, with boards ranging in size from 4 to 

23 members. Approximately 40% of the boards in 

the sample had 8 or fewer directors, approximately 

60% had between 9 and 19 directors, and less than 

1% had 20 or more directors. 

184See proposed Rule 14a–11(d)(2). Depending 

on board size, 25% of the board may not result in 

a whole number. In those instances, the maximum 

number of shareholder nominees for director that a 

registrant will be required to include in its proxy 

materials will be the closest whole number below 

25%. See Instruction 1 to paragraph (d). 

185Comments on the 2003 Proposal provided a 

range of views regarding the appropriate number of 

shareholder nominees. Commenters that supported 

the use of a percentage, or combination of a set 

number and a percentage, to determine the number 

of shareholder nominees suggested percentages 

ranging from 20% to 35%. See 2003 Summary of 

Comments. 

the nominating shareholder or group be 

able to select the standard? 

D.10. Should we apply the ‘‘interested 

person’’ standard of Section 2(a)(19) of 

the Investment Company Act with 

respect to the representation that a 

shareholder nominee be independent 

from a company that is a registered 

investment company? Should the 

‘‘interested person’’ standard also apply 

to shareholder nominees for election to 

the board of directors of a business 

development company? Should we 

instead apply a different independence 

standard to registered investment 

companies or business development 

companies, such as the definition of 

independence in Exchange Act Rule 

10A–3? 181

D.11. As proposed, the rule includes 

a safe harbor providing that nominating 

shareholders will not be deemed 

‘‘affiliates’’ solely as a result of using 

Rule 14a–11. This safe harbor would 

apply not only to the nomination of a 

candidate, but also where that candidate 

is elected, provided that the nominating 

shareholder or group does not have an 

agreement or relationship with that 

director otherwise than relating to the 

nomination. Is it appropriate to provide 

such a safe harbor for shareholder 

nominations? Should the safe harbor 

continue to apply where the nominee is 

elected? If so, should the nomination 

and election of the shareholder’s 

nominee be a consideration in 

determining whether the shareholder is 

an affiliate, or should the safe harbor be 

‘‘absolute’’? 

D.12. Should the Commission include 

a similar safe harbor provision for 

nominating shareholders that submit a 

nominee for inclusion in a company’s 

proxy materials pursuant to an 

applicable state law provision or a 

company’s governing documents rather 

than using proposed Rule 14a–11? Why 

or why not? 

D.13. Should the eligibility criteria 

include a prohibition on any affiliation 

between nominees and nominating 

shareholders or groups? If so, what 

limitations would be appropriate? For 

example, should there be a prohibition 

on the nominee being the nominating 

shareholder or a member of the 

nominating shareholder group, a 

member of the immediate family of the 

nominating shareholder or any member 

of the nominating shareholder group, or 

an employee of the nominating 

shareholder or any member of the 

nominating shareholder group? Would 

such a limitation unnecessarily restrict 

access by shareholders to the proxy 

process? 

D.14. Should eligibility criteria 

include a prohibition on agreements 

between companies and its management 

and nominating shareholders, as 

proposed? Would such a prohibition 

inhibit desirable negotiations between 

shareholders and boards or nominating 

committees regarding nominees for 

directors? Should the prohibition 

provide an exception to permit such 

negotiations, as proposed? If so, what 

should the relevant limitations be? 

D.15. Should the nominee be required 

to make any of the representations (e.g., 

the independence representation), either 

in addition to or instead of, the 

nominating shareholder or group? If so, 

should these representations be 

included in the shareholder notice on 

Schedule 14N or in some other 

document? 

D.16. Should there be a nominee 

eligibility criterion that would exclude 

an otherwise eligible nominee where 

that nominee has been included in the 

company’s proxy materials as a 

candidate for election as director but 

received a minimal percentage of the 

vote? If so, what would be the 

appropriate percentage (e.g., 5%, 10%, 

15%, 25%, or 35%)? If so, for how long 

should the nominee be excluded (e.g., 1 

year, 2 years, 3 years, 4 years, 5 years, 

permanently)? 

5. Maximum Number of Shareholder 

Nominees To Be Included in Company 

Proxy Materials 

We do not intend for proposed Rule 

14a–11 to be available for any 

shareholder or group that is seeking to 

change the control of the issuer or to 

gain more than a limited number of 

seats on the board. The existing 

procedures regarding contested 

elections of directors are intended to 

continue to fulfill that purpose.182 We 

also note that by allowing shareholder 

nominees to be included in a company’s 

proxy materials, the cost of the 

solicitation is essentially shifted from 

the individual shareholder or group to 

the company and thus, all of the 

shareholders. We do not believe that an 

election contest conducted by a 

shareholder to change the control of the 

issuer or to gain more than a limited 

number of seats should be funded out of 

corporate assets. Further, extensive 

changes in board membership, or the 

possibility of such changes as a result of 

additional nominees being included in 

the proxy statement, have the potential 

to be disruptive to the board, while also 

potentially being confusing to 

shareholders. Amending our rules to 

provide for the inclusion of shareholder 

nominees for directors in a company’s 

proxy materials is a significant change. 

Given the novelty of such a change, we 

believe it is appropriate to take an 

incremental approach as a first step and 

reassess at a later time to determine 

whether additional changes would be 

appropriate. 

As proposed, a company would be 

required to include no more than one 

shareholder nominee or the number of 

nominees that represents 25 percent of 

the company’s board of directors, 

whichever is greater.183 Where a 

company has a director (or directors) 

currently serving on its board of 

directors who was elected as a 

shareholder nominee pursuant to Rule 

14a–11, and the term of that director 

extends past the date of the meeting of 

shareholders for which the company is 

soliciting proxies for the election of 

directors, the company would not be 

required to include in its proxy 

materials more shareholder nominees 

than could result in the total number of 

directors serving on the board that were 

elected as shareholder nominees being 

greater than one shareholder nominee or 

25 percent of the company’s board of 

directors, whichever is greater.184 We 

believe this limitation is appropriate to 

reduce the possibility of a nominating 

shareholder or group using the proposed 

new rule as a means to effect a change 

in control of a company or to gain more 

than a limited number of seats on the 

board by repeatedly nominating 

additional candidates for director. We 

note that in the 2003 Proposal, the 

Commission proposed to require 

companies to include a set number of 

nominees, rather than a percentage of 

the board, as proposed today.185 We 

believe that using a percentage in the 

rule will promote ease of use and 

alleviate any concerns that a company 

may increase its board size in an effort 

29044 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

186This requirement is set forth in proposed Rule 

14a–11(d)(3). 

187See 2003 Summary of Comments. 

to reduce the effect of a shareholder 

nominee elected to the board. 

Proposed Rule 14a–11(d)(3) would 

address situations where more than one 

shareholder or group would be eligible 

to have its nominees included in the 

company’s form of proxy and disclosed 

in its proxy statement pursuant to the 

proposed rule. In those situations, the 

company would be required to include 

in its proxy statement and form of proxy 

the nominee or nominees of the first 

nominating shareholder or group from 

which it receives timely notice of intent 

to nominate a director pursuant to the 

rule, up to and including the total 

number of shareholder nominees 

required to be included by the 

company.186 Where the first nominating 

shareholder or group from which the 

company receives timely notice does 

not nominate the maximum number of 

directors allowed under the rule, the 

nominee or nominees of the next 

nominating shareholder or group from 

which the company receives timely 

notice of intent to nominate a director 

pursuant to the rule would be included 

in the company’s proxy materials, up to 

and including the total number of 

shareholder nominees required to be 

included by the company. 

Although in 2003 we proposed a 

standard under which the largest 

shareholder or group would have their 

nominee or nominees included in the 

company proxy materials and the 

limited number of shareholders that 

commented did not generally object to 

such a standard,187 after further 

consideration we believe that such a 

standard might be difficult for 

companies to administer because it 

would lack certainty. By using a first-in 

standard, a company would be able to 

begin preparing its materials and 

coordinating with the nominating 

shareholder or group immediately upon 

receiving an eligible nomination rather 

than waiting to see whether another 

nomination from a larger nominating 

shareholder or group is submitted before 

the notice deadline. This approach also 

may be fairer to the shareholder whose 

notice is received first and may provide 

certainty to the shareholder because it 

eliminates the possibility that the 

shareholder’s nominee will be excluded 

as a result of a larger shareholder 

subsequently submitting a nominee. 

Request for Comment 

E.1. Is it appropriate to include a 

limitation on the number of shareholder 

director nominees? If not, how would 

the proposed rules be consistent with 

our intention not to allow Rule 14a–11 

to become a vehicle for changes in 

control? 

E.2. If there should be a limitation, is 

the proposed maximum percentage of 

shareholder nominees for director that 

we have proposed appropriate? If not, 

should the maximum percentage be 

higher (e.g., 30%, 35%, 40%, or 45%) or 

lower (e.g., 10%, 15%, or 20%)? Should 

the percentage vary depending on the 

size of the board? Should the limitation 

be the greater or lesser of a specified 

number of nominees or percentage of 

the total number of directors on the 

board? Is it appropriate to permit more 

than one shareholder nominee 

regardless of the size of the company’s 

board of directors? 

E.3. In instances where 25% of the 

board does not result in a whole 

number, the maximum number of 

shareholder nominees for director that a 

registrant will be required to include in 

its proxy materials will be the closest 

whole number below 25%. Is it 

appropriate to round down in this 

instance? Should we instead round up 

to the nearest whole number above 

25%? Is a rounding rule necessary? 

E.4. Should the proposed rule address 

situations where the governing 

documents provide a range for the 

number of directors on the board rather 

than a fixed number of board seats? If 

so, what changes to the rule would be 

necessary? 

E.5. The proposal contemplates taking 

into account incumbent directors who 

were nominated pursuant to proposed 

Rule 14a–11 for purposes of 

determining the maximum number of 

shareholder nominees. Is that 

appropriate? Should there be a different 

means to account for such incumbent 

directors? 

E.6. Should the procedure address 

situations in which, due to a staggered 

board, fewer director positions are up 

for election than the maximum 

permitted number of shareholder 

nominees? If so, how? Should the 

maximum number be based on the 

number of directors to be elected rather 

than to the overall board size? 

E.7. Should any limitation on 

shareholder nominees take into account 

incumbent directors who were 

nominated outside of the Rule 14a–11 

process, such as pursuant to an 

applicable state law provision, a 

company’s governing documents, or a 

proxy contest? If so, should such 

directors be counted as ‘‘shareholder 

nominees’’ for purposes of determining 

the 25%? 

E.8. Should any limitation on 

shareholder nominees take into account 

shareholder nominees for director that a 

company includes in its proxy materials 

other than pursuant to Rule 14a–11 (e.g., 

voluntarily)? 

E.9. Should Rule 14a–11 provide an 

exception for controlled companies or 

companies with a contractual obligation 

that permits a certain shareholder or 

group of shareholders to appoint a set 

number of directors? Should a 

nominating shareholder or group only 

be permitted to submit nominees for 

director based upon the number of 

director seats the nominating 

shareholder is entitled to vote on? For 

example, if a board consists of 10 

directors and the company is 

contractually obligated to permit a 

certain shareholder or shareholders to 

appoint five directors to the board, 

should shareholders entitled to vote on 

the remaining five director slots be 

limited to submitting nominees based 

on a board size of five rather than 10, 

meaning that a nominating shareholder 

may submit one nominee for inclusion 

in the company’s proxy materials? 

E.10. We have proposed a limitation 

that permits the nominating shareholder 

or group that first provides notice to the 

company to include its nominee or 

nominees in the company’s proxy 

materials where there is more than one 

eligible nominating shareholder or 

group. Is this appropriate? If not, should 

there be different criteria for selecting 

the shareholder nominees (e.g., largest 

beneficial ownership, length of security 

ownership, random drawing, allocation 

among eligible nominating shareholders 

or groups, etc.)? Rather than using 

criteria such as that proposed, should 

companies have the ability to select 

among eligible nominating shareholders 

or groups? If so, what criteria should the 

company be required to use in doing so? 

E.11. If the Commission adopts a 

‘‘first-in’’ approach, should the first 

shareholder or group get to nominate up 

to the total number of nominees 

required to be included by the company 

or, where there is more than one 

nominating shareholder or group and 

more than one slot for nominees, should 

the slots be allocated among proposing 

shareholders according to, for example, 

the order in which the shareholder or 

group provided notice to the company? 

E.12. Under the proposal, where the 

first nominating shareholder or group to 

deliver timely notice to the company 

does not nominate the maximum 

number of directors allowed under the 

rule, the nominee or nominees of the 

next nominating shareholder or group to 

deliver timely notice of intent to 

nominate a director pursuant to the rule 

would be included in the company’s 

proxy materials, up to and including the 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29045 

188See proposed Rule 14a–11(c), Rule 14a–18 and 

Rule 14n–1. 

189See proposed Instruction 2 to Rule 14a–11(a) 

and proposed Rule 14a–18. This would be similar 

to the requirement currently included in Rule 14a– 

5(f), which specifies that, where the date of the next 

annual meeting is advanced or delayed by more 

than 30 calendar days from the date of the annual 

meeting to which the proxy statement relates, the 

company must disclose the new meeting date in the 

company’s earliest possible quarterly report on 

Form 10–Q. Although registered investment 

companies generally are not required to file Form 

8–K, we are proposing to require them to file a 

Form 8–K disclosing the date by which the 

shareholder notice must be provided if the 

company did not hold an annual meeting during 

the prior year, or if the date of the meeting has 

changed by more than 30 calendar days from the 

prior year. See proposed Exchange Act Rules 13a– 

11(b)(2) and 15d–11(b)(2). 

190 In this regard, we propose to amend Rule 

13(a)(4) of Regulation S–T to provide that a 

Schedule 14N will be deemed to be filed on the 

same business day if it is filed on or before 10 p.m. 

Eastern Standard Time or Eastern Daylight Saving 

Time, whichever is currently in effect. This will 

allow nominating shareholders additional time to 

file the notice on Schedule 14N and transmit the 

notice to the company. 

191 In the 2003 Proposal, the Commission 

proposed to rely on disclosure obtained in a 

Schedule 13G. The Schedule 13G filing requirement 

is triggered when a shareholder or group owns more 

than 5% of the company’s securities. In the current 

proposal, we are proposing ownership thresholds 

for many companies that are different from the 

more than 5% threshold proposed in 2003. We 

nevertheless believe uniform disclosure for all 

companies, regardless of size, would be 

appropriate. Therefore, we are proposing a new 

filing requirement on Schedule 14N, to require 

certain disclosures regarding the nominating 

shareholder and nominee that would not otherwise 

be required to be filed. 

192This requirement would be applicable only 

where the nominating shareholder is not the 

registered holder of the shares and where the 

shareholder has not filed a Schedule 13D, Schedule 

13G, Form 3, Form 4, and/or Form 5, or 

amendments to those documents. See Item 5(a) to 

proposed Schedule 14N. 

193See proposed Rule 14a–18(f), proposed Item 

5(b) of Schedule 14N, proposed Item 7(e) of 

Schedule 14A, and proposed Item 22(b)(18) of 

Schedule 14A. 

194See Item 8 of proposed Schedule 14N. 

195The eligibility standards for nominating 

shareholders are set forth in proposed Rule 14a– 

11(b). Pursuant to Rule 14a–18(b), the nominating 

shareholder would be required to include a 

representation in the notice that the nominating 

shareholder or group satisfies the conditions in 

Rule 14a–11(b). 

total number of shareholder nominees 

required to be included by the company. 

Should the rule specify how to 

determine which of a second 

nominating shareholder’s or group’s 

nominees are to be selected where there 

are more nominees than available spots 

under the rule? Should Rule 14a–11 

provide that only one nominating 

shareholder or group may have their 

nominee or nominees included in the 

company proxy materials, regardless of 

whether they nominate the maximum 

number allowed under the rule? 

E.13. Would the ‘‘first-in’’ approach 

result in an undue advantage to the first 

shareholder or group to submit a 

nomination? Would such an approach 

result in a race to be the first in? 

6. Notice and Disclosure Requirements 

To submit a nominee for inclusion in 

the company’s proxy statement and 

form of proxy, proposed Rule 14a–11 

would require that the nominating 

shareholder or group provide a notice 

on Schedule 14N to the company of its 

intent to require that the company 

include that shareholder’s or group’s 

nominee or nominees in the company’s 

proxy materials.188 The shareholder 

notice on Schedule 14N would also be 

required to be filed with the 

Commission. 

The notice would be required to be 

provided to the company and filed by 

the date specified by the company’s 

advance notice provision or, where no 

such provision is in place, no later than 

120 calendar days before the date that 

the company mailed its proxy materials 

for the prior year’s annual meeting. We 

are proposing 120 calendar days before 

the date that the company mailed its 

proxy materials for the prior year’s 

annual meeting as the standard where a 

company does not have an advance 

notice provision because we believe that 

120 days would provide adequate time 

for companies to take the steps 

necessary to include or, where 

appropriate, to exclude a shareholder 

nominee for director that is submitted 

pursuant to Rule 14a–11. If the company 

did not hold an annual meeting during 

the prior year, or if the date of the 

meeting has changed by more than 30 

calendar days from the prior year, 

however, then the nominating 

shareholder must provide notice a 

reasonable time before the company 

mails its proxy materials. The company 

would be required to disclose the date 

by which the shareholder must submit 

the required notice in a Form 8–K filed 

pursuant to proposed Item 5.07 within 

four business days after the company 

determines the anticipated meeting 

date.189

The notice would be filed with the 

Commission on proposed new Exchange 

Act Schedule 14N on the date the notice 

is sent to the company.190 The new 

Schedule 14N would require: 191

• The name and address of the 

nominating shareholder or each member 

of the nominating shareholder group; 

• Information regarding the amount 

and percentage of securities beneficially 

owned and entitled to vote at the 

meeting; 

• A written statement from the 

‘‘record’’ holder of the shares 

beneficially owned by the nominating 

shareholder or each member of the 

nominating shareholder group (usually 

a broker or bank) verifying that, as of the 

date of the shareholder notice on 

Schedule 14N, the shareholder 

continuously held the securities for at 

least one year; 192

• A written statement of the 

nominating shareholder’s or group’s 

intent to continue to own the requisite 

shares through the shareholder meeting 

at which directors are elected. 

Additionally, the nominating 

shareholder or group would provide a 

written statement regarding the 

nominating shareholder’s or group’s 

intent with respect to continued 

ownership after the election; 193 and 

• A certification that to the best of the 

nominating shareholder’s or group’s 

knowledge and belief, the securities are 

not held for the purpose of, or with the 

effect of, changing the control of the 

issuer or gaining more than a limited 

number of seats on the board of 

directors.194

We believe that these disclosures would 

assist shareholders in making an 

informed voting decision with regard to 

any nominee or nominees put forth by 

the nominating shareholder or group, in 

that the disclosures would enable 

shareholders to gauge the nominating 

shareholder’s or group’s interest in the 

company, longevity of ownership, and 

intent with regard to continued 

ownership in the company. These 

disclosures also would be important to 

the company in determining whether 

the nominating shareholder or group is 

eligible to rely on Rule 14a–11 to 

include a nominee or nominees in the 

company’s proxy materials. 

The shareholder notice on Schedule 

14N also would include representations 

concerning the nominating 

shareholder’s or group’s eligibility to 

use Rule 14a–11, as well as disclosure 

about the nominating shareholder or 

group and the nominee for director. The 

disclosure provided by the nominating 

shareholder or group would be similar 

to the disclosure currently required in a 

contested election and would be 

included by the company in its proxy 

materials. This disclosure would be 

required pursuant to proposed new 

Exchange Act Rule 14a–18. Specifically, 

the shareholder notice on Schedule 14N 

would be required to include: 

• A representation that the 

nominating shareholder or group is 

eligible to submit a nominee under Rule 

14a–11; 195

• A representation that, to the 

knowledge of the nominating 

shareholder or group, the candidate’s 

29046 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

196Proposed Rule 14a–11(a)(2) requires that the 

nomination and initial board service not violate 

these standards. This representation would be 

included in the nominating shareholder’s notice 

pursuant to proposed Rule 14a–18(a). 

197The representation is not required if the 

company is not subject to the rules of a national 

securities exchange or national securities 

association. 

198This representation would be included in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(c). The criteria for 

independence would be those generally applicable 

to directors, and not particular independence 

requirements, such as the requirements for audit 

committee members. See the Instruction to Rule 

14a–18(c). 

199This representation would be included in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(d). 

200This statement would be included in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(e). 

201See proposed Rule 14a–18(f). 

202This information would be included in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(g). This information would 

identify the nominee, describe certain legal 

proceedings, if any, related to the nominee, and 

describe certain of the nominee’s transactions and 

relationships with the company. See Items 7(a), (b), 

and (c) of Schedule 14A. This information also 

would include biographical information and 

disclosure about certain interests of the nominee. 

See Item 5(b) of Schedule 14A. With respect to a 

nominee for director of a registered investment 

company or business development company, the 

disclosure would include certain basic information 

about the nominee and any arrangement or 

understanding between the nominee and any other 

person pursuant to which he was selected as a 

nominee; information about the positions, interests, 

and transactions and relationships of the nominee 

and his immediate family members with the 

company and persons related to the company; 

information about the amount of equity securities 

of funds in a fund complex owned by the nominee; 

and information describing certain legal 

proceedings related to the nominee, including legal 

proceedings in which the nominee is a party 

adverse to, or has a material interest adverse to, the 

company or any of its affiliated persons. See 

paragraph (b) of Item 22 of Schedule 14A. 

203This information would be submitted in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(h). 

204See proposed Rule 14a–18(i). Similar 

information is required for a nominee in response 

to Items 4(b) and 5(b) of Schedule 14A. We believe 

that it is appropriate to require similar disclosure 

of information from the nominating shareholder or 

group. 

205See proposed Rule 14a–18(j). 

206This information would be included in the 

nominating shareholder’s notice pursuant to 

proposed Rule 14a–18(k). 

207See proposed Rule 14a–18(l). The 500 words 

would be counted in the same manner as words are 

counted under Rule 14a–8. Any statements that are, 

in effect, arguments in support of the nomination 

would constitute part of the supporting statement. 

Accordingly, any ‘‘title’’ or ‘‘heading’’ that meets 

this test would be counted toward the 500-word 

limitation. Inclusion of a Web site address in the 

supporting statement would not violate the 500- 

word limitation; rather, the Web site address would 

be counted as one word for purposes of the 500- 

word limitation. We note that in the 2003 Proposal 

the Commission proposed that a company would be 

required to include a nominating shareholder’s or 

group’s supporting statement in the company’s 

proxy materials in instances where the company 

made a statement opposing the nominating 

shareholder’s nominee or nominees and/or 

supporting company nominees. Most commenters 

thought that a nominating shareholder’s or group’s 

supporting statement should be included in 

company proxy materials irrespective of whether 

the company includes its own supporting statement 

or statement in opposition to a shareholder 

nominee. See 2003 Summary of Comments. 

nomination or initial service on the 

board, if elected, would not violate 

controlling state law, federal law, or 

applicable listing standards (other than 

a standard relating to independence); 196

• A representation that, to the 

knowledge of the nominating 

shareholder or group, the nominee 

meets the objective criteria for 

independence from the company that 

are set forth in applicable rules of a 

national securities exchange or national 

securities association 197 or, in the case 

of a registered investment company or 

business development company, that 

the nominee to the board is not an 

‘‘interested person’’ of the company as 

defined in Section 2(a)(19) of the 

Investment Company Act; 198

• A representation that neither the 

nominee nor the nominating 

shareholder (or any member of the 

nominating shareholder group, if 

applicable) has an agreement with the 

company regarding the nomination of 

the nominee; 199

• A statement from the nominee that 

the nominee consents to be named in 

the company’s proxy statement and to 

serve on the board if elected, for 

inclusion in the company’s proxy 

statement; 200

• A statement that the nominating 

shareholder or each member of the 

nominating shareholder group intends 

to continue to own the requisite amount 

of securities through the date of the 

meeting; 201

• Disclosure about the nominee 

complying with the requirements of 

Item 4(b), Item 5(b), and Items 7(a), (b) 

and (c) and, for investment companies, 

Item 22(b) of Exchange Act Schedule 

14A, for inclusion in the company’s 

proxy statement; 202

• Disclosure about the nominating 

shareholder or members of a nominating 

shareholder group consistent with the 

disclosure currently required pursuant 

to Item 4(b) and Item 5(b) of Schedule 

14A in a contested election; 203

• Disclosure about whether the 

nominating shareholder or member of a 

nominating shareholder group has been 

involved in any legal proceeding during 

the past five years, as specified in Item 

401(f) of Regulation S–K. Disclosure 

pursuant to this section need not be 

provided if provided in response to 

Items 4(b) and 5(b) of Schedule 14A; 204

• The following disclosure regarding 

the nature and extent of the 

relationships between the nominating 

shareholder or group and nominee and 

the company or any affiliate of the 

company: 

• Any direct or indirect material 

interest in any contract or agreement 

between the nominating shareholder or 

group or the nominee and the company 

or any affiliate of the company 

(including any employment agreement, 

collective bargaining agreement, or 

consulting agreement); 

• Any material pending or threatened 

litigation in which the nominating 

shareholder or group or nominee is a 

party or a material participant and that 

involves the company, any of its officers 

or directors, or any affiliate of the 

company; and 

• Any other material relationship 

between the nominating shareholder or 

group or the nominee and the company 

or any affiliate of the company not 

otherwise disclosed; 205

• Disclosure of any Web site address 

on which the nominating shareholder or 

group may publish soliciting 

materials; 206 and 

• If desired to be included in the 

company’s proxy statement, any 

statement in support of the shareholder 

nominee or nominees, which may not 

exceed 500 words.207

We note that the disclosure 

requirements we have proposed here are 

substantially similar to the requirements 

the Commission proposed in the 2003 

Proposal. In both cases, the 

requirements focus on obtaining 

disclosure similar to what would be 

obtained in an election contest. In the 

2003 Proposal, because the Commission 

proposed a 5% ownership threshold, 

nominating shareholders or groups 

would have been required to file a 

Schedule 13G, so the Commission also 

proposed to require certain disclosures 

and representations from the 

nominating shareholder and nominee 

on Schedule 13G rather than create a 

new schedule. Under the tiered 

ownership threshold we are proposing, 

a nominating shareholder or group may 

hold less than 5% of the company’s 

securities and would not be required to 

file a Schedule 13G. Accordingly, 

because we believe that uniform 

disclosure regardless of company size 

would be appropriate, we are proposing 

a new Schedule 14N that would require 

the same disclosures and 

representations from the nominating 

shareholder and nominee regardless of 

the percentage of the company’s 

securities held by the nominating 

shareholder or group. 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29047 

208The requirement to file a Schedule 14N with 

the Commission is set forth in proposed Rule 14n– 

1 and proposed Rule 14a–18. 

209The Schedule 14N also would be used for 

disclosure concerning the inclusion of shareholder 

nominees in company proxy materials when made 

pursuant to an applicable state law provision or a 

company’s governing documents, as set out in 

proposed Rule 14a–19. 

210 17 CFR 239.63; 249.446; and 274.402. 

211The authenticating document would need to 

be manually signed by the applicant over the 

applicant’s typed signature, include the information 

contained in the Form ID, and confirm the 

authenticity of the Form ID. If the authenticating 

document is filed after electronically filing the 

Form ID, it would need to include the accession 

number assigned to the electronically filed Form ID 

as a result of its filing. See 17 CFR 232.10(b)(2). 212For further discussion, see Section III.E. 

213These disclosures would have applied to 

either a shareholder proponent of a proposal to 

amend a company’s bylaws to establish procedures 

for inclusion in the company’s proxy materials of 

shareholder nominees for director or to a 

nominating shareholder under such an adopted 

bylaw. A shareholder proponent of a bylaw 

proposal would also have been required to disclose 

background information about the proposing 

shareholder including qualifications and 

background relevant to the plans or proposals, and 

any interests or relationships of such shareholder 

proponent that are not shared generally by the other 

shareholders of the company and that could have 

influenced the decision by such proponent to 

submit a proposal. 

The Schedule 14N would be filed 

with the Commission in the following 

manner: 208

• The filing would include a cover 

page in the form set forth in proposed 

Schedule 14N with the appropriate box 

on the cover page marked to specify that 

the filing relates to a Rule 14a–11 

nomination; 209

• The filing would be made under the 

subject company’s Exchange Act file 

number (or in the case of a registered 

investment company, under the subject 

company’s Investment Company Act file 

number); and 

• The filing would be made on the 

date the notice is first transmitted to the 

company. 

In order to file the Schedule 14N on 

EDGAR, a nominating shareholder or 

group and any nominee that does not 

already have EDGAR filing codes, and to 

which the Commission has not 

previously assigned a user identification 

number, which we call a ‘‘Central Index 

Key (CIK)’’ code, would need to obtain 

the codes by filing electronically a Form 

ID 210 at https://www/ 

filermanagement.edgarfiling.sec.gov. 

The applicant also would be required to 

submit a notarized authenticating 

document. If the authenticating 

document is prepared before the 

applicant makes the Form ID filing, the 

authenticating document may be 

uploaded as a Portable Document 

Format (PDF) attachment to the 

electronic filing. An applicant also may 

submit the authenticating document by 

faxing it to the Commission within two 

business days before or after 

electronically filing the Form ID.211

The Schedule 14N would be required 

to be amended promptly for any 

material change in the facts set forth in 

the originally-filed Schedule 14N. In 

this regard, we would view withdrawal 

of a nominating shareholder or group, or 

of a director nominee, and the reasons 

for any such withdrawal, as a material 

change. For example, such a withdrawal 

could be material because it may result 

in a group no longer meeting the 

required ownership threshold under 

Rule 14a–11. The nominating 

shareholder or group also would be 

required to file a final amendment to the 

Schedule disclosing within 10 days of 

the final results of the election being 

announced by the company the 

nominating shareholder’s or group’s 

intention with regard to continued 

ownership of their shares. The 

nominating shareholder would 

previously have disclosed their intent 

with regard to continued ownership of 

the company’s securities in its original 

notice on Schedule 14N. Filing of the 

amendment to the Schedule 14N would 

provide shareholders with information 

as to whether the outcome of the 

election may have altered the intent of 

the shareholder and what further plans 

with regard to the company the 

nominating shareholder may have. 

The Schedule 14N, as filed with the 

Commission, as well as any 

amendments to the Schedule 14N, 

would be subject to the liability 

provisions of Exchange Act Rule 14a–9 

pursuant to proposed new paragraph (c) 

to the rule.212

In a traditional proxy contest, 

shareholders would receive the 

disclosure required by Items 4(b), 5(b), 

and Item 7 (or Item 22, as applicable) of 

Schedule 14A as discussed above. The 

proposed Schedule 14N disclosure 

requirements are somewhat more 

expansive in that they also would 

include the disclosures concerning 

ownership amount, length of 

ownership, intent to continue holding 

the shares through the date of the 

meeting, and a certification that the 

nominating shareholder or group is not 

seeking to change the control of the 

issuer or to gain more than a limited 

number of seats on the board of 

directors. In addition, the proposed 

disclosure requirements would include 

representations concerning the 

nominating shareholder’s or group’s 

eligibility to rely on Rule 14a–11 to 

include a nominee or nominees in the 

company’s proxy statement, as well as 

representations concerning the 

nominee’s eligibility, and disclosure 

regarding the nature and extent of the 

relationships between the nominating 

shareholder or group and nominee and 

the company or any affiliate of the 

company. Today’s proposed disclosure 

requirements are not as extensive, 

however, as those in the Shareholder 

Proposals Proposing Release that were 

not adopted. In that instance, a 

shareholder that was relying on a 

company bylaw to include a nominee 

for director in a company’s proxy 

materials would have had to provide the 

following disclosures in addition to 

what we are proposing today: 

• A description of the following items 

that occurred during the 12 months 

prior to the formation of any plans or 

proposals, or during the pendency of 

any proposal or nomination: 

• Any material transaction of the 

shareholder with the company or any of 

its affiliates, and 

• Any discussion regarding the 

proposal between the shareholder and a 

proxy advisory firm; 

• Any holdings of more than 5% of 

the securities of any competitor of the 

company (i.e., any enterprise with the 

same SIC code); and 

• Any meetings or contacts, including 

direct or indirect communication by the 

shareholder, with the management or 

directors of the company that occurred 

during the 12-month period prior to the 

formation of any plans or proposals, or 

during the pendency of the proposal.213

Based on the comments we received 

on the Shareholder Proposals Proposing 

Release, we believe that requiring such 

extensive disclosure may be impractical 

and may serve as a deterrent to 

shareholders’ exercise of their right to 

nominate directors. We believe that the 

disclosure we propose today would 

provide transparency and facilitate 

shareholders’ ability to make an 

informed voting decision on a 

shareholder director nominee or 

nominees without being unnecessarily 

burdensome on nominating 

shareholders or groups. We believe that 

the proposed disclosure would be 

particularly important because the 

nominating shareholder or group would 

not be bound by the same fiduciary 

duties applicable to the members of a 

board’s nominating committee in 

selecting director nominees. 

Request for Comment 

F.1. Are the proposed content 

requirements of the shareholder notice 

on Schedule 14N appropriate? Are there 

matters included in the notice that 

should be eliminated (e.g., should the 

29048 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

nominating shareholder be required to 

provide disclosure of its intention with 

regard to continued ownership of the 

shares after the election, as is 

proposed)? 

F.2. Are there additional matters that 

should be included? For example, is 

there additional information that should 

be included with regard to the 

nominating shareholder or group or 

with regard to the shareholder nominee? 

F.3. Are the required representations 

appropriate? Should there be additional 

representations (e.g., should the 

nominee be required to make a 

representation concerning their 

understanding of their duties under 

state law if elected and their ability to 

act in the best interest of the company 

and all shareholders)? Should any of the 

proposed representations be eliminated? 

F.4. Is five years a sufficient time 

period for information about whether 

the nominating shareholder or member 

of a nominating shareholder group has 

been involved in any legal proceeding? 

Should it instead be ten years? 

F.5. What should be the consequence 

of a nominating shareholder or group 

including materially false information 

or a materially false representation in 

the nominating shareholder’s or group’s 

notice on Schedule 14N to the company, 

whether before inclusion of a nominee 

in the company’s proxy materials, after 

inclusion of a nominee in the 

company’s proxy materials but before 

the election, or after a nominee has been 

included in the company’s proxy 

materials and elected? Should it make a 

difference whether the false information 

or representation was provided 

knowingly? Should it make a difference 

whether the false information or 

representation was material? 

F.6. What should be the consequence 

to the nominating shareholder or group 

of submitting the notice on Schedule 

14N to the company after the deadline? 

What should be the consequence of 

filing the notice on Schedule 14N with 

the Commission after the deadline? 

Should a late submission to the 

company or late filing with the 

Commission render the nominating 

shareholder or group ineligible to have 

a nominee included in the company’s 

proxy materials under Rule 14a–11 with 

respect to the upcoming meeting, as is 

currently proposed? 

F.7. The proposed instructions to Rule 

14a–11 address how to provide 

disclosure where the nominating 

shareholder is a ‘‘general or limited 

partnership, syndicate or other group.’’ 

Is this sufficiently broad to address any 

nominating shareholders that may use 

the rule? 

F.8. Should a company’s advance 

notice provision govern the timing of 

the submission of shareholder 

nominations for directors? If not, should 

the Commission adopt a specific 

deadline instead? Should the 

Commission make no reference to 

advance notice provisions as they may 

apply to proxy solicitations and adopt a 

generally applicable federal standard? 

Would such an approach better enable 

consistent exercise by shareholders of 

their voting and nominating rights 

across public companies? If the 

Commission were to establish a federal 

standard, would 120 calendar days 

before the date that the company mailed 

its proxy materials for the prior year’s 

annual meeting be appropriate? Should 

it be longer (e.g., 150 or 180 calendar 

days before the date that the company 

mailed its proxy materials for the prior 

year’s annual meeting), or shorter (e.g., 

90 calendar days before the date that the 

company mailed its proxy materials for 

the prior year’s annual meeting)? 

F.9. In the absence of an advance 

notice provision, the nominating 

shareholder or group would be required 

to submit the notice to the company and 

file with the Commission no later than 

120 calendar days before the date that 

the company mailed its proxy materials 

for the prior year’s annual meeting. Is 

this deadline appropriate and workable? 

If not, what should be the deadline (e.g., 

80, 90, 100, 150, or 180 calendar days 

before the date that the company mailed 

its proxy materials for the prior year’s 

annual meeting)? 

F.10. Should there be a specified 

range of time in which a shareholder is 

permitted to submit a nominee (e.g., no 

earlier than 150 days before and no later 

than 120 days before the date the 

company mailed its proxy materials the 

previous year)? Should a different range 

be used (e.g., should the submission of 

nominations be limited to no earlier 

than 120 days and no later than 90 days; 

no earlier than 180 days and no later 

than 150 days; or no earlier than 180 

days and no later than 120 days before 

the date the company mailed its proxy 

statement the previous year)? Does 

permitting submission of a nominee at 

any time prior to 120 days before the 

company mailed its proxy materials the 

previous year skew the process in favor 

of certain shareholders? If so, why? If 

not, why? If a different date range would 

be more workable, please tell us the 

range and why. 

F.11. The proposed notice 

requirements address both regularly 

scheduled annual meetings and 

circumstances where a company may 

not have held an annual meeting in the 

prior year or has moved the date of the 

meeting more than 30 days from the 

prior year. Under these circumstances, 

what is the appropriate date by which 

a nominating shareholder must submit 

the notice to the company? Should the 

Commission adopt a specific deadline 

for non-regularly scheduled meetings, or 

rely on a ‘‘reasonable time’’ standard? If 

a ‘‘reasonable time’’ standard is 

adopted, should the company be 

required to file the Form 8–K 

announcing the deadline any minimum 

number of days in advance of the 

deadline? If so, how many days notice 

should the company provide and why? 

What deadline should apply when a 

company holds a special meeting in lieu 

of an annual meeting? 

F.12. As proposed, an instruction to 

Form 8–K would specify that a company 

would be required to file a report 

pursuant to Item 5.07 within four 

business days of determining the 

anticipated meeting date if the company 

did not hold an annual meeting the 

previous year or if the annual meeting 

has been changed by more than 30 

calendar days from the date of the 

previous year’s meeting. Is such an 

instruction necessary? Should the 

company be required to file the Item 

5.07 Form 8–K in less than four 

business days (e.g., two business days) 

or more than four business days (e.g., 

seven business days, 10 business days)? 

F.13. Should a registered investment 

company be required to disclose on 

Form 8–K the date by which a 

shareholder or shareholder group must 

submit the notice to the company of its 

intent to require its nominees on the 

company’s proxy card? Should this date 

also be required to be disclosed on the 

company’s Web site, if it has one? 

Should registered investment 

companies instead be permitted to 

provide this disclosure in a different 

manner? 

F.14. As proposed, a shareholder’s or 

group’s notice of intent to submit a 

nomination for director is required to be 

filed with the Commission on Schedule 

14N. Is such a filing appropriate? 

Should additional or lesser information 

be filed with the Commission? Should 

a shareholder or group be required to 

send the notice to the company without 

filing the notice on Schedule 14N? 

F.15. When should the notice on 

Schedule 14N be filed with the 

Commission? Is it sufficient to require 

the Schedule 14N to be filed at the time 

it is provided to the company? Should 

an abbreviated version of the Schedule 

14N be filed sooner, before the 

nominating shareholder or group 

provides notice to the company, such as 

at the time a shareholder or group first 

decides to make a nomination, when the 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29049 

214See proposed Rule 14a–11(f). 

215Under the proposed rules, inclusion of a 

shareholder nominee in the company’s proxy 

materials would not require the company to file a 

preliminary proxy statement provided that the 

company was otherwise qualified to file directly in 

definitive form. In this regard, the proposed rules 

make clear that inclusion of a shareholder nominee 

would not be deemed a solicitation in opposition. 

See proposed revisions to Rule 14a–6(a)(4) and Note 

3 to that rule. 

216These requirements are set forth in proposed 

Rule 14a–11(a), proposed Rule 14a–18(g)–(l) and 

proposed amendments to Rule 14a–4(b)(2). In 

addition, we are proposing to add paragraph (e) to 

Item 7 of Schedule 14A (and, for registered 

investment companies and business development 

companies, paragraph (18) to Item 22(b) of Schedule 

14A) to state that the registrant must include the 

disclosure required from the nominating 

shareholder under proposed Rule 14a–11(a). 

217This would be similar to the current practice 

with regard to shareholder proposals submitted 

pursuant to Rule 14a–8 where companies identify 

the shareholder proposals and provide a 

recommendation to shareholders as to how they 

should vote on those proposals. 

218See proposed Rule 14a–4(b)(2)(iv). We 

anticipate that companies would continue to be 

able to solicit discretionary authority to vote a 

shareholder’s shares for the company nominees, as 

well as to cumulate votes for the company 

nominees in accordance with applicable state law, 

where such state law provides for cumulative 

voting. 

219See proposed Rule 14a–11(a). In counting the 

500 words, any statements that are, in effect, 

arguments in support of the proposal would be 

viewed as part of the supporting statement. 

Accordingly, any ‘‘title’’ or ‘‘heading’’ that meets 

this test would be counted toward the 500-word 

limitation. Inclusion of a website address in the 

supporting statement would not violate the 500- 

word limitation; rather, the website address would 

be counted as one word for purposes of the 500- 

word limitation. 

220See proposed Rule 14a–18(l). 

nominating shareholder first identifies a 

nominee for director, or some other 

time? Should it be filed later? 

F.16. The notice on Schedule 14N 

would be required to be amended 

promptly for any material change in the 

facts set forth in the originally-filed 

Schedule 14N. Should the nominating 

shareholder or group be required to 

amend the Schedule 14N for any 

material change in the facts? Why or 

why not? 

F.17. The nominating shareholder or 

group would be required to file a final 

amendment to the Schedule disclosing, 

within 10 days of the final results of the 

election being announced by the 

company, the nominating shareholder’s 

or group’s intention with regard to 

continued ownership of their shares. 

Should the nominating shareholder or 

group be required to amend the 

Schedule 14N to disclose their intent 

regarding continued ownership? Why or 

why not? 

F.18. In situations where a 

nominating shareholder or group 

beneficially owns more than 5% of the 

company’s securities, should we permit 

a combined Schedule 13G/Schedule 

14N filing? Should we permit a 

combined Schedule 13D/Schedule 14N 

filing? Why or why not? 

F.19. Should a nominating 

shareholder or group be required to file 

Schedule 14N on EDGAR, as proposed? 

F.20. Should the notice be required to 

include a description of the following 

items that occurred during the 12 

months prior to the formation of any 

plans or proposals with respect to the 

nomination, or during the pendency of 

any nomination: (i) Any material 

transaction of the shareholder with the 

company or any of its affiliates, and (ii) 

any discussion regarding the 

nomination between the shareholder 

and a proxy advisory firm? 

F.21. Should the nominating 

shareholder or group and/or nominee be 

required to disclose any holdings of 

more than 5% of the securities of any 

competitor of the company (i.e., any 

enterprise with the same SIC code)? 

F.22. Should the nominating 

shareholder or group and/or nominee be 

required to disclose any meetings or 

contacts, including direct or indirect 

communication by the shareholder, 

with the management or directors of the 

company that occurred during the 12- 

month period prior to the formation of 

any plans or proposals with respect to 

a nomination? 

7. Requirements for a Company That 

Receives a Notice From a Nominating 

Shareholder or Group 

a. Inclusion of a Shareholder Director 

Nominee 

Upon receipt of a shareholder’s or 

group’s notice of its intent to require the 

company to include in its proxy 

materials a shareholder nominee or 

nominees pursuant to Rule 14a–11, the 

company would determine whether any 

of the events permitting exclusion of the 

shareholder nominee or nominees has 

occurred.214 If not, the company would 

notify in writing the nominating 

shareholder or group no later than 30 

calendar days before the company files 

its definitive proxy statement and form 

of proxy with the Commission that it 

will include the nominee or nominees. 

The company would be required to 

provide this notice in a manner that 

provides evidence of timely receipt by 

the nominating shareholder or group. 

The company would then include 

disclosure regarding the shareholder 

nominee or nominees and the 

nominating shareholder or group in the 

company’s proxy statement 215 and 

include the name of the nominee on the 

company’s form of proxy that is 

included with the proxy statement.216

With regard to the company’s form of 

proxy, the company could identify any 

shareholder nominees as such and 

recommend how shareholders should 

vote for, against, or withhold votes on 

those nominees and management 

nominees on the form of proxy.217 The 

company would otherwise be required 

to present the nominees in an impartial 

manner in accordance with Rule 14a–4. 

Under the current rules, a company may 

provide shareholders with the option to 

vote for or withhold authority to vote for 

the company’s nominees as a group, 

provided that shareholders also are 

given a means to withhold authority for 

specific nominees in the group. In our 

view, this option would not be 

appropriate where the company’s form 

of proxy includes shareholder 

nominees, as grouping the company’s 

nominees may make it easier to vote for 

all of the company’s nominees than to 

vote for the shareholder nominees in 

addition to some of the company 

nominees. Accordingly, when a 

shareholder nominee is included, the 

proposed rules would not permit a 

company to provide shareholders the 

option of voting for or withholding 

authority to vote for the company 

nominees as a group, but would instead 

require that each nominee be voted on 

separately.218

A company also would be required to 

include in its proxy statement, if desired 

by the nominating shareholder or group, 

a statement by the nominating 

shareholder or group in support of the 

shareholder nominee or nominees. In 

this regard, we believe that not only 

should a company be able to include a 

statement in support of the company 

nominees in its proxy statement, 

provided that it complies with Rule 

14a–9, we also are of the view that a 

nominating shareholder or group should 

be afforded a similar opportunity. 

Accordingly, we are proposing to 

require a company to include a 

nominating shareholder’s or group’s 

statement of support for the shareholder 

nominee or nominees, so long as the 

statement of support does not exceed 

500 words.219 This statement must be 

provided to the company in the 

shareholder notice on Schedule 14N.220

In addition, both the company and the 

nominating shareholder or group would 

be able to solicit in favor of their 

nominees outside the proxy statement 

(for example, on a designated website), 

provided that such solicitations were 

made within the parameters of the 

29050 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

221See proposed Rule 14a–11(a). 

222See proposed Rule 14a–11(f). 

223See proposed Rule 14a–11(f)(7)–(14). As is the 

case with regard to the Rule 14a–8 staff no-action 

process, we encourage companies and shareholders 

to attempt to resolve disputes independently. To 

the extent that a company and nominating 

shareholder or group are able to resolve an issue at 

any point during the staff no-action process, the 

company would withdraw its request for a noaction position from the staff. 

224See proposed Rule 14a–11(f)(3)–(6). 

225See proposed Rule 14a–11(f)(1)–(3). See also 

proposed Rule 14a–11(a) detailing circumstances 

permitting exclusion of shareholder nominee or 

nominees. Where a company receives more than 

one nominee from an eligible nominating 

shareholder or group and some of those nominees 

are eligible to be placed in the company’s proxy 

materials, the company’s determination that one or 

more of the nominating shareholder’s or group’s 

nominees are not eligible will not affect the 

company’s obligation to place the eligible nominee 

or nominees in its proxy materials. 

226See proposed Rule 14a–11(f)(3). 

227See proposed Rule 14a–11(f)(4). 

228See proposed Rule 14a–11(f)(5). We believe it 

is necessary to impose a time limit for a nominating 

shareholder’s response to a notice of deficiency due 

to the potential time-sensitive nature of the 

nomination process and a company’s preparation of 

its proxy materials for filing. 

applicable proxy rules. Any written 

soliciting materials published, sent or 

given by the nominating shareholder or 

group outside the company’s proxy 

statement would be required to be filed 

with the Commission in accordance 

with proposed Rule 14a–2(b)(7) or (b)(8) 

on the date of first use. 

b. Excluding a Shareholder Director 

Nomination That Does Not Comply 

With the Requirements of Rule 14a–11 

A company may determine that it is 

not required under proposed Rule 14a– 

11 to include a nominee from a 

nominating shareholder or group in its 

proxy materials if it determines any of 

the following: 

• Proposed Rule 14a–11 is not 

applicable to the company; 

• The nominating shareholder or 

group has not complied with the 

requirements of Rule 14a–11; 

• The nominee does not meet the 

requirements of Rule 14a–11; 

• Any representation required to be 

included in the notice to the company 

is false or misleading in any material 

respect; or 

• The company has received more 

nominees than it is required to include 

by proposed Rule 14a–11 and the 

nominating shareholder or group is not 

entitled to have its nominee included 

under the criteria proposed in Rule 14a– 

11(d)(3).221

The nominating shareholder or group 

would need to be notified of the 

company’s determination not to include 

the shareholder nominee in sufficient 

time to consider the validity of any 

determination to exclude the 

nominee.222 In this regard, we note the 

time-sensitive nature of Rule 14a–11 

and the interpretive issues that may 

arise in applying the new rule. 

Accordingly, the rules that we are 

proposing, which set out the process by 

which a company would determine 

whether to include a shareholder 

nominee and notify the nominating 

shareholder or group, include a 

proposed procedure by which 

companies would send a notice to the 

Commission where the company 

intends not to include a shareholder 

nominee in its proxy materials, and 

could seek staff advice—through a noaction request—with respect to that 

determination.223 This procedure is 

modeled after the staff no-action process 

used in connection with shareholder 

proposals under Rule 14a–8. 

In addition, we have proposed a 

process by which a nominating 

shareholder or group may remedy 

certain eligibility or procedural 

deficiencies in a nomination.224 The 

various time deadlines set out in the 

proposed process were determined by 

considering the appropriate balance 

between companies’ needs in meeting 

printing and filing deadlines for their 

shareholder meetings with shareholders’ 

need for adequate time to satisfy the 

requirements of the rule. In doing so, we 

considered the timing requirements and 

deadlines in Rule 14a–8 when crafting 

the requirements and deadlines for Rule 

14a–11; however, due to the potential 

complexity of the nomination process, 

we determined that it would be 

appropriate to provide additional time 

for the process. For example, once a 

nominating shareholder submits a 

nominee pursuant to Rule 14a–11, the 

company must consider the nominee 

submitted and make a determination as 

to whether to include the nominee or 

submit a no-action request pursuant to 

Rule 14a–11(f). A nominating 

shareholder will be afforded time to 

respond to the no-action request, and 

the staff will need time to process the 

request. In addition, a company may 

need time after receipt of the no-action 

response from the staff to finalize the 

proxy materials. 

The following process would apply 

when a company receives a shareholder 

nomination under Rule 14a–11: 

• Upon receipt of a shareholder’s or 

shareholder group’s notice of intent to 

nominate a director or directors, the 

company would determine whether any 

of the eligibility requirements have not 

been satisfied by the nominating 

shareholder or group or nominee or 

nominees and whether the company 

will seek to exclude the shareholder 

nominee or nominees; 225

• If the company determines that the 

eligibility requirements have not been 

satisfied by the nominating shareholder 

or group or nominee or nominees and it 

seeks to exclude the shareholder 

nominee or nominees, the company 

would notify in writing the nominating 

shareholder or group of this 

determination, at the business address, 

facsimile number and/or e-mail address 

provided in the nominating 

shareholder’s or group’s notice to the 

company. This notice must be 

postmarked or transmitted 

electronically no later than 14 calendar 

days after it receives the shareholder 

notice of intent to nominate. The 

company should provide this notice in 

a manner that provides evidence of 

receipt by the nominating shareholder 

or group; 226

• The company’s notice to the 

nominating shareholder or group that it 

has determined that the company may 

exclude a shareholder nominee or 

nominees would be required to include 

an explanation of the company’s basis 

for determining that it may exclude the 

nominee or nominees; 227

• The nominating shareholder or 

group would have 14 calendar days after 

receipt of the written notice of 

deficiency to respond to that notice and 

correct any eligibility or procedural 

deficiencies identified in that notice. 

The nominating shareholder’s or group’s 

response must be postmarked, or 

transmitted electronically, no later than 

14 calendar days from the date the 

shareholder received the company’s 

notice. As with the company’s notice, 

the nominating shareholder or group 

should provide the response in a 

manner that provides evidence of its 

receipt by the company; 228

• Neither the composition of a 

nominating shareholder group nor a 

shareholder nominee could be changed 

as a means to correct a deficiency 

identified in the company’s notice to the 

nominating shareholder or group—those 

matters would be required to remain as 

they were described in the notice to the 

company (we believe that to allow 

otherwise could serve to undermine the 

purpose of the notice deadline provided 

for in the rule); however, where a 

nominating shareholder or group 

inadvertently submits a number of 

nominees that exceeds the maximum 

number required to be included by the 

company, the nominating shareholder 

or group may specify which nominee or 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29051 

229See proposed Rule 14a–11(f)(6). 

230See proposed Rule 14a–11(f)(7). This would be 

similar to the procedures the company must follow 

if it intends to exclude a shareholder proposal 

under Rule 14a–8. See Rule 14a–8(j). Given the 

similarities in the processes, we are proposing an 

80-day deadline for Rule 14a–11(f). 

231See proposed Rule 14a–11(f)(8). 

232See proposed Rule 14a–11(f)(9). 

233See proposed Rule 14a–11(f)(10). 

234See proposed Rule 14a–11(f)(11). A 

nominating shareholder group may, but is not 

required to, respond to a company’s notice to the 

staff. 235See proposed Rule 14a–11(f)(12). The staff’s 

no-action responses to submissions made pursuant 

to proposed Rule 14a–11(f) would reflect only 

informal views. The staff determinations reached in 

these no-action letters would not, and cannot, 

adjudicate the merits of a company’s position with 

respect to exclusion of a shareholder nominee 

under Rule 14a–11. Accordingly, a discretionary 

staff determination would not preclude an 

interested person from pursuing a judicial 

determination regarding the application of Rule 

14a–11. 

236See proposed Rule 14a–11(f)(13). 

237See proposed Rule 82a, which would state that 

materials filed with the Commission pursuant to 

proposed Rule 14a–11(f), written communications 

related thereto received from any person, and each 

related no-action letter or other written 

communication issued by the staff of the 

Commission, shall be made available to any person 

upon request for inspection or copying. This rule 

would be similar to Rule 82, which applies to noaction requests related to shareholder proposals. 

238See Commission Rules of Informal and Other 

Procedures Rule 202.1(d). 

nominees are not to be included in the 

company’s proxy materials; 229

• If, upon review of the nominating 

shareholder’s response, the company 

determines that the company still may 

exclude a shareholder nominee or 

nominees, after providing the requisite 

notice of and time for the nominating 

shareholder or group to remedy any 

eligibility or procedural deficiencies in 

the nomination, the company would be 

required to provide notice of the basis 

for its determination to the Commission 

no later than 80 calendar days before it 

files its definitive proxy statement and 

form of proxy with the Commission. 

The Commission staff could 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; 230

• The company’s notice to the 

Commission would include: (a) 

Identification of the nominating 

shareholder or each member of the 

nominating shareholder group, as 

applicable; (b) the name of the nominee 

or nominees; (c) an explanation of the 

company’s basis for determining that it 

may exclude the nominee or nominees; 

and (d) a supporting opinion of counsel 

when the company’s basis for excluding 

a nominee or nominees relies on a 

matter of state law; 231

• Unless otherwise provided in Rule 

14a–11 (e.g., the nominating 

shareholder’s or group’s obligation to 

demonstrate that it responded to a 

company’s notice of deficiency, where 

applicable, within 14 calendar days 

after receipt of the notice of deficiency), 

the burden would be on the company to 

demonstrate that it may exclude a 

nominee or nominees; 232

• The company would be required to 

file its notice of its intent to exclude 

with the Commission and 

simultaneously provide a copy to the 

nominating shareholder or each member 

of the nominating shareholder group; 233

• The nominating shareholder or 

group could submit a response to the 

company’s notice to the Commission. 

This response would be postmarked or 

transmitted electronically no later than 

14 calendar days after the nominating 

shareholder’s or group’s receipt of the 

company’s notice to the Commission. 

The nominating shareholder or group 

would be required to provide a copy of 

its response to the Commission 

simultaneously to the company; 234

• The Commission staff would, at its 

discretion, provide an informal 

statement of its views (a no-action letter) 

to the company and the nominating 

shareholder or group; 235

• The company would provide the 

nominating shareholder or group with 

notice, no later than 30 calendar days 

before it files its definitive proxy 

statement and form of proxy with the 

Commission, of whether it will include 

or exclude the shareholder nominee or 

nominees; 236

• All materials submitted to the 

Commission in relation to Rule 14a– 

11(f) would be publicly available upon 

submission; 237 and 

• The company or any nominating 

shareholder or group could request that 

the staff seek the Commission’s views 

with respect to a determination of the 

staff under Rule 14a–11(f). The staff, 

upon such a request or on its own 

motion, would generally present 

questions to the Commission that 

involve matters of substantial 

importance and where the issues are 

novel or highly complex, although the 

granting of a request for an informal 

statement by the Commission is entirely 

within its discretion.238

The process generally would operate 

as follows: 

Due date Action required 

Date set by company’s advance notice provision or, in the absence of 

such a provision, 120 days before the anniversary of the date that 

the company mailed the prior year’s proxy materials.

Nominating shareholder or group must provide and file notice on 

Schedule 14N. 

Within 14 calendar days after the company’s receipt of the nominating 

shareholder’s or group’s notice on Schedule 14N.

Company must notify the nominating shareholder or group of any determination not to include the nominee or nominees. 

Within 14 calendar days after the nominating shareholder’s or group’s 

receipt of the company’s deficiency notice.

Nominating shareholder must respond to the company’s deficiency notice. 

No later than 80 calendar days before the company files its definitive 

proxy statement and form of proxy with the Commission.

Company must provide notice of its intent to exclude the nominating 

shareholder’s or group’s nominee or nominees and the basis for its 

determination to the Commission. 

Within 14 calendar days of the nominating shareholder’s or group’s receipt of the company’s notice to the Commission.Nominating shareholder or group could submit a response to the company’s notice to the Commission staff. 

As soon as practicable ............................................................................. Commission staff would, at its discretion, provide an informal statement 

of its views to the company and the nominating shareholder or 

group. 

No later than 30 calendar days before the company files its definitive 

proxy statement and form of proxy with the Commission.

Company must provide the nominating shareholder or group with notice of whether it will include or exclude the shareholder’s nominee 

or nominees. 

BILLING CODE 8010–01–P 

29052 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

BILLING CODE 8010–01–C 

Request for Comment 

G.1. Under proposed Rule 14a–11(a) a 

company would not be required to 

include a shareholder nominee where: 

(1) Applicable state law or the 

company’s governing documents 

prohibit the company’s shareholders 

from nominating a candidate for 

director; (2) the nominee’s candidacy or, 

if elected, board membership, would 

violate controlling state law, federal law 

or rules of a national securities 

exchange or national securities 

association; (3) the nominating 

shareholder or group does not meet the 

rule’s eligibility requirements; (4) the 

nominating shareholder’s or group’s 

notice is deficient, (5) any 

representation in the nominating 

shareholder’s or group’s notice is false 

in any material respect, or (6) the 

nominee is not required to be included 

in the company’s proxy materials due to 

the proposed limitation on the number 

of nominees required to be included. 

Proposed Rule 14a–11(f)(1) provides 

that the company shall determine 

whether any of these events have 

occurred. Will companies be able to 

make this determination? Why or why 

not? 

G.2. As proposed, neither the 

composition of a nominating 

shareholder group nor a shareholder 

nominee could be changed as a means 

to correct a deficiency identified in the 

company’s notice to the nominating 

shareholder or group. Should we permit 

the nominating shareholder group to 

change its composition to correct an 

identified deficiency, such as a failure 

of the group to meet the requisite 

ownership threshold? Should the 

nominating shareholder or group be 

permitted to submit a replacement 

shareholder nominee in the event that it 

is determined that a nominee does not 

meet the eligibility criteria? 

G.3. As proposed, inclusion of a 

shareholder nominee in the company’s 

proxy materials would not require the 

company to file a preliminary proxy 

statement provided that the company 

was otherwise qualified to file directly 

in definitive form. In this regard, the 

proposed rules make clear that 

inclusion of a shareholder nominee 

would not be deemed a ‘‘solicitation in 

opposition.’’ Is this appropriate or 

should the inclusion of a nominee 

instead be viewed as a solicitation in 

opposition that would require a 

company to file its proxy statement in 

preliminary form? Should we view 

inclusion of a shareholder nominee as a 

solicitation in opposition for other 

purposes (e.g., expanded disclosure 

obligations)? 

G.4. Under the proposal, companies 

would not be able to provide 

shareholders the option of voting for the 

company’s slate of nominees as a whole. 

Should we allow companies to provide 


EP18JN09.000</GPH>
Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29053 

that option to shareholders? Are any 

other revisions to the form of proxy 

appropriate? Would a single ballot or 

‘‘universal ballot’’ that includes both 

company nominees and shareholder 

nominees be confusing? Would a 

universal ballot result in logistical 

difficulties? If so, please specify. 

G.5. Is it appropriate to require that 

the company include in its proxy 

statement a supporting statement by the 

nominating shareholder or group? If so, 

should this requirement be limited to 

instances where the company wishes to 

make a statement opposing the 

nominating shareholder’s nominee or 

nominees or supporting company 

nominees? Is it appropriate to limit the 

nominating shareholder’s or group’s 

supporting statement to 500 words? If 

not, what limit, if any, is more 

appropriate (e.g., 250, 750, or 1,000 

words)? Should the limit be 500 words 

per nominee, or some other number 

(e.g., 250, 750, or 1,000 words)? Should 

the company’s supporting statement be 

similarly limited? Why or why not? 

G.6. Should the rule explicitly state 

that the nominating shareholder’s or 

group’s supporting statement may 

contain statements opposing the 

company’s nominees? Would it be 

appropriate to require a company to 

include a nominating shareholder’s or 

group’s statement of opposition in its 

proxy materials? 

G.7. Is the 14-day time period for the 

company to respond to a nominating 

shareholder’s notice or for the 

nominating shareholder to respond to a 

company’s notice of deficiency 

sufficient? Should the time period be 

longer (e.g., 20 days, 25 days, 30 days) 

or shorter (e.g., 10 days, 7 days, 5 days)? 

Should the rule explicitly set out the 

effect of a company providing the notice 

late (e.g., the company may not exclude 

the nominee) or of a shareholder 

responding to this notice late (e.g., the 

nominee may be excluded)? 

G.8. Is the 80-day requirement for 

submission of the company’s notice to 

the Commission sufficient? If not, 

should the requirement be increased 

(e.g., 90 days, 100 days, 120 days, or 

more) or decreased (e.g., 75 days, 60 

days, or less)? Is the proposed provision 

under which the staff could permit the 

company to make its submission later 

than 80 days before filing its definitive 

proxy statement where the company 

demonstrates good cause appropriate? If 

not, why not? Should the rule more 

explicitly discuss the effect of such a 

late filing? 

G.9. Is the 14-day time period for the 

nominating shareholder to respond to 

the receipt of a company’s notice to the 

Commission of its intent to exclude the 

nominee sufficient? Should it be longer 

(e.g., 20 days, 25 days, 30 days) or 

shorter (e.g., 10 days, 7 days, 5 days)? 

Should the rule explicitly set out the 

effect of a shareholder responding to the 

company’s notice late (e.g., the nominee 

may be excluded)? 

G.10. Is the requirement that the 

company notify the nominating 

shareholder or group of whether it will 

include or exclude the nominating 

shareholder’s or group’s nominee or 

nominees no later than 30 calendar days 

before the company files its definitive 

proxy statement and form of proxy with 

the Commission appropriate and 

workable? If not, what should the 

deadline be (e.g., 40 calendar days 

before filing definitive proxy materials, 

35 days before filing definitive proxy 

materials, 25 calendar days before filing 

definitive proxy materials, 20 calendar 

days before filing definitive proxy 

materials)? Should the rule explicitly set 

out the effect of a company sending this 

notice late? 

G.11. Would the timing requirements 

overall allow a company to comply with 

the requirements of e-proxy? 

G.12. Do the proposed timing 

requirements, in the aggregate, allow 

sufficient time for the informal staff 

review process? How far in advance of 

filing definitive proxy materials do 

companies typically begin printing 

those materials? If the proposed timing 

requirements do not allow sufficient 

time for the informal staff review 

process, please tell us specifically 

which timing requirements pose a 

problem and suggest a specific 

alternative time that would be 

sufficient. 

G.13. What should happen if one of 

the deadlines specified in the proposed 

process in Rule 14a–11(f) falls on a 

Saturday, Sunday, or federal holiday? 

Should the deadline be counted from 

the preceding or succeeding federal 

work day? 

G.14. Should the informal staff review 

process be the same for reporting 

companies (other than registered 

investment companies), registered 

investment companies, and business 

development companies? Should there 

be unique procedures for different types 

of entities? If so, what is unique to a 

particular type of entity that would 

require a unique process? 

G.15. Should there be a method for a 

company to obtain follow-up 

information after a nominating 

shareholder or group submits an initial 

response to the company’s notice of 

determination? If so, should that followup method have similar time frames as 

those related to the initial request and 

response? What adjustments to timing 

might be required for the nominating 

shareholder or group to respond to any 

such follow-up request? 

G.16. The proposed requirement for a 

legal opinion regarding state law is 

modeled on the requirement in Rule 

14a–8. Is such a requirement necessary 

and appropriate in the context of 

proposed Rule 14a–11? Should it be 

changed in any way (e.g., should it be 

revised to require a legal opinion 

regarding foreign law for those instances 

where there may be a conflict with a 

company’s country of incorporation 

where the company is organized in a 

non-U.S. jurisdiction but does not meet 

the definition of foreign private issuer)? 

G.17. What process would be 

appropriate for addressing disputes 

concerning a company’s determination? 

Is the proposed staff review process an 

appropriate means to address disputes 

concerning the company’s 

determination? If not, by what other 

means should a company’s 

determination be subject to review? 

Exclusively by the courts? Are there 

other processes we should consider? 

G.18. In the absence of a staff review 

process, what would be the potential 

litigation cost associated with the 

resolution of disputes concerning 

company determinations? Would 

shareholder meetings be delayed due to 

such litigation or threat of litigation? 

G.19. Are there certain types of 

company determinations that should or 

should not be subject to the staff review 

process (e.g., whether a nominating 

shareholder or group meets the required 

ownership threshold)? Please provide 

specific examples in your response. 

G.20. How should we address the 

situation where a nominating 

shareholder qualifies, provides its 

notice, and submits all of the nominees 

a company is required to include, then 

becomes ineligible under the rule? 

Under what circumstances should a 

second shareholder or group be able to 

nominate directors? If the second 

nominating shareholder or group 

provided a notice before the first 

shareholder became ineligible? Should 

it matter whether a company had 

notified the second nominating 

shareholder or group that it intended to 

exclude their nominee or nominees? 

8. Application of the Other Proxy Rules 

to Solicitations by the Nominating 

Shareholder or Group 

As proposed, Rule 14a–11 would 

permit shareholders to aggregate their 

securities with other shareholders in 

order to meet the applicable minimum 

ownership threshold to nominate a 

director. Accordingly, we anticipate that 

shareholders would, in many instances, 

29054 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

239See 2003 Summary of Comments; see also 

comment letters from CalPERS; CIR; ICI; and Clauss 

& Wolf. 240See 2003 Summary of Comments; see also 

comment letters from ABA; NYC Bar; and Sullivan. 241 Id. 242The proposed exemption would not apply to 

solicitations made when seeking to have a nominee 

included in a company’s proxy materials pursuant 

to a procedure specified in the company’s 

governing documents. In this instance, companies 

and/or shareholders would have determined the 

parameters of the shareholder’s or group’s access to 

the company’s proxy materials. Given the range of 

possible criteria companies and/or shareholders 

could establish for nominations, we are not 

proposing to extend the exemption to those 

circumstances. A shareholder would need to 

determine whether one of the existing exemptions 

applies to their solicitation conducted in 

connection with a nomination made pursuant to a 

company’s governing documents. The proposed 

exemption also would not apply to nominations 

made pursuant to applicable state law provisions, 

again because state law could establish any number 

of possible criteria for nominations. 

243See proposed Rule 14a–2(b)(7)(i). 

244See id. 

245See proposed Rule 14a–2(b)(7)(ii). We note 

that written communications include electronic 

communications, such as e-mails and Web site 

postings. 

246Exchange Act Rule 14a–2(b)(2). 

247Exchange Act Rule 14a–2(b)(6). 

248See Exchange Act Rule 14a–12. 

249See proposed Rule 14a–2(b)(8)(i). 

engage in communications with other 

shareholders in an effort to form a 

nominating shareholder group that 

would be deemed solicitations under 

the proxy rules. In 2003 we proposed an 

exemption from certain of the proxy 

rules to enable shareholders to 

communicate for the limited purpose of 

forming a nominating shareholder group 

without filing and disseminating a 

proxy statement. To qualify for the 

exemption, shareholders would have 

had two options. The communications 

would either have been made to a 

limited number of shareholders or, in 

the alternative, to an unlimited number 

of shareholders, provided that the 

communication was limited in content 

and filed with the Commission. Some 

commenters supported adoption of 

limited exemptions,239 while others 

stated that the exemptions were 

unnecessary or duplicative of existing 

exemptions from the proxy rules. In 

particular, commenters expressed 

concerns about the exemption for 

solicitations not involving more than 30 

persons in connection with the 

formation of a nominating security 

holder group.240 These commenters 

believed the 30-person exemption might 

be used for undeclared control purposes 

and believed that there was no reason to 

replace the 10-person exemption set 

forth in Exchange Act Rule 14a–2(b)(2), 

which permits limited testing of the 

waters before application of the notice 

and filing requirements of the proxy 

rules.241

After considering further the need for 

an exemption, and in particular the 

comments received on the 2003 

Proposal, we are proposing an 

exemption from the proxy rules for 

communications made in connection 

with using proposed Rule 14a–11 242

that are limited in content and filed 

with the Commission.243 We believe 

this limited exemption will facilitate 

shareholders’ use of proposed Rule 14a– 

11 and remove concerns shareholders 

seeking to use the rule may have 

regarding certain communications with 

other shareholders regarding their intent 

to submit a nomination pursuant to the 

rule. The exemption would not apply to 

oral communications because such 

communications could not easily satisfy 

the filing requirement, which we believe 

is important in determining compliance 

with the content restriction in the 

proposed exemption. As proposed, 

Exchange Act Rules 14a–3 to 14a–6 

(other than paragraphs 14a–6(g) and 

14a–6(p)), 14a–8, 14a–10, and 14a–12 to 

14a–15 would not apply to any 

solicitation by or on behalf of any 

shareholder in connection with the 

formation of a nominating shareholder 

group, provided that: 

• Each written communication 

includes no more than: 

• A statement of the shareholder’s 

intent to form a nominating shareholder 

group in order to nominate a director 

under the proposed rule; 

• Identification of, and a brief 

statement regarding, the potential 

nominee or nominees or, where no 

nominee or nominees have been 

identified, the characteristics of the 

nominee or nominees that the 

shareholder intends to nominate, if any; 

• The percentage of securities that the 

shareholder beneficially owns or the 

aggregate percentage owned by any 

group to which the shareholder belongs; 

and 

• The means by which shareholders 

may contact the soliciting party; 244 and 

• Any written soliciting material 

published, sent or given to shareholders 

in accordance with the terms of this 

provision is filed with the Commission 

by the nominating shareholder, under 

the company’s Exchange Act file 

number (or in the case of a registered 

investment company, under the 

company’s Investment Company Act file 

number), no later than the date the 

material is first published, sent or given 

to shareholders. The soliciting material 

would be required to include a cover 

page in the form set forth in Schedule 

14A, with the appropriate box on the 

cover page marked.245

In this regard, we note that 

shareholders also would have the option 

to structure their solicitations, whether 

written or oral, to comply with an 

existing exemption from the proxy 

rules, including the exemption for 

solicitations of no more than 10 

shareholders,246 and the exemption for 

certain communications that take place 

in an electronic shareholder forum.247

Both the nominating shareholder or 

group and the company may wish to 

solicit in favor of their nominees for 

director by various means, including 

orally, by U.S. mail, electronic mail, and 

Web site postings. While the company 

ultimately would file a proxy statement 

and therefore could rely on the existing 

proxy rules to solicit outside the proxy 

statement,248 shareholders could be 

limited in their soliciting activities 

under the current proxy rules. 

Accordingly, we are proposing a new 

exemption to the proxy rules providing 

that solicitations by or on behalf of a 

nominating shareholder or group in 

support of a nominee included in the 

company’s proxy statement and form of 

proxy in accordance with the proposed 

rule, would not be subject to Exchange 

Act Rules 14a–3 to 14a–6 (other than 

paragraphs 14a–6(g) and 14a–6(p)), 14a– 

8, 14a–10, and 14a–12 to 14a–15, 

provided that: 

• The soliciting party does not, at any 

time during such solicitation, seek 

directly or indirectly, either on its own 

or another’s behalf, the power to act as 

proxy for a shareholder and does not 

furnish or otherwise request, or act on 

behalf of a person who furnishes or 

requests, a form of revocation, 

abstention, consent or authorization; 249

• Each written communication 

includes: 

• The identity of the nominating 

shareholder or group and a description 

of his or her direct or indirect interests, 

by security holdings or otherwise; 

• A prominent legend in clear, plain 

language advising shareholders that a 

shareholder nominee is or will be 

included in the company’s proxy 

statement and to read the company’s 

proxy statement when it becomes 

available because it includes important 

information. The legend also must 

explain to shareholders that they can 

find the proxy statement, other 

soliciting material and any other 

relevant documents, at no charge on the 

Commission’s Web site; and 

• Any soliciting material published, 

sent or given to shareholders in 

accordance with this paragraph must be 

filed by the nominating shareholder or 

group with the Commission, under the 

company’s Exchange Act file number, 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29055 

250For a registered investment company, the 

filing would be made under the subject company’s 

Investment Company Act file number. 

251See proposed Rule 14a–2(b)(8)(iii). 

252See Election of Directors Adopting Release. 

See also footnotes 88 and 89, above. 253See Election of Directors Adopting Release. 

no later than the date the material is 

first published, sent or given to 

shareholders.250 Three copies of the 

material would at the same time be filed 

with, or mailed for filing to, each 

national securities exchange upon 

which any class of securities of the 

company is listed and registered. The 

soliciting material would be required to 

include a cover page in the form set 

forth in Schedule 14A, with the 

appropriate box on the cover page 

marked.251

Request for Comment 

H.1. Should the Commission provide 

a new exemption for soliciting activities 

undertaken by shareholders seeking to 

form a nominating shareholder group 

pursuant to Rule 14a–11? If so, is the 

proposed exemption appropriate? If not, 

why not? What specific changes to the 

exemption would be appropriate? 

Should the rule require that a 

shareholder meet any of the 

requirements of Rule 14a–11 to rely on 

the exemption (e.g., have held the 

securities they seek to aggregate for the 

required holding period)? Is it 

appropriate to require filing with the 

Commission on the date of first use, as 

proposed? 

H.2. Should the Commission expand 

the proposed exemption for soliciting 

activities undertaken by shareholders 

seeking to form a nominating 

shareholder group pursuant to Rule 

14a–11 to apply also to oral 

communications? If so, what 

amendments to the proposed exemption 

would be necessary? 

H.3. What requirements should apply 

to soliciting activities conducted by a 

nominating shareholder or group? In 

particular, what filing requirements and 

specific parameters should apply to any 

such solicitations? For example, we 

have proposed a limited content 

exemption for certain solicitations by 

shareholders seeking to form a 

nominating shareholder group. Is this 

content-based limitation appropriate? 

Should shareholders, for example, also 

be permitted to explain their reasons for 

forming a nominating shareholder 

group? Should shareholders be 

permitted to identify any potential 

nominee, as proposed, and why that 

person was chosen? If not, what, if any, 

limitations would be more appropriate? 

For example, should an exemption for 

certain solicitations by shareholders 

seeking to form a nominating 

shareholder group be limited to no more 

than a specified number of 

shareholders, but not limited in content 

(e.g., fewer than 10 shareholders, 10 

shareholders, 20 shareholders, 30 

shareholders, 40 shareholders, more 

than 40 shareholders)? 

H.4. Should communications made to 

form a group be permitted to identify a 

possible or proposed nominee or 

nominees, as proposed? 

H.5. Is the requirement that the 

nominating shareholder or group 

provide a description of his or her direct 

or indirect interests, by security 

holdings or otherwise, sufficiently 

clear? Do we need to provide additional 

guidance as to what interests would be 

required to be disclosed? 

H.6. Should all written soliciting 

materials be filed with the Commission 

on the date of first use? If not, how 

much later should they be filed (e.g., 

two business days after first use; four 

business days after first use, some other 

date)? Should the materials be filed 

before the date of first use? 

H.7. Should we provide a similar 

exemption for soliciting activities 

undertaken by shareholders seeking to 

form a nominating shareholder group 

other than in connection with Rule 14a– 

11 (e.g., in connection with a 

nomination under applicable state law 

provisions or a company’s governing 

documents)? 

H.8. Should solicitations by or on 

behalf of a nominating shareholder or 

group in support of a nominee included 

in the company’s proxy statement and 

form of proxy pursuant to Rule 14a–11 

be exempt? Why or why not? 

H.9. Should the exemption be 

conditioned on the soliciting materials 

including a legend about the 

shareholder’s nominee being included 

in company proxy materials and a 

statement about where shareholders can 

find the proxy statement, soliciting 

material, and other relevant documents, 

as proposed? Should any other 

conditions be included in the 

exemption? 

H.10. Should a nominating 

shareholder or group be required to file 

any soliciting material published, sent 

or given to shareholders in accordance 

with the exemption no later than the 

date the material is first published, sent 

or given to shareholders, as proposed? 

H.11. Should solicitations by the 

nominating shareholder or group be 

limited or prohibited? If so, why? 

H.12. Should we provide a similar 

exemption for soliciting activities 

undertaken by a nominating shareholder 

or group in support of their nominee or 

nominees, where those nominees are 

included in a company’s proxy 

materials pursuant to applicable state 

law provisions or a company’s 

governing documents? 

C. Amendments to Exchange Act Rule 

14a–8(i)(8) 

1. Background 

Currently, Rule 14a–8(i)(8) allows a 

company to exclude from its proxy 

statement a shareholder proposal that 

relates to a nomination or an election for 

membership on the company’s board of 

directors or a procedure for such 

nomination or election. As noted, the 

Commission amended this provision in 

2007 to expressly permit the exclusion 

of a proposal that would result in an 

immediate election contest or would set 

up a process for shareholders to conduct 

an election contest in the future by 

requiring the company to include 

shareholders’ director nominees in the 

company’s proxy materials for 

subsequent meetings. The Commission 

adopted this proposal in December 2007 

to provide certainty to companies and 

shareholders in light of the AFSCME 

decision.252 In the adopting release, the 

Commission noted the many disclosures 

that are required for election contests 

that would not have been provided for 

in Rule 14a–8.253 In this regard, several 

Commission rules, including Exchange 

Act Rule 14a–12, regulate contested 

proxy solicitations to assure that 

investors receive disclosure to enable 

them to make informed voting decisions 

in elections. The requirements to 

provide these disclosures to 

shareholders from whom proxy 

authority is sought are grounded in Rule 

14a–3, which requires that any party 

conducting a proxy solicitation file with 

the Commission, and furnish to each 

person solicited, a proxy statement 

containing the information in Schedule 

14A. Items 4(b) and 5(b) of Schedule 

14A require numerous specified 

disclosures if the solicitation is subject 

to Rule 14a–12(c), and Item 7 of 

Schedule 14A also requires important 

specified disclosures for any director 

nominee. Finally, all of these 

disclosures are covered by the 

prohibition on the making of a 

solicitation containing false or 

misleading statements or omissions that 

is found in Rule 14a–9. 

The Commission’s action in 2007 

provided certainty to shareholders and 

companies regarding the application of 

Rule 14a–8(i)(8) in the wake of the 

AFSCME decision that had caused 

confusion about what disclosure and 

liability rules might apply to any 

resulting election contest. As noted in 

29056 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

254Under the alternative proposal, Rule 14a– 

8(i)(8) would have been amended with certain 

conditions to permit a qualifying shareholder who 

makes full disclosure in connection with a bylaw 

proposal relating to director nominations 

procedures to have that proposal included in a 

company’s proxy materials. 

255A proposal would continue to be subject to 

exclusion under Rule 14a–8(i)(2) if its 

implementation would cause the company to 

violate any state, federal, or foreign law to which 

it is subject, or under Rule 14a–8(i)(3), if the 

proposal or supporting statement was contrary to 

any of the Commission’s proxy rules. As proposed 

to be amended, Rule 14a–8(i)(8) would allow 

shareholders to propose additional means, other 

than Rule 14a–11, for disclosure of shareholder 

nominees in company proxy materials. Therefore, a 

shareholder proposal that seeks to provide an 

additional means for including shareholder 

nominees in the company’s proxy materials 

pursuant to the company’s governing documents 

would not be deemed to conflict with Rule 14a–11 

simply because it would establish different 

eligibility thresholds or require more extensive 

disclosures about a nominee or nominating 

shareholder than would be required under Rule 

14a–11. A shareholder proposal would conflict with 

Rule 14a–11, however, to the extent that the 

proposal would purport to prevent a shareholder or 

shareholder group that met the requirements of 

proposed Rule 14a–11 from having their nominee 

for director included in the company’s proxy 

materials. A shareholder proposal would also be 

subject to exclusion under Rule 14a–8(i)(2) or Rule 

14a–8(i)(3) to the extent that it would affirmatively 

excuse nominating shareholders or their nominees 

from compliance with the liability provisions of 

Rule 14a–9(c) or the proposed Rule 14a–19 

disclosure requirements applicable to shareholder 

nominations submitted pursuant to an applicable 

state law provision or a company’s governing 

documents. 

256Currently, Rule 14a–8 requires that a 

shareholder proponent 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 a period of one year 

prior to submitting the proposal. See Rule 14a–8(b). 

These requirements would remain the same. The 

proposal may be subject to exclusion if the 

procedural requirements of the rule are not met or 

it falls within one of the other substantive bases for 

exclusion included in Rule 14a–8. 

257 In this regard, the proposed revision to Rule 

14a–8(i)(8) would not make a distinction between 

binding and non-binding proposals. 

258Shareholders submitting a proposal to amend 

a company’s governing documents to address 

nomination procedures for inclusion of shareholder 

nominees in company proxy materials or 

disclosures related those shareholder nomination 

provisions would be subject to the rule’s current 

requirements. See footnote 256, above. 

259This approach is different from the disclosure 

requirements the Commission proposed in the 

Shareholder Proposals Release in 2007; however, it 

is consistent with the overall requirements relating 

to the submission of shareholder proposals— 

generally, shareholder proponents are not required 

to provide any type of disclosure along with their 

proposal. 

260See discussion of North Dakota Publicly 

Traded Corporations Act, N.D. Cent. Code § 10–35 

et al., in footnote 70, above. 

261See proposed Rule 14a–19. 

Section II., at that time, the Commission 

did not take any action with respect to 

the alternative proposal published in 

2007.254 Since that time, we have 

continued to consider whether the 

proxy process can be improved and we 

have concluded that the proxy rules, 

including Rule 14a–8(i)(8), can be 

amended to further facilitate 

shareholders’ rights to nominate 

directors and promote fair corporate 

suffrage, while still providing 

appropriate disclosure and liability 

protections. 

2. Proposed Amendment to Rule 14a– 

8(i)(8) 

We are proposing an amendment to 

Rule 14a–8(i)(8), the election exclusion, 

to enable shareholders, under certain 

circumstances, to require companies to 

include in company proxy materials 

proposals that would amend, or that 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations, 

provided the proposal does not conflict 

with proposed Rule 14a–11.255 The 

proposal would have to meet the 

procedural requirements of Rule 14a–8 

and not be subject to one of the 

substantive exclusions other than the 

election exclusion (e.g., the proposal 

could be excluded if the shareholder 

proponent did not meet the ownership 

threshold under Rule 14a–8).256

As proposed, except as provided 

below in the codification of staff 

positions, revised Rule 14a–8(i)(8) 

would not restrict the types of 

amendments that a shareholder could 

propose to a company’s governing 

documents to address the company’s 

provisions regarding nomination 

procedures or disclosures related to 

shareholder nominations, although any 

such proposals that conflict with 

proposed Rule 14a–11 or state law could 

be excluded.257 We recognize that the 

proposed amendments to Rule 14a– 

8(i)(8) could result in shareholders 

proposing amendments that would 

establish procedures for nominating 

directors and disclosures related to such 

nominations that require a different 

ownership threshold, holding period, or 

other qualifications or representations 

than those proposed in Rule 14a–11. 

The amendments proposed by 

shareholders through Rule 14a–8 would 

be permitted unless they would conflict 

with Rule 14a–11 (i.e., proposals that 

would preclude nominations by 

shareholders who would qualify under 

proposed Rule 14a–11 to have their 

nominee for director included in the 

company’s proxy materials) or 

applicable state law. We considered 

whether this would create confusion or 

lack of certainty for companies and their 

shareholders, but believe that this 

possibility is outweighed by the 

importance of facilitating shareholders’ 

ability to exercise their rights to 

determine their own additional 

shareholder nomination proxy 

disclosure and related procedures. 

3. Disclosure Requirements 

We are not proposing any new 

disclosure requirements for a 

shareholder that submits a proposal that 

would amend, or that requests an 

amendment to, a company’s governing 

documents to address the company’s 

nomination procedures or procedures 

for inclusion of shareholder nominees 

in company proxy materials or 

disclosures related to those shareholder 

provisions.258 New disclosures would 

not be required from a shareholder 

simply submitting such a proposal to 

amend, or requesting an amendment to, 

a company’s governing documents 

because the Commission believes that a 

shareholder may simply want to amend 

the company’s procedures for 

nominating directors, but may not 

intend to nominate any particular 

individual.259

As noted, the proposed amendments 

to Rule 14a–8(i)(8) could result in 

shareholders proposing amendments 

that would establish procedures for 

nominating directors and disclosures 

related to such nominations that require 

a different ownership threshold, holding 

period, or other qualifications or 

representations than those proposed in 

Rule 14a–11. In addition, a state could 

set forth in its corporate code 260 or a 

company may choose to amend its 

governing documents, to provide for 

nomination or disclosure rights in 

addition to those provided pursuant to 

Rule 14a–11 (e.g., a company could 

choose to provide a right for 

shareholders to have their nominees 

disclosed in the company’s proxy 

materials regardless of ownership—in 

that instance, the company’s provision 

would apply for certain shareholders 

who would not otherwise have their 

nominees included in the company’s 

proxy materials pursuant to Rule 14a– 

11). Accordingly, we are proposing 

amendments to our proxy rules to 

address the disclosure requirements 

when a nomination is made pursuant to 

such a provision.261 We believe the 

proposed additional disclosure 

requirements are necessary to provide 

shareholders with full and fair 

disclosure of information that is 

material when a choice among directors 

to be elected is presented. 

Proposed Rule 14a–19 would apply to 

a shareholder nomination for director 

for inclusion in the company’s proxy 

materials made pursuant to procedures 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29057 

262See proposed Rule 14a–19. 263See proposed Rule 14a–19(a). 264See proposed Rule 14a–19(b). This 

information would identify the nominee, describe 

certain legal proceedings, if any, related to the 

nominee, and describe certain of the nominee’s 

transactions and relationships with the company. 

See Items 7(a), (b), and (c) of Schedule 14A. This 

information also would include biographical 

information and information concerning interests of 

the nominee. See Item 5(b) of Schedule 14A. With 

respect to a nominee for director of an investment 

company, the disclosure would include certain 

basic information about the nominee and any 

arrangement or understanding between the nominee 

and any other person pursuant to which he was 

selected as a nominee; information about the 

positions, interests, and transactions and 

relationships of the nominee and his immediate 

family members with the company and persons 

related to the company; information about the 

amount of equity securities of funds in a fund 

complex owned by the nominee; and information 

describing certain legal proceedings related to the 

nominee, including legal proceedings in which the 

nominee is a party adverse to, or has a material 

interest adverse to, the company or any of its 

affiliated persons. See paragraph (b) of Item 22 of 

Schedule 14A. 

265See proposed Rule 14a–19(c). 

266See proposed Rule 14a–19(d). 

267See proposed Rule 14a–19(e). 

268See proposed Rule 14a–19(f). 

269See proposed Rule 14a–9(c). 

270See Shareholder Proposals Proposing Release. 

271See, e.g., comment letters from American 

Federation of Labor and Congress of Industrial 

Organizations (August 2, 2007) (‘‘AFL–CIO 2007’’); 

Amalgamated Bank LongView Funds (October 2, 

2007); Australian Council of Super-Investors 

(October 2, 2007); Robert Balopole, CFA, President, 

Balopole Investment Management Corp.; CalPERS 

2007; California State Teachers’ Retirement System 

(November 16, 2007) (‘‘CalSTERS 2007’’); Council 

of Institutional Investors (September 18, 2007) 

(‘‘CII’’); Public Employees’ Retirement Association 

of Colorado (October 1, 2007) (‘‘CO Retirement’’); 

McRitchie 2007; F&C Management Limited (October 

1, 2007); State Board of Administration of Florida 

(October 3, 2007); ICGN Shareholder Rights 

Committee (October 2, 2007); State Universities 

Retirement System of Illinois (October 1, 2007); 

Investment Management Association (October 2, 

2007); KLD Research & Analytics, Inc. (October 2, 

2007); Brett McDonnell (September 27, 2007); 

Treasurer, State of North Carolina (October 2, 2007); 

Ohio Public Employees Retirement System (October 

2, 2007); SEIU; International Brotherhood of 

Teamsters (August 30, 2007); UK Local Authority 

Pension Fund Forum (October 2, 2007); and United 

Church Foundation (September 27, 2007). 

established pursuant to state law or by 

a company’s governing documents. The 

proposed rule would require a 

nominating shareholder or group to 

include in its shareholder notice on 

Schedule 14N (which also would be 

filed with the Commission on the date 

provided to the company) disclosures 

about the nominating shareholder or 

group and their nominee that are similar 

to what would be required in an 

election contest.262

Specifically, the shareholder notice 

on Schedule 14N would be required to 

include: 

• A statement from the nominee that 

the nominee consents to be named in 

the company’s proxy statement and to 

serve on the board if elected, for 

inclusion in the company’s proxy 

statement; 263

• Disclosure about the nominee 

complying with the requirements of 

Item 4(b), Item 5(b), and Items 7(a), (b) 

and (c) and, for investment companies, 

Item 22(b) of Exchange Act Schedule 

14A, for inclusion in the company’s 

proxy statement; 264

• Disclosure about the nominating 

shareholder or members of a nominating 

shareholder group consistent with the 

disclosure currently required pursuant 

to Item 4(b) and Item 5(b) of Schedule 

14A; 265

• Disclosure about whether the 

nominating shareholder or member of a 

nominating shareholder group has been 

involved in any legal proceeding during 

the past five years, as specified in Item 

401(f) of Regulation S–K. Disclosure 

pursuant to this section need not be 

provided if provided in response to 

Items 4(b) and 5(b) of Schedule 14A; 266

• The following disclosure regarding 

the nature and extent of the 

relationships between the nominating 

shareholder or group and nominee and 

the company or any affiliate of the 

company: 

• Any material direct or indirect 

interest in any contract or agreement 

between the nominating shareholder or 

group or the nominee and the company 

or any affiliate of the company 

(including any employment agreement, 

collective bargaining agreement, or 

consulting agreement); 

• Any material pending or threatened 

litigation in which the nominating 

shareholder or group or nominee is a 

party or a material participant, and that 

involves the company, any of its officers 

or directors, or any affiliate of the 

company; and 

• Any other material relationship 

between the nominating shareholder or 

group or the nominee and the company 

or any affiliate of the company not 

otherwise disclosed; 267 and 

• Disclosure of any Web site address 

on which the nominating shareholder or 

group may publish soliciting 

materials.268

These disclosures would then be 

included in the company’s proxy 

materials pursuant to proposed new 

Item 7(f) of Schedule 14A. Proposed 

Item 22(b)(19) of Schedule 14A would 

require investment companies to 

include in their proxy materials 

disclosures from the nominating 

shareholder or shareholder group with 

regard to the nominee and nominating 

shareholder or shareholder group that 

are similar to those required for 

reporting companies (other than 

registered investment companies). 

In addition, the nominating 

shareholder or group would be required 

to identify the shareholder or group 

making the nomination and the amount 

of their ownership in the company on 

Schedule 14N. The filing would be 

required to include, among other 

disclosures: 

• The name and address of the 

nominating shareholder or each member 

of the nominating shareholder group; 

and 

• Information regarding the aggregate 

number and percentage of the securities 

entitled to be voted, including the 

amount beneficially owned and the 

number of shares over which the 

nominating shareholder or each member 

of the nominating shareholder group has 

or shares voting or disposition power. 

We believe that these disclosures would 

assist shareholders in making an 

informed voting decision with regard to 

any nominee or nominees put forth by 

the nominating shareholder or group, in 

that the disclosures would enable 

shareholders to gauge the nominating 

shareholder’s or group’s interest in the 

company. Depending on the 

requirements of the state law provisions 

or the company’s governing documents, 

these disclosures also may be important 

to the company in determining whether 

the nominating shareholder or group 

meets any ownership threshold, where 

applicable. The nominating shareholder 

or group would be liable for any false 

or misleading statements in these 

disclosures pursuant to proposed new 

paragraph (c) of Rule 14a–9.269

The disclosure requirements we are 

proposing differ from the approach 

proposed in the alternative proposal in 

2007.270 In that release, the Commission 

proposed requiring significant new 

disclosures from shareholder 

proponents of bylaw proposals to be 

made on Schedule 13G. Commenters 

expressed concern that the proposed 

disclosure requirements were too 

onerous and should not be required to 

submit a shareholder proposal.271 Upon 

further consideration, we believe that it 

is appropriate to allow the submission 

of proposals to amend, or that request 

an amendment to, a company’s 

governing documents to address the 

company’s nomination procedures or 

disclosures related to shareholder 

nominations without requiring 

extensive disclosure regarding the 

shareholder proponent. As noted above, 

we acknowledge that some shareholders 

may simply desire to amend or establish 

the company’s procedure for 

nominating directors, but may not 

contemplate nominating any particular 

29058 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

272 In limited circumstances, the staff may permit 

proponents to make minor revisions to a proposal 

to cure a deficiency under Rule 14a–8. Under 

existing staff interpretations, the staff may permit 

revisions to proposals that would disqualify board 

nominees from standing for election at the 

upcoming meeting or that would remove a director 

from office before his or her term expires. In 

contrast, where the proposal or supporting 

statement questions the competence or business 

judgment of one or more directors that will stand 

for reelection at the upcoming meeting, the staff 

will generally not permit the proponent to revise 

the proposal to cure such a deficiency. The 

proposed codification of existing staff 

interpretations under Rule 14a–8(i)(8) is not 

intended to alter the staff’s historical approach (see 

Staff Legal Bulletin No. 14 (July 13, 2001)) to 

permitting revisions to cure deficiencies under Rule 

14a–8(i)(8). 

273See, e.g., Dollar Tree Stores, Inc. (March 7, 

2008) and Waddell and Reed Financial, Inc. 

(February 23, 2001). 

274See, e.g., TVI Corporation (April 2, 2008) and 

First Energy Corp. (March 17, 2003). 

275See, e.g., Exxon Mobil Corporation (March 20, 

2002) and AT&T Corp. (February 12, 2001). 

276See, e.g., N–Viro International Corporation 

(March 8, 2007) and Dow Jones & Company, Inc. 

(January 31, 1996). 

277See, e.g., Rule 14a–8(i)(7) addressing proposals 

that ‘‘deal[] with a matter relating to the company’s 

ordinary business operations,’’ and Rule 14a– 

8(i)(10) addressing proposals that have been 

‘‘substantially implemented’’ already by the 

company. 

individual. In addition, we do not 

require additional disclosure from 

proponents of other types of shareholder 

proposals submitted under Rule 14a–8. 

We are soliciting comment, however, on 

whether additional disclosure from a 

shareholder submitting a bylaw 

proposal would be appropriate. 

4. Codification of Prior Staff 

Interpretations 

Although we are proposing to amend 

Rule 14a–8(i)(8), we continue to believe 

that under certain circumstances 

companies should have the right to 

exclude proposals related to particular 

elections and nominations for director 

from company proxy materials where 

those proposals could result in an 

election contest between company and 

shareholder nominees without the 

important protections provided by the 

disclosure and liability provisions 

otherwise provided for in the proxy 

rules. Rule 14a–8(i)(8) should not, 

however, be read so broadly such that 

the provision could be used to permit 

the exclusion of proposals regarding the 

qualifications of directors, shareholder 

voting procedures, board nomination 

procedures and other election matters of 

importance to shareholders that would 

not directly result in an election contest 

between management and shareholder 

nominees, and that do not present 

significant conflicts with the 

Commission’s other proxy rules. 

Therefore, we propose to amend Rule 

14a–8(i)(8) to codify certain prior staff 

interpretations with respect to the type 

of proposals that would continue to be 

excludable.272

A company would be permitted to 

exclude a proposal under Rule 14a– 

8(i)(8) if it: 

• Would disqualify a nominee who is 

standing for election; 273

• Would remove a director from 

office before his or her term expired; 274

• Questions the competence, business 

judgment, or character of one or more 

nominees or directors; 275

• Nominates a specific individual for 

election to the board of directors,276

other than pursuant to Rule 14a–11, an 

applicable state law provision, or a 

company’s governing documents; or 

• Otherwise could affect the outcome 

of the upcoming election of directors. 

With regard to the language ‘‘otherwise 

could affect the outcome of the 

upcoming election of directors,’’ we are 

seeking to address the fact that the 

proposed new language of the exclusion 

specifically addresses the particular 

types of proposals that we have 

traditionally seen in this area and that 

we believe are clearly excludable under 

the policy underlying the rule. With the 

broader proposed language, we are 

seeking to address new proposals that 

may be developed over time that are 

comparable to the four specified 

categories and would undermine the 

purpose of the exclusion. This broader 

language is generally consistent with the 

language of the other bases for exclusion 

in Rule 14a–8.277

Request for Comment 

I.1. Should the Commission amend 

Rule 14a–8(i)(8), as proposed, to allow 

proposals that would amend, or that 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations, 

provided the proposal does not conflict 

with proposed Rule 14a–11? Should the 

rule instead require such proposals to be 

included only in particular 

circumstances? For example, should 

inclusion of such proposals be required 

only when a company already has a 

provision in place regarding the 

inclusion of shareholder director 

nominees, or disclosure about those 

nominees, in company proxy materials? 

I.2. Should the Commission amend 

Rule 14a–8(i)(8) to allow proposals that 

would amend, or that request an 

amendment to, a company’s governing 

documents to provide for or prohibit 

inclusion of shareholder nominees for 

director in company proxy materials? 

Should such an amendment operate 

separately from proposed Rule 14a–11? 

Should such an amendment be adopted 

regardless of whether proposed Rule 

14a–11 is adopted? If so, under what 

circumstances should such proposals be 

permitted? For example, should 

shareholder proposals be included 

where they propose or request 

amendments to provisions in the 

company’s governing documents to 

address the inclusion of shareholder 

nominees for director in the company’s 

proxy materials so long as such 

amendments are not prohibited under 

state law? Should such proposals 

instead be included only if the law of 

the company’s state of incorporation 

explicitly authorizes a company to have 

a provision in its governing documents 

that permits the inclusion of 

shareholder nominees in the company’s 

proxy materials? Should such proposals 

instead be limited under Rule 14a–8 to 

instances when a company already has 

a provision in its governing documents 

that addresses the inclusion of 

shareholder nominees in the company’s 

proxy materials? 

I.3. Should companies be required to 

include non-binding proposals 

regarding procedures to include 

shareholder nominees for director in 

company proxy materials, as proposed? 

Should the requirements instead be 

limited to binding proposals? 

I.4. Should proposed Rule 14a–8(i)(8) 

operate independently, even if proposed 

Rule 14a–11 were not adopted or not in 

effect? Why or why not? Are there 

changes or additions to Rule 14a–8(i)(8) 

as proposed that can or should be made 

so that it would be better suited or able 

to operate independently? Please give 

specific recommendations. 

I.5. Is it sufficiently clear that 

shareholders would have the ability 

under proposed Rule 14a–8(i)(8) to 

propose nomination procedures that are 

different from proposed Rule 14a–11 

provided that such procedures would 

serve as additional methods of accessing 

the proxy and would not preclude a 

shareholder or group or shareholders 

who satisfied the Rule 14a–11 

requirements from using the Rule 14a– 

11 method? If not, what clarification 

should be made? 

I.6. As proposed, a shareholder 

proposal under Rule 14a–8(i)(8) would 

supplement proposed Rule 14a–11, not 

replace it. Should shareholders instead 

be permitted under Rule 14a–8(i)(8) to 

propose governing document 

amendments that would conflict with 

proposed Rule 14a–11? Please explain 

how and why. Are there different 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29059 

278Nominating shareholders that have formed a 

group under Exchange Act Section 13(d)(3) and 

Rule 13d–5(b) would need to reassess whether 

group status and the obligation of the group to file 

beneficial ownership reports continue after the 

election of directors. 

279See Exchange Act Rule 13d–1. 

280See, e.g., Exchange Act Rules 13d–1(b) and 

13d–1(c). 

limitations on such proposals that we 

should consider? If so, what are they? 

I.7. What would be the costs to 

companies if Rule 14a–8(i)(8) were 

amended as proposed? 

I.8. Rule 14a–8 currently requires that 

a shareholder proponent have held 

continuously 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 as of 

the date of submission of the proposal. 

Are these thresholds appropriate? 

Should the minimum ownership 

threshold be higher than $2,000 in 

market value of the company’s 

securities entitled to be voted on the 

proposal? Should the minimum 

ownership threshold be periodically 

adjusted for inflation? Should these 

eligibility determinations be made on 

the date of submission of the proposal, 

as proposed? If not, what date should be 

used? 

I.9. Are there alternative thresholds 

that would be more appropriate for 

purposes of submitting a proposal under 

Rule 14a–8(i)(8) (e.g., 1%, 2%, 3%, 4%, 

or 5% of the company’s securities)? If 

so, please explain. 

I.10. We are not proposing any 

requirements to disclose information 

about a shareholder proponent who 

submits a proposal that seeks to 

establish a procedure for nominating 

one or more directors. Should the rule 

require disclosure about a shareholder 

proponent who submits a proposal that 

relates to procedures for nominating 

directors but does not nominate a 

director? If so, what disclosures would 

be appropriate? The disclosures 

required in a contested election? 

Disclosure about the proponent’s 

motives and interactions with the 

company leading up to the proposal? 

With respect to requiring disclosure 

from shareholder proponents, should 

our rules make a distinction between a 

proposal relating to a procedure for 

nominating directors and other 

proposals on other unrelated subjects? 

I.11. Should disclosure consistent 

with that required in an election contest 

as defined in Rule 14a–12 be required 

for shareholder nominations pursuant to 

applicable state law provisions or a 

company’s governing documents, as 

proposed? Why or why not? What 

additional disclosures should be 

required, if any? Which of the proposed 

disclosure requirements, if any, should 

be deleted or revised? 

I.12. As proposed, the disclosures 

required for a nomination pursuant to 

an applicable state law provision or a 

company’s governing documents do not 

include all of the disclosures that would 

be required for a Rule 14a–11 

nomination. Would any of the 

additional disclosures required under 

Rule 14a–11 be appropriate with regard 

to a nomination under an applicable 

state law provision or a company’s 

governing documents? If so, which ones 

in particular? Should a nominating 

shareholder or group submitting a 

nomination pursuant to an applicable 

state law provision or a company’s 

governing documents be required to 

provide a statement regarding the 

nominating shareholder’s or group’s 

intent to continue to hold the securities 

through the date of the meeting? Should 

the rules require a statement regarding 

the nominating shareholder’s or group’s 

intent with respect to continued 

ownership of the shares after the 

election? 

I.13. Should Rule 14a–8(i)(8) be 

amended to codify the prior staff 

interpretations of the election exclusion, 

as proposed? Why or why not? Does the 

proposed new language best describe 

the category of proposals that 

companies should be permitted to 

exclude? Are there other examples or 

categories or proposals that should be 

included in the revised rule (that do not 

restrict the ability of shareholders to 

propose nomination procedures)? 

I.14. Is the proposed new language of 

Rule 14a–8(i)(8) sufficiently clear? In 

particular, would the proposed language 

‘‘or otherwise could affect the outcome 

of the upcoming election of directors,’’ 

achieve its goal? Would there be 

unintended consequences of revising 

the language as proposed? 

D. Other Rule Changes 

1. Beneficial Ownership Reporting 

Requirements 

The proposed rules would enable 

shareholders to engage in limited 

solicitations to form nominating 

shareholder groups and engage in 

solicitations in support of their 

nominees without disseminating a 

proxy statement. Although the 

minimum amount of securities a 

shareholder or group of shareholders 

must beneficially hold to be eligible to 

submit a nomination pursuant to 

proposed Rule 14a–11 is 1% for large 

accelerated filers, 3% for accelerated 

filers, and 5% for non-accelerated filers, 

the Commission anticipates that some 

shareholders or groups of shareholders 

may beneficially own in the aggregate 

more than 5% of the company’s 

securities that are eligible to vote for the 

election of directors. Therefore, 

nominating shareholders will need to 

consider whether they have formed a 

group under Exchange Act Section 

13(d)(3) and Rule 13d–5(b)(1) that is 

required to file beneficial ownership 

reports.278 Any person who is directly 

or indirectly the beneficial owner of 

more than 5% of a class of equity 

securities registered under Exchange 

Act Section 12 must report that 

ownership by filing an Exchange Act 

Schedule 13D with the Commission.279

There are exceptions to this 

requirement, however, that permit such 

a person to report that ownership on 

Schedule 13G rather than Schedule 

13D.280 One exception permits filings 

on Schedule 13G for a specified list of 

qualified institutional investors who 

have acquired the securities in the 

ordinary course of their business and 

with neither the purpose nor the effect 

of changing or influencing control of the 

company. A second exception applies to 

persons who are not specified in the 

first exception. These beneficial owners 

of more than 5% of a subject class of 

securities may file on Schedule 13G if 

they acquired the securities with neither 

the purpose nor the effect of changing 

or influencing control of the company 

and they are not directly or indirectly 

the beneficial owner of 20% or more of 

the subject class of securities. 

Central to Schedule 13G eligibility is 

that the shareholder be a passive 

investor that has acquired the securities 

without the purpose, or the effect, of 

changing or influencing control of the 

company. In addition, shareholders who 

are filing as qualified institutional 

investors must have acquired the 

securities in the ordinary course of their 

business. We believe that the formation 

of a shareholder group solely for the 

purpose of nominating one or more 

directors pursuant to proposed Rule 

14a–11, the nomination of one or more 

directors pursuant to proposed Rule 

14a–11, soliciting activities in 

connection with such a nomination 

(including soliciting in opposition to a 

company’s nominees), or the election of 

such a nominee as a director under 

proposed Rule 14a–11, should not result 

in a nominating shareholder or 

nominating shareholder group losing its 

eligibility to file on Schedule 13G. In 

such circumstances, a nominating 

shareholder or nominating shareholder 

group could report on Schedule 13G, 

rather than Schedule 13D. Accordingly, 

we are proposing to revise the 

requirement that the first and second 

29060 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

281This exception would only be available for 

purposes of the nomination. After the election of 

directors, a nominating shareholder or group would 

need to reassess its eligibility to continue to report 

on Schedule 13G as a passive or qualified 

institutional investor. For example, if a nominating 

shareholder is the nominee, and is successful in 

being elected to the board of a company, the 

shareholder would most likely be ineligible to 

continue filing on Schedule 13G because of its 

ability as a director to directly or indirectly 

influence the management and policies of the 

company. 282A group may file on Schedule 13G so long as 

each member qualifies to do so individually. 

283 15 U.S.C. 78p. 

284Exchange Act Section 16(a) [15 U.S.C. 78p(a)]. 

285Exchange Act Section 16(b) [15 U.S.C. 78p(b)]. 

286Exchange Act Section 16(c) [15 U.S.C. 78p(c)]. 

287Commenters on the 2003 Proposal generally 

supported the proposed exception. See 2003 

Summary of Comments; see also comment letters 

from CalPERS, CIR; ICI; NYC Bar; and NYS Bar. 

288See Exchange Act Rule 13d–5(b) [17 CFR 

240.13d–5(b)]. 

289See Exchange Act Rule 16a–1(a)(1) [17 CFR 

240.16a–1(a)(1)]. 

290See Feder v. Martin Marietta, 406 F.2d 260 (2d 

Cir.), cert. denied, 396 U.S. 1036 (1970); Blau v. 

Lehman, 368 U.S. 403 (1962); and Rattner v. 

Lehman, 193 F.2d 564 (2d Cir. 1952). The judicial 

decisions in which this theory was applied do not 

establish precise standards for determining when 

‘‘deputization’’ may exist. However, the express 

purpose of Section 16(b) is to prevent the unfair use 

of information by insiders through their 

relationships to the issuer. Accordingly, one factor 

that courts may consider in determining if Section 

16(b) liability applies is whether, by virtue of the 

‘‘deputization’’ relationship, the ‘‘deputizing’’ 

entity’s transactions in issuer securities may benefit 

from the deputized director’s access to inside 

information. 

categories of persons who may report 

their ownership on Schedule 13G have 

acquired the securities without the 

purpose or effect of changing or 

influencing control of the registrant to 

provide an exception for activities 

solely in connection with a nomination 

under Rule 14a–11.281 Any activity 

other than those provided for under 

Rule 14a–11 would make these 

instructions inapplicable. These rule 

changes would not apply to nominating 

shareholders or groups that submit a 

nomination pursuant to an applicable 

state law provision or a company’s 

governing documents because in those 

instances the applicable provisions may 

not limit the number of board seats for 

which a shareholder or group could 

nominate candidates or include a 

requirement that the nominating 

shareholder or group lack intent to 

change the control of the issuer or to 

gain more than a limited number of 

seats on the board (as is the case under 

proposed Rule 14a–11). Accordingly, we 

do not believe it would be appropriate 

to make any determination as to 

whether a nominating shareholder or 

group under an applicable state law 

provision or a company’s governing 

documents would be eligible to file on 

Schedule 13G. 

Request for Comment 

J.1. The proposal would provide that 

a shareholder or shareholder group 282

would not, solely by virtue of 

nominating one or more directors under 

proposed Rule 14a–11, soliciting on 

behalf of that nominee or nominees, or 

having that nominee or nominees 

elected, lose their eligibility to file as a 

passive or qualified institutional 

investor. This provision would then 

permit those shareholders or groups to 

report their ownership on Schedule 

13G, rather than Schedule 13D. Is this 

approach appropriate? Should other 

conditions be required to be satisfied? If 

so, what other conditions? For example, 

should a nominating shareholder or 

group cease to qualify as a passive or 

qualified institutional investor where 

the nominee is the nominating 

shareholder or a member of the group, 

a member of the immediate family of the 

nominating shareholder or any member 

of the group, an employee of the 

nominating shareholder or any member 

of the group, or is in any way controlled 

by the nominating shareholder or any 

member of the group? 

J.2. Should nominating shareholders 

or groups be required to comply with 

the additional Schedule 13D filing and 

disclosure requirements under the 

Exchange Act beneficial ownership 

reporting standards? 

J.3. Should we provide a similar 

provision for nominating shareholders 

or groups submitting a nomination 

pursuant to an applicable state law 

provision or a company’s governing 

documents? Why or why not? 

2. Exchange Act Section 16 

Exchange Act Section 16 283 applies to 

every person who is the beneficial 

owner of more than 10% of any class of 

equity security registered under 

Exchange Act Section 12 (‘‘10% 

owners’’), and each officer and director 

(collectively with 10% owners, 

‘‘insiders’’) of the issuer of such 

security. Generally: 

• Section 16(a) requires an insider to 

file an initial report with the 

Commission disclosing his or her 

beneficial ownership of all equity 

securities of the issuer upon becoming 

an insider. To keep this information 

current, Section 16(a) also requires 

insiders to report changes in such 

holdings, in most cases within two 

business days following the 

transaction.284

• Section 16(b) provides the issuer (or 

shareholders suing on behalf of the 

issuer) a private right of action to 

recover from an insider any profit 

realized by the insider from any 

purchase and sale (or sale and purchase) 

of any equity security of the issuer 

within any period of less than six 

months.285

• Section 16(c) makes it unlawful for 

an insider to sell any equity security of 

the issuer if the insider: (1) Does not 

own the security sold; or (2) owns the 

security, but does not deliver it against 

the sale within specified time 

periods.286

In 2003 the Commission proposed 

that a group formed solely for the 

purpose of nominating a director 

pursuant to proposed Rule 14a–11, 

soliciting in connection with the 

election of that nominee, or having that 

nominee elected as a director should not 

be viewed as being aggregated together 

for purposes of the 10% ownership 

determination under Section 16.287 We 

are not proposing such an exclusion 

today and instead believe it would be 

appropriate to apply the existing 

analysis of whether a group has 

formed 288 and whether Section 16 

applies.289 In this regard, because the 

ownership thresholds for proposed Rule 

14a–11 are significantly lower than 

10%, and are generally lower than what 

was proposed in 2003, we do not 

believe that the lack of an exclusion 

would have a deterrent effect on the 

formation of groups, and therefore an 

exclusion may be unnecessary under the 

current proposal. Rather, a group 

formed for the purpose of nominating a 

director pursuant to proposed Rule 14a– 

11, soliciting in connection with the 

election of that nominee, or having that 

nominee elected as a director, would be 

analyzed the same way as any other 

group for purposes of determining 

whether group members are 10% 

owners subject to Section 16. 

Some shareholders, particularly 

institutions and other entities, may be 

concerned that successful use of 

proposed Rule 14a–11 to include a 

director nominee in company proxy 

materials may result in the nominating 

person also being deemed a director 

under the ‘‘deputization’’ theory 

developed by courts in Section 16(b) 

short-swing profit recovery cases.290

Under this theory it is possible for a 

person to be deemed a director subject 

to Section 16, even though the issuer 

has not formally elected or otherwise 

named that person a director. We have 

not proposed standards for establishing 

the independence of the nominee from 

the nominating shareholder, or members 

of the nominating shareholder group. 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29061 

291Rule 16a–1(a)(1) also contains a general 

condition that the securities be held for the benefit 

of third parties or in customer or fiduciary accounts 

in the ordinary course of business, but this 

condition would not be applicable to nominating 

shareholder groups under the exclusion 

contemplated by this comment request. 

292See Note to proposed Rule 14a–19. 

293See the Instruction to proposed Item 7(e) of 

Schedule 14A; Instruction to proposed Item 

22(b)(18) of Schedule 14A. 

294See the Instruction to proposed Item 7(f) of 

Schedule 14A; Instruction to proposed Item 

22(b)(19) of Schedule 14A. 

Request for Comment 

K.1. Would it be a disincentive to 

using proposed Rule 14a–11 if 

shareholders forming a group to 

nominate a director could become 

subject to Section 16 once the group’s 

ownership exceeds 10% of the 

company’s equity securities? Why or 

why not? 

K.2. Are there any specific reasons 

why shareholders forming a group 

solely to nominate a director pursuant 

to proposed Rule 14a–11 should not be 

subject to Section 16 once the group’s 

ownership exceeds 10% of the 

company’s equity securities? If so, 

should the Commission adopt an 

exclusion from Section 16? Why, or why 

not? 

K.3. If we should amend Rule 16a– 

1(a)(1), the rule that defines who is a 

10% owner for Exchange Act Section 16 

purposes, to exclude a Rule 14a–11 

nominating shareholder group from the 

definition, how should such an 

exclusion be structured? For example, 

these groups could remain subject to the 

general condition of the rule that they 

not have the purpose or effect of 

changing or influencing control of the 

issuer, but a note to Rule 16a–1(a)(1) 

could provide an exception for members 

of nominating shareholder groups 

formed solely for the purpose of using 

proposed Rule 14a–11.291 Should these 

conditions or other conditions apply? 

K.4. Should the Commission consider 

providing an exclusion to the existing 

Rule 13d–5 definition of ‘‘group’’ that 

applies to both the Section 13(d) 

beneficial ownership reporting 

requirements and the Section 16 

reporting requirements? 

K.5. If the Commission adopts any 

such exclusion, should it be based on 

additional or different conditions? For 

example, should the Commission 

provide an exclusion from the definition 

of ‘‘group’’ in Rule 13d–5(b) for 

shareholders that agree to act together 

solely for the purpose of holding their 

securities in accordance with proposed 

Rule 14a–11(b)(2)? 

K.6. Are there reasons that members 

of nominating shareholder groups 

formed under proposed Rule 14a–11 

should be treated differently than 

shareholder groups permitted to form 

and formed to nominate directors under 

an applicable state law provision, or 

under provisions in a company’s 

governing documents? If so, why? What 

distinctions ought to be drawn between 

groups formed under proposed Rule 

14a–11 and an applicable state law 

provision or a company’s governing 

documents in terms of Rule 13d–5(b) 

and Rule 16a–1(a)(1)? 

K.7. Should there be a prohibition on 

any affiliation between nominees and 

nominating shareholders or groups? If 

so, what limitations would be 

appropriate? Would any such 

prohibitions or limitations make it less 

likely that in Section 16(b) cases courts 

would find nominating shareholders to 

be ‘‘deputized’’ directors in 

circumstances where liability should 

not apply? Would the lack of any such 

prohibitions or limitations increase the 

likelihood that courts would find 

nominating shareholders to be 

‘‘deputized’’ directors? 

E. Application of the Liability Provisions 

in the Federal Securities Laws to 

Statements Made by a Nominating 

Shareholder or Nominating Shareholder 

Group 

It is our intent that a nominating 

shareholder or group relying on Rule 

14a–11, an applicable state law 

provision, or a company’s governing 

documents to include a nominee in 

company proxy materials be liable for 

any materially false or misleading 

statements in information provided by 

the nominating shareholder or group to 

the company (in its shareholder notice 

on Schedule 14N) that is then included 

in the company’s proxy materials. To 

this end we have amended Rule 14a–9 

to add a new paragraph (c), to 

specifically address these situations. 

Proposed new paragraph (c) states that 

‘‘no nominee, nominating shareholder 

or nominating shareholder group, or any 

member thereof, shall cause to be 

included in a registrant’s proxy 

materials, either pursuant to the federal 

proxy rules, an applicable state law 

provision, or a registrant’s governing 

documents as they relate to including 

shareholder nominees for director in 

registrant proxy materials, any 

statement which, at the time and in the 

light of the circumstances under which 

it is made, is false or misleading with 

respect to any material fact, or which 

omits to state any material fact 

necessary in order to make the 

statements therein not false or 

misleading or necessary to correct any 

statement in any earlier communication 

with respect to the solicitation of a 

proxy for the same meeting or subject 

matter which has become false or 

misleading.’’ 

In addition, proposed new Rule 14a– 

11(e) contains express language 

providing that the company would not 

be responsible for information that is 

provided by the nominating shareholder 

or group under Rule 14a–11 and then 

repeated by the company in its proxy 

statement, except where the company 

knows or has reason to know that the 

information is false or misleading. A 

similar provision is included in 

proposed Rule 14a–19 with regard to 

information that is provided by the 

nominating shareholder or group in 

connection with a nomination made 

pursuant to an applicable state law 

provision or the company’s governing 

documents.292

Also, as proposed, any information 

that is provided to the company in the 

notice from the nominating shareholder 

or group under Rule 14a–11 (and, as 

required, filed with the Commission by 

the nominating shareholder or group) 

and then included in the company’s 

proxy materials would not be 

incorporated by reference into any filing 

under the Securities Act, the Exchange 

Act, or the Investment Company Act 

unless the company determines to 

incorporate that information by 

reference specifically into that filing.293

A similar provision would apply to 

information that is provided by the 

nominating shareholder or group in 

connection with a nomination made 

pursuant to an applicable state law 

provision or the company’s governing 

documents.294

To the extent the company does 

incorporate that information by 

reference or otherwise adopt the 

information as its own, however, we 

would consider the company’s 

disclosure of that information as the 

company’s own statement for purposes 

of the antifraud and civil liability 

provisions of the Securities Act, the 

Exchange Act, or the Investment 

Company Act, as applicable. 

Request for Comment 

L.1. Is an amendment to Rule 14a–9 

the appropriate means to assign liability 

for materially false or misleading 

information provided by the nominating 

shareholder or group to the company 

that is included in the company’s proxy 

materials? If not, what would be a more 

appropriate means? Should we 

characterize the disclosure provided to 

the company by the nominating 

shareholder or group and included in 

the company’s proxy materials as 

soliciting material of the nominating 

29062 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

295 44 U.S.C. 3501 et seq. 

296 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

297Exchange Act Schedule 14C requires 

disclosure of some items of Exchange Act Schedule 

14A. Therefore, while we are not proposing to 

amend the text of Schedule 14C, the proposed 

amendments to Schedule 14A also must be 

reflected in the PRA burdens for Schedule 14C. 

298The proxy rules apply only to domestic 

companies with securities registered under Section 

12 of the Exchange Act and to investment 

companies registered under the Investment 

Company Act. The number of annual reports by 

reporting companies may differ from the number of 

proxy and information statements filed with the 

Commission in any given year. This is because 

some companies are subject to reporting 

requirements by virtue of Section 15(d) of the 

Exchange Act, and therefore are not covered by the 

proxy rules. Also, some companies are subject to 

the proxy rules only because they have a class of 

debt registered under Section 12. These companies 

generally are not required to hold annual meetings 

for the election of directors. In addition, companies 

that are not listed on a national securities exchange 

may not hold annual meetings and therefore would 

not be required to file a proxy or information 

statement. 

299For convenience, the estimated PRA hour 

burdens have been rounded to the nearest whole 

number. We estimate an hourly cost of $400 per 

hour for the service of outside professionals based 

on our consultations with several registrants and 

law firms and other persons who regularly assist 

registrants in preparing and filing proxy statements 

and related disclosures with the Commission. 

shareholder or group, as we proposed in 

2003? Why or why not? Is it appropriate 

for proposed Rule 14a–9(c) to apply to 

nominations made pursuant to Rule 

14a–11, an applicable state law 

provision, and a company’s governing 

documents? 

L.2. Does the language of proposed 

new paragraph (c) of Rule 14a–9 make 

clear that the nominating shareholder or 

group would be liable for any 

information included in its Schedule 

14N or notice to the company that is 

included in the company’s proxy 

materials? If not, what specific changes 

should be made to the proposed rule 

text? 

L.3. Does the proposal make clear the 

company’s responsibilities when it 

includes such information in its proxy 

materials? Should the proposal include 

language otherwise addressing a 

company’s responsibility for repeating 

statements that it knows or has reason 

to know are not accurate? Are there 

situations where a company should be 

responsible for repeating statements of 

the nominating shareholder or group? 

Should the proposal treat disclosure 

provided in connection with a 

nomination pursuant to Rule 14a–11, an 

applicable state law provision, or a 

company’s governing documents 

differently? 

L.4. Should information provided by 

nominating shareholders or groups be 

deemed incorporated by reference into 

Securities Act, Exchange Act, or 

Investment Company Act filings? Why 

or why not? 

L.5. Should information, if 

incorporated by reference into 

Securities Act or Exchange Act filings, 

still be treated as the responsibility of 

the nominee rather than the company? 

As proposed, are we creating a 

disincentive to incorporation by 

reference? 

F. General Request for Comment 

We request and encourage any 

interested person to submit comments 

regarding: 

• The proposed amendments that are 

the subject of this release; 

• Additional or different changes; or 

• Other matters that may have an 

effect on the proposals contained in this 

release. 

We request comment from the point 

of view of companies, investors and 

other market participants. With regard 

to any comments, we note that such 

comments are of great assistance to our 

rulemaking initiative if accompanied by 

supporting data and analysis of the 

issues addressed in those comments. 

IV. Paperwork Reduction Act 

A. Background 

The proposed amendments contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995.295

We are submitting the proposal to the 

Office of Management and Budget for 

review in accordance with the PRA.296

The titles for the collections of 

information are: 

(1) ‘‘Form ID’’ (OMB Control No. 

3235–0328); 

(2) ‘‘Proxy Statements—Regulation 

14A (Commission Rules 14a–1 through 

14a–19 and Schedule 14A)’’ (OMB 

Control No. 3235–0059); 

(3) ‘‘Information Statements— 

Regulation 14C (Commission Rules 14c– 

1 through 14c–7 and Schedule 14C)’’ 297

(OMB Control No. 3235–0057); 

(4) ‘‘Schedule 14N’’; 

(5) ‘‘Securities Ownership— 

Regulation 13D and 13G (Commission 

Rules 13d–1 through 13d–7 and 

Schedules 13D and 13G)’’ (OMB Control 

No. 3235–0145); 

(6) ‘‘Form 8–K’’ (OMB Control No. 

3235–0060); and 

(7) ‘‘Rule 20a–1 under the Investment 

Company Act of 1940, Solicitations of 

Proxies, Consents, and Authorizations’’ 

(OMB Control No. 3235–0158). 

These regulations, rules and forms 

were adopted pursuant to the Exchange 

Act and the Investment Company Act 

and set forth the disclosure 

requirements for securities ownership 

reports filed by investors, proxy and 

information statements,298 and current 

reports filed by companies to ensure 

that investors are informed and can 

make informed voting or investing 

decisions. The hours and costs 

associated with preparing, filing, and 

sending these schedules and forms 

constitute reporting and cost burdens 

imposed by each collection of 

information. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid OMB control number. 

B. Summary of Proposed Amendments 

The Commission’s proposals would 

provide shareholders with two ways to 

more fully exercise their rights to 

nominate directors. First, we are 

proposing a new rule—Rule 14a–11— 

that would, under certain 

circumstances, require companies to 

include in their proxy materials 

shareholder nominees for director 

submitted by long-term shareholders or 

groups of shareholders with significant 

holdings. Under the rule, a company 

would not be required to include a 

shareholder nominee or nominees for 

director in the company proxy materials 

where the nominating shareholder or 

group is seeking to change the control 

of the issuer or to obtain more than a 

limited number of seats on the board. 

Proposed Rule 14a–11 would not apply 

where state law or a company’s 

governing documents prohibit 

shareholders from nominating directors. 

For purposes of the PRA, we estimate 

the total annual incremental paperwork 

burden resulting from proposed Rule 

14a–11 and the related rule changes for 

reporting companies (other than 

registered investment companies), and 

registered investment companies to be 

approximately 17,149 hours of internal 

company or shareholder time and a cost 

of approximately $2,796,320 for the 

services of outside professionals.299 For 

purposes of the PRA, we estimate the 

total annual incremental paperwork 

burden to nominating shareholders and 

groups from proposed Schedule 14N to 

be approximately 28,565 hours of 

shareholder personnel time, and 

$3,808,600 for services of outside 

professionals. As discussed further, 

below, these total costs include all 

additional disclosure burdens 

associated with the proposed rules 

including burdens related to the notice 

and disclosure requirements. 

Second, under the proposed 

amendment to Rule 14a–8(i)(8), the 

‘‘election exclusion,’’ a company would 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29063 

300The annual responses to Investment Company 

Act Rule 20a–1 reflect the number of proxy and 

information statements that are filed by registered 

investment companies. 

301The burdens associated with Schedule 14N 

and the disclosure requirements of Rule 14a–18 and 

Rule 14a–19 are discussed in Section IV.C.3. below. 

302We estimate that 1,385 large accelerated filers 

have at least one shareholder that meets the 1% 

threshold; 1,584 accelerated filers have at least one 

shareholder meeting the 3% threshold; and 1,194 

non-accelerated filers have at least one shareholder 

meeting the 5% threshold. See Section II.B.3., 

above. 

Shareholders would be permitted to aggregate 

holdings for purposes of meeting the eligibility 

thresholds in Rule 14a–11 and therefore the 

Commission anticipates that some groups of 

shareholders may beneficially own in the aggregate 

more than 5% of the company’s securities that are 

Continued 

not be permitted to exclude a 

shareholder proposal that would amend, 

or that requests an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, provided the proposal 

does not conflict with proposed Rule 

14a–11. 

For purposes of the PRA, we estimate 

the total annual incremental paperwork 

burden resulting from the proposed 

amendment to Rule 14a–8(i)(8) and the 

related rule changes for reporting 

companies (other than registered 

investment companies), registered 

investment companies, and 

shareholders to be approximately 7,692 

hours of internal company or 

shareholder time and a cost of 

approximately $1,025,500 for the 

services of outside professionals. 

In connection with proposed Rule 

14a–11 and the proposed amendment to 

Rule 14a–8(i)(8), we also are proposing 

new rules that would require a notice to 

be filed with the Commission on 

proposed new Schedule 14N, and 

provided to the company, when a 

shareholder seeks to submit a 

nomination to a company pursuant to 

Rule 14a–11 or pursuant to an 

applicable state law provision or the 

company’s governing documents. The 

Schedule 14N would include disclosure 

similar to the disclosure currently 

required in a proxy contest. The 

nominating shareholder or group would 

provide the disclosure specified in Rule 

14a–18 or Rule 14a–19, as applicable, in 

the Schedule 14N. The company would 

be required to include the disclosure 

provided by the nominating shareholder 

in its proxy materials. 

We also are proposing a new 

exemption from the proxy rules for 

communications by nominating 

shareholders or groups that are 

soliciting in favor of a shareholder 

nominee for director included pursuant 

to Rule 14a–11. This exemption would 

require inclusion in the written 

soliciting materials of a legend advising 

shareholders to look at the company’s 

proxy statement when it becomes 

available and advising shareholders 

how to find the company’s proxy 

statement. The burden hours resulting 

from the proposed exemption are 

included in the above totals related to 

proposed Rule 14a–11. 

Compliance with the proposed 

disclosure requirements would be 

mandatory. There would be no 

mandatory retention period for the 

information disclosed, and responses to 

the disclosure requirements would not 

be kept confidential. 

C. Paperwork Reduction Act Burden 

Estimates 

The proposed amendments would, if 

adopted, require additional disclosure 

on Schedules 14A and 14C and new 

Schedule 14N, as well as Form 8–K. 

Schedule 14A prescribes the 

information that a company and/or a 

soliciting shareholder must include in 

its proxy statement to provide 

shareholders with material information 

relating to voting decisions. Schedule 

14C prescribes the information that a 

company that is registered under 

Exchange Act Section 12 must include 

in its information statement in advance 

of a shareholders’ meeting when it is not 

soliciting proxies from its shareholders, 

including when it takes corporate action 

by written authorization or consent of 

shareholders. When filed in connection 

with Rule 14a–11, Schedule 14N would 

require disclosure about the amount and 

percentage of securities entitled to be 

voted on the election of directors by the 

nominating shareholder or group, the 

length of ownership of such securities, 

and the nominating shareholder’s or 

group’s intent to continue to hold the 

securities through the date of the 

meeting. Schedule 14N would also 

require a certification that the 

nominating shareholder or group is not 

seeking to change the control of the 

company or to gain more than a limited 

number of seats on the board, as well as 

disclosure similar to the disclosure 

currently required for a contested 

election and certain representations 

required for use of Rule 14a–11, 

including that the nominee meets the 

generally applicable objective criteria 

for ‘‘independence’’ in any applicable 

national securities exchange or national 

securities association rules. When filed 

in connection with a nomination 

pursuant to an applicable state law 

provision or the company’s governing 

documents, the Schedule 14N would 

include similar but more limited 

disclosures and representations. 

Exchange Act Rule 14a–8 requires the 

company to include a shareholder 

proposal in its Schedule 14A or 14C 

unless the shareholder has not complied 

with the procedural requirements in 

Rule 14a–8 or the proposal falls within 

one of the 13 substantive bases for 

exclusion in Rule 14a–8. Investment 

Company Act Rule 20a–1 requires 

registered investment companies to 

comply with Exchange Act Regulation 

14A or 14C, as applicable.300

1. Proposed Rule 14a–11 

Proposed Rule 14a–11 would require 

any subject company to include 

disclosure about a nominating 

shareholder’s or group’s nominee or 

nominees for election as director in the 

company’s proxy materials when the 

conditions of the rule are met. The 

proposed rule would apply unless state 

law or a company’s governing 

documents prohibit shareholders from 

nominating a candidate or candidates 

for election as director. A nominating 

shareholder or group would be required 

to file proposed Schedule 14N to 

disclose information about the 

nominating shareholder or group and 

the nominee or nominees, and the 

company would be required to include 

certain information regarding the 

nominating shareholder or group and 

nominee or nominees in the company’s 

proxy statement unless the company 

determines that it is not required to 

include the nominee or nominees in its 

proxy materials.301 Nominating 

shareholders also would be afforded the 

opportunity to include in the company’s 

proxy statement a statement of support 

for its nominee or nominees of a length 

not to exceed 500 words. The nominee 

or nominees also would be included on 

the company’s form of proxy in 

accordance with Exchange Act Rule 

14a–4. 

Under the proposed rule, 

shareholders or groups beneficially 

owning at least 1%, 3%, or 5% of a 

company’s securities entitled to be 

voted on the election of directors, for 

large accelerated, accelerated, and nonaccelerated filers, respectively, would 

be eligible to submit a nominee for 

election as director to be included in the 

company’s proxy materials subject to 

certain limitations on the overall 

number of shareholder nominees for 

director. 

We estimate that 4,163 reporting 

companies (other than registered 

investment companies) are likely to 

have at least one shareholder that could 

meet the above thresholds.302 For 

29064 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

eligible to vote for the election of directors. In these 

circumstances, nominating shareholders will need 

to consider whether they have formed a group 

under Exchange Act Section 13(d)(3) and Rule 13d– 

5(b)(1) that is required to file beneficial ownership 

reports. To the extent nominating shareholder 

groups exceed the 5% threshold and file a Schedule 

13G this would result in an increased number of 

Schedule 13G filings. We estimate that 25% of the 

nominees will be from shareholders who 

individually meet the eligibility thresholds (52), 

and 75% will be from shareholder groups (156). 

Were each of these groups to exceed 5%, we 

estimate that an additional 156 Schedule 13G 

filings will be made annually as a result of the 

proposed rule. The total burden associated with this 

increase in the number of filings is 1935 burden 

hours (156 additional Schedule 13Gs × 12.4 hours/ 

schedule). This burden corresponds to 484 hours of 

shareholder time (156 additional Schedule 13Gs × 

12.4 hours/Schedule × .25) and $580,320 for 

services of outside professionals (156 additional 

Schedule 13Gs × 12.4 hours/Schedule × .75 x $400). 

303 In this regard, we note that in 2008 there were 

at least 32 contested elections. See RiskMetrics 

Group, 2008 Postseason Report Summary, 

Weathering the Storm: Investors Respond to the 

Global Credit Crisis, October 2008. In addition, 

approximately 118 Rule 14a–8 shareholder 

proposals related to board issues were submitted to 

shareholders for a vote in the 2008–2009 proxy 

season. See RiskMetrics 2009 Proxy Season 

Scorecard, May 15, 2009. We believe these two 

numbers, or 150 shareholders in total, provide some 

indication of the number of shareholders that may 

be interested in using Rule 14a–11. Based upon this 

information, we believe it is reasonable to use 208 

(based on 5% of the companies that have at least 

one shareholder that meets the ownership 

threshold) as the estimate for the number of 

companies that may receive nominees. 

304We estimate that approximately 1,225 

registered investment companies will hold a 

shareholder meeting in a given year, based on the 

number of responses to Rule 20a–1, and that 5% of 

such companies will receive nominees from 

shareholders for inclusion in their proxy materials. 

We believe that using the 5% estimate for registered 

investment companies is reasonable because we 

estimate that shareholders of registered closed-end 

and open-end investment companies will on 

balance submit nominees at the same rate as other 

companies. 

305The actual burden hours will depend on the 

number of shareholder nominees submitted to a 

company for inclusion in its proxy materials. For 

purposes of the PRA, in the case of reporting 

companies (other than registered investment 

companies) we assume each shareholder or group 

would submit two nominees. As discussed in 

footnote 183 above, the median board size based on 

a 2007 sample of public companies was nine. 

Approximately 60% of the boards sampled had 

between nine and 19 directors. In the case of 

registered investment companies, we estimate that 

the median board size is eight. See Investment 

Company Institute and Independent Directors 

Council, Overview of Fund Governance Practices 

1994–2006, at 6–7 (November 2007), available 

at:http://www.ici.org/issues/dir/ 

1rpt_07_fund_gov_practices.pdf (noting that the 

median number of independent directors per fund 

complex in 2006 was six and that independent 

directors held 75% or more of board seats in 88% 

of fund complexes). Thus, although some 

shareholders or groups could nominate fewer than 

two nominees and others would be permitted to 

nominate more than two nominees, depending on 

the size of the board, we assume for purposes of the 

PRA that each shareholder or group would submit 

two nominees. 

306The requirement is in proposed amended Rule 

14a–4. 

307The calculations for these numbers are: 1,870 

burden hours × .75 = 1,402 burden hours of 

company time and 1,870 burden hours × .25 × $400 

= $187,000 for services of outside professionals. 

308The calculations for these numbers are: 550 

burden hours × .75 = 413 hours of company time 

purposes of this analysis, we estimate 

that 5% of companies with shareholders 

eligible to submit nominees pursuant to 

Rule 14a–11 will receive nominees from 

shareholders for inclusion in their proxy 

materials, which would result in 208 

companies with shareholders meeting 

the applicable eligibility threshold 

receiving nominees annually.303 We 

further estimate that 61 registered 

investment companies will receive 

nominees from shareholders pursuant to 

Rule 14a–11 annually.304 For purposes 

of the PRA, we estimate that the 

incremental disclosure burden will be 

95 hours per nominee for each reporting 

company (other than registered 

investment companies) and registered 

investment company to comply with the 

requirements of Rule 14a–11 and Items 

7(e) and (f) and 22(b)(18) and (19) of 

Schedule 14A.305 As discussed, we 

estimate for PRA purposes that each 

company that receives nominees 

pursuant to Rule 14a–11 will receive 

two nominees from shareholders or 

groups. Thus, for reporting companies 

(other than registered investment 

companies) we estimate 13,015 total 

company burden hours which 

corresponds to 9,761 hours of company 

time, and a cost of approximately 

$1,301,500 for the services of outside 

professionals. In the case of registered 

investment companies, we estimate the 

total annual incremental paperwork 

burden to prepare the disclosure that 

would be required under this portion of 

the proposed rules to be approximately 

3,805 burden hours, which corresponds 

to 2,854 hours of company time and a 

cost of approximately $380,500 for the 

services of outside professionals. In 

each case, this estimate includes: 

• If the company determines that it 

will include a shareholder nominee, the 

company’s preparation of a written 

notice to the nominating shareholder or 

group (five burden hours per notice); 

• The company’s inclusion in its 

proxy statement and form of proxy of 

the name of, and other related 

disclosures concerning, a person or 

persons nominated by a shareholder or 

shareholder group (five burden hours 

per nominee); 306

• The company’s preparation of its 

own statement regarding the 

shareholder nominee or nominees (20 

burden hours per nominee); and 

• If a company determines that it may 

exclude a shareholder nominee 

submitted pursuant to the proposed 

rule, the company’s preparation of a 

written notice to the nominating 

shareholder or group followed by 

written notice of the basis for its 

determination to exclude the nominee 

to the Commission staff (65 burden 

hours per notice). 

For purposes of this analysis, we 

assume that approximately 187 (or 90% 

of) reporting companies (other than 

registered investment companies) and 

55 (or 90% of) registered investment 

companies that have a shareholder or 

group and receives a shareholder 

nominee for director would be required 

to include the nominee in its proxy 

materials. In the other 10% of cases we 

assume that the company would be able 

to exclude the shareholder nominee 

(after providing notice of its reasons to 

the Commission). If a company 

determines to include a shareholder 

nominee, it must provide written notice 

to the nominating shareholder or group. 

We estimate the burden associated with 

preparing this notice to be five hours. 

For reporting companies (other than 

registered investment companies), this 

would result in 935 aggregate burden 

hours (187 companies × 5 hours/ 

company), which corresponds to 701 

burden hours of company time (187 

companies × 5 hours/company × .75) 

and $93,500 in services of outside 

professionals (187 companies × 5 hours/ 

company × .25 x $400). For registered 

investment companies, this would 

result in 275 aggregate burden hours (55 

companies × 5 hours/company), which 

corresponds to 206 burden hours of 

company time (55 companies × 5 hours/ 

company × .75), and $27,500 for 

services of outside professionals (55 

companies × 5 hours/company × .25 × 

$400). 

We estimate the annual disclosure 

burden for companies to include 

nominees on their form of proxy and 

proxy materials to be 5 burden hours 

per nominee, for a total of 1,870 

aggregate burden hours (187 responses × 

5 hours/response × 2 nominees) for 

reporting companies (other than 

registered investment companies), and 

550 aggregate burden hours (55 

responses × 5 hours/response × 2 

nominees) for registered investment 

companies. For reporting companies 

(other than registered investment 

companies), this corresponds to 1,403 

burden hours of company time, and 

$187,000 for services of outside 

professionals.307 For registered 

investment companies, this corresponds 

to 413 hours of company time, and 

$55,000 for services of outside 

professionals.308

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29065 

and 550 burden hours × .25 × $400 = $55,000 for 

services of outside professionals. 

309We estimate that each company that includes 

a shareholder nominee in its proxy materials would 

include such a statement. 

310We assume that 21 of these nominees (or 50% 

of those sought to be excluded by companies) 

would ultimately be excludable under the rule. 

311This estimate is based on data provided by the 

American Society of Corporate Secretaries in its 

comment letter on the 2003 Proposal. In its letter, 

the ASCS provided data from a survey of its own, 

as well as the Business Roundtable’s, members 

indicating that the average burden associated with 

preparing and submitting a no-action request to the 

staff in connection with a shareholder proposal was 

approximately 30 hours and associated costs of 

$13,896. Although the letter did not specify as 

much, assuming these costs correspond to legal 

fees, which we estimate at an hourly cost of $400, 

we estimate that this cost is equivalent to 

approximately 35 hours ($13,896/$400). For 

purposes of the PRA, we assume that submitting the 

notice and reasons for excluding a shareholder 

nominee to the staff will be comparable to 

preparing a no-action request to exclude a proposal 

under Rule 14a–8. Thus, we estimate that the 

burden to submit the notice and reasons for 

excluding a shareholder nominee would be 

approximately 65 hours. 

312As noted in footnote 311, above, we estimate 

that the average burden to a company associated 

with preparing and submitting a no-action request 

to the staff is approximately 65 burden hours. We 

believe that the average burden for a shareholder 

proponent to respond to a company’s no-action 

request is likely to be less than a company’s burden; 

therefore, we estimate 30 burden hours for a 

nominating shareholder to respond to a company’s 

notice of intent to exclude to the Commission. 

313 In the case of registered investment 

companies, this would result in an aggregate burden 

of 31 hours (31 solicitations × 1 hour/solicitation), 

which corresponds to 23 hours of shareholder time 

(31 solicitations × 1 hour/solicitation × .75) and 

$3,100 for services of outside professionals (31 

solicitations × 1 hour/solicitation × .25 × $400). 

These burden hours would be added to the PRA 

burden of Rule 20a–1. 

We estimate that 187 reporting 

companies (other than registered 

investment companies) and 55 

registered investment companies would 

include a statement with regard to the 

shareholder nominees.309 We anticipate 

that the burden to include a statement 

would include time spent to research 

the nominee’s background, preparation 

of the statement, and company time for 

review of the statement by, among 

others, the nominating committee and 

legal counsel. We estimate that this 

burden would be approximately 20 

hours per nominee. For reporting 

companies (other than registered 

investment companies), this would 

result in 7,480 aggregate burden hours 

(187 statements × 20 hours/statement × 

2 nominees). This corresponds to 5,610 

hours of company time (187 statements 

× 20 hours/statement × 2 nominees × 

.75) and $748,000 for services of outside 

professionals (187 statements × 20 

hours/statement × 2 nominees × .25 × 

$400) for reporting companies (other 

than registered investment companies). 

For registered investment companies, 

this would result in 2,200 aggregate 

burden hours (55 statements × 20 hours/ 

statement × 2 nominees). This 

corresponds to 1,650 hours of company 

time (55 statements × 20 hours/ 

statement × 2 nominees × .75) and 

$220,000 for services of outside 

professionals (55 statements × 20 hours/ 

statement × 2 nominees × .25 × $400). 

Further, for purposes of this analysis, 

we assume that approximately 42 (or 

20% of) reporting companies (other than 

registered investment companies) and 

12 (or 20% of) registered investment 

companies who receive a shareholder 

nominee for director for inclusion in 

their proxy materials would make a 

determination that they are not required 

to include a nominee in their proxy 

materials because the nominee is 

ineligible under proposed Rule 14a–11 

and would file a notice of intent to 

exclude that nominee.310 We estimate 

that the burden hours associated with 

preparing and submitting the company’s 

notification to the nominating 

shareholder or group and the 

Commission regarding its intent to 

exclude a shareholder nominee, and its 

reasons for doing so, would be 65 hours 

per notification.311 In the case of 

reporting companies (other than 

registered investment companies), we 

estimate that this would result in an 

aggregate burden of 2,730 (42 notices × 

65 hours/notice), corresponding to 2,048 

hours of company time (42 notices × 65 

hours/notice × .75) and $273,000 for the 

services of outside professionals (42 

responses × 65 hours/notice × .25 × 

$400). In the case of registered 

investment companies, we estimate that 

this would result in 780 aggregate 

burden hours (12 notices × 65 hours/ 

notice), which would correspond to 585 

hours of company time (12 notices × 65 

hours/notice × .75) and $78,000 for the 

services of outside professionals (12 

notices × 65 hours/notice × .25 × $400). 

These burdens would be added to the 

PRA burdens of Schedules 14A and 14C 

or, in the case of registered investment 

companies, Rule 20a–1. 

We also estimate that the annual 

incremental burden for the nominating 

shareholder’s or group’s participation in 

the Rule 14a–11 exclusion process 

would average 30 hours per 

nomination.312 For nominating 

shareholders or groups of reporting 

companies (other than registered 

investment companies), this would 

result in 1,260 total burden hours (42 

responses × 30 hours/response). This 

would correspond to 945 hours of 

shareholder time (42 responses × 30 

hours/response × .75) and $126,000 for 

services of outside professionals (42 

responses × 30 hours/response × .25 × 

$400). For nominating shareholders or 

groups of registered investment 

companies, this would result in 360 

total burden hours (12 responses × 30 

hours/response). This would correspond 

to 270 hours of shareholder time (12 

responses × 30 hours/response × .75) 

and $36,000 for services of outside 

professionals (12 responses × 30 hours/ 

response × .25 × $400). This burden 

would be added to the PRA burden of 

Schedule 14N. 

We also are proposing a new 

exemption from the proxy rules for 

communications by nominating 

shareholders or groups that are 

soliciting in favor of a shareholder 

nominee for director. Although 

nominating shareholders or groups 

would not be required to engage in 

written solicitations, the exemption 

would require inclusion in any written 

soliciting materials of a legend advising 

shareholders to look at the company’s 

proxy statement when it becomes 

available and advising shareholders 

how to find the company’s proxy 

statement. For purposes of this analysis, 

we assume that 50% of nominating 

shareholders or groups would solicit in 

favor of their nominee or nominees 

outside the company’s proxy statement. 

In the case of reporting companies 

(other than registered investment 

companies), this would result in an 

aggregate burden of 104 hours (104 

solicitations × 1 hour/solicitation), 

which corresponds to 78 hours of 

shareholder time (104 solicitations × 1 

hour/solicitation × .75) and $10,400 for 

services of outside professionals (104 

solicitations × 1 hour/solicitation × .25 

× $400). These burden hours would be 

added to the PRA burden of Schedule 

14A.313

2. Proposed Amendment to Rule 14a– 

8(i)(8) 

Our proposed amendment to Rule 

14a–8(i)(8), the election exclusion, 

would enable shareholders to submit 

proposals that would amend, or that 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations, 

provided the proposal does not conflict 

with proposed Rule 14a–11. As 

proposed, revised Rule 14a–8(i)(8) 

would not restrict the types of 

amendments that a shareholder could 

propose to a company’s governing 

documents regarding nomination 

procedures or disclosures related to 

shareholder nominations, although any 

29066 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

314See Lucian A. Bebchuk, The Myth of the 

Shareholder Franchise, 93 Va. L. Rev. 675 (2007) 

(‘‘Bebchuk 2007 Article’’) (citing data from proxy 

solicitation firm Georgeson Shareholder). 

315See RiskMetrics Group, 2008 Postseason 

Report Summary, Weathering the Storm: Investors 

Respond to the Global Credit Crisis, October 2008. 

316See footnote 303, above. 

317The increase is calculated by adding the 

number of proxy contests in 2008 (32) plus the 

number of no-action requests received in 2008 

regarding proposals seeking to amend a company’s 

bylaws to provide for shareholder director 

nominations (6). We have not included the 

estimated 59 proposals in this increase because we 

believe they will be submitted in lieu of other types 

of proposals (a shareholder is limited to submitting 

one shareholder proposal to each company). We 

recognize that a company that receives a 

shareholder proposal has no obligation to submit a 

no-action request to the staff under Rule 14a–8 

unless it intends to exclude the proposal from its 

proxy materials. Based on historical data, 

companies generally seek no-action relief from the 

staff on approximately 60% of the proposals 

received. However, we anticipate that because the 

proposals that would be submitted pursuant to 

amended Rule 14a–8 could affect the composition 

of the company’s board of directors, nearly all 

companies receiving such proposals would submit 

a written statement of its reasons for excluding the 

proposal to the staff. Thus, we estimate that 90% 

of the estimated 97 companies receiving proposals 

to amend, or request an amendment to, a company’s 

governing documents to address nomination 

procedures or disclosures related to director 

nominations would submit a written statement of 

its reasons for excluding the proposal to the staff. 

318As noted above, in footnote 311, we estimate 

that the average burden to a company associated 

with preparing and submitting a no-action request 

to the staff was approximately 65 burden hours. We 

believe that the average burden for a shareholder 

proponent to respond to a company’s no-action 

request is likely to be less than a company’s burden; 

therefore, we estimate 30 burden hours for a 

shareholder proponent to respond to a company’s 

notice of intent to exclude to the Commission. In 

this regard, we also estimate that the average 

burden for a shareholder proponent to submit a 

shareholder proposal would be 10 hours. 

such proposals that conflict with 

proposed Rule 14a–11 or state law could 

be excluded. The proposal would have 

to meet the procedural requirements of 

Rule 14a–8 and not be subject to one of 

the substantive exclusions other than 

the election exclusion (e.g., the proposal 

could be excluded if the shareholder 

proponent did not meet the ownership 

threshold under Rule 14a–8). 

Historically, shareholders have made 

relatively few proposals relating to 

shareholder access to company proxy 

materials. The staff received 368 noaction requests from companies seeking 

to exclude shareholder proposals during 

the 2006–2007 proxy season. Of these 

requests, only three (or approximately 

one percent) related to proposals for 

bylaw amendments providing for 

shareholder nominees to appear in the 

company’s proxy materials. During the 

2007–2008 proxy season, the staff 

received 432 no-action requests to 

exclude shareholder proposals pursuant 

to Rule 14a–8. Of these no-action 

requests, 6 (or approximately two 

percent) related to proposals for bylaw 

amendments providing for shareholder 

nominees to appear in the company’s 

proxy materials. Because our proposed 

amendment to Rule 14a–8(i)(8) would 

narrow the scope of the exclusion and 

prohibit companies from excluding 

certain proposals that are excludable 

under the current Rule 14a–8(i)(8), we 

anticipate an increase in the number of 

shareholder proposals to amend, or 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations. 

While the number of no-action 

requests the staff has received in the 

past is a useful starting point, other data 

also is helpful to gauge shareholder 

interest in nominating directors and 

predict the anticipated impact on the 

number of proposals submitted 

pursuant to Rule 14a–8 to amend, or 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations that 

otherwise would be excludable under 

current Rule 14a–8(i)(8). For example, 

based on publicly available information, 

from 2001 to 2005, there were an 

average of 14 contested elections per 

year.314 In 2008, it is estimated that 

there were at least 32 contested 

elections.315 We anticipate that as a 

result of the proposed amendment to 

Rule 14a–8(i)(8), shareholders will 

submit at least as many shareholder 

proposals to amend a company’s 

governing documents to address the 

company’s nomination procedures or 

disclosures related to director 

nominations as there are contested 

elections. We anticipate that if 

shareholders are willing to put forth the 

expense and effort to wage a contest to 

put forth their own nominees in 32 

instances, there will be at least that 

many proposals submitted to companies 

pursuant to Rule 14a–8 because 

companies will no longer be permitted 

under the rule to exclude proposals that 

currently are excludable under Rule 

14a–8(i)(8). We also anticipate that some 

shareholders that have submitted 

proposals in the past with regard to 

other board issues will submit proposals 

to address a company’s nomination 

procedures or disclosures related to 

director nominations. According to 

information from RiskMetrics, 

approximately 118 Rule 14a–8 

shareholder proposals regarding board 

issues were or will be submitted to 

shareholders for a vote in the 2008–2009 

proxy season.316 We estimate that 

approximately half of these 

shareholders would submit a proposal 

regarding nomination procedures or 

disclosures, resulting in 59 proposals. 

In the case of reporting companies 

(other than registered investment 

companies), we anticipate that the 

amendments to Rule 14a–8 will result in 

an increase of 38 proposals annually 

from 2008, and a total of 97 proposals 

regarding nomination procedures or 

disclosures related to director 

nominations to companies per year.317

We estimate the annual incremental 

burden for the shareholder to prepare 

the proposal to be 10 burden hours per 

proposal, for a total of 380 burden hours 

(38 proposals × 10 hours/proposal). This 

would correspond to 285 hours of 

shareholder time (38 proposals × 10 

hours/proposal × .75) and $38,000 for 

the services of outside professionals (38 

proposals × 10 hours/proposal × .25 × 

$400). 

We estimate that 90% of companies 

that receive a shareholder proposal to 

amend, or request an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations will seek to exclude the 

proposal from their proxy materials (so 

companies would seek to exclude 87 

such proposals per proxy season). We 

estimate that the annual incremental 

burden for the company’s submission of 

a notice of its intent to exclude the 

proposal and its reasons for doing so 

would average 65 hours per proposal, 

for a total of 5,655 burden hours (87 

proposals × 65 hours/proposal) for 

reporting companies (other than 

registered investment companies). This 

would correspond to 4,241 hours of 

company time (87 proposals × 65 hours/ 

proposal × .75) and $565,500 for the 

services of outside professionals (87 

proposals × 65 hours/proposal × .25 × 

$400). 

We also estimate that the annual 

incremental burden for the proponent’s 

participation in the Rule 14a–8 noaction process would average 30 hours 

per proposal, for a total of 2,610 burden 

hours (87 proposals × 30 hours/ 

proposal).318 This would correspond to 

1,958 hours of shareholder time (87 

proposals × 30 hours/proposal × .75) 

and $261,000 for services of outside 

professionals (87 proposals × 30 hours/ 

proposal × .25 × $400). These burdens 

would be added to the PRA burden of 

Schedules 14A and 14C. 

In the case of registered investment 

companies, we anticipate that the 

amendments to Rule 14a–8 will result in 

an increase of 9 proposals annually, and 

a total of 18 proposals regarding 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29067 

319The increase is calculated by adding the 

average number of registered investment company 

proxy contests in calendar years 2006, 2007, and 

2008 (8) plus the average number of no-action 

letters issued by the staff regarding proposals 

seeking to amend a registered investment 

company’s bylaws to provide for shareholder 

director nominations received in calendar years 

2006, 2007, and 2008 rounded to the nearest whole 

number greater than zero (1). In addition, we 

estimate that investment companies currently 

receive as many proposals regarding nomination 

procedures or disclosures as there are contested 

elections and no-action letters issued by the staff, 

resulting in a total of 18 proposals regarding 

nomination procedures or disclosures related to 

director nominations to companies per year. 

320We currently estimate the burden per response 

for preparing a Schedule 13G filing to be 12.4 

hours. 

321We currently estimate the burden per response 

for preparing a Schedule 14A filing to be 101.50 

hours and a Schedule 14C to be 102.62 hours. 

322We estimate that the burden of preparing the 

information in Schedule 14N for a nominating 

shareholder or group would be 1⁄3 of the disclosures 

typically required by a Schedule 14A filing, which 

would result in approximately 34 burden hours. For 

purposes of this analysis, we estimate that the 34 

burden hours will be added to the 12.4 hours 

associated with filing a Schedule 13G, resulting in 

a total of approximately 47 burden hours. We 

estimate that 75% of the burden of preparation of 

Schedule 14N will be borne internally by the 

nominating shareholder or group, and that 25% will 

be carried by outside professionals. We believe the 

nominating shareholder or group would work with 

their nominee to prepare the disclosure and then 

have it reviewed by outside professionals. 

nomination procedures or disclosures 

related to director nominations to 

companies per year.319 We estimate the 

annual incremental burden for the 

shareholder proponent to prepare the 

proposal to be 10 hours per proposal, for 

a total of 90 burden hours (9 proposals 

× 10 hours/proposal). This would 

correspond to 68 hours of shareholder 

time (9 proposals × 10 hours/proposal × 

.75) and $9,000 for the services of 

outside professionals (9 proposals × 10 

hours/proposal × .25 × $400). 

Similar to reporting companies other 

than investment companies, we assume 

that 90% of registered investment 

companies that receive a shareholder 

proposal to amend, or request an 

amendment to, the company’s governing 

documents regarding nomination 

procedures or disclosures related to 

shareholder nominations will seek to 

exclude the proposal from their proxy 

materials (so registered investment 

companies would seek to exclude 16 

such proposals per proxy season). Also 

similar to reporting companies other 

than investment companies, we assume 

that the annual incremental burden for 

the company’s submission of a notice of 

its intent to exclude the proposal and its 

reasons for doing so would average 65 

hours per proposal, for a total of 1,040 

burden hours for registered investment 

companies (16 proposals × 65 hours/ 

proposal). This would correspond to 

780 hours of company time (16 

proposals × 65 hours/proposal × .75) 

and $104,000 for the services of outside 

professionals (16 proposals × 65 hours/ 

proposal × .25 × $400). We also estimate 

that the annual incremental burden for 

the proponent’s participation in the 

Rule 14a–8 no-action process would 

average 30 hours per proposal, for a 

total of 480 burden hours (16 proposals 

× 30 hours/proposal). This would 

correspond to 360 hours of shareholder 

time (16 proposals × 30 hours/proposal 

× .75) and $48,000 for the services of 

outside professionals (16 proposals × 30 

hours/proposal × .25 × $400). These 

burdens would be added to the PRA 

burden of Rule 20a–1. 

3. Proposed Schedule 14N and Proposed 

Exchange Act Rules 14a–18 and 14a–19 

Proposed Rule 14n–1 would establish 

a new filing requirement for the 

nominating shareholder or group, under 

which the nominating shareholder or 

group would be required to file notice 

of its intent to include a shareholder 

nominee or nominees for director 

pursuant to proposed Rule 14a–11, 

applicable state law provisions, or a 

company’s governing documents, as 

well as disclosure about the nominating 

shareholder or group and nominee or 

nominees on proposed new Schedule 

14N. New Schedule 14N was modeled 

after Schedule 13G, but with more 

extensive disclosure requirements than 

Schedule 13G. The Schedule 14N would 

require, among other items, disclosure 

about the amount and percentage of 

securities owned by the nominating 

shareholder or group, the length of 

ownership of such securities, and the 

nominating shareholder’s or group’s 

intent to continue to hold the securities 

through the date of the meeting. 

In addition, the Schedule 14N would 

include disclosure required pursuant to 

proposed Rule 14a–18 or Rule 14a–19, 

as applicable. Proposed Rule 14a–18 

would prescribe the disclosure required 

to be included in the nominating 

shareholder’s notice to the company, on 

Schedule 14N, of its intent to require 

that the company include that 

shareholder’s nominee in the company’s 

proxy materials pursuant to proposed 

Rule 14a–11. Proposed Rule 14a–19 

would prescribe the disclosure required 

to be included in the nominating 

shareholder’s notice to the company, on 

Schedule 14N, of its intent to require 

the company to include a nominee 

pursuant to applicable state law 

provisions or a company’s governing 

documents. With regard to the latter, we 

are seeking to assure that nominating 

shareholders or groups who submit a 

shareholder nomination for inclusion in 

company proxy materials pursuant to 

applicable state law provisions or the 

company’s governing documents also 

provide disclosure similar to the 

disclosure required in a contested 

election to give shareholders the 

information needed to make an 

informed voting decision. 

Both rules would require disclosures 

regarding the nature and extent of the 

relationships between the nominating 

shareholder and nominee and the 

company or any affiliate of the 

company. Pursuant to proposed Items 

7(e)–(f) of Schedule 14A or, in the case 

of a registered investment company, 

Items 22(b)(18)–(19) of Schedule 14A, 

the company would be required to 

include the information set forth in 

Schedule 14N in its proxy materials. A 

nominating shareholder filing a 

Schedule 14N to provide disclosure 

required by proposed Rule 14a–19 when 

submitting a nominee for inclusion in 

company proxy materials pursuant to 

applicable state law provisions or the 

company’s governing documents would 

not be required to provide the 

representations required for nominating 

shareholders using proposed Rule 14a– 

11. 

We estimate that compliance with the 

proposed Schedule 14N requirements 

would result in a burden greater than 

Schedule 13G 320 but less than a 

Schedule 14A.321 Therefore, we 

estimate that compliance with proposed 

Schedule 14N will result in 47 hours 

per response for nominees submitted 

pursuant to Rule 14a–11.322 We also 

note that the burden associated with 

filing a Schedule 14N in connection 

with a nomination made pursuant to an 

applicable state law provision or the 

company’s governing documents may be 

slightly less than a nomination made 

pursuant to Rule 14a–11 because certain 

disclosures, representations and 

certifications would not be required 

(including disclosure about intent to 

continue to own the company’s 

securities, the representations that 

would be required to rely on Rule 14a– 

11, a supporting statement from the 

nominating shareholder or group, and 

the certification concerning lack of 

intent to change control or to gain more 

than a limited number of seats on the 

board that would be required for a 

nomination pursuant to Rule 14a–11). 

Therefore, we estimate that compliance 

with proposed Schedule 14N when a 

shareholder or group submits a nominee 

or nominees to a company pursuant to 

an applicable state law provision or the 

company’s governing documents will 

result in 40 hours per response. 

29068 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

323This figure represents the aggregate burden 

hours attributed to proposed Schedule 14N and is 

the sum of the burden associated with Schedules 

14N submitted pursuant to Rule 14a–11, applicable 

state law provisions, and a company’s governing 

documents. 

324 In this regard, we estimated that 

approximately 97 shareholder proponents would 

submit proposals regarding nomination procedures 

or disclosures related to shareholder nominations. 

For purposes of this analysis, we assume that 

approximately half (49) of those shareholders 

would be eligible to submit a nomination pursuant 

to applicable state law provisions or a company’s 

governing documents. 

325 In this regard, we estimated that 

approximately 18 shareholder proponents would 

submit proposals to registered investment 

companies regarding nomination procedures or 

disclosures related to shareholder nominations. We 

estimate that approximately half (9) of those 

shareholders would be eligible to submit a 

nomination pursuant to applicable state law 

provisions or a company’s governing documents. 

For purposes of the PRA, we estimate 

the total annual incremental paperwork 

burden for nominating shareholders or 

groups to prepare the disclosure that 

would be required under this portion of 

the proposed rules to be approximately 

28,565 hours of shareholder time, and 

$3,808,600 for the services of outside 

professionals.323 This estimate includes 

the nominating shareholder’s or group’s 

preparation and filing of the notice and 

required disclosure and, as applicable, 

representations and certifications on 

Schedule 14N. 

We do not expect that every 

shareholder that meets the eligibility 

threshold to submit a nominee for 

inclusion in a company’s proxy 

materials pursuant to proposed Rule 

14a–11, an applicable state law 

provision, or a company’s governing 

documents will do so. As discussed 

above, we estimate that 208 reporting 

companies (other than registered 

investment companies) and 61 

registered investment companies will 

receive notices of intent to submit 

nominees pursuant to proposed Rule 

14a–11. We anticipate that some 

companies will receive nominees from 

more than one shareholder or group, 

though, as discussed above, for 

purposes of PRA estimates, we assume 

each company with an eligible 

shareholder would receive two 

nominees from only one shareholder or 

group. 

We estimate that compliance with the 

requirements of Schedule 14N 

submitted pursuant to Rule 14a–11 will 

require 19,552 burden hours (208 

notices × 47 hours/notice × 2 nominees/ 

shareholder) in aggregate each year for 

nominating shareholders or groups of 

reporting companies (other than 

registered investment companies), 

which corresponds to 14,664 hours of 

shareholder time (208 notices × 47 

hours/notice × 2 nominees/shareholder 

× .75) and costs of $1,955,200 (208 

notices × 47 hours/notice × 2 nominees/ 

shareholder .25 × $400) for the services 

of outside professionals. In the case of 

registered investment companies, we 

estimate that a nominating shareholder’s 

or group’s compliance with the 

requirements of Schedule 14N will 

require 5,734 burden hours (61 

responses × 47 hours/response × 2 

nominees) in aggregate each year, which 

corresponds to 4,301 hours of 

shareholder time (61 responses × 47 

hours/response × 2 nominees × .75) and 

costs of $573,400 for the services of 

outside professionals (61 responses × 47 

hours/response × 2 nominees × .25 × 

$400). Therefore, we estimate a total of 

25,286 burden hours for all reporting 

companies, including investment 

companies, broken down into 18,965 

hours of shareholder time and 

$2,528,600 for services of outside 

professionals. 

We assume that all nominating 

shareholders or groups will prepare a 

statement of support for the nominee or 

nominees, and we estimate the 

disclosure burden for the nominating 

shareholder or group to prepare a 

statement of support for its nominee or 

nominees to be approximately 10 

burden hours per nominee. This results 

in an aggregate burden of 4,160 (208 

statements × 10 hours/statement × 2 

nominees/shareholder), which 

corresponds to 3,120 hours of 

shareholder time (208 statements × 10 

hours/statement × 2 nominees/ 

shareholder × .75) and $416,000 for 

services of outside professionals (208 

statements × 10 hours/statement × 2 

nominees/shareholder × .25 × $400) for 

shareholders of reporting companies 

(other than registered investment 

companies). For registered investment 

companies, this would result in an 

aggregate burden of 1,220 (61 statements 

× 10 hours/statement × 2 nominees/ 

shareholder), which corresponds to 915 

hours of shareholder time (61 

statements × 10 hours/statement × 2 

nominees/shareholder × .75) and 

$122,000 for services of outside 

professionals (61 statements × 10 hours/ 

statement × 2 nominees/shareholder × 

.25 × $400). Therefore, we estimate a 

total of 5,380 burden hours for all 

reporting companies, including 

investment companies, broken down 

into 4,035 hours of shareholder time 

and $538,000 for services of outside 

professionals. 

When a nominating shareholder or 

group submits a nominee or nominees 

to a company pursuant to an applicable 

state law provision or the company’s 

governing documents, the nominating 

shareholder or group will be required to 

file a Schedule 14N to provide 

disclosure about the nominating 

shareholder or group and the nominee 

or nominees as provided in proposed 

Rule 14a–19. As discussed, a company 

will be required to include certain 

disclosures about the nominating 

shareholder or group and the nominee 

or nominees in its proxy statement. As 

noted above, we estimate that the 

burden associated with filing a 

Schedule 14N in connection with a 

nomination made pursuant to an 

applicable state law provision or a 

company’s governing documents is 40 

hours. We also estimate that 

approximately 49 nominating 

shareholders or groups of reporting 

companies (other than registered 

investment companies) would submit a 

nomination pursuant to an applicable 

state law provision or a company’s 

governing documents.324 Thus, we 

estimate compliance with the 

requirements of Schedule 14N for 

nominating shareholders or groups 

submitting nominations pursuant to an 

applicable state law provision or the 

company’s governing documents would 

result in 3,920 aggregate burden hours 

(49 notices × 40 hours/notice × 2 

nominees/shareholder) each year for 

nominating shareholders or groups of 

reporting companies (other than 

registered investment companies), 

broken down into 2,940 hours of 

shareholder time (49 notices × 40 hours/ 

notice × 2 nominees/shareholder × .75) 

and costs of $392,000 for the services of 

outside professionals (49 notices × 40 

hours/notice × 2 nominees/shareholder 

× .25 × $400). In the case of registered 

investment companies, we estimate that 

approximately 9 nominating 

shareholders or groups would submit a 

nomination pursuant to an applicable 

state law provision or a company’s 

governing documents.325 We estimate 

that a nominating shareholder’s or 

group’s compliance with the 

requirements of Schedule 14N would 

result in 720 aggregate burden hours (9 

notices × 40 hours/notice × 2 nominees/ 

shareholder) each year, which 

corresponds to 540 hours of shareholder 

time (9 notices × 40 hours/notice × 2 

nominees/shareholder × .75) and costs 

of $72,000 for the services of outside 

professionals (9 notices × 40 hours/ 

notice × 2 nominees/shareholder × .25 × 

$400). Therefore, we estimate that the 

total burden hours would be 4,640 for 

all reporting companies, including 

investment companies, broken down 

into 3,480 hours of shareholder time 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29069 

326We are assuming for PRA purposes that any 

applicable state law provision or company’s 

governing documents would allow for inclusion of 

such a statement by the nominating shareholder or 

group. 

327The proposed amendment to Rule 14a–8(i)(8) 

is not expected to impact Form 8–K, so the burden 

estimates solely reflect the burden changes resulting 

from proposed Rule 14a–11. 

328Based on information obtained in 2003 from 

the Investor Responsibility Research Center, 3.7% 

of companies (other than registered investment 

companies) filed Form 8–Ks because they did not 

hold an annual meeting during the prior year or the 

date of the meeting has changed by more than 30 

days from the prior year. See also footnote 195 in 

the 2003 Proposal. 

329We believe that the percentage for registered 

closed-end investment companies would be similar 

to other reporting companies because such 

investment companies are traded on an exchange 

and are required to hold annual meetings of 

shareholders. 

330We estimate that 1,225 registered investment 

companies hold annual meetings each year based 

on the number of responses to Rule 20a–1. Based 

on data provided by Lipper, the Commission 

estimates that approximately 650 registered closedend management investment companies are traded 

on an exchange. 

331Consistent with the current estimates for Form 

8–K, we estimate that 75% of the burden of 

preparation of Form 8–K is carried by the company 

and that 25% of the burden of preparation of Form 

8–K is carried by outside professionals at an average 

cost of $400 per hour. The burden includes 

disclosure of the date by which a nominating 

shareholder or group must submit the notice 

required by proposed Rule 14a–11(c) as well as 

disclosure of net assets, outstanding shares, and 

voting. 

and $464,000 for services of outside 

professionals. 

We assume that all nominating 

shareholders or groups that submit a 

nominee or nominees pursuant to an 

applicable state law provision or a 

company’s governing documents would 

prepare a statement of support for the 

nominee or nominees,326 and we 

estimate the disclosure burden for the 

nominating shareholder or group to 

prepare a statement of support for its 

nominee or nominees to be 

approximately 10 burden hours per 

nominee. This results in an aggregate 

burden of 980 hours (49 statements × 10 

hours/statement × 2 nominees/ 

shareholder) for shareholders of 

reporting companies (other than 

registered investment companies), 

which corresponds to 735 hours of 

shareholder time (49 statements × 10 

hours/statement × 2 nominees/ 

shareholder × .75) and $98,000 for 

services of outside professionals (49 

statements × 10 hours/statement × 2 

nominees/shareholder × .25 × $400). For 

registered investment companies, this 

results in an aggregate burden of 180 

hours (9 statements × 10 hours/ 

statement × 2 nominees/shareholder), 

which would correspond to 135 hours 

of shareholder time (9 statements × 10 

hours/statement × 2 nominees/ 

shareholder × .75) and $18,000 for 

services of outside professionals (9 

statements × 10 hours/statement × 2 

nominees/shareholder × .25 × $400). 

This results in a total of 1,160 burden 

hours, broken down into 870 hours of 

shareholder time and $116,000 for the 

services of outside professionals. 

4. Proposed Amendments to Exchange 

Act Form 8–K 

Under proposed Rule 14a–11, a 

nominating shareholder or group would 

have to provide a notice to the 

company, on Schedule 14N, of its intent 

to require that the company include the 

nominating shareholder’s or group’s 

nominee in the company’s proxy 

materials by the date specified by the 

company’s advance notice provision or, 

where no such provision is in place, no 

later than 120 calendar days before the 

date that the company mailed its proxy 

materials for the prior year’s annual 

meeting.327 If the company did not hold 

an annual meeting during the prior year, 

or if the date of the meeting has changed 

more than 30 days from the prior year, 

then the nominating shareholder or 

group would be required to provide 

notice a reasonable time before the 

company mails its proxy materials, as 

specified by the company in a Form 8– 

K filed pursuant to proposed Item 5.07. 

We also are proposing to require a 

registered investment company that is a 

series company to file a Form 8–K 

disclosing the company’s net assets as of 

June 30 of the calendar year 

immediately preceding the calendar 

year of the meeting and the total number 

of the company’s shares that are entitled 

to vote for the election of directors at the 

annual meeting of shareholders (or, in 

lieu of such an annual meeting, a 

special meeting of shareholders) as of 

the end of the most recent calendar 

quarter. 

For purposes of the PRA, we estimate 

that approximately 4% of reporting 

companies (other than registered 

investment companies) would be 

required to file an Exchange Act Form 

8–K because the company did not hold 

an annual meeting during the prior year, 

or the date of the meeting has changed 

by more than 30 days from the prior 

year.328 Based on our estimate that there 

are approximately 11,000 reporting 

companies (other than registered 

investment companies), this 

corresponds to 440 companies that 

would be required to file a Form 8–K. 

In accordance with our current estimate 

of the burden of preparing a Form 8–K, 

we estimate 5 burden hours to prepare, 

review and file the Form 8–K, for a total 

burden of 2,200 hours (440 filings × 5 

hours/filing). This total burden 

corresponds to 1,650 hours of company 

time (440 filings × 5 hours/filing × .75) 

and $220,000 for services of outside 

professionals (440 filings × 5 hours/ 

filing × .25 x $400). 

In the case of registered investment 

companies, we estimate that, similar to 

reporting companies other than 

registered investment companies, 4% of 

registered closed-end management 

investment companies subject to Rule 

14a–11 that are traded on an exchange 

would be required to file an Exchange 

Act Form 8–K because the company did 

not hold an annual meeting during the 

prior year or the date of the meeting has 

changed by more than 30 days from the 

prior year.329 We estimate that 

approximately 650 of the 1,225 

registered investment companies 

responding to Investment Company Act 

Rule 20a–1 are closed-end funds that are 

traded on an exchange, resulting in 26 

closed-end funds that would be required 

to file Form 8–K for these purposes (650 

registered closed-end management 

investment companies × .04).330

However, we estimate that few, if any, 

registered open-end management 

investment companies regularly hold 

annual meetings. Therefore, we estimate 

that 575 registered investment 

companies are not closed-end 

investment companies and would be 

required to file Form 8–K. This results 

in a total of 601 registered investment 

companies required to file Form 8–K (26 

closed-end management investment 

companies + 575 other registered 

investment companies) and 3,005 

burden hours (601 filings × 5 hours/ 

filing). This total burden corresponds to 

2,254 hours of company time (601 

filings × 5 hours/filing × .75) and 

$300,500 for services of outside 

professionals (601 filings × 5 hours/ 

filing × .25 × $400).331 Adding the totals 

for reporting companies (other than 

registered investment companies) and 

registered investment companies results 

in a total burden of 5,205, which 

corresponds to 3,904 hours of company 

time and $520,500 for services of 

outside professionals. This includes the 

requirement for a registered investment 

company that is a series company to file 

a Form 8–K disclosing the company’s 

net assets as of June 30 of the calendar 

year immediately preceding the 

calendar year of the meeting and the 

total number of the company’s shares 

that are entitled to vote for the election 

of directors at the annual meeting of 

shareholders (or, in lieu of such an 

annual meeting, a special meeting of 

29070 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

332The proposed amendment to Rule 14a–8(i)(8) 

is not expected to affect Form ID filings, so the 

burden estimates solely reflect the burden changes 

resulting from proposed Rule 14a–11. 333We estimate that 326 nominating shareholders 

or groups will submit nominations pursuant to Rule 

14a–11, applicable state law provisions or a 

company’s governing documents. As noted earlier, 

approximately 32 proxy contests were conducted in 

2008. Of the 326 nominating shareholders or 

groups, we believe that 32 will have obtained 

EDGAR filer codes previously; therefore we 

estimate approximately 294 will need to file a Form 

ID. This results in an estimate of 90%. 

334We currently estimate the burden associated 

with Form ID is 0.15 hours per response. 

shareholders) as of the end of the most 

recent calendar quarter. 

5. Form ID Filings 332

Under proposed Rule 14a–11(c), a 

shareholder who submits a nominee or 

nominees for inclusion in the 

company’s proxy statement must 

provide notice on Schedule 14N to the 

company of its intent to require that the 

company include the nominee or 

nominees in the company’s proxy 

materials and file the Schedule 14N 

with the Commission. We anticipate 

that some shareholders that submit a 

nominee or nominees for inclusion in a 

company’s proxy materials will not 

previously have filed an electronic 

submission with the Commission and 

will file a Form ID. Form ID is the 

application form for access codes to 

permit filing on EDGAR. The proposed 

rules are not changing the form itself, 

but we anticipate that the number of 

Form ID filings may increase due to 

shareholders filing Schedule 14N when 

submitting a nominee or nominees to a 

company for inclusion in its proxy 

materials pursuant to proposed Rule 

14a–11. We estimate that 90% of the 

shareholders who submit a nominee or 

nominees for inclusion in the 

company’s proxy materials will not 

have filed previously an electronic 

submission with the Commission and 

would be required to file a Form ID.333

As noted above, we estimate that 

approximately 208 reporting companies 

(other than registered investment 

companies) and 61 registered 

investment companies will receive 

shareholder nominations submitted 

pursuant to proposed Rule 14a–11. This 

corresponds to 242 additional Form ID 

filings. In addition, as noted above, we 

estimate that approximately 49 

reporting companies (other than 

registered investment companies) and 9 

registered investment companies will 

receive shareholder nominations 

submitted pursuant to an applicable 

state law provision or a company’s 

governing documents. This corresponds 

to an additional 52 Form ID filings. As 

a result, the additional annual burden 

would be 44 hours (294 filings x .15 

hours/filing).334 For purposes of the 

PRA, we estimate that the additional 

burden cost resulting from the proposed 

amendments will be zero because we 

estimate that 100 percent of the burden 

will be borne internally by the 

nominating shareholder. 

D. Revisions to PRA Reporting and Cost 

Burden Estimates 

Table 1 below illustrates the 

incremental annual compliance burden 

of the collection of information in hours 

and in cost for proxy and information 

statements and current reports under 

the Exchange Act. The burden was 

calculated by multiplying the estimated 

number of responses by the estimated 

average number of hours each entity 

spends completing the form. We 

estimate that 75% of the burden of 

preparation of the proxy and 

information statement and current 

reports is carried by the company 

internally, while 25% of the burden of 

preparation is carried by outside 

professionals at an average cost of $400 

per hour. We estimate that 75 percent of 

the burden of preparation of Schedule 

14N and Schedule 14A (with regard to 

the legend required for additional 

soliciting materials) will be carried by 

the nominating shareholder or group 

internally and that 25 percent of the 

burden of preparation will be carried by 

outside professionals retained by the 

nominating shareholder or group. We 

estimate that 25 percent of the burden 

of preparation of Schedule 13G (for 

nominating shareholder groups that 

exceed 5%) will be carried by the 

nominating shareholder or group 

internally and that 75 percent of the 

burden of preparation will be carried by 

outside professionals retained by the 

nominating shareholder or group. The 

portion of the burden carried by outside 

professionals is reflected as a cost, while 

the portion of the burden carried 

internally by the company and the 

nominating shareholder or group is 

reflected in hours. 

TABLE 1—CALCULATION OF INCREMENTAL PRA BURDEN ESTIMATES * 

Current 

annual 

responses 

(A) 

Proposed 

annual 

responses 

(B) 

Current 

burden 

hours 

(C) 

Increase in 

burden 

hours 

(D) 

Proposed 

burden 

hours 

(E)=C+D 

Current 

professional 

costs (F) 

Increase in 

professional 

costs 

(G) 

Proposed 

professional 

costs =F+G 

Sch 14A ........................... 7,300 7,300 555,683 14,692 570,375 $63,709,987 $1,958,760 $65,668,747 

Sch 14C ........................... 680 680 52,337 1,632 53,969 5,951,639 217,640 6,169,279 

Sch 14N ........................... 0 269 0 28,565 28,565 0 3,808,600 3,808,600 

Form 8–K ......................... 108,424 109,465 406,590 3,904 410,494 54,212,000 520,500 54,732,500 

Form ID ............................ 65,700 65,994 9,855 44 9,899 0 0 0 

Sch 13G ........................... 12,500 12,546 25,577 484 26,061 42,694,200 580,320 43,274,520 

Rule 20a–1 ....................... 1,225 1,225 130,095 4,085 134,180 18,375,000 544,600 18,919,600 

Total .......................... .................... .................... .................... 53,406 .................... .................... 7,630,420 ....................

* The incremental burden estimate for Rule 20a–1 includes the disclosure that would be required on Schedule 14A and 14C, discussed above, 

with respect to funds. 

E. Solicitation of Comment 

We request comment on the accuracy 

of our estimates. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits 

comments to: (i) Evaluate whether the 

proposed collection of information is 

necessary for the proper performance of 

the functions of the agency, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of burden of the proposed collection of 

information; (iii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (iv) evaluate whether 

there are ways to minimize the burden 

of the collection of information on those 

who are to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29071 

335See proposed Rule 14a–18. 

336See proposed Rule 14a–2(b)(7)–(8). 

337See proposed Rule 14a–19 and Rule 14n–1. 

We request comment and supporting 

empirical data for purposes of the PRA 

on: 

• How likely it would be for 

shareholders or groups to be able to 

meet the requirements under proposed 

Rule 14a–11; 

• In how many instances qualifying 

shareholders or groups would use Rule 

14a–11 to include disclosure concerning 

a nominee or nominees in a company’s 

proxy materials; 

• How many nominees qualifying 

shareholders or group might offer; and 

• Whether there would be an increase 

in the number of shareholder proposals 

submitted pursuant to Rule 14a–8 that 

companies receive as a result of the 

proposed amendments. 

Any member of the public may direct 

to us any comments concerning the 

accuracy of these burden estimates and 

any suggestions for reducing these 

burdens. Persons submitting comments 

on the collection of information 

requirements should direct the 

comments to the Office of Management 

and Budget, Attention: Desk Officer for 

the Securities and Exchange 

Commission, Office of Information and 

Regulatory Affairs, Washington, DC 

20503, and should send a copy to 

Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090, with 

reference to File No. S7–10–09. 

Requests for materials submitted to 

OMB by the Commission with regard to 

these collections of information should 

be in writing, refer to File No. S7–10– 

09, and be submitted to the Securities 

and Exchange Commission, Office of 

Investor Education and Advocacy, 100 F 

Street, NE., Washington, DC 20549– 

0213. OMB is required to make a 

decision concerning the collection of 

information between 30 and 60 days 

after publication of this release. 

Consequently, a comment to OMB is 

best assured of having its full effect if 

OMB receives it within 30 days of 

publication. 

V. Cost-Benefit Analysis 

A. Background 

The Commission is proposing new 

rules that would, under certain 

circumstances, require companies to 

include in their proxy materials 

shareholder nominees for election as 

director, as well as other disclosure 

regarding those nominees and the 

nominating shareholder or group. In 

addition, the new rules would require 

companies to include in their proxy 

statements, under certain 

circumstances, shareholder proposals 

that would amend, or that request an 

amendment to, a company’s governing 

documents regarding nomination 

procedures, or disclosures related to 

shareholder nominations, provided the 

proposal does not conflict with 

proposed Rule 14a–11. The proposed 

rules are intended to remove certain 

impediments that the federal proxy 

process currently impose on 

shareholders’ ability to exercise their 

state law right to nominate directors, 

and thereby reduce the costs to 

shareholders of exercising their rights. 

Below, we describe the additional 

disclosures shareholders would receive 

if the proposed rules are adopted and 

the direct and indirect economic effects 

of such new disclosures. Our discussion 

of the economic effects takes into 

account the incentives and actions of 

parties who would be able under the 

rulemaking to affect its scope and 

influence. These parties include 

shareholders, the board, and state 

legislatures. 

Proposed Rule 14a–11 would require 

companies, where applicable, to include 

disclosures of shareholder nominations 

for director and disclosure about the 

nominating shareholder or group and 

the nominee or nominees in company 

proxy materials if, among other things, 

the nominating shareholder or group 

meets the requisite ownership threshold 

and has held the shares for at least one 

year prior to the date the shareholder 

provides notice on Schedule 14N of its 

intent to require the company to include 

a nominee or nominees in the 

company’s proxy materials pursuant to 

Rule 14a–11. The nominating 

shareholder or group also would be 

required to represent that he or she 

intends to hold the shares through the 

date of the meeting. A nominating 

shareholder that includes a nominee or 

nominees in a company’s proxy 

materials pursuant to Rule 14a–11 

would be required to provide to the 

company, in its notice on Schedule 14N, 

disclosure similar to the disclosure 

required in a proxy contest.335 Pursuant 

to proposed Item 7(e) of Schedule 14A 

(and, in the case of registered 

investment companies and business 

development companies, proposed Item 

22(b)(18) of Schedule 14A), the 

company would be required to include 

the information in its proxy materials, 

where applicable. In addition, the 

proposed rules would enable 

shareholders to engage in limited 

solicitations to form nominating 

shareholder groups and engage in 

solicitations in support of their nominee 

or nominees without disseminating a 

proxy statement.336

The Commission also is proposing an 

amendment to Rule 14a–8 to narrow the 

exclusion in paragraph (i)(8), which 

addresses director elections. Under the 

proposed amendment, the company 

would not be permitted to rely on Rule 

14a–8(i)(8) to omit from its proxy 

statement a shareholder proposal that 

would amend, or that requests an 

amendment to, a company’s governing 

documents regarding nomination 

procedures, or disclosures related to 

shareholder nominations, although any 

such proposals that conflict with 

proposed Rule 14a–11 or state law could 

still be excluded from the company’s 

proxy materials. The current procedural 

requirements for submitting a proposal 

pursuant to Rule 14a–8 would remain 

the same. 

No additional disclosures would be 

required from any shareholder that 

submits such a proposal; however, a 

nominating shareholder that includes a 

nominee or nominees in a company’s 

proxy materials pursuant to an 

applicable state law provision or the 

company’s governing documents would 

be required to provide to the company, 

in its notice on Schedule 14N, 

disclosure similar to the disclosure 

required in a proxy contest.337 Pursuant 

to proposed Item 7(f) of Schedule 14A 

(and, in the case of registered 

investment companies and business 

development companies, proposed Item 

22(b)(19) of Schedule 14A), the 

company would be required to include 

the information in its proxy materials. 

We believe this information will 

provide shareholders with information 

that is useful to an informed voting 

decision. 

The direct effect of proposed Rule 

14a–11 and the related disclosure 

requirements would be to reduce 

shareholders’ cost of nominating 

directors, which can otherwise be 

prohibitive since, to be successful, 

shareholders generally must conduct 

their own proxy contest. The 

amendments would do so without 

eliminating the traditional method of 

conducting a proxy contest. Therefore, 

were these amendments to become 

effective, the first-order economic effect 

would be that shareholders seeking to 

nominate directors may choose to move 

away from soliciting their own proxies 

for their nominees and instead require 

the company to include their nominee 

or nominees in the company proxy 

materials. The second-order economic 

effect would be that, due to the lowered 

29072 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

338 In this regard, we note that we are proposing 

new rules that would require a shareholder 

submitting a nominee or nominees pursuant to an 

applicable state law provision or a company’s 

governing documents to provide disclosure similar 

to what is required currently in a proxy contest. 

339We are not aware of any state laws that do so, 

but we seek comments on whether states currently 

have any prohibitions on shareholders’ right to 

nominate directors, and whether, to the extent such 

a right is not explicitly allowed, shareholders are 

presumed to have nomination rights. 

340As an example, a board of eight with two new 

shareholder-nominated directors, may expand to up 

to 11, diluting the influence of the shareholdernominated directors without expanding the number 

of director slots for which they must place 

shareholder-nominated directors in the proxy 

statement because the proposed 25% limits in 

proposed Rule 14a–11 would include a provision 

allowing companies to round down the number of 

directors. 

cost of effectively nominating directors, 

where applicable, there may be an 

increase in shareholder nominees for 

director. 

The amendment to Rule 14a–8(i)(8) 

would narrow the exclusion and no 

longer permit a company to exclude 

shareholder proposals that would 

amend, or request an amendment to, a 

company’s governing documents 

regarding nomination procedures, or 

disclosures related to shareholder 

nominations could result in additional 

shareholders being able to submit 

nominees for inclusion in a company’s 

proxy materials, if approved by 

shareholders. Using Rule 14a–8 in this 

way could result in a two-year process 

to gain access to a company’s proxy 

materials. The two-year process could 

result in different economic effects to 

those discussed above for proposed Rule 

14a–11, depending on the proponent’s 

success (e.g., the inclusion of the 

proposal in the company’s proxy 

materials and adoption of a binding 

bylaw proposal by appropriate 

shareholder vote), and the likelihood 

that the proponent would initiate the 

two-year process. The likelihood that 

the proponent would initiate the twoyear process could be limited by the 

costs of the procedure arising from the 

additional time (including opportunity 

costs of holding securities where the 

shareholder may consider the 

company’s board composition to be suboptimal) and the risk of failure.338

The extent of the economic effect of 

proposed Rule 14a–11 and the related 

disclosure requirements may be affected 

by several factors. These factors include 

future possible actions by boards and 

states. They also include limits on the 

number of shareholder director 

nominees that must be disclosed in the 

company’s proxy materials. Another 

relevant factor is how the requirement 

that a shareholder that intends to rely 

on proposed Rule 14a–11 may not be 

holding the securities it owns in the 

company ‘‘for the purpose of or with the 

effect of changing control’’ of the 

company would be applied in practice. 

In the case of the proposed 

amendments to Rule 14a–8, future 

actions of boards may affect 

applicability of the rule. If Rule 14a– 

8(i)(8) is amended as proposed, a 

company would not be permitted to 

exclude a shareholder proposal that 

would amend, or that requests an 

amendment to, a company’s governing 

documents to address shareholder 

nomination procedures or disclosures 

related to shareholder director 

nominations. It is reasonable to expect 

that at least some shareholders will 

submit this type of proposal— 

shareholder groups may be most likely 

to attempt to take this action when they 

perceive that the board does not 

currently represent their interests. Even 

if these proposals are no longer 

excludable pursuant to Rule 14a–8(i)(8), 

companies may submit a no-action 

request to exclude these shareholder 

proposals from the proxy statement 

pursuant to other procedural or 

substantive bases for exclusion. In 

contrast, we believe that applicability of 

proposed Rule 14a–11 is not likely to be 

affected by future actions of companies, 

because it is our understanding that 

under existing state laws companies 

generally may not prohibit shareholders 

from nominating directors.339

Future actions of the states also could 

affect the applicability of the proposed 

amendments. Proposed Rule 14a–11, for 

instance, would not apply to companies 

incorporated in states that prohibit 

nominations of directors by 

shareholders or permit companies to 

prohibit such nominations and where 

the company’s governing documents do 

so. Additionally, the proposed rule 

requires that the nominee’s board 

candidacy and membership be 

consistent with state law. Under Rule 

14a–8, shareholder proposals must be 

proper subjects for action by 

shareholders under state law. States 

may have incentives to affect the 

director nomination process, and these 

incentives may lead them to consider 

changes that could affect the availability 

of proposed Rule 14a–11 or Rule 14a– 

8. To the extent that states change their 

laws, for example, to prohibit the 

nomination of directors by shareholders, 

proposed Rule 14a–11 and Rule 14a–8 

would apply less broadly. 

The application of the term ‘‘changing 

control’’ affects the shareholders that 

may rely on the proposed amendments 

to require disclosure of their board 

nominees. The certification by the 

nominating shareholder or group on 

Schedule 14N that it does not hold the 

securities it owns in the company with 

the purpose or effect of changing control 

of the company will limit the 

shareholders that can use the procedure 

in proposed Rule 14a–11. Whether this 

requirement applies to a nominating 

shareholder or group will depend, 

however, on the facts and circumstances 

of each nominating shareholder or 

group. It is certainly not the 

Commission’s intent that this 

requirement would restrict shareholders 

from using the new rule merely because 

it is nominating directors pursuant to 

the new rule. Nevertheless, other factors 

in addition to the nomination may 

support a finding of control. 

The economic effects of the proposed 

rulemaking also are affected by the 

requirement that shareholders cannot 

nominate more than a maximum of one 

director or 25% of the existing board. In 

addition to this direct requirement, the 

cap on shareholder nominees may have 

additional, indirect implications for the 

economic effects of proposed Rule 14a– 

11. First, the number of shareholder 

nominees that can be included in the 

company’s proxy materials overall is 

limited. If one shareholder or group 

nominates the maximum allowable 

number of candidates, any other 

shareholder’s or group’s nominees are 

not required to be disclosed in the same 

proxy statement. Second, if the 

maximum allowable number of existing 

shareholder nominees is currently in 

place on the board, additional 

shareholder nominees are not required 

to be disclosed in the proxy statement. 

Third, boards seeking to limit the effect 

of shareholder nominated directors 

under the proposed rule may, in some 

instances, choose to expand the board 

size to dilute, to an extent, those 

directors.340

Below we consider the benefits and 

costs of these economic effects of the 

proposed amendments. 

B. Benefits 

We anticipate that the proposals, 

where applicable, would result in (1) a 

reduction in the cost to shareholders of 

soliciting votes in support of a 

nominated candidate for election to the 

board of directors; (2) improved 

disclosure of shareholder nominated 

director candidates; (3) potential 

improved board performance; and (4) 

enhanced ability for shareholders and 

companies to adopt their preferred 

shareholder nomination procedures. 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29073 

341As noted in footnote 303, above, in 2008 there 

were at least 32 contested elections. 

342See, e.g., Lynn A. Stout, The Mythical Benefit 

of Shareholder Control, 93 Va. L. Rev. 789, 789 

(2007) (‘‘In a public company with widely 

dispersed share ownership, it is difficult and 

expensive for shareholders to overcome obstacles to 

collective action and wage a proxy battle to oust an 

incumbent board.’’), available at: http:// 

papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=978775. 

343See comment letter from Automatic Data 

Processing, Inc. (April 20, 2006) on File No. S7–10– 

05. 344See id. 345See id. 346See id. 

347See Shareholder Proposal Proposing Release 

(proposing amendments to Rule 14a–8 to ‘‘make 

clear that director nominations made pursuant to 

[bylaw amendments concerning shareholder 

nominations of directors] would be subject to the 

disclosure requirements currently applicable to 

proxy contests’’ and noting that such disclosure is 

of ‘‘great importance’’ to an informed voting 

decision by shareholders). 

348The academic literature indicates the benefit 

to shareholders of having an independent, active 

and committed board of directors. See, e.g., Fitch 

Ratings, ‘‘Evaluating Corporate Governance’’ 

(December 12, 2007), available at: http:// 

www.fitchratings.com/corporate/reports/ 

Continued 

1. Reduction in Costs Related to 

Shareholder Nominations 

Generally, a shareholder who 

attempts to nominate directors must 

conduct a proxy contest in which the 

shareholder is responsible for collecting 

information, preparing proxy materials 

with required disclosures concerning 

the director nomination, and mailing 

the proxy materials to each shareholder 

solicited. A shareholder conducting a 

proxy contest incurs large costs 

involved with preparing a proxy 

statement and soliciting on behalf of his 

or her nominee.341 The costs can make 

it prohibitively expensive for 

shareholders to exercise their state law 

rights to nominate and elect directors. In 

addition, collective action concerns may 

discourage any one shareholder or 

group from assuming such costs for the 

benefit of other shareholders.342

Proposed new Rule 14a–11 would 

reduce both the direct and indirect costs 

of the proxy solicitation process. In 

particular, proposed new Rule 14a–11 

would allow shareholders to avoid the 

direct costs of conducting a proxy 

contest and would mitigate collective 

action and free rider concerns that 

otherwise may deter many shareholders 

from engaging in a traditional proxy 

contest. In regard to the latter, the 

proposed rule changes would likely 

ameliorate the need for collective action 

among shareholders, because qualifying 

shareholders will have direct access to 

a company’s proxy materials to more 

effectively nominate directors. To the 

extent that shareholders substitute use 

of Rule 14a–11 for engaging in 

traditional election contests, the 

proposal could also help companies 

avoid potential disruptions and the 

diversion of resources resulting from 

traditional proxy contests that might 

take place in the absence of the 

proposed amendments. Because the 

level of this benefit is affected by the 

extent to which shareholders make such 

substitutions, it is also checked by the 

extent that use of proposed Rule 14a–11 

is not a perfect substitute for traditional 

election contests. For example, the 

proposed rule restricts the number of 

shareholder director nominees that a 

company would be required to include 

in its proxy materials and the proposed 

rule would be available only to 

shareholders that do not hold the 

securities in the company with the 

purpose of, or with the effect of, 

changing control of the company. These 

elements of the proposed rule impose 

restrictions that are not present in a 

traditional proxy contest. Proxy contests 

also would still be available where 

shareholders have a control intent. 

According to a study of proxy contests 

conducted during 2003, 2004, and 2005, 

the average cost to a soliciting 

shareholder of a proxy contest is 

$368,000.343 The costs included those 

associated with proxy advisors and 

solicitors, processing fees, legal fees, 

public relations, advertising, and 

printing and mailing.344 Approximately 

95% of the cost was unrelated to 

printing and postage.345 The cost of 

printing and postage averaged 

approximately $18,000.346 Based on this 

information, we estimate that a 

shareholder using proposed Rule 14a– 

11 to submit a nominee or nominees for 

director to be included in a company’s 

proxy statement will save at least 

$18,000 on average and may save more 

as a result of being able to use the 

company’s proxy materials to solicit 

other shareholders. The nominating 

shareholder or group may or may not 

engage in public relations and 

advertising, or engage proxy solicitors, 

therefore, the extent of any cost savings 

may be greater. 

The benefits of this reduction in costs 

also may be enhanced to the extent that 

companies’ governing documents are 

modified to allow inclusion of 

additional shareholder nominees for 

director in company proxy materials. 

The instances of such changes in 

provisions in governing documents may 

increase as a result of the proposed 

amendment to Rule 14a–8(i)(8) to 

preclude companies from excluding 

proposals that would amend, or that 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations, 

provided the proposal does not conflict 

with proposed Rule 14a–11. 

2. Improved Disclosure of Shareholder 

Nominated Director Candidates 

The proposed new disclosure 

requirements in Rules 14a–11, 14a–18, 

and 14n–1 would require additional 

information to be provided on Schedule 

14N, including certifications by 

shareholders who submit a nominee 

under proposed Rule 14a–11 about the 

nominee’s independence, and 

disclosure of the information similar to 

that currently required in a proxy 

contest regarding the nominating 

shareholder and nominee. Proposed 

Rules 14a–19 and 14n–1 would require 

similar disclosures when a shareholder 

uses an applicable state law provision or 

company’s governing documents to 

include shareholder nominees for 

director in the company’s proxy 

materials. The information provided by 

such certifications and disclosures 

would help provide transparency to 

shareholders in voting on shareholder 

nominees for director and therefore may 

lead to better informed voting decisions. 

The information also will provide 

consistent and comparable information 

about shareholder nominated 

candidates across companies. With 

respect to Rule 14a–8(i)(8), companies 

have been permitted to exclude 

proposals to establish procedures to 

include shareholder nominees in 

company proxy materials. The 

Commission was concerned that 

allowing such proposals would result in 

contested elections without the 

disclosure that otherwise would be 

required in a traditional proxy 

contest.347 The proposed disclosure 

requirements are designed to address 

that concern. 

3. Potential Improved Board 

Performance and Company Performance 

Both proposed Rule 14a–11 and the 

amendments to Rule 14a–8(i)(8) may 

result in improved company 

performance, arising from 

improvements in board performance. 

First, both proposals, by increasing the 

chances of a shareholder-nominated 

director to be elected to the board, may 

increase the potential for incumbent 

directors to face closer scrutiny from 

outsiders. Faced with this new prospect, 

incumbent directors may work more 

diligently to signal their value to the 

company through efforts to improve the 

performance of the board and, relatedly, 

the company. 348 Company performance 

29074 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

report_frame.cfm?rpt_id=363502. Moreover, 

empirical evidence has indicated that the ability of 

significant shareholders to hold corporate managers 

accountable for activity that does not benefit 

investors may reduce agency costs and increase 

shareholder value. See, e.g., Brad M. Barber, 

‘‘Monitoring the Monitor: Evaluating CalPERS’ 

Activism’’ (November 2006), available at: http:// 

papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=890321. See also Deutsche 

Bank, Global Equity Research, ‘‘Beyond the 

Numbers: Corporate Governance in Europe,’’ 

(March 5, 2005). 

349See, e.g., Chris Cernich, et al., ‘‘Effectiveness 

of Hybrid Boards,’’ IRRC Institute for Corporate 

Responsibility (May 2009) available at: http:// 

www.irrcinstitute.org/pdf/ 

IRRC_05_09_EffectiveHybridBoards.pdf (finding 

that in a study of 120 ‘‘hybrid’’ boards—boards 

formed when activist shareholders, through actual 

or threatened proxy contests, were able to elect 

dissident directors but not gain control of the entire 

board—such boards increased shareholder value at 

ongoing companies by 19.1% (16.6 percentage 

points more than peers) from the contest period 

through the board’s one-year anniversary). 

350The current proposal, by facilitating a 

reduction in the cost of nominating ‘‘outside’’ 

directors, would create a new threat of removal to 

incumbent directors, which can bring about 

increased accountability that would benefit 

investors. Economists have put forth theory and 

evidence on the link between incentives that are 

associated with accountability and performance. 

See, e.g., Benjamin E. Hermalin and Michael S. 

Weisbach, ‘‘Endogenously Chosen Board of 

Directors and Their Monitoring of the Board’’ 88 

American Economic Review 96 (1998), available at: 

http://129.3.20.41/eps/mic/papers/9602/ 

9602001.ps.gz. Milton Harris and Artur Raviv 

‘‘Control of Corporate Decisions: Shareholders vs. 

Management’’ (May 29, 1998), available at: http:// 

papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=965559. 

351Published research has reported that when 

chief executive officers are more involved in the 

nomination of independent directors, stock price 

reactions to independent director appointments are 

significantly lower, and companies appoint fewer 

independent directors. See Anil Shivdasani & David 

Yermack, ‘‘CEO Involvement in the Selection of 

New Board Members: An Empirical Analysis,’’ 54 

J. Finance 1829 (1999). This evidence is consistent 

with the idea that limiting total management 

control of the nomination process improves 

accountability. 

352One benefit of corporate transparency is that 

it reduces information differences between the 

entities (e.g., the board of directors and the 

shareholders), and hence lowers the cost of trading 

the firm’s securities and the firm’s cost of capital. 

See, e.g., Diamond, Douglas W. and Robert E. 

Verrecchia, ‘‘Disclosure, Liquidity, and the Cost of 

Capital,’’ Journal of Finance, September 1991, 46 

(4), 1325–1359. For empirical evidence, see, e.g., 

Christian Leuz and Robert E. Verrecchia, ‘‘The 

Economic Consequences of Increased Disclosure,’’ 

Journal of Accounting Research, 2000, 38 

(supplement), 91–124. 

353See, e.g., comment letter on the 2007 

Proposals (SEC File Nos. S7–16–07 and S7–17–07) 

from the U.S. Chamber of Commerce (October 2, 

2007) (‘‘Chamber 2007’’). 

may improve to the extent some 

directors are replaced by other directors 

whose actions are better aligned with 

the interests of shareholders.349 Even 

where incumbents are not replaced, the 

requirements of the rule can lead to 

greater accountability on the part of 

incumbent directors. The level of board 

accountability will depend on the extent 

to which directors see a close link 

between their performance and the 

prospect of removal.350

Similarly, the inclusion in company 

proxy materials of shareholder 

nominees for director under proposed 

Rule 14a–11, or the possibility of 

shareholder nominees being included in 

company proxy materials pursuant to 

shareholder-initiated amendments to a 

company’s governing documents 

permitted by the proposed amendments 

to Rule 14a–8, may enhance the quality 

of the shareholders’ voice and result in 

a board whose interests are better 

aligned with shareholders’ interests.351

Second, the possibility of shareholder 

nominated candidates being submitted 

for inclusion in a company’s proxy 

materials, as well as the possibility of 

the shareholder nominee’s election, may 

lead to enhanced board performance. If 

the proposed rules are adopted, the 

responsiveness of boards may increase 

in an effort to alleviate concerns 

expressed by shareholders on certain 

matters and thereby avoid shareholders 

submitting nominees pursuant to the 

new rules. The board may feel a need 

to be more attentive to the company’s 

operations as a result of this enhanced 

accountability to shareholders. In 

addition, having a shareholdernominated director elected to and 

serving on the board may increase the 

transparency in boards’ decision-making 

process, which would make it easier for 

shareholders to monitor the board. This 

increased monitoring could enhance 

board performance and ultimately lead 

to improved corporate performance.352

Third, increasing shareholders’ access 

to company proxy materials for the 

inclusion of shareholder nominees for 

director may result in a larger pool of 

qualified director nominees to choose 

from. To the extent that a company does 

not include shareholder nominees for 

director in its proxy materials, thereby 

reducing the pool of qualified nominees, 

an opportunity cost may be incurred by 

the company and thus the shareholders. 

Therefore, proposed Rule 14a–11 may 

reduce the opportunity costs to 

companies and shareholders. 

4. Enhanced Ability for Shareholders 

and Companies To Adopt Procedures 

The proposed amendment to Rule 

14a–8(i)(8) also may facilitate 

shareholders and companies working 

together to tailor companies’ governing 

documents to suit the specific interests 

of the company and its shareholders. 

The proposed amendment would allow 

shareholders to use Rule 14a–8 to 

submit proposals that would amend, or 

that request an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, as long as the proposal 

does not conflict with Rule 14a–11. This 

may provide shareholders a more 

effective voice than simply being able to 

recommend candidates to the 

nominating committee or being able to 

nominate candidates in person at a 

shareholder meeting. 

The overall benefit of allowing 

shareholders to include director 

nominees in a company’s proxy 

materials may depend on the extent to 

which shareholders choose to exercise 

their rights and on shareholders’ 

perception of the merits of the nominees 

that are advanced by nominating 

shareholders. 

C. Costs 

We anticipate that the amendments, 

where applicable, may result in costs 

related to (1) potential adverse effects on 

company and board performance; (2) 

potential complexity of the proxy 

process; and (3) preparing the required 

disclosures, printing and mailing, and 

costs of additional solicitations. 

1. Costs Related to Potential Adverse 

Effects on Company and Board 

Performance 

The proposals would impose some 

direct costs on the companies that 

would be subject to the new rules. 

These costs would arise from potential 

changes to corporate behavior and 

potential lower board quality. 

Most, if not all, companies have 

director nomination procedures. The 

proposed changes may lead some 

companies to incur costs associated 

with re-examining those procedures, 

especially if the company is subject to, 

or thinks it likely will be subject to, 

shareholder nominated director 

candidates. Companies accustomed to 

uncontested director elections may 

incur costs of adjusting their 

practices.353 Further, the possibility of 

contested director elections may 

adversely influence corporate behavior. 

To the extent that incumbent board 

members may feel a greater need to 

respond to shareholders’ various 

concerns, the board may incur costs in 

attempting to institute policies and 

procedures they believe will address 

shareholder concerns. It is possible that 

the time a board spends on shareholder 

relations could reduce the time that it 

would otherwise spend on strategic and 

long-term thinking and overseeing 

management, which may negatively 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29075 

354See, e.g., Stout, footnote 342, above, at 792 

(‘‘Perhaps the most obvious [economic function of 

board governance] is promoting more efficient and 

informed business decisionmaking. It is difficult 

and expensive to arrange for thousands of dispersed 

shareholders to express their often-differing views 

on the best way to run the firm.’’); see generally 

Stephen M. Bainbridge, Director Primacy and 

Shareholder Disempowerment, 199 Harv. L. Rev. 1, 

25–27 (2006) (discussing how concern for 

accountability may undermine decision making 

discretion and authority). But see Lucian Arye 

Bebchuk, The Case for Increasing Shareholder 

Power, 118 Harv. L. Rev. 833, 883 (2005) (‘‘[M]ere 

recognition that back-seat driving might sometimes 

be counter-productive is hardly sufficient to 

mandate general deference to management. Such 

mandated deference would follow only if one 

assumes that shareholders are so irrational or 

undisciplined that they cannot be trusted to decide 

for themselves whether deference would best serve 

their interests.’’). See also, comment letter on the 

2007 Proposals (SEC File Nos. S7–16–07 and S7– 

17–07) from ABA 2007. 

355See, e.g., comment letter on the 2007 

Proposals (SEC File Nos. S7–16–07 and S7–17–07) 

from Chamber 2007; Stephen M. Bainbridge, ‘‘A 

Comment on the SEC Shareholder Access Proposal’’ 

(November 14, 2003) at 17, available at: http:// 

ssrn.com/abstract=470121 (‘‘The likely effects of 

electing a shareholder representative therefore will 

not be better governance. It will be an increase in 

affectional conflict. * * * It will be a reduction in 

the trust-based relationships that causes horizontal 

monitoring within the board to provide effective 

constraints on agency costs.’’). 

356See, e.g., comment letter on the 2007 

Proposals (SEC File Nos. S7–16–07 and S7–17–07) 

from the Society of Corporate Secretaries & 

Governance Professionals (October 5, 2007). 

357See 2003 Summary of Comments and 

comment letters from ASCS and McKinnell, BRT. 

358See 2003 Summary of Comments; see also 

comment letters from ABA; Charlotte M. Bahin, 

ACB; The Allstate Corporation (December 23, 2003) 

(‘‘Allstate’’); Ashland; Richard H. Ayers (November 

18, 2003) (‘‘Ayers’’); Callaway Golf Company 

(December 22, 2003) (‘‘Callaway’’); Caterpillar, Inc. 

(December 17, 2003) (‘‘Caterpillar’’); Cigna 

Corporation (January 2, 2004) (‘‘Cigna’’); 

ConocoPhillips (October 3, 2003) 

(‘‘ConocoPhillips’’); Cummins, Inc. (November 23, 

2003) (‘‘Cummins’’); Debevoise & Plimpton 

(December 17, 2003); Exelon Corporation 

(December 22, 2003) (‘‘Exelon’’); FirstEnergy Corp. 

(December 10, 2003) (‘‘FirstEnergy’’); Ganske, 

Kelley & Profusek; General Mills (December 19, 

2003); Roger L. Howe (November 26, 2003); Reed 

Hundt (December 16, 2003); International Paper 

(December 22, 2003); Letter Type D (representing 8 

individuals or entities); Letter Type H (representing 

7 individuals or entities); Letter Type N 

(representing 38 individuals or entities); Letter 

Type Q (representing 4 individuals or entities); 

McDATA Corporation (December 22, 2003) 

(‘‘McDATA’’); Pfizer, Inc. (December 11, 2003) 

(‘‘Pfizer’’); MDU Resources (December 22, 2003) 

(‘‘MDU’’); Malcolm S. Morris (November 6, 2003); 

National Association of Corporate Directors (March 

26, 2004) (‘‘NACD’’); Office Depot, Inc. (December 

22, 2003); Kerr-McGee Corporation (December 22, 

2003); Progress Energy (December 22, 2003); 

Tribune Company (December 18, 2003); and 

Wachtell. 

359Cf. Blasius Indus. v. Atlas Corp., 564 A.2d 651, 

663 (Del. Ch. 1988) (stating that ‘‘[although the] 

premise [that the board knows better than do the 

shareholders what is in the corporation’s best 

interest] is no doubt true for any number of matters, 

it is irrelevant (except insofar as the shareholders 

wish to be guided by the board’s recommendation) 

when the question is who should comprise the 

board of directors.’’). 

360See, e.g., comment letter from Exelon 

Corporation (December 22, 2003) on the 2003 

Proposal. 

361See, e.g, Stout, footnote 342 above, at 794 

(‘‘[B]y making it easier for large shareholders in 

public firms to threaten directors, a more effective 

shareholder franchise might increase the risk of 

intershareholder ‘‘rent-seeking’’ in public 

companies.’’). 

362See, e.g., Bebchuk, note 354 above, at 883 

(arguing that proposals by special interest 

shareholders are generally unlikely to be adopted 

by the majority). 

affect shareholder value.354 These costs 

are limited by the extent to which the 

additional communication results in 

better decision-making by the board, as 

well as shareholders’ understanding that 

the board’s time and other resources are 

in scarce supply and take these 

considerations into account in deciding 

to nominate directors. 

In addition, the rule proposals could, 

in some cases, result in lower quality 

boards.355 If a shareholder nominee is 

elected and disruptions or polarization 

in boardroom dynamics occur as a 

result, the disruptions may delay or 

impair the board’s decision-making 

process.356 In companies in which 

boards are already well-functioning, 

dissent can be counterproductive and 

could delay the board’s decision-making 

process. Such a delay or impairment in 

the decision-making process could 

constitute an indirect economic cost to 

shareholder value. 

Companies may expend more 

resources on efforts to defeat the 

election of shareholder nominees for 

director. Commenters have drawn 

attention to the potential to turn every 

director election into an election 

contest.357 This may be the case, for 

instance, if company directors 

determine to spend company resources 

to defeat shareholder nominees they 

believe are not in the best interests of 

the company (or for other reasons).358

Such a reaction could discourage 

qualified board members from running. 

This potential would be limited by 

shareholders’ understanding that board 

dynamics can be important, and that 

changing them may not always be 

beneficial. It also would be limited to 

the extent that company directors do not 

seek to substitute their judgment for the 

judgment of the shareholders when the 

question is who should comprise the 

board of directors.359 We also have 

assumed that boards generally would be 

cautious in expending resources to 

defeat shareholder nominees insofar as 

incumbent board members generally are 

interested in the outcome of elections 

and in the corporation’s policy in 

connection with opposing shareholder 

nominees. Nevertheless, to the extent 

that company directors make large 

expenditures to defeat shareholder 

nominees, those expenditures would 

represent a cost to shareholders. An 

additional cost could arise from the 

potential placement of directors who 

have insufficient experience or 

capabilities to serve effectively, as some 

commenters have suggested.360 But to 

the extent that shareholders understand 

that experience and competence are 

important director qualifications, any 

associated costs may be limited. 

Finally, the proposals could introduce 

a cost to shareholders to the extent that 

the nomination procedure is used by 

shareholders to promote an agenda that 

conflicts with other shareholders’ 

interests. For example, it would be 

possible for an investor to try to 

maximize his private gains through 

board decisions at the expense of other 

shareholders.361 This cost, however, is 

limited to the extent these nominees 

would be required to make certain 

disclosures designed to elicit their 

interests and relationships, and must 

ultimately be elected by the 

shareholders.362

2. Costs Related to Potential Complexity 

of Proxy Process 

Under the proposed amendments, the 

process of determining which 

shareholder director nominee will be on 

the form of proxy and the limitations on 

the number of shareholder-nominated 

directors to appear in the company’s 

proxy materials and eventually serve on 

the board may create a degree of 

complexity. If several shareholders or 

groups desire (and qualify) to nominate 

the maximum number of directors they 

are allowed to place in the company’s 

proxy materials, only the first 

shareholder or group to submit a 

Schedule 14N will succeed. 

Additionally, under proposed Rule 14a– 

11, if the maximum allowable number 

of shareholder nominees is currently 

serving on the board, a company would 

not be required to include additional 

shareholder nominees in the company’s 

proxy materials. 

Under the proposed amendments to 

Rule 14a–8, shareholders would need to 

wait for two proxy seasons to utilize the 

particular procedures and disclosures 

adopted through a shareholder proposal 

under Rule 14a–8—the first season to 

establish a shareholder director 

nomination procedure and the second 

season to nominate and elect directors. 

These sources of complexity and any 

uncertainty that may arise in 

implementing the proposed 

amendments could result in costs to 

companies, to shareholders seeking to 

nominate directors, and to shareholder 

director nominees. For example, both 

29076 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

363For example, the comment letter from ASCS 

on the 2003 Proposal estimated based on survey 

results that the cost of outside counsel in 

connection with opposing a shareholder nominee 

and supporting the company’s nominees for 

directors would be 59.4 hours and $44,460. 

364See 2003 Summary of Comments; see also 

letter from McKinnell, BRT (providing information 

from surveys conducted of BRT and ASCS 

members). See also footnote 311, above. 

365We note that these increased costs may be less 

for companies using notice and access. See Internet 

Availability of Proxy Materials, Release No. 34– 

55146 (January 22, 2007) (‘‘Internet Proxy 

Availability Release’’). 

366One commenter on the 2003 Proposal 

estimated that a Rule 14a–11 contest would cost a 

company approximately one-third what a full proxy 

contest costs. See comment letter from Bainbridge. 

Based on this assumption, this commenter 

estimated, relying on data from a late 1980s survey, 

that the costs of such a contest to a public company 

would be $500,000. This commenter also cited data 

estimating companies’ annual expenditures on Rule 

14a–8 shareholder proposals to be $90 million. 

While this commenter noted that it is unlikely that 

there will be as many Rule 14a–11 election contests 

as Rule 14a–8 shareholder proposals, the 

commenter asserted that incumbent boards are 

likely to spend considerably more on opposing each 

Rule 14a–11 contest than on opposing a Rule 14a– 

8 shareholder proposal. This commenter estimated 

that $100 million may be an appropriate estimate 

for the lower boundary of the range within which 

Rule 14a–11’s direct costs will fall. By contrast, 

another commenter estimated that under current 

rules the total cost of proxy contests for companies 

would exceed $15 million. See comment letter from 

McKinnell, BRT in connection with the 2003 

Proposal (estimate was based on data provided in 

response to a 2003 survey of members of the 

Business Roundtable and the American Society of 

Corporate Secretaries). 

367See ASCS letter. We also note that these 

increased costs may be less for companies using 

notice and access. See Internet Proxy Availability 

Release. 

368 In the adopting release for the amendments to 

Rule 14a–8 in 1998, we noted that responses to a 

questionnaire we made available in February 1997 

suggested the average cost spent on printing costs 

(plus any directly related costs, such as additional 

postage and tabulation expenses) to include 

companies and shareholders could 

incur costs to seek legal advice in 

connection with shareholder 

nominations submitted pursuant to Rule 

14a–11, the inclusion of shareholder 

nominees in company proxy materials, 

and the process for submission of a 

notice of intent to exclude a nominee or 

nominees included in the rule.363 A 

company that receives a shareholder 

nomination for director has no 

obligation to make a submission under 

Rule 14a–11 unless it intends to exclude 

the nominee from its proxy materials. 

Companies and shareholders also could 

incur costs to seek legal advice in 

connection with shareholder proposals 

submitted pursuant to Rule 14a–8 and 

the notice of intent to exclude process 

related to it. A company that receives a 

shareholder proposal has no obligation 

to make a submission under Rule 14a– 

8 unless it intends to exclude the 

proposal from its proxy materials. To 

the extent disputes on whether to 

include particular nominees or 

proposals are not resolved internally, 

companies and/or shareholders might 

seek recourse in courts, which would 

increase costs. 

The proposed amendments to Rule 

14a–8 would no longer permit 

companies to exclude from their proxy 

materials proposals that would amend, 

or that request an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, provided the proposal 

does not conflict with proposed Rule 

14a–11. Expanding the types of 

proposals permitted under Rule 14a–8 

may increase the number of shareholder 

proposals submitted to companies. This 

would likely result in increased costs to 

the company related to reviewing and 

processing such proposals to determine 

matters such as shareholder eligibility, 

and whether there is a basis for 

excluding the proposal under Rule 14a– 

8. In this regard, in a comment letter 

submitted in connection with the 2003 

Proposal, a commenter submitted 

information from a survey conducted 

about the costs associated with 

including a shareholder proposal in the 

company’s proxy materials, estimating 

that preparation and submission of a 

notice of intent to exclude the proposal 

to the SEC regarding a shareholder 

proposal would average 65 hours per 

proposal.364 For purposes of PRA, we 

estimate that shareholders will submit 

approximately 97 proposals regarding 

nomination procedures or disclosures 

related to director nominations to 

companies per year. Assuming that 90% 

of companies prepare and submit a 

notice of intent to exclude these 

proposals, the resulting costs to 

companies would result in 

approximately 4,241 hours and 

$565,500 for the services of outside 

professionals. Alternatively, such costs 

could decrease to the extent that 

proposed Rule 14a–8 provides a clearer 

indication of which proposals are 

excludable. 

3. Costs Related to Preparing Disclosure, 

Printing and Mailing and Costs of 

Additional Solicitations 

The proposals may impose additional 

direct costs on companies and 

shareholders subject to the new rules, 

related to the preparation of required 

disclosure, printing and mailing costs 

and costs of additional solicitations that 

may be undertaken as a result of 

including one or more shareholder 

nominees for director in the company 

proxy materials. 

For purposes of the PRA analysis, we 

estimate that the disclosure burden of 

the proposed amendments to reporting 

companies (other than registered 

investment companies) is 15,652 hours 

of personnel time and $2,087,000 for 

services of outside professionals. We 

also estimate for purposes of the PRA 

analysis that the disclosure burden to 

shareholders of the proposed 

amendments will be 31,865 hours of 

shareholder time and $4,758,420 for 

services of outside professionals. For 

registered investment companies, we 

estimate for purposes of the PRA 

analysis that the burden of the proposed 

amendments will be 5,888 hours of 

company time and $785,000 for the 

services of outside professionals. 

Companies would incur additional 

printing and mailing costs to include 

shareholder nominees in the company’s 

proxy materials pursuant to Rule 14a– 

11, an applicable state law provision, or 

a company’s governing documents as a 

result of the proposed amendment to 

Rule 14a–8(i)(8).365 These incremental 

printing and mailing costs could 

include the expense of adding the name 

and background information of 

shareholder nominees for director in 

their proxy materials as well as the 

increased weight of a company’s proxy 

materials. The printing and mailing 

costs would increase as the number of 

shareholder nominees to be included in 

the company proxy materials increases. 

As noted above, this may result in a 

decrease in costs to shareholders that 

would have to conduct proxy contests 

in the absence of proposed Rule 14a–11, 

but may increase the costs for 

companies. The increased costs for 

companies may not be as much as 

would otherwise result if that 

shareholder engaged in a proxy 

contest.366

Companies also would incur printing 

and mailing costs with respect to the 

inclusion of a shareholder proposal 

related to changes to the company’s 

governing documents regarding 

inclusion of shareholder nominees in 

company proxy materials. We have two 

sources of information estimating such 

costs. According to the information 

provided by one commenter, the average 

cost to a company to print and mail one 

shareholder proposal in its proxy 

materials is $15,324 and 34 hours.367

The responses to a questionnaire that 

the Commission made available in 1997 

relating to 1998 amendments to Rule 

14a–8, however, suggest such costs to 

the companies responding averaged 

$50,000.368 As noted above, we believe 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29077 

shareholder proposals in company proxy materials 

was approximately $50,000. The responses received 

may have accounted for the printing of more than 

one proposal. 

369We estimated that approximately 97 proposals 

would be submitted regarding nomination 

procedures or disclosures related to nomination 

procedures, however, our estimate assumed that 59 

proposals that otherwise would have been 

submitted on other governance topics would 

instead relate to nomination procedures or 

disclosures related to nomination procedures. 

Assuming the 59 proposals would already be 

accounted for in companies’ costs, we estimate that 

38 additional proposals would be submitted to 

companies annually. 

370For purposes of the PRA analysis, we estimate 

these disclosure requirements would result in 2,633 

burden hours of company time, and $351,000 for 

services of outside professionals. 

371For purposes of the PRA analysis, we estimate 

the Schedule 14N disclosure requirements for 

shareholders submitting nominees pursuant to Rule 

14a–11 or a company’s governing documents would 

result in a total of 28,565 hours of shareholder time 

and $3,808,600 for services of outside professionals. 

372See, e.g., Bebchuk 2007 Article. 

373For further discussion on the impact of the 

proposed amendments on smaller reporting 

companies, see discussion of Initial Regulatory 

Flexibility Act below. 

374See Internet Proxy Availability Release. 

375 15 U.S.C. 78w(a)(2). 

376 15 U.S.C. 78c(f). 

377 15 U.S.C. 80a–2(c). 

that the proposed amendment to Rule 

14a–8(i)(8) could result in an additional 

38 shareholder proposals submitted 

annually.369 Based on this information, 

for purposes of our analysis, we assume 

printing and mailing costs of one 

shareholder proposal in a company’s 

proxy materials could be in the range of 

approximately $15,000 to $50,000. 

Assuming each of these proposals were 

included in company proxy materials, it 

could result in a total cost of 

approximately $570,000 to $1,900,000 

for the affected companies. 

The proposed rules also would 

present direct costs due to disclosure 

requirements. For example, companies 

that determine that they may exclude a 

shareholder nominee are required to 

provide a notice to the nominating 

shareholder or group regarding any 

eligibility or procedural deficiencies in 

the nomination and provide to the 

Commission notice of the basis for its 

determination.370 Nominating 

shareholders or groups and the 

nominees also would be required to 

disclose information about themselves, 

which may be costly.371 Most of this 

disclosure will be provided by the 

nominating shareholder or group in the 

notice to the company, which would be 

filed on new Schedule 14N. The 

Schedule 14N also would include 

information regarding the length of 

ownership, certifications, and other 

information. 

We also anticipate the possibility of 

increased direct costs associated with 

additional solicitations by both 

companies and shareholders. 

Companies may increase solicitations to 

vote against shareholder proposals or to 

vote for their slate of directors. 

Shareholders may increase solicitations 

to vote for shareholder proposals, to 

withhold votes for a company’s 

nominees for director, or to vote for the 

shareholder nominee or nominees. In 

addition, companies may face 

additional costs for solicitations if 

shareholders or groups submit nominees 

for inclusion in company proxy 

materials pursuant to Rule 14a–11, an 

applicable state law, or a company’s 

governing documents. 

D. Small Business Issuers 

Based on our staff’s review of Rule 

14a–8 shareholder proposals, it seems 

that smaller companies tend to receive 

relatively fewer shareholder proposals. 

Therefore, we assume that the proposed 

amendment to the rule would not 

substantially increase the number of 

shareholder proposals to smaller 

companies and likely would have little 

impact on small entities. With respect to 

proposed Rule 14a–11, there is some 

indication that proxy contests may 

occur disproportionately at smaller 

companies.372 Accordingly, we assume 

that proposed Rule 14a–11 is likely to 

have a greater effect than the proposed 

amendments to Rule 14a–8 on smaller 

companies.373

E. Request for Comment 

We have identified certain costs and 

benefits imposed by these proposals. In 

addition to the requests for comment 

throughout the release on the potential 

impact of the proposed rules, we 

specifically request comment on all 

aspects of this cost-benefit analysis, 

including identification of any 

additional costs and benefits. We 

encourage commenters to identify and 

supply relevant data concerning the 

costs and benefits of the proposed 

amendments. We also solicit comment 

on how the use of electronic proxy 

materials 374 may reduce the costs for 

companies that would be required to 

include shareholder nominees or 

shareholder proposals, as well as for 

shareholders that otherwise would be 

required to conduct a proxy contest. 

We also request comment on the 

following specific concerns: 

• We solicit quantitative data to assist 

our assessment of the benefits and costs 

of enhanced shareholder access to 

company proxy materials. Will 

proposed Exchange Act Rule 14a–11 

reduce shareholders’ cost of nominating 

directors? 

• We solicit quantitative data on how 

often shareholders meeting the 

proposed Rule 14a–11 thresholds would 

invoke the rule to propose nominees. 

• We solicit quantitative data on the 

potential increases, if any, of 

shareholder proposals under Exchange 

Act Rule 14a–8(i)(8) as a result of these 

proposed rules. 

• We solicit quantitative data on the 

incremental cost of mailing and printing 

company proxies that may be longer due 

to the inclusion of shareholder 

nominees. How does this compare with 

the cost of a stand-alone printing of the 

additional material, such as would be 

borne by a shareholder engaged in a 

proxy contest under the current rules? 

• We solicit quantitative data on the 

time and cost spent by shareholders 

nominating directors through a proxy 

contest under the current rules. 

VI. Consideration of Burden on 

Competition and Promotion of 

Efficiency, Competition and Capital 

Formation 

Section 23(a)(2) of the Exchange 

Act 375 requires us, when adopting rules 

under the Exchange Act, to consider the 

impact that any new rule would have on 

competition. In addition, Section 

23(a)(2) prohibits us from adopting any 

rule that would impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. Section 

3(f) of the Exchange Act 376 and Section 

2(c) of the Investment Company Act 377

require us, when engaging in 

rulemaking that requires us to consider 

or determine whether an action is 

necessary or appropriate in the public 

interest, to consider, in addition to the 

protection of investors, whether the 

action will promote efficiency, 

competition and capital formation. 

The proposed rules are intended to 

remove impediments to the exercise of 

shareholders’ rights to nominate and 

elect directors and provide shareholders 

with information about nominating 

shareholders and their nominees for 

director. The proposed rules, if adopted, 

would establish a process for inclusion 

of shareholder nominees for director in 

company proxy materials pursuant to 

Rule 14a–11 and disclosure regarding 

the nominating shareholder and 

nominees submitted pursuant to Rule 

14a–11. The proposed rules also would 

provide an avenue for shareholders to 

submit proposals that would amend, or 

that request an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

29078 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

378 5 U.S.C. 601(6). 

379Exchange Act Rule 0–10 [17 CFR 240.0–10]. 

nominations. In addition, the proposed 

rules would require disclosure of 

information regarding nominating 

shareholders or groups and any 

nominees submitted pursuant to an 

applicable state law provision or a 

company’s governing documents, which 

would provide shareholders a better 

informed basis for deciding how to vote 

for nominees for election to the board of 

directors. Enabling shareholders to 

submit shareholder proposals that 

would amend, or that request an 

amendment to, a company’s governing 

documents regarding nomination 

procedures or disclosures related to 

shareholder nominations should better 

reflect shareholders’ preferences 

regarding shareholder director 

nomination procedures and disclosure. 

We expect the proposed rules to 

promote the efficiency of the exercise of 

shareholders’ rights to nominate and 

elect directors. 

We expect proposed Rule 14a–11 

would increase efficiency because a 

shareholder will not have to engage in 

a formal proxy contest if the shareholder 

only wants to nominate a small number 

of directors and is not seeking control of 

a company’s board. We also note that 

the proposal would increase efficiency 

because all or most nominees will be 

included on one proxy card with clear 

disclosure for shareholders to evaluate 

when deciding whether and how to 

grant authority to vote their shares by 

proxy, rather than having to evaluate 

more than one set of proxy materials 

sent by a company and an insurgent 

shareholder. 

If a company is required to include 

shareholder nominees in its proxy 

materials, competition for board seats 

could increase, which might encourage 

or discourage qualified candidates from 

running. To the extent that this would 

discourage less-qualified candidates 

from running, or alternatively, would 

increase the quality of board members 

due to increased competition, investors 

may be more or less willing to invest in 

companies that receive shareholder 

nominees pursuant to the proposed 

rules. The proposed rules should 

improve and streamline information 

flow between investors and with the 

company, which we believe would give 

more direct effect to shareholder 

preferences regarding shareholder 

nominations for director. 

Shareholders and the company’s 

relationship with shareholders may 

benefit from the board devoting 

additional time to considering 

shareholder concerns; however, one 

possible adverse impact on efficiency, 

competition, and capital formation is 

that boards may devote less time to 

fulfilling their other responsibilities as a 

result. However, we believe that 

investors may be able to evaluate a 

company’s board of directors more 

effectively and make more informed 

investment decisions as a result of the 

proposed rules. We also believe that 

these developments may have some 

positive impact on the efficiency of 

markets and capital formation because it 

may help to increase investor 

confidence during this time of 

uncertainty in our markets. 

We request comment on whether the 

proposals, if adopted, would promote 

efficiency, competition and capital 

formation or have an impact or burden 

on competition. Commenters are 

requested to provide empirical data and 

other factual support for their view, if 

possible. 

VII. Initial Regulatory Flexibility Act 

Analysis 

This Initial Regulatory Flexibility Act 

Analysis has been prepared in 

accordance with 5 U.S.C. 603. It relates 

to proposed revisions to the rules and 

forms under the Exchange Act and the 

Investment Company Act that would, 

under certain limited circumstances, 

require companies to include in their 

proxy materials shareholder nominees 

for election as director. It also relates to 

the proposed revisions to the rules and 

forms that would prohibit companies 

from excluding shareholder proposals 

that would amend, or that request an 

amendment to, a company’s governing 

documents regarding nomination 

procedures or disclosures related to 

shareholder nominations. The proposals 

are intended to improve the ability of 

shareholders to receive consistent and 

comparable disclosure regarding, and 

participate meaningfully in, the 

nomination and election of directors. 

A. Reasons for, and Objectives of, the 

Proposed Action 

Today’s proposals include features 

from the proposals on this topic in 2003 

and 2007, and reflect much of what we 

learned through the public comment 

that the Commission has received 

concerning this topic over the past six 

years. The proposals are intended to 

remove impediments to shareholders’ 

ability to participate meaningfully in the 

nomination and election of directors, to 

promote the exercise of shareholders’ 

rights to nominate and elect directors, to 

open up communication between a 

company and its shareholders, and to 

provide shareholders with better 

information to make an informed voting 

decision by requiring disclosure about a 

nominating shareholder or group, as 

well as nominees for director submitted 

by a nominating shareholder or group. 

In particular, the proposed rules would 

create a process for long-term 

shareholders, or groups of long-term 

shareholders, with significant holdings 

to have their nominees for director 

included in company proxy materials. 

In addition, the proposed amendment to 

Rule 14a–8(i)(8) would narrow the 

exclusion and would not permit 

companies to exclude shareholder 

proposals that would amend, or that 

request an amendment to, a company’s 

governing documents regarding 

nomination procedures or disclosures 

related to shareholder nominations, 

provided the proposal does not conflict 

with proposed Rule 14a–11, when 

certain conditions are met. 

The rule proposals are intended to 

achieve the stated objectives without 

unduly burdening companies. We seek 

to limit the cost and burden on 

companies by limiting proposed Rule 

14a–11 to nominations by shareholders 

who have maintained a significant 

continuous beneficial ownership in the 

company for at least one year at the time 

the notice of nomination is submitted. 

These limitations would lower the cost 

to companies while still improving 

disclosure in the company’s proxy 

materials and thereby improve 

shareholders’ ability to participate 

meaningfully in the nomination and 

election of directors. This increased 

participation may improve corporate 

governance by increasing director 

accountability and responsiveness and 

aligning the interests of the board and 

shareholders, thereby giving investors 

greater confidence that the board is 

serving the interests of shareholders. 

This may, in turn, enhance the value of 

shareholders’ investments. 

B. Legal Basis 

We are proposing amendments to the 

forms and rules under the authority set 

forth in Sections 3(b), 13, 14, 15, 23(a) 

and 36 of the Securities Exchange Act 

of 1934, as amended, and Sections 10, 

20(a) and 38 of the Investment Company 

Act of 1940, as amended. 

C. Small Entities Subject to the 

Proposed Rules 

The Regulatory Flexibility Act defines 

‘‘small entity’’ to mean ‘‘small 

business,’’ ‘‘small organization,’’ or 

‘‘small governmental jurisdiction.’’ 378

The Commission’s rules define ‘‘small 

business’’ and ‘‘small organization’’ for 

purposes of the Regulatory Flexibility 

Act for each of the types of entities 

regulated by the Commission.379 A 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29079 

380The estimated number of reporting small 

entities is based on 2008 data, including the 

Commission’s EDGAR database and Thomson 

Financial’s Worldscope database. 

381Rule 0–10 under the Investment Company Act 

[17 CFR 270.0–10] contains the applicable 

definition. 382See, e.g., Bebchuk 2007 Article. 

‘‘small business’’ and ‘‘small 

organization,’’ when used with 

reference to an issuer other than an 

investment company, generally means 

an issuer with total assets of $5 million 

as a company with total assets of $5 

million or less on the last day of its most 

recent fiscal year. We estimate that there 

are approximately 1,229 issuers that 

may be considered small entities.380

For purposes of the Regulatory 

Flexibility Act, an investment company 

is a small entity if it, together with other 

investment companies in the same 

group of related investment companies, 

has net assets of $50 million or less as 

of the end of its most recent fiscal 

year.381 We estimate that approximately 

178 registered investment companies 

and 34 business development 

companies meet this definition. The 

proposed rules may affect each of the 

approximately 212 issuers that may be 

considered small entities, to the extent 

companies and shareholders take 

advantage of the proposed rules. 

We request comment on the number 

of small entities that would be impacted 

by our proposals, including any 

empirical data. 

D. Reporting, Recordkeeping and Other 

Compliance Requirements 

The proposals would, under certain 

circumstances, require all companies 

subject to the federal proxy rules, 

including small entities, to permit 

certain shareholders to submit nominees 

for inclusion in the company’s proxy 

materials. A company would be 

required to include shareholder 

nominees for director in its proxy 

materials unless state law or a 

company’s governing documents 

prohibits shareholders from nominating 

directors. Nominating shareholders, 

including nominating shareholders that 

are small entities, would be required to 

provide disclosure in proposed 

Schedule 14N about the nominating 

shareholders and the nominee, and 

companies would be required to include 

the disclosure provided by the 

nominating shareholder or group in the 

company’s proxy materials. 

The proposals also would permit 

shareholders to submit proposals that 

would amend, or that request an 

amendment to, a company’s governing 

documents regarding nomination 

procedures or disclosures related to 

shareholder nominations, provided the 

proposal does not conflict with 

proposed Rule 14a–11. A nominating 

shareholder or group, including a 

nominating shareholder or group that is 

a small entity, using an applicable state 

law provision or a provision in the 

company’s governing documents to 

submit a nomination for director would 

be required to provide disclosure in 

proposed Schedule 14N about the 

nominating shareholder or group and 

the nominee. Companies also would be 

required to include disclosure about the 

nominating shareholder or group and 

the nominee in the company’s proxy 

materials when a shareholder submits a 

nomination for director pursuant to an 

applicable state law provision or a 

company’s governing documents. 

Based on our staff’s review of Rule 

14a–8 shareholder proposals, it seems 

that smaller companies tend to receive 

relatively fewer shareholder proposals. 

Therefore, we assume that the proposed 

amendment to the rule would not 

substantially increase the number of 

shareholder proposals to smaller 

companies and likely would have little 

impact on small entities. With respect to 

proposed Rule 14a–11, there is some 

indication that proxy contests may 

occur disproportionately at smaller 

companies.382 Accordingly, we assume 

that proposed Rule 14a–11 is likely to 

have a greater effect than the proposed 

amendments to Rule 14a–8 on smaller 

companies. 

E. Duplicative, Overlapping or 

Conflicting Federal Rules 

We believe that there are no rules that 

conflict with or duplicate the proposed 

rules. 

F. Significant Alternatives 

The Regulatory Flexibility Act directs 

us to consider significant alternatives 

that would accomplish the stated 

objective, while minimizing any 

significant adverse impact on small 

entities. In connection with the 

proposed amendments, we considered 

the following alternatives: 

• the establishment of differing 

compliance or reporting requirements or 

timetables that take into account the 

resources available to small entities; 

• the clarification, consolidation or 

simplification of the rule’s compliance 

and reporting requirements for small 

entities; 

• the use of performance rather than 

design standards; and 

• an exemption for small entities 

from coverage under the proposals. 

The Commission has considered a 

variety of reforms to achieve its 

regulatory objectives while minimizing 

the impact on small entities. As one 

possible approach, we considered 

requiring companies to include 

shareholder nominees for director in a 

company’s proxy materials upon the 

occurrence of certain events so that the 

rule would apply only in situations 

where there was a demonstrated failure 

in the proxy process related to director 

nominations and elections in 2003. We 

have not taken this approach in the 

current proposal because we believe 

that it is important to remove 

impediments to shareholders’ exercise 

of their right to nominate directors at all 

companies subject to the proxy rules 

rather than only at those companies 

where specified events have occurred. 

Alternatively, we considered changes to 

Rule 14a–8(i)(8) that would enable 

shareholders to have their proposals for 

bylaw amendments regarding the 

procedures for nominating directors 

included in the company’s proxy 

materials provided the shareholder 

submitting the proposal made certain 

disclosures and beneficially owned 

more than 5% of the company’s shares 

in 2007. We did not take this approach 

because we seek to provide shareholders 

with a more immediate and direct 

means of effecting change in the boards 

of directors of the companies in which 

they invest. For these reasons, as well as 

the reasons discussed throughout the 

release, we believe that today’s 

proposals may better achieve the 

Commission’s objectives. 

We have sought comment on whether 

the proposed tiered approach—under 

which shareholders or shareholder 

groups at larger companies would have 

to satisfy a lower ownership threshold 

than shareholders or shareholder groups 

at smaller companies in order to rely on 

Rule 14a–11—is appropriate and 

workable. The effect of the tiered 

approach may make it less likely that 

shareholders at smaller companies will 

nominate directors under Rule 14a–11. 

We are not proposing different 

disclosure standards based on the size 

of the issuer. We believe the proposed 

uniform disclosure will be helpful to 

voting decisions on shareholder 

nominated directors at issuers of all 

sizes. However, we seek comment on 

whether the disclosure can be tiered 

based on the size of the company and 

still provide useful information to 

shareholders. We also have included 

requests for comment regarding the 

appropriate ownership threshold for 

non-accelerated filers. As noted, based 

on our staff’s review of Rule 14a–8 

shareholder proposals, it seems that 

smaller companies tend to receive 

29080 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

383See id. 

384Public Law 104–121, Title II, 110 Stat. 857 

(1996). 

relatively fewer shareholder proposals. 

Therefore, we assume that the proposed 

rule would not substantially increase 

the number of shareholder proposals to 

smaller companies and likely would 

have little impact on small entities. 

With respect to proposed Rule 14a–11, 

there is some indication that proxy 

contests may occur disproportionately 

at smaller companies.383 Accordingly, 

we assume that proposed Rule 14a–11 is 

likely to have a greater effect than the 

proposed amendments to Rule 14a–8 on 

smaller companies. 

We considered the use of performance 

standards rather than design standards 

in the proposed rules. The proposal 

contains both performance standards 

and design standards. We are proposing 

design standards to the extent that we 

believe compliance with particular 

requirements are necessary. However, to 

the extent possible, we are proposing 

rules that impose performance 

standards. For example, under Rule 

14a–11, shareholder nominees can 

provide a 500 word statement of support 

concerning their nominee or nominees 

for director, but we do not specify the 

content. Similarly, shareholders can 

propose any nomination procedures or 

disclosures related to shareholder 

nominations under the proposed 

amendment to Rule 14a–8(i)(8), 

provided they do not conflict with Rule 

14a–11. By allowing shareholders to 

submit proposals that would amend, or 

that request an amendment to, a 

company’s governing documents 

regarding nomination procedures or 

disclosures related to shareholder 

nominations, we seek to provide 

shareholders and companies with a 

measure of flexibility to tailor the means 

through which they can comply with 

the standards. 

We request comment on whether 

separate requirements for small entities 

would be appropriate. The purpose of 

the proposed rules is to remove 

impediments to the exercise of 

shareholders’ rights to nominate and 

elect directors to company boards of 

directors and thereby enable 

shareholders to participate meaningfully 

in the nomination and election of 

directors at the companies in which 

they invest. Exempting small entities 

would not appear to be consistent with 

these goals. An exemption or separate 

requirements for small entities may not 

address the impediments to the exercise 

of shareholders’ rights to nominate and 

elect directors to company boards of 

directors that may affect small entities 

as much as they would affect large 

companies. The establishment of any 

differing compliance or reporting 

requirements or timetables or any 

exemptions for smaller reporting 

companies may not be in keeping with 

the objective of the proposed rules. 

G. Solicitation of Comment 

We encourage comments with respect 

to any aspect of this Initial Regulatory 

Flexibility Analysis. In particular, we 

request comments regarding: 

• How our rules could achieve their 

objective while lowering any burden on 

smaller entities; 

• The number of small entities that 

may be affected by the proposals; 

• The existence or nature of the 

potential impact of the proposals on 

small entities discussed in the analysis; 

and 

• How to quantify the impact of the 

proposed rules. 

We solicit comments as to whether 

the proposed changes could have an 

effect that we have not considered. 

Commenters are asked to describe the 

nature of any impact and provide 

empirical data supporting the extent of 

the impact. Such comments will be 

considered in the preparation of the 

Final Regulatory Flexibility Analysis, if 

the proposals are adopted, and will be 

placed in the same public file as 

comments on the proposed amendments 

themselves. 

VIII. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996,384 a rule is ‘‘major’’ if it has 

resulted, or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment or innovation. 

We request comment on whether our 

proposals would be a ‘‘major rule’’ for 

purposes of SBREFA. We solicit 

comment and empirical data on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment or innovation. 

IX. Statutory Basis and Text of 

Proposed Amendments 

The amendments are proposed 

pursuant to Sections 3(b), 13, 14, 15, 

23(a) and 36 of the Securities Exchange 

Act of 1934, as amended, and Sections 

10, 20(a) and 38 of the Investment 

Company Act of 1940, as amended. 

List of Subjects 

17 CFR Part 200 

Freedom of information, Reporting 

and recordkeeping requirements, 

Securities. 

17 CFR Parts 232, 240, and 249 

Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 274 

Investment companies, Reporting and 

recordkeeping requirements, Securities. 

In accordance with the foregoing, the 

Securities and Exchange Commission 

proposes to amend Title 17, chapter II 

of the Code of Federal Regulations as 

follows: 

PART 200—ORGANIZATION; 

CONDUCT AND ETHICS; AND 

INFORMATION AND REQUESTS 

Subpart D—Information and Requests 

1. The authority citation for part 200, 

subpart D, continues to read, in part, as 

follows: 

Authority: 5 U.S.C. 552, as amended, 15 

U.S.C. 77f(d), 77s, 77ggg(a), 77sss, 78m(F)(3), 

78w, 80a–37, 80a–44(a), 80a–44(b), 80b– 

10(a), and 80b–11. 

* * * * * 

2. Add § 200.82a to read as follows: 

§ 200.82a Public availability of materials 

filed pursuant to § 240.14a–11(f) and related 

materials. 

Materials filed with the Commission 

pursuant to Rule 14a–11(f) under the 

Securities Exchange Act of 1934 (17 

CFR 240.14a–11(f)), written 

communications related thereto 

received from any person, and each 

related no-action letter or other written 

communication issued by the staff of the 

Commission, shall be made available to 

any person upon request for inspection 

or copying. 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

3. The authority citation for part 232 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, and 7201 et seq.; and 18 

U.S.C. 1350. 

* * * * * 

4. Amend § 232.13 by revising 

paragraph (a)(4) introductory text (the 

note remains unchanged) to read as 

follows: 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29081 

§ 232.13 Date of filing; adjustment of filing 

date. 

(a) * * * 

(4) Notwithstanding paragraph (a)(2) 

of this section, a Form 3, 4 or 5 

(§§ 249.103, 249.104, and 249.105 of 

this chapter) or a Schedule 14N 

(§ 240.14n–101 of this chapter) 

submitted by direct transmission on or 

before 10 p.m. Eastern Standard Time or 

Eastern Daylight Saving Time, 

whichever is currently in effect, shall be 

deemed filed on the same business day. 

* * * * * 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

5. 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, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 

78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– 

20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, 

80b–11, and 7201, et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

6. Amend § 240.13a–11 by revising 

paragraph (b) to read as follows: 

§ 240.13a–11 Current reports on Form 8–K 

(§ 249.308 of this chapter). 

* * * * * 

(b) This section shall not apply to 

foreign governments, foreign private 

issuers required to make reports on 

Form 6–K (17 CFR 249.306) pursuant to 

§ 240.13a–16, issuers of American 

Depositary Receipts for securities of any 

foreign issuer, or investment companies 

required to file reports pursuant to 

§ 270.30b1–1 of this chapter under the 

Investment Company Act of 1940, 

except where such an investment 

company is required to file: 

(1) Notice of a blackout period 

pursuant to § 245.104 of this chapter; 

(2) Disclosure pursuant to Instruction 

2 to § 240.14a–11(a) of the date by 

which a shareholder or shareholder 

group must submit the notice required 

pursuant to § 240.14a–11(c); or 

(3) Disclosure pursuant to Instruction 

3 to § 240.14a–11(b) of information 

concerning net assets, outstanding 

shares, and voting. 

* * * * * 

7. Amend § 240.13d–1 by revising 

paragraphs (b)(1)(i) and (c)(1) and 

adding Instruction 1 to paragraph (b)(1) 

and Instruction 1 to paragraph (c)(1) to 

read as follows: 

§ 240.13d–1 Filing of Schedules 13D and 

13G. 

* * * * * 

(b)(1) * * * 

(i) Such person has acquired such 

securities in the ordinary course of his 

business and not with the purpose nor 

with the effect of changing or 

influencing the control of the issuer, nor 

in connection with or as a participant in 

any transaction having such purpose or 

effect, including any transaction subject 

to § 240.13d–3(b), other than activities 

solely in connection with a nomination 

under § 240.14a–11; and 

* * * * * 

Instruction 1 to paragraph (b)(1). For 

purposes of paragraph (b)(1)(i) of this 

section, the exception for activities 

solely in connection with a nomination 

under § 240.14a–11 will not be available 

after the election of a director 

nominated pursuant to § 240.14a–11. 

* * * * * 

(c) * * * 

(1) Has not acquired the securities 

with any purpose, or with the effect, of 

changing or influencing the control of 

the issuer, or in connection with or as 

a participant in any transaction having 

that purpose or effect, including any 

transaction subject to § 240.13d–3(b), 

other than activities solely in 

connection with a nomination under 

§ 240.14a–11; 

* * * * * 

Instruction 1 to paragraph (c)(1). For 

purposes of paragraph (c)(1) of this 

section, the exception for activities 

solely in connection with a nomination 

under § 240.14a–11 will not be available 

after the election of a director 

nominated pursuant to § 240.14a–11. 

* * * * * 

8. Amend § 240.14a–2 by: 

a. Revising paragraph (b) introductory 

text; and 

b. Adding paragraphs (b)(7) and (b)(8). 

The revision and additions read as 

follows: 

§ 240.14a–2 Solicitations to which 

§ 240.14a–3 to § 240.14a–15 apply. 

* * * * * 

(b) Sections 240.14a–3 to 240.14a–6 

(other than paragraphs 14a–6(g) and 

14a–6(p)), § 240.14a–8, § 240.14a–10, 

and §§ 240.14a–12 to 240.14a–15 do not 

apply to the following: 

* * * * * 

(7) Any solicitation by or on behalf of 

any shareholder in connection with the 

formation of a nominating shareholder 

group pursuant to § 240.14a–11, 

provided that: 

(i) Each written communication 

includes no more than: 

(A) A statement of each soliciting 

shareholder’s intent to form a 

nominating shareholder group in order 

to nominate a director under § 240.14a– 

11; 

(B) Identification of, and a brief 

statement regarding, the potential 

nominee or nominees or, where no 

nominee or nominees have been 

identified, the characteristics of the 

nominee or nominees that the 

shareholder intends to nominate, if any; 

(C) The percentage of securities that 

each soliciting shareholder beneficially 

owns or the aggregate percentage owned 

by any group to which the shareholder 

belongs; and 

(D) The means by which shareholders 

may contact the soliciting party. 

(ii) Any soliciting material published, 

sent or given to shareholders in 

accordance with this paragraph must be 

filed by the shareholder with the 

Commission, under the registrant’s 

Exchange Act file number, or, in the 

case of a registrant that is an investment 

company registered under the 

Investment Company Act of 1940, under 

the registrant’s Investment Company 

Act file number, no later than the date 

the material is first published, sent or 

given to shareholders. Three copies of 

the material must at the same time be 

filed with, or mailed for filing to, each 

national securities exchange upon 

which any class of securities of the 

registrant is listed and registered. The 

soliciting material must include a cover 

page in the form set forth in Schedule 

14A (§ 240.14a–101) and the appropriate 

box on the cover page must be marked. 

(8) Any written solicitation by or on 

behalf of a nominating shareholder or 

nominating shareholder group in 

support of a nominee placed on the 

registrant’s form of proxy in accordance 

with § 240.14a–11 or against the 

registrant’s nominee or nominees, 

provided that: 

(i) The soliciting party does not, at 

any time during such solicitation, seek 

directly or indirectly, either on its own 

or another’s behalf, the power to act as 

proxy for a shareholder and does not 

furnish or otherwise request, or act on 

behalf of a person who furnishes or 

requests, a form of revocation, 

abstention, consent or authorization; 

(ii) Each written communication 

includes: 

(A) The identity of each nominating 

shareholder and a description of his or 

her direct or indirect interests, by 

security holdings or otherwise; 

(B) A prominent legend in clear, plain 

language advising shareholders that a 

shareholder nominee is or may be 

included in the registrant’s proxy 

statement and to read the registrant’s 

proxy statement when it becomes 

available because it includes important 

information (or, if the registrant’s proxy 

statement is publicly available, advising 

shareholders of that fact and 

29082 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

encouraging shareholders to read the 

registrant’s proxy statement because it 

includes important information). The 

legend also must explain to 

shareholders that they can find the 

registrant’s proxy statement, and any 

other relevant documents, at no charge 

on the Commission’s Web site; and 

(iii) Any soliciting material published, 

sent or given to shareholders in 

accordance with this paragraph must be 

filed by the nominating shareholder 

with the Commission, under the 

registrant’s Exchange Act file number, 

or, in the case of a registrant that is an 

investment company registered under 

the Investment Company Act of 1940, 

under the registrant’s Investment 

Company Act file number, no later than 

the date the material is first published, 

sent or given to shareholders. Three 

copies of the material must at the same 

time be filed with, or mailed for filing 

to, each national securities exchange 

upon which any class of securities of 

the registrant is listed and registered. 

The soliciting material must include a 

cover page in the form set forth in 

Schedule 14A (§ 240.14a–101) and the 

appropriate box on the cover page must 

be marked. 

9. Amend § 240.14a–4 by: 

a. Revising the first sentence of 

paragraph (b)(2) introductory text; and 

b. Adding a sentence to the end of the 

undesignated paragraph following 

paragraph (b)(2)(iv). 

The revision and addition read as 

follows: 

§ 240.14a–4 Requirements as to proxy. 

* * * * * 

(b) * * * 

(2) A form of proxy that provides for 

the election of directors shall set forth 

the names of persons nominated for 

election as directors, including any 

person whose nomination by a 

shareholder or shareholder group 

satisfies the requirements of § 240.14a– 

11, an applicable state law provision, or 

a registrant’s governing documents as 

they relate to the inclusion of 

shareholder director nominees in the 

registrant’s proxy materials. * * * 

* * * * * 

(iv) * * * 

* * * Means to grant authority to 

vote for any nominees as a group or to 

withhold authority for any nominees as 

a group may not be provided if the form 

of proxy includes one or more 

shareholder nominees in accordance 

with § 240.14a–11, an applicable state 

law provision, or a registrant’s 

governing documents as they relate to 

the inclusion of shareholder director 

nominees in the registrant’s proxy 

materials. 

* * * * * 

10. Amend § 240.14a–6 by: 

a. Redesignating paragraphs (a)(4), 

(a)(5) and (a)(6) as paragraphs (a)(5), 

(a)(6) and (a)(7) respectively; 

b. Adding new paragraph (a)(4); 

c. Adding a sentence at the end of 

Note 3; and 

d. Adding paragraph (p). 

The revisions and additions read as 

follows: 

§ 240.14a–6 Filing requirements. 

(a) * * * 

(4) A shareholder nominee for 

director included pursuant to § 240.14a– 

11, an applicable state law provision, or 

a registrant’s governing documents as 

they relate to the inclusion of 

shareholder director nominees in the 

registrant’s proxy materials. 

* * * * * 

Note 3. * * * The inclusion of a 

shareholder nominee in the registrant’s proxy 

materials pursuant to § 240.14a–11, an 

applicable state law provision, or a 

registrant’s governing documents as they 

relate to the inclusion of shareholder director 

nominees in the registrant’s proxy materials 

does not constitute a ‘‘solicitation in 

opposition,’’ even if the registrant opposes 

the shareholder nominee and solicits against 

the shareholder nominee and in favor of a 

registrant nominee. 

* * * * * 

(p) Solicitations subject to § 240.14a– 

11. Any soliciting material that is 

published, sent or given to shareholders 

in connection with § 240.14a–2(b)(7) or 

(b)(8) must be filed with the 

Commission as specified in that section. 

11. Amend § 240.14a–8 by revising 

paragraph (i)(8) as follows: 

§ 240.14a–8 Shareholder proposals. 

* * * * * 

(i) * * * 

(8) Director elections: If the proposal: 

(i) Would disqualify a nominee who 

is standing for election; 

(ii) Would remove a director from 

office before his or her term expired; 

(iii) Questions the competence, 

business judgment, or character of one 

or more nominees or directors; 

(iv) Nominates a specific individual 

for election to the board of directors, 

other than pursuant to § 240.14a–11, an 

applicable state law provision, or the 

company’s governing documents; or 

(v) Otherwise could affect the 

outcome of the upcoming election of 

directors. 

* * * * * 

12. Amend § 240.14a–9 by adding a 

paragraph (c) and removing the 

authority citation following the section 

to read as follows: 

§ 240.14a–9 False or misleading 

statements. 

* * * * * 

(c) No nominee, nominating 

shareholder or nominating shareholder 

group, or any member thereof, shall 

cause to be included in a registrant’s 

proxy materials, either pursuant to the 

federal proxy rules, an applicable state 

law provision, or a registrant’s 

governing documents as they relate to 

including shareholder nominees for 

director in registrant proxy materials, 

any statement which, at the time and in 

the light of the circumstances under 

which it is made, is false or misleading 

with respect to any material fact, or 

which omits to state any material fact 

necessary in order to make the 

statements therein not false or 

misleading or necessary to correct any 

statement in any earlier communication 

with respect to the solicitation of a 

proxy for the same meeting or subject 

matter which has become false or 

misleading. 

* * * * * 

13. Add § 240.14a–11 to read as 

follows: 

§ 240.14a–11 Shareholder nominations. 

(a) Applicability. In connection with 

an annual meeting of shareholders (or a 

special meeting in lieu of the annual 

meeting) at which directors are elected, 

a registrant (other than a registrant 

subject to the proxy rules solely because 

it has a class of debt registered under 

Exchange Act § 12) will be required to 

include in its proxy statement and form 

of proxy the name of a person or 

persons nominated by a shareholder or 

group of shareholders for election to the 

board of directors and include in its 

proxy statement the disclosure about 

such nominee or nominees and the 

nominating shareholder or members of 

a nominating shareholder group that is 

specified in § 240.14a–18(e)–(l), 

provided that: 

(1) Applicable state law or the 

registrant’s governing documents do not 

prohibit the registrant’s shareholders 

from nominating a candidate or 

candidates for election as a director; 

(2) The nominee’s candidacy or, if 

elected, board membership would not 

violate controlling state law, the 

registrant’s governing documents, 

federal law, or rules of a national 

securities exchange or national 

securities association applicable to the 

registrant (other than rules of a national 

securities exchange or national 

securities association regarding director 

independence); 

(3) The nominating shareholder or 

members of the nominating shareholder 

group have satisfied the eligibility 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29083 

requirements in paragraph (b) of this 

section; 

(4) All information required to be 

included in the notice to the registrant 

required pursuant to paragraph (c) of 

this section is so included; 

(5) No representation or certification 

required to be included in the notice to 

the registrant required pursuant to 

paragraph (c) of this section is false or 

misleading in any material respect; and 

(6) The provisions of paragraph (d) of 

this section limiting the number of 

nominees required to be included 

would not necessitate exclusion of the 

nominee. 

Instruction 1 to paragraph (a). A 

nominating shareholder will not be 

deemed an ‘‘affiliate’’ of the registrant 

under the Securities Act of 1933 (15 

U.S.C. 77a et seq.) or the Securities 

Exchange Act of 1934 (15 U.S.C. 78a et 

seq.) solely as a result of nominating a 

candidate for director or soliciting for 

the election of such a director nominee 

or against a registrant’s nominee 

pursuant to this section. Where a 

shareholder nominee is elected, and the 

nominating shareholder or nominating 

shareholder group does not have an 

agreement or relationship with that 

director, otherwise than relating to the 

director’s nomination pursuant to 

§ 240.14a–11, solicitation for the 

election of the shareholder director 

nominee or against a registrant’s 

nominee, or the election of the 

shareholder director nominee, the 

nominating shareholder or nominating 

shareholder group will not be deemed 

an affiliate solely by virtue of having 

nominated that director. 

Instruction 2 to paragraph (a). If the 

registrant did not hold an annual 

meeting the previous year, or if the date 

of the current year’s annual meeting has 

been changed by more than 30 calendar 

days from the date of the previous year’s 

annual meeting, the registrant must 

disclose pursuant to Item 5.07 of Form 

8–K (§ 249.308 of this chapter) the date 

by which a shareholder or shareholder 

group must submit the notice required 

pursuant to paragraph (c) of this section, 

which date shall be a reasonable time 

prior to the date the registrant mails its 

proxy materials for the meeting. 

(b) Nominating shareholder eligibility. 

A shareholder or group of shareholders 

nominating a person or persons must 

satisfy the following requirements: 

(1) The shareholder individually, or 

the shareholder group in the aggregate, 

must beneficially own, as of the date the 

shareholder or group of shareholders 

provides notice to the registrant on 

Schedule 14N of their intent to include 

a nominee or nominees in the 

registrant’s proxy materials pursuant to 

§ 240.14a–11: 

(i) For large accelerated filers as 

defined in § 240.12b–2, and investment 

companies registered under the 

Investment Company Act of 1940 (15 

U.S.C. 80a–1 et seq.) with net assets of 

$700 million or more, at least 1% of the 

registrant’s securities that are entitled to 

be voted on the election of directors at 

the annual meeting of shareholders (or 

a special meeting in lieu of the annual 

meeting); 

(ii) For accelerated filers as defined in 

§ 240.12b–2, and investment companies 

registered under the Investment 

Company Act of 1940 with net assets of 

$75 million or more but less than $700 

million, at least 3% of the registrant’s 

securities that are entitled to be voted 

on the election of directors at the annual 

meeting of shareholders (or a special 

meeting in lieu of the annual meeting); 

and 

(iii) For non-accelerated filers as 

defined in § 240.12b–2, and investment 

companies registered under the 

Investment Company Act of 1940 with 

net assets of less than $75 million, at 

least 5% of the registrant’s securities 

that are entitled to be voted on the 

election of directors at the annual 

meeting of shareholders (or a special 

meeting in lieu of the annual meeting); 

and 

(2) The shareholder or each member 

of the shareholder group must have held 

the securities that are used for purposes 

of determining the applicable 

ownership threshold required by 

paragraph (b)(1) of this section 

continuously for at least one year as of 

the date it provides notice to the 

registrant on Schedule 14N and intend 

to continue to hold those securities 

through the date of the subject election 

of directors. 

Instruction 1 to paragraph (b). In the 

case of a registrant other than an 

investment company registered under 

the Investment Company Act of 1940, 

for purposes of (b)(1) of this section, in 

determining the securities that are 

entitled to be voted on the election of 

directors, the nominating shareholder or 

nominating shareholder group may rely 

on information set forth in the 

registrant’s most recent quarterly or 

annual report, and any current report 

subsequent thereto, filed with the 

Commission pursuant to this Act, unless 

the nominating shareholder or 

nominating shareholder group knows or 

has reason to know that the information 

contained therein is inaccurate. In the 

case of a registrant that is an investment 

company registered under the 

Investment Company Act of 1940, for 

purposes of paragraph (b)(1) of this 

section, in determining the securities 

that are entitled to be voted on the 

election of directors, the nominating 

shareholder or nominating shareholder 

group may rely on information set forth 

in the following documents, unless the 

nominating shareholder or nominating 

shareholder group knows or has reason 

to know that the information contained 

therein is inaccurate: 

a. In the case of a registrant that is a 

series company as defined in Rule 18f– 

2(a) under the Investment Company Act 

of 1940 (§ 270.18f–2(a) of this chapter), 

the Form 8–K described in Instruction 3 

to paragraph (b); or 

b. In the case of other investment 

companies, the registrant’s most recent 

annual or semi-annual report filed with 

the Commission on Form N–CSR (17 

CFR 249.331; 17 CFR 274.128). 

Instruction 2 to paragraph (b). For 

purposes of paragraph (b)(1) of this 

section, the amount of net assets of an 

investment company registered under 

the Investment Company Act of 1940 

shall be the amount of net assets of the 

company as of the end of the company’s 

second fiscal quarter in the fiscal year 

immediately preceding the fiscal year of 

the meeting, as disclosed in the 

registrant’s Form N–CSR filed with the 

Commission, except that, for a series 

company (as defined in § 270.18f–2(a) of 

this chapter), the amount of net assets 

shall be the amount disclosed in the 

Form 8–K described in Instruction 3 to 

paragraph (b). 

Instruction 3 to paragraph (b). If the 

registrant is an investment company 

that is a series company (as defined in 

§ 270.18f–2(a) of this chapter), the 

registrant must disclose pursuant to 

Item 5.07 of Form 8–K (§ 249.308 of this 

chapter): 

a. The registrant’s net assets as of June 

30 of the calendar year immediately 

preceding the calendar year of the 

meeting; and 

b. The total number of shares of the 

registrant outstanding and entitled to be 

voted (or if the votes are to be cast on 

a basis other than one vote per share, 

then the total number of votes entitled 

to be voted and the basis for allocating 

such votes) at an annual meeting of 

shareholders (or, in lieu of such an 

annual meeting, a special meeting of 

shareholders) as of the end of the most 

recent calendar quarter. 

(c) Shareholder notice. To have a 

nominee included in the registrant’s 

proxy statement and form of proxy, the 

nominating shareholder must provide 

notice to the registrant on Schedule 14N 

as specified by § 240.14n–1 of its intent 

to require that the registrant include that 

shareholder’s nominee on the 

registrant’s form of proxy and include 

29084 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

the disclosures required pursuant to 

§ 240.14a–18. This notice must be filed 

with the Commission on the date 

provided to the registrant. 

(d) Number of shareholder nominees. 

(1) The registrant will not be required to 

include in its proxy statement and form 

of proxy more than one shareholder 

nominee or the number of nominees 

that represents 25 percent of the 

registrant’s board of directors, 

whichever is greater; 

(2) Where the registrant has one or 

more directors currently serving on its 

board of directors who were elected as 

a shareholder nominee pursuant to this 

section, and the term of that director or 

directors extends past the date of the 

meeting of shareholders for which it is 

soliciting proxies, the registrant will not 

be required to include in the proxy 

statement or form of proxy more 

shareholder nominees than could result 

in the total number of directors who 

were elected as shareholder nominees 

pursuant to § 240.14a–11 and serving on 

the board being more than one 

shareholder nominee or 25 percent of 

the registrant’s board of directors, 

whichever is greater; and 

(3) In the event that more than one 

shareholder or group of shareholders is 

otherwise permitted to nominate a 

person or persons to a registrant’s board 

of directors pursuant to § 240.14a–11, 

the registrant shall include in the proxy 

statement and form of proxy the 

nominee or nominees of the first 

nominating shareholder or nominating 

shareholder group from which the 

registrant receives timely notice as 

specified in paragraph (c) of this 

section, up to and including the total 

number required to be included by the 

registrant pursuant to this paragraph. 

Where the first nominating shareholder 

or nominating shareholder group to 

deliver timely notice as specified in 

paragraph (c) of this section does not 

nominate the maximum number of 

directors required to be included by the 

registrant, the nominee or nominees of 

the next nominating shareholder or 

nominating shareholder group from 

which the registrant receives timely 

notice as specified in paragraph (c) of 

this section would be included in the 

registrant’s proxy materials, up to and 

including the total number required to 

be included by the registrant. 

Instruction 1 to paragraph (d). 

Depending on board size, 25% of the 

board may not result in a whole 

number. In those instances, the 

maximum number of shareholder 

nominees for director that a registrant 

will be required to include in its proxy 

materials will be the closest whole 

number below 25%. 

Instruction 2 to paragraph (d). If a 

nominee, a nominating shareholder, or 

any member of a nominating 

shareholder group has any agreement 

with the registrant or any affiliate of the 

registrant regarding the nomination of a 

candidate for election as a member of 

the registrant’s board of directors, any 

such nominee or any nominee of such 

nominating shareholder or nominating 

shareholder group shall not be included 

in calculating the number of nominees 

required under this section. 

(e) False or misleading statements. 

The registrant is not responsible for any 

information in the notice from the 

nominating shareholder or nominating 

shareholder group submitted as required 

by paragraph (c) of this section or 

otherwise provided by the nominating 

shareholder or nominating shareholder 

group, except where the registrant 

knows or has reason to know that the 

information is false or misleading. 

(f) Determinations regarding 

eligibility. (1) Upon the registrant’s 

receipt of a notice described in 

paragraph (c) of this section, the 

registrant shall determine whether any 

of the events permitting exclusion of a 

shareholder nominee has occurred; 

(2) If the registrant determines that it 

will include a shareholder nominee, it 

must notify in writing the nominating 

shareholder or nominating shareholder 

group no later than 30 calendar days 

before it files its definitive proxy 

statement and form of proxy with the 

Commission. The registrant is 

responsible for providing this notice in 

a manner that evidences its timely 

receipt by the nominating shareholder 

or each member of the nominating 

shareholder group; 

(3) If the registrant determines that it 

may exclude a shareholder nominee, the 

registrant must notify in writing the 

nominating shareholder or nominating 

shareholder group of this determination. 

This notice must be postmarked or 

transmitted electronically no later than 

14 calendar days after the registrant 

receives the notice required by 

paragraph (c) of this section. The 

registrant is responsible for providing 

this notice in a manner that evidences 

its timely receipt by the nominating 

shareholder or each member of the 

nominating shareholder group; 

(4) The registrant’s notice to the 

nominating shareholder or nominating 

shareholder group under paragraph 

(f)(3) of this section that it has 

determined that it may exclude a 

shareholder nominee must include an 

explanation of the registrant’s basis for 

determining that it may exclude the 

nominee; 

(5) The nominating shareholder or 

nominating shareholder group shall 

have 14 calendar days after receipt of 

the registrant’s notice under paragraph 

(f)(3) of this section to respond to the 

registrant’s notice and correct any 

eligibility or procedural deficiencies 

identified in that notice, as required by 

paragraph (f)(4) of this section. The 

nominating shareholder’s or nominating 

shareholder group’s response must be 

postmarked, or transmitted 

electronically, within the timeframe 

identified in the preceding sentence. 

The nominating shareholder or 

nominating shareholder group is 

responsible for providing the response 

in a manner that evidences its timely 

receipt; 

(6) Neither the composition of the 

nominating shareholder group nor the 

shareholder nominee may be changed as 

a means to correct a deficiency 

identified in the registrant’s notice to 

the nominating shareholder or 

nominating shareholder group under 

paragraph (f)(3) of this section—those 

matters must remain as they were 

described in the notice to the registrant 

submitted pursuant to paragraph (c) of 

this section; however, where a 

nominating shareholder or nominating 

shareholder group inadvertently 

submits a number of nominees that 

exceeds the maximum number required 

to be included by the registrant, the 

nominating shareholder or nominating 

shareholder group may specify which 

nominee or nominees are not to be 

included in the registrant’s proxy 

materials; 

(7) If the registrant determines that it 

may exclude a shareholder nominee, 

after providing the requisite notice of 

and time for the nominating shareholder 

or nominating shareholder group to 

remedy any eligibility or procedural 

deficiencies in the nomination, the 

registrant must provide notice of the 

basis for its determination to the 

Commission no later than 80 calendar 

days before it files its definitive proxy 

statement and form of proxy with the 

Commission. The Commission may 

permit the registrant to make its 

submission later than 80 days before the 

registrant files its definitive proxy 

statement and form of proxy if the 

registrant demonstrates good cause for 

missing the deadline; 

(8) The registrant’s notice to the 

Commission shall include: 

(i) Identification of the nominating 

shareholder or each member of the 

nominating shareholder group, as 

applicable; 

(ii) The name of the nominee; 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29085 

(iii) An explanation of the registrant’s 

basis for determining that the registrant 

may exclude the nominee; and 

(iv) A supporting opinion of counsel 

when the registrant’s basis for excluding 

a nominee relies on a matter of state 

law; 

(9) Unless otherwise indicated in this 

section, the burden is on the registrant 

to demonstrate that it may exclude a 

nominee; 

(10) The registrant must file its notice 

with the Commission and 

simultaneously provide a copy to the 

nominating shareholder or each member 

of the nominating shareholder group; 

(11) The nominating shareholder or 

nominating shareholder group may 

submit a response to the registrant’s 

notice to the Commission. This response 

must be postmarked or transmitted 

electronically to the Commission no 

later than 14 calendar days after the 

nominating shareholder’s or nominating 

shareholder group’s receipt of the 

registrant’s notice to the Commission. 

The nominating shareholder or 

nominating shareholder group must 

provide a copy of its response to the 

Commission simultaneously to the 

registrant; 

(12) The Commission staff may 

provide an informal statement of its 

views to the registrant and the 

nominating shareholder or nominating 

shareholder group; 

(13) The registrant shall provide the 

nominating shareholder or nominating 

shareholder group with notice, no later 

than 30 calendar days before it files its 

definitive proxy statement and form of 

proxy with the Commission, of whether 

it will include or exclude the 

shareholder nominee; and 

(14) The exclusion of a shareholder 

nominee by a registrant where that 

exclusion is not permissible under 

§ 240.14a–11(a) shall be a violation of 

this section. 

14. Amend § 240.14a–12 by removing 

the heading ‘‘Instructions to § 240.14a– 

12’’; by removing the numbers 1. and 2. 

of instructions 1 and 2 to § 240.14a–12 

and adding in their places the phrases 

‘‘Instruction 1. to § 240.14a–12.’’ and 

‘‘Instruction 2. to § 240.14a–12.’’, 

respectively; and adding Instruction 3 to 

read as follows: 

§ 240.14a–12 Solicitation before furnishing 

a proxy statement. 

* * * * * 

Instruction 3. to § 240.14a–12. 

Solicitations by a nominating 

shareholder or nominating shareholder 

group that are made in connection with 

a § 240.14a–11 nomination will not be 

deemed a solicitation in opposition 

subject to § 240.14a–12(c). 

15. Add § 240.14a–18 to read as 

follows: 

§ 240.14a–18 Disclosure regarding 

nominating shareholders and nominees 

submitted for inclusion in a registrant’s 

proxy materials pursuant to § 240.14a–11. 

To have a nominee included in a 

registrant’s proxy materials pursuant to 

§ 240.14a–11, the nominating 

shareholder or nominating shareholder 

group must provide notice to the 

registrant of its intent to do so on a 

Schedule 14N and file that notice with 

the Commission on the date first sent to 

the registrant. This notice on Schedule 

14N shall be sent to the registrant by the 

date specified by the registrant’s 

advance notice bylaw provision or, 

where no such provision is in place, no 

later than 120 calendar days before the 

date that the registrant mailed its proxy 

materials for the prior year’s annual 

meeting, except that, if the registrant did 

not hold an annual meeting during the 

prior year, or if the date of the meeting 

has changed by more than 30 calendar 

days from the prior year, then the 

nominating shareholder or nominating 

shareholder group must provide and file 

its notice a reasonable time before the 

registrant mails its proxy materials, as 

specified by the registrant in a Form 8– 

K (§ 249.308 of this chapter) filed 

pursuant to Item 5.07 of Form 8–K. This 

notice must include: 

(a) A representation that, to the 

knowledge of the nominating 

shareholder or nominating shareholder 

group, the nominee’s candidacy or, if 

elected, board membership would not 

violate controlling state law, Federal 

law or rules of a national securities 

exchange or national securities 

association applicable to the registrant 

(other than rules of a national securities 

exchange or national securities 

association regarding director 

independence); 

(b) A representation that the 

nominating shareholder or nominating 

shareholder group satisfies the 

conditions in § 240.14a–11(b); 

(c) In the case of a registrant other 

than an investment company, a 

representation that the nominee meets 

the objective criteria for 

‘‘independence’’ of the national 

securities exchange or national 

securities association rules applicable to 

the registrant, if any, or, in the case of 

a registrant that is an investment 

company, a representation that the 

nominee is not an ‘‘interested person’’ 

of the registrant as defined in section 

2(a)(19) of the Investment Company Act 

of 1940 (15 U.S.C. 80a–2(a)(19)); 

Instruction to paragraph (c). For this 

purpose, the nominee would be 

required to meet the definition of 

‘‘independence’’ that generally is 

applicable to directors of the registrant 

and not any particular definition of 

independence applicable to members of 

the audit committee of the registrant’s 

board of directors. To the extent a 

national securities exchange or national 

securities association rule imposes a 

standard regarding independence that 

requires a subjective determination by 

the board or a group or committee of the 

board (for example, requiring that the 

board of directors or any group or 

committee of the board of directors 

make a determination regarding the 

existence of factors material to a 

determination of a nominee’s 

independence), the nominee would not 

be required to represent that the 

nominee meets the subjective 

determination of independence as part 

of the shareholder nomination process. 

(d) A representation that neither the 

nominee nor the nominating 

shareholder nor, where there is a 

nominating shareholder group, any 

member of the nominating shareholder 

group, has an agreement with the 

registrant regarding the nomination of 

the nominee; 

Instruction to paragraph (d). For 

purposes of paragraph (d), negotiations 

between the nominee, the nominating 

shareholder or nominating shareholder 

group and the nominating committee or 

board of the registrant to have the 

nominee included on the registrant’s 

proxy card as a management nominee, 

where those negotiations are 

unsuccessful, or negotiations that are 

limited to whether the registrant is 

required to include the shareholder 

nominee on the registrant’s proxy card 

in accordance with § 240.14a–11, will 

not represent a direct or indirect 

agreement with the registrant. 

(e) A statement from the nominee that 

the nominee consents to be named in 

the registrant’s proxy statement and 

form of proxy and, if elected, to serve 

on the registrant’s board of directors; 

(f) A statement that the nominating 

shareholder or nominating shareholder 

group intends to continue to own the 

requisite shares through the date of the 

meeting of shareholders. Additionally, 

the nominating shareholder or 

nominating shareholder group must 

provide a statement regarding the 

nominating shareholder’s or nominating 

shareholder group’s intent with respect 

to continued ownership after the 

election. 

(g) Disclosure about the nominee as 

would be provided in response to the 

disclosure requirements of Items 4(b), 

5(b), 7(a), (b) and (c) and, for investment 

29086 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

companies, Item 22(b) of Schedule 14A 

(§ 240.14a–101), as applicable; 

(h) Disclosure about the nominating 

shareholder or each member of a 

nominating shareholder group as would 

be required in response to the disclosure 

requirements of Items 4(b) and 5(b) of 

Schedule 14A, as applicable; 

(i) Disclosure about whether the 

nominating shareholder or each member 

of a nominating shareholder group has 

been involved in any legal proceeding 

during the past five years, as specified 

in Item 401(f) of Regulation S–K 

(§ 229.10 of this chapter). Disclosure 

pursuant to this section need not be 

provided if provided in response to 

Items 4(b) and 5(b) of Schedule 14A; 

Instruction 1 to paragraphs (h) and (i). 

Where the nominating shareholder is a 

general or limited partnership, 

syndicate or other group, the 

information called for in paragraphs (h) 

and (i) of this section must be given 

with respect to: 

a. Each partner of the general 

partnership; 

b. Each partner who is, or functions 

as, a general partner of the limited 

partnership; 

c. Each member of the syndicate or 

group; and 

d. Each person controlling the partner 

or member. 

Instruction 2 to paragraphs (h) and (i). 

If the nominating shareholder is a 

corporation or if a person referred to in 

a., b., c. or d. of Instruction 1 to 

paragraphs (h) and (i) is a corporation, 

the information called for in paragraphs 

(h) and (i) of this section must be given 

with respect to: 

a. Each executive officer and director 

of the corporation; 

b. Each person controlling the 

corporation; and 

c. Each executive officer and director 

of any corporation or other person 

ultimately in control of the corporation. 

(j) The following information 

regarding the nature and extent of the 

relationships between the nominating 

shareholder or nominating shareholder 

group and nominee and the registrant or 

any affiliate of the registrant: 

(1) Any direct or indirect material 

interest in any contract or agreement 

between the nominating shareholder or 

nominating shareholder group or the 

nominee and the registrant or any 

affiliate of the registrant (including any 

employment agreement, collective 

bargaining agreement, or consulting 

agreement); 

(2) Any material pending or 

threatened litigation in which the 

nominating shareholder or nominating 

shareholder group or nominee is a party 

or a material participant, involving the 

registrant, any of its officers or directors, 

or any affiliate of the registrant; and 

(3) Any other material relationship 

between the nominating shareholder or 

nominating shareholder group or the 

nominee and the registrant or any 

affiliate of the registrant not otherwise 

disclosed; 

Note to paragraph (j)(3). Any other 

material relationship of the nominating 

shareholder or nominating shareholder 

group with the registrant or any affiliate 

of the registrant may include, but is not 

limited to, whether the nominating 

shareholder or nominating shareholder 

group currently has, or has had in the 

past, an employment relationship with 

the registrant or any affiliate of the 

registrant (including consulting 

arrangements). 

(k) The Web site address on which the 

nominating shareholder or nominating 

shareholder group may publish 

soliciting materials, if any; and 

(l) Any statement in support of the 

shareholder nominee or nominees, 

which may not exceed 500 words, if the 

nominating shareholder or nominating 

shareholder group elects to have such 

statement included in the registrant’s 

proxy materials. 

16. Add § 240.14a–19 to read as 

follows: 

§ 240.14a–19 Disclosure regarding 

nominating shareholders and nominees 

submitted for inclusion in a registrant’s 

proxy materials pursuant to applicable state 

law or a registrant’s governing documents. 

To have a nominee included in a 

registrant’s proxy materials pursuant to 

a procedure set forth under applicable 

state law or the registrant’s governing 

documents addressing the inclusion of 

shareholder director nominees in the 

registrant’s proxy materials, the 

nominating shareholder or nominating 

shareholder group must provide notice 

to the registrant of its intent to do so on 

a Schedule 14N and file that notice with 

the Commission on the date first sent to 

the registrant. This notice shall be sent 

to the registrant by the date specified by 

the registrant’s advance notice provision 

or, where no such provision is in place, 

no later than 120 calendar days before 

the date that the registrant mailed its 

proxy materials for the prior year’s 

annual meeting, except that, if the 

registrant did not hold an annual 

meeting during the prior year, or if the 

date of the meeting has changed by 

more than 30 calendar days from the 

prior year, then the nominating 

shareholder or nominating shareholder 

group must provide notice a reasonable 

time before the registrant mails its proxy 

materials, as specified by the registrant 

in a Form 8–K (§ 249.308 of this 

chapter) filed pursuant to Item 5.07 of 

Form 8–K. This notice must include: 

(a) A statement from the nominee that 

the nominee consents to be named in 

the registrant’s proxy statement and 

form of proxy and, if elected, to serve 

on the registrant’s board of directors; 

(b) Disclosure about the nominee as 

would be provided in response to the 

disclosure requirements of Items 4(b), 

5(b), 7(a), (b) and (c) and, for investment 

companies, Item 22(b) of Schedule 14A 

(§ 240.14a–101), as applicable; 

(c) Disclosure about the nominating 

shareholder or each member of a 

nominating shareholder group as would 

be required in response to the disclosure 

requirements of Items 4(b) and 5(b) of 

Schedule 14A (§ 240.14a–101), as 

applicable; 

(d) Disclosure about whether the 

nominating shareholder or member of a 

nominating shareholder group has been 

involved in any legal proceeding during 

the past five years, as specified in Item 

401(f) of Regulation S–K (§ 229.10 of 

this chapter). Disclosure pursuant to 

this section need not be provided if 

provided in response to Items 4(b) and 

5(b) of Schedule 14A (§ 240.14a–101); 

Instruction 1 to paragraphs (c) and 

(d). Where the nominating shareholder 

is a general or limited partnership, 

syndicate or other group, the 

information called for in paragraphs (c) 

and (d) of this section must be given 

with respect to: 

a. Each partner of the general 

partnership; 

b. Each partner who is, or functions 

as, a general partner of the limited 

partnership; 

c. Each member of the syndicate or 

group; and 

d. Each person controlling the partner 

or member. 

Instruction 2 to paragraphs (c) and 

(d). If the nominating shareholder is a 

corporation or if a person referred to in 

a., b., c. or d. of Instruction 1 to 

paragraphs (c) and (d) is a corporation, 

the information called for in paragraphs 

(c) and (d) of this section must be given 

with respect to: 

a. Each executive officer and director 

of the corporation; 

b. Each person controlling the 

corporation; and 

c. Each executive officer and director 

of any corporation or other person 

ultimately in control of the corporation. 

(e) The following information 

regarding the nature and extent of the 

relationships between the nominating 

shareholder or nominating shareholder 

group and nominee and the registrant or 

any affiliate of the registrant: 

(1) Any direct or indirect material 

interest in any contract or agreement 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29087 

between the nominating shareholder or 

nominating shareholder group or the 

nominee and the registrant or any 

affiliate of the registrant (including any 

employment agreement, collective 

bargaining agreement, or consulting 

agreement); 

(2) Any material pending or 

threatened litigation in which the 

nominating shareholder or nominating 

shareholder group or nominee is a party 

or a material participant, involving the 

registrant, any of its officers or directors, 

or any affiliate of the registrant; and 

(3) Any other material relationship 

between the nominating shareholder or 

nominating shareholder group or the 

nominee and the registrant or any 

affiliate of the registrant not otherwise 

disclosed; and 

Instruction to paragraph (e)(3). Any 

other material relationship of the 

nominating shareholder or nominating 

shareholder group with the registrant or 

any affiliate of the registrant may 

include, but is not limited to, whether 

the nominating shareholder or 

nominating shareholder group currently 

has, or has had in the past, an 

employment relationship with the 

registrant or any affiliate of the 

registrant (including consulting 

arrangements). 

(f) The Web site address on which the 

nominating shareholder or nominating 

shareholder group may publish 

soliciting materials, if any. 

Note to § 240.14a–19. The registrant is 

not responsible for any information in 

the notice from the nominating 

shareholder or nominating shareholder 

group or otherwise provided by the 

nominating shareholder or nominating 

shareholder group, except where the 

registrant knows or has reason to know 

that the information is false or 

misleading. 

17. Amend § 240.14a–101 by: 

a. Adding on the cover page one box 

before the box ‘‘Soliciting Material 

under § 240.14a–12’’; 

b. Revising Item 7 as follows: 

i. Redesignating paragraph (e) as 

paragraph (g); and 

ii. Adding new paragraph (e) and 

paragraph (f); and 

c. Adding paragraphs (18) and (19) to 

Item 22(b). 

The additions and revisions read as 

follows: 

§ 240.14a–101—Schedule 14A. Information 

required in proxy statement. 

SCHEDULE 14A INFORMATION 

* * * * * 

[ ] Soliciting Material under § 240.14a– 

11 

* * * * * 

Item 7. * * * 

* * * * * 

(e) If a shareholder nominee or 

nominees are submitted to the registrant 

and the registrant is not permitted to 

exclude the nominee or nominees 

pursuant to the provisions of § 240.14a– 

11, the registrant must include the 

disclosure required from the nominating 

shareholder or nominating shareholder 

group under § 240.14a–18(e)–(l) with 

regard to the nominee or nominees and 

the nominating shareholder or 

nominating shareholder group. 

Instruction to Item 7(e). The 

information disclosed pursuant to 

paragraph (e) of this Item will not be 

deemed incorporated by reference into 

any filing under the Securities Act of 

1933, the Securities Exchange Act of 

1934, or the Investment Company Act of 

1940, except to the extent that the 

registrant specifically incorporates that 

information by reference. 

(f) If a shareholder nominee or 

nominees are submitted to the registrant 

for inclusion in the registrant’s proxy 

materials pursuant to a procedure set 

forth under applicable state law or the 

registrant’s governing documents 

providing for the inclusion of 

shareholder director nominees in the 

registrant’s proxy materials, the 

registrant must include the disclosure 

required from the nominating 

shareholder or nominating shareholder 

group under § 240.14a–19(a) through (f) 

with regard to the nominee or nominees 

and the nominating shareholder or 

nominating shareholder group. 

Instruction to Item 7(f). The 

information disclosed pursuant to 

paragraph (f) of this Item will not be 

deemed incorporated by reference into 

any filing under the Securities Act of 

1933, the Securities Exchange Act of 

1934, or the Investment Company Act of 

1940, except to the extent that the 

registrant specifically incorporates that 

information by reference. 

* * * * * 

Item 22. Information required in 

investment company proxy statement. 

* * * * * 

(b) * * * 

(18) If a shareholder nominee or 

nominees are submitted to the Fund and 

the Fund is not permitted to exclude the 

nominee or nominees pursuant to the 

provisions of § 240.14a–11, the Fund 

must include the disclosure required 

from the nominating shareholder or 

nominating shareholder group under 

§ 240.14a–18(e) through (l) with regard 

to the nominee or nominees and the 

nominating shareholder or nominating 

shareholder group. 

Instruction to paragraph (b)(18). The 

information disclosed pursuant to 

paragraph (b)(18) of this Item will not be 

deemed incorporated by reference into 

any filing under the Securities Act of 

1933, the Securities Exchange Act of 

1934, or the Investment Company Act of 

1940, except to the extent that the Fund 

specifically incorporates that 

information by reference. 

(19) If a shareholder nominee or 

nominees are submitted to the Fund for 

inclusion in the Fund’s proxy materials 

pursuant to a procedure set forth under 

applicable state law or the Fund’s 

governing documents providing for the 

inclusion of shareholder director 

nominees in the Fund’s proxy materials, 

the Fund must include the disclosure 

required from the nominating 

shareholder or nominating shareholder 

group under § 240.14a–19(a) through (f) 

with regard to the nominee or nominees 

and the nominating shareholder or 

nominating shareholder group. 

Instruction to paragraph (b)(19). The 

information disclosed pursuant to 

paragraph (b)(19) of this Item will not be 

deemed incorporated by reference into 

any filing under the Securities Act of 

1933, the Securities Exchange Act of 

1934, or the Investment Company Act of 

1940, except to the extent that the Fund 

specifically incorporates that 

information by reference. 

* * * * * 

18. Amend Part 240 by adding an 

undesignated center heading and 

§§ 240.14n–1 through 240.14n–3 and 

§ 240.14n–101 to read as follows: 

Regulation 14N: Filings Required by 

Certain Nominating Shareholders 

§ 240.14n–1 Filing of Schedule 14N. 

(a) A shareholder or group of 

shareholders that submits a nominee or 

nominees in accordance with § 240.14a– 

11 or a procedure set forth under 

applicable state law or a registrant’s 

governing documents providing for the 

inclusion of shareholder director 

nominees in the registrant’s proxy 

materials shall file with the Commission 

a statement containing the information 

required by Schedule 14N (§ 240.14n– 

101) and simultaneously provide the 

notice on Schedule 14N to the 

registrant. 

(b)(1) Whenever two or more persons 

are required to file a statement 

containing the information required by 

Schedule 14N (§ 240.14n–101), only one 

statement need be filed. The statement 

must identify all such persons, contain 

the required information with regard to 

each such person, indicate that the 

statement is filed on behalf of all such 

persons, and include, as an exhibit, 

29088 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

their agreement in writing that the 

statement is filed on behalf of each of 

them. Each person on whose behalf the 

statement is filed is responsible for the 

timely filing of that statement and any 

amendments thereto, and for the 

completeness and accuracy of the 

information concerning such person 

contained therein; such person is not 

responsible for the completeness or 

accuracy of the information concerning 

the other persons making the filing, 

unless such person knows or has reason 

to know that the information is 

inaccurate. 

(2) If the group’s members elect to 

make their own filings, each filing 

should identify all members of the 

group but the information provided 

concerning the other persons making 

the filing need only reflect information 

which the filing person knows or has 

reason to know. 

§ 240.14n–2 Filing of amendments to 

Schedule 14N. 

(a) If any material change occurs in 

the facts set forth in the Schedule 14N 

(§ 240.14n–101) required by § 240.14n– 

1(a), the person or persons who were 

required to file the statement shall 

promptly file or cause to be filed with 

the Commission an amendment 

disclosing that change. 

(b) An amendment shall be filed 

within 10 calendar days of the final 

results of the election being announced 

by the registrant stating the nominating 

shareholder’s or the nominating 

shareholder group’s intention with 

regard to continued ownership of their 

shares. 

§ 240.14n–3 Dissemination. 

One copy of Schedule 14N 

(§ 240.14n–101) filed pursuant to 

§§ 240.14n–1 and 240.14n–2 shall be 

sent to the issuer of the security at its 

principal executive office by registered 

or certified mail. Three copies of the 

material must at the same time be filed 

with, or mailed for filing to, each 

national securities exchange upon 

which any class of securities of the 

registrant is listed and registered. 

§ 240.14n–101 Schedule 14N—Information 

to be included in statements filed pursuant 

to § 240.14n–1 and amendments thereto 

filed pursuant to § 240.14n–2. 

Securities and Exchange Commission, 

Washington, DC 20549 

Schedule 14N 

Under the Securities Exchange Act of 

1934 

(Amendment No._)* 

lllllllllllllllllll

(Name of Issuer) 

lllllllllllllllllll

(Title of Class of Securities) 

lllllllllllllllllll

(CUSIP Number) 

lllllllllllllllllll

[ ] Notice of Submission of a Nominee 

or Nominees in Accordance with 

§ 240.14a–11 

[ ] Notice of Submission of a Nominee 

or Nominees in Accordance with 

Procedures Set Forth Under Applicable 

State Law or the Registrant’s Governing 

Documents 

*The remainder of this cover page shall 

be filled out for a reporting person’s 

initial filing on this form, and for any 

subsequent amendment containing 

information which would alter the 

disclosures provided in a prior cover 

page. 

The information required in the 

remainder of this cover page shall not be 

deemed to be ‘‘filed’’ for the purpose of 

Section 18 of the Securities Exchange 

Act of 1934 (‘‘Act’’) or otherwise subject 

to the liabilities of that section of the 

Act but shall be subject to all other 

provisions of the Act. 

(1) Names of reporting persons 

(2) Amount of securities beneficially 

owned and entitled to be voted on the 

election of directors held by each 

reporting person: 

(3) Percent of securities entitled to be 

voted on the election of directors 

represented by amount in Row (2): 

Instructions for Cover Page: 

(1) Names of Reporting Persons— 

Furnish the full legal name of each 

person for whom the report is filed— 

i.e., each person required to sign the 

schedule itself—including each member 

of a group. Do not include the name of 

a person required to be identified in the 

report but who is not a reporting person. 

(2) and (3) Amount Held by Each 

Reporting Person—Rows (2) and (3) are 

to be completed in accordance with the 

provisions of Item 3 of Schedule 14N. 

All percentages are to be rounded off to 

the nearest tenth (one place after 

decimal point). 

Notes: Attach as many copies of the 

second part of the cover page as are needed, 

one reporting person per page. 

Filing persons may, in order to avoid 

unnecessary duplication, answer items 

on Schedule 14N by appropriate cross 

references to an item or items on the 

cover page(s). This approach may only 

be used where the cover page item or 

items provide all the disclosure required 

by the schedule item. Moreover, such a 

use of a cover page item will result in 

the item becoming a part of the schedule 

and accordingly being considered as 

‘‘filed’’ for purposes of section 18 of the 

Act or otherwise subject to the liabilities 

of that section of the Act. 

Special Instructions for Complying 

With Schedule 14N 

Under Sections 14 and 23 of the 

Securities Exchange Act of 1934 and the 

rules and regulations thereunder, the 

Commission is authorized to solicit the 

information required to be supplied by 

this schedule. The information will be 

used for the primary purpose of 

determining and disclosing the holdings 

and interests of a nominating 

shareholder or nominating shareholder 

group. This statement will be made a 

matter of public record. Therefore, any 

information given will be available for 

inspection by any member of the public. 

Because of the public nature of the 

information, the Commission can use it 

for a variety of purposes, including 

referral to other governmental 

authorities or securities self-regulatory 

organizations for investigatory purposes 

or in connection with litigation 

involving the Federal securities laws or 

other civil, criminal or regulatory 

statutes or provisions. Failure to 

disclose the information requested by 

this schedule may result in civil or 

criminal action against the persons 

involved for violation of the Federal 

securities laws and rules promulgated 

thereunder. 

Instructions 

The item numbers and captions of the 

items shall be included but the text of 

the items is to be omitted. The answers 

to the items shall be prepared so as to 

indicate clearly the coverage of the 

items without referring to the text of the 

items. Answer every item. If an item is 

inapplicable or the answer is in the 

negative, so state. 

Item 1(a). Name of Registrant 

Item 1(b). Address of Registrant’s 

Principal Executive Offices 

Item 2(a). Name of Person Filing 

Item 2(b). Address or Principal Business 

Office or, if None, Residence 

Item 2(c). Title of Class of Securities 

Item 2(d). CUSIP No. 

Item 3. Ownership 

Provide the following information 

regarding the aggregate number and 

percentage of the securities of the 

registrant identified in Item 1. 

(a) Amount of securities beneficially 

owned and entitled to be voted on the 

election of directors at the meeting:. 

(b) Percent of securities entitled to be 

voted on the election of directors at the 

meeting:__. 

Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 29089 

Item 4. Notice of Dissolution of Group 

Notice of dissolution of a nominating 

shareholder group or the termination of 

a shareholder nomination shall state the 

date of the dissolution or termination. 

Item 5. Statement of Ownership From a 

Nominating Shareholder or Each 

Member of a Nominating Shareholder 

Group Submitting This Notice Pursuant 

to § 240.14a–11 

(a) If the nominating shareholder, or 

each member of the nominating 

shareholder group, is the registered 

holder of the shares, please so state. 

Otherwise, attach to Schedule 14N a 

written statement from the ‘‘record’’ 

holder of the nominating shareholder’s 

shares (usually a broker or bank) 

verifying that, at the time of submitting 

the shareholder notice to the registrant 

on Schedule 14N, the nominating 

shareholder continuously held the 

securities being used to satisfy the 

applicable ownership threshold for a 

period of at least one year. In the 

alternative, if the nominating 

shareholder has filed a Schedule 13D, 

Schedule 13G, Form 3, Form 4, and/or 

Form 5, or amendments to those 

documents, so state and attach a copy or 

incorporate that filing by reference. 

(b) Provide a written statement that 

the nominating shareholder, or each 

member of the nominating shareholder 

group, intends to continue to own the 

requisite shares through the date of the 

meeting of shareholders. Additionally, 

at the time this Schedule is filed, the 

nominating shareholder or each member 

of the nominating shareholder group 

must provide a written statement 

regarding the nominating shareholder’s 

or nominating shareholder group 

member’s intent with respect to 

continued ownership after the election. 

Item 6. Representations and Disclosure 

Required by § 240.14a–18 

If a nominating shareholder or 

nominating shareholder group is 

submitting this notice in connection 

with the inclusion of a shareholder 

nominee or nominees for director in the 

company’s proxy materials pursuant to 

§ 2 40.14a–11, provide the information 

required by § 240.14a–18. 

Item 7. Disclosure Required by 

§ 240.14a–19 

If a nominating shareholder or 

nominating shareholder group is 

submitting this notice in connection 

with the inclusion of a shareholder 

nominee or nominees for director in the 

company’s proxy materials pursuant to 

a procedure set forth under applicable 

state law or the registrant’s governing 

documents, provide the information 

required by § 240.14a–19. 

Item 8. Certification for Nominating 

Shareholder Notices Submitted Under 

§ 240.14a–11 

The following certification shall be 

provided by the filing person, or in the 

case of a group, each filing person 

whose securities are being aggregated 

for purposes of meeting the ownership 

threshold set out in § 240.14a–11(b): 

By signing below I certify that, to the 

best of my knowledge and belief, the 

securities referred to above are not held 

for the purpose of or with the effect of 

changing control of the issuer of the 

securities or to gain more than a limited 

number of seats on the board. 

Signature 

After reasonable inquiry and to the 

best of my knowledge and belief, I 

certify that the information set forth in 

this statement is true, complete and 

correct. 

Dated: lllllllllllllll

Signature: lllllllllllll

Name/Title: llllllllllll

The original statement shall be signed 

by each person on whose behalf the 

statement is filed or his authorized 

representative. If the statement is signed 

on behalf of a person by his authorized 

representative other than an executive 

officer or general partner of the filing 

person, evidence of the representative’s 

authority to sign on behalf of such 

person shall be filed with the statement, 

provided, however, that a power of 

attorney for this purpose which is 

already on file with the Commission 

may be incorporated by reference. The 

name and any title of each person who 

signs the statement shall be typed or 

printed beneath his signature. 

Attention: Intentional misstatements 

or omissions of fact constitute Federal 

criminal violations (see 18 U.S.C. 1001). 

19. Amend § 240.15d–11 by revising 

paragraph (b) to read as follows: 

§ 240.15d–11 Current reports on Form 8–K 

(§ 249.308 of this chapter). 

* * * * * 

(b) This section shall not apply to 

foreign governments, foreign private 

issuers required to make reports on 

Form 6–K (17 CFR 249.306) pursuant to 

§ 240.15d–16, issuers of American 

Depositary Receipts for securities of any 

foreign issuer, or investment companies 

required to file reports pursuant to 

§ 270.30b1–1 of this chapter under the 

Investment Company Act of 1940, 

except where such an investment 

company is required to file: 

(1) Notice of a blackout period 

pursuant to § 245.104 of this chapter; 

(2) Disclosure pursuant to Instruction 

2 to § 240.14a–11(a) of the date by 

which a nominating shareholder or 

nominating shareholder group must 

submit the notice required pursuant to 

§ 240.14a–11(c); or 

(3) Disclosure pursuant to Instruction 

3 to § 240.14a–11(b) of information 

concerning net assets, outstanding 

shares, and voting. 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

20. The authority citation for part 249 

continues to read in part as follows: 

Authority: 15 U.S.C. 78a et seq., 7201 et 

seq.; and 18 U.S.C. 1350, unless otherwise 

noted. 

* * * * * 

21. Amend Form 8–K (referenced in 

§ 249.308) by: 

a. Adding a sentence at the end of 

General Instruction B.1; 

b. Removing the heading ‘‘Section 

5.06’’ and adding in its place ‘‘Item 

5.06’’; and 

c. Adding Item 5.07. 

The additions read as follows: 

Note: The text of Form 8–K does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form 8–K 

* * * * * 

GENERAL INSTRUCTIONS 

* * * * * 

B. Events to be Reported and Time for 

Filing Reports 

1. * * * A report pursuant to Item 

5.07 is to be filed within four business 

days after the registrant determines the 

anticipated meeting date. 

* * * * * 

Item 5.07 Shareholder Nominations 

Pursuant to Exchange Act Rule 14a–11 

(a) If the registrant 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 

calendar days from the date of the 

previous year’s meeting, then the 

registrant is required to disclose the date 

by which a nominating shareholder or 

nominating shareholder group must 

submit the notice required pursuant to 

§ 240.14a–11(c), which date shall be a 

reasonable time before the registrant 

mails its proxy materials for the 

meeting. 

(b) If the registrant is a series 

company as defined in Rule 18f–2(a) 

under the Investment Company Act of 

1940 (17 CFR 270.18f–2), then the 

29090 Federal Register / Vol. 74, No. 116 / Thursday, June 18, 2009 / Proposed Rules 

registrant is required to disclose in 

connection with the election of directors 

at an annual meeting of shareholders 

(or, in lieu of such an annual meeting, 

a special meeting of shareholders): 

(1) The registrant’s net assets as of 

June 30 of the calendar year 

immediately preceding the calendar 

year of the meeting; and 

(2) The total number of shares of the 

registrant outstanding and entitled to be 

voted (or if the votes are to be cast on 

a basis other than one vote per share, 

then the total number of votes entitled 

to be voted and the basis for allocating 

such votes) at such meeting of 

shareholders as of the end of the most 

recent calendar quarter. 

* * * * * 

Dated: June 10, 2009. 

By the Commission. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–14090 Filed 6–17–09; 8:45 am] 

BILLING CODE 8010–01–P