Company Name: Loews Corp.
Public Availability Date: February 4, 2004
Document Sections:
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER
[INQUIRY LETTER]
December 19, 2003
VIA OVERNIGHT COURIER
Office of the Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Re: Loews Corporation Omission of Shareholder Proposal of the Congregation of
the Sisters of Charity of the Incarnate Word
Ladies and Gentlemen:
Loews Corporation, a Delaware corporation (the "Company") is filing this letter
with the Securities and Exchange Commission (the "Commission") pursuant to Rules
14a-8(j) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
On December 1, 2003, the Company received a shareholder proposal (the
"Proposal") and supporting statement (the "Supporting Statement") from the
Congregation of the Sisters of Charity of the Incarnate Word (the "Proponent"),
which the Proponent seeks to have included in the Company's proxy statement
relating to the Company's 2004 Annual Meeting of Shareholders (the "Proxy
Materials"). A copy of the Proposal and the Supporting Statement is attached
hereto as Exhibit A.
The Proposal requires that the Company "stop all advertising, marketing and sale
of cigarettes using the terms `light,' "ultralight,' `mild' and similar words
and/or colors and images until shareholders can be assured through independent
research that light and ultralight brands actually do reduce the risk of
smoking-related diseases, including cancer and heart disease." The Company
believes that it may omit the Proposal from the Proxy Materials for each of the
following, separately sufficient, reasons:
(i) pursuant to Rule 14a-8(i)(7) because it pertains to matters of ordinary
business operations; and
(ii) pursuant to Rule 14a-8(i)(1) because the Proposal is not a proper subject
for action by shareholders under Delaware Law.
The Company therefore respectfully requests confirmation that the Staff will not
recommend any enforcement action against the Company if the Company omits the
Proposal from the Proxy Materials. Pursuant to Rule 14a-8(j), the Company is
submitting six (6) copies of this letter, and the Proponent's letter, including
the Proposal and the Supporting Statement. A copy of this submission is being
furnished simultaneously to the Proponent.
A. The Proposal.
The Proposal requires that the Company "stop all advertising, marketing and sale
of cigarettes using the terms `light,' "ultralight,' `mild' and similar words
and/or colors and images until shareholders can be assured through independent
research that light and ultralight brands actually do reduce the risk of
smoking-related diseases, including cancer and heart disease." See Exhibit A.
B. Basis for Omission Under Rule 14a-8(i)(7).
The Company believes the Proposal may be excluded from the Proxy Materials
pursuant to paragraph Rule14a-8(i)(7) because it pertains to the ordinary
business operations of the Company, both in being the subject of current
litigation and because it interferes with the board of directors' authority in
dealing with the manufacturing and marketing of the Company's products.
First, the Proposal deals with a matter that is currently the subject of
litigation. Lorillard Tobacco Company, a subsidiary of the Company
("Lorillard"), is currently involved in several cases relating to the use of the
terms "light," "ultralight" and similar terms in connection with lower tar
cigarette brands sold by Lorillard, including two actions where plaintiffs seek
precisely the same result sought by the Proponent in relation to the use of the
terms "light," "ultralight" and similar terms. As set forth in the opinion of
Ronald Milstein, Esq., the General Counsel for Lorillard, attached hereto as
Exhibit B, implementation of the Proposal could significantly prejudice the
ability of Lorillard to defend these cases.
The Staff has previously acknowledged that a shareholder proposal is properly
excludable under the "ordinary course of business" exception contained Rule
14a-8(i)(7) when the subject matter of the proposal is the same or similar to
that which is central or material to litigation in which a registrant is then
involved. See, e.g., R.J. Reynolds Tobacco Holdings, Inc. (February 21, 2003)
(proposal requesting the board find appropriate ways of informing customers of
the risks of smoking "light" and "ultralight" brands excludable under the
"ordinary course" exception because it interfered with litigation strategy); RJR
Nabisco Holdings Corp. (February 22, 1999) (proposal requiring the company to
stop using the terms "light" and "ultralight" until shareholders can be assured
through independent research that such brands reduce the risk of smoking-related
diseases excludable under the "ordinary course" exception because it interfered
with litigation strategy); Philip Morris Companies Inc. (February 22, 1999)
(proposal requiring the company to stop using the terms "light" and "ultralight"
until shareholders can be assured through independent research that such brands
reduce the risk of smoking-related diseases excludable under the "ordinary
course" exception because it interfered with litigation strategy). This result
is also consistent with the longstanding position of the Staff that a
registrant's decision to institute or defend itself against legal actions, and
decisions on how it will conduct those legal actions, are matters relating to
its ordinary business operations within the meaning of (i)(7) and are within the
exclusive prerogative of management. See, e.g., NetCurrents, Inc. (May 8, 2001)
(proposal requiring NetCurrents, Inc. to sue two individuals within 30 days of
the annual meeting excludable as ordinary business operations because it relates
to litigation strategy); Microsoft Corporation (September 15, 2000) (proposal
asking the registrant to sue the federal government on behalf of shareholders
excludable as ordinary business because it relates to the conduct of
litigation); Exxon Mobil Corporation (March 21, 2000) (proposal requesting
immediate payment of settlements associated with Exxon Valdez oil spill
excludable because relates to litigation strategy and related decisions); Philip
Morris Companies Inc. (February 4, 1997) (proposal recommending that Philip
Morris Companies Inc. voluntarily implement certain FDA regulations while
simultaneously challenging the legality of those regulations excludable under
clause (c)(7), the predecessor to the current (i)(7)); Adams Express Company
(July 18, 1996) (proposal for registrant to initiate court action against the
Federal Reserve Board excludable as ordinary business because it went to the
determination by the company to institute legal action); Exxon Corporation
(December 20, 1995) (proposal that registrant forego any appellate or other
rights that it might have in connection with litigation arising from the Exxon
Valdez incident excludable because litigation strategy and related decisions are
matters relating to the conduct of the registrant's ordinary business
operations); Benihana National Corporation (September 13, 1991) (proposal
relating to the conduct of litigation and the decisions made concerning legal
defenses was excludable as relating to the conduct of ordinary business of the
company).
Second, the Proposal may be excluded because its effect is to interfere with the
day-to-day conduct of the manufacturing and marketing of Lorillard's products.
The Proposal requests that Lorillard cease using the terms "light," "ultralight,"
"mild" and similar words pending the outcome of certain research. The effect of
the Proposal would be to require Lorillard to suspend manufacture and sale of
the products sold as "light," "ultralight" and "lower tar" cigarettes.
Lorillard's management, supervised by its board of directors, is responsible for
making informed and reasoned decisions about the operation of its business.
Whether and how to manufacture, design and market its products are precisely the
types of decisions that Lorillard makes in the ordinary course of business and
that its board of directors, rather than its shareholders, or those of its
parent company, are charged by law with directing. Such decisions require
evaluations based on detailed financial, business, technical, scientific and
contractual information that the Company's shareholders cannot be expected to
possess. These matters properly fall within the purview of management and the
board of directors of Lorillard, which have the capacity, knowledge and training
necessary to evaluate them and make appropriate decisions. They are precisely
the types of decisions that clause (i)(7) was designed to exclude.
For that reason, the Staff has consistently determined that proposals attempting
to prohibit the sale of a particular product concern the ordinary business
operations of a company and are excludable. This is the kind of circumstance
contemplated by the Commission in the release adopting the current version of
Rule 14a-8, "The general underlying policy of [the ordinary business] exclusion
is ... to confine the resolution of ordinary business problems to management and
the board of directors, since it is impracticable for shareholders to decide how
to solve such problems at an annual shareholders meeting." Release 34-40018 (May
21, 1998, at p. 20). In Alliant Techsystems (May 7, 1996), the Staff determined
that a proposal requesting the board to establish a policy to end all research,
development, production, and sales of antipersonnel mines was excludable because
it related to the sale of a particular product. In Kmart Corporation (February
23, 1993), the Staff recommended excluding a proposal that the board terminate
the sale of materials describing sexual activities between adults and children,
and report to shareholders on the policies that will be instituted to ensure
that no such material is offered in the future, because it related to the sale
of a particular category of products. Previously, in Kmart Corporation (March
13, 1992) the Staff excluded a proposal requesting that the company not sell or
distribute periodicals that have as a principal attraction large numbers of
explicit photos of unclothed women because it concerned the sale of a particular
product. For the same reason, the Staff in USX Corporation (January 26, 1990)
excluded a proposal requesting the company cease sales of "adult softcore"
pornography at its retail outlets.
The Proposal does not raise any broad policy issue relevant to Lorillard. What
this Proposal does do is (1) seek to impose restrictions on the lawful marketing
and sale by Lorillard of a sub-category of a lawful producta decision which
clearly pertains to Lorillard's ordinary business operations, and (2) seek to
mandate action which could have a material adverse impact on Lorillard's defense
of material litigationand the defense of material litigation also clearly
pertains to Lorillard's ordinary business operations.
C. Basis for Omission Under Rule 14a-8(i)(1).
The Proposal may be excluded under Rule 14a-8(i)(1), because it is not a proper
subject for action by shareholders under Delaware Law.
The Company is a Delaware corporation subject to the Delaware General
Corporation Law. Under Delaware law, the board of directors is responsible for
the Company's management. Section 141(a) of the Delaware General Corporation Law
provides that the business and affairs of a Delaware corporation are to be
managed by or under the direction of the board of directors unless the
corporation's certificate of incorporation provides otherwise. The Company's
certificate of incorporation does not contain any provision that would allow
shareholders to require the board to adopt or implement policies regarding
charitable contributions.
The Proposal purports to require that the Company adopt a policy concerning the
marketing and sale of one of its products. This does not constitute a request, a
recommendation or a suggestion for the board to consider adopting or
implementing a new policy in this regard. There is no precatory language in the
Proposal. Instead, it is a flat requirement for the Company to implement the
policy in the Proposal. Under any logical interpretation, the Proposal would
require the board both to adopt a policy and then to implement it. Because the
Proposal would require board action, it constitutes a shareholder effort to
regulate directly and in a mandatory manner the conduct of business that
Delaware law entrusts to directors. As a mandate for director action, the
Proposal is not within the power of shareholders and may be excluded.
The Note to paragraph (i)(1) of Rule 14a-8 states in relevant part, "Depending
on the subject matter, some proposals are not considered proper under state law
if they would be binding on the company if approved by shareholders."
The Division of Corporation Finance Staff Legal Bulletin No. 14, dated July 13,
2001, states in relevant part, under the heading "Substantive Issues," "When
drafting a proposal, shareholders should consider whether the proposal, if
approved by shareholders, would be binding on the company. In our experience, we
have found that proposals that are binding on the company face a much greater
likelihood of being improper under state law and, therefore, excludable under
Rule 14a-8(i)(1)."
The Proposal purports to bind the Company's board, without any precatory
language, with respect to a matter that is within board control. Therefore, the
Company has concluded that it may exclude the Proposal from its Proxy Materials
on these grounds.
D. Conclusion.
For the reasons set forth above, the Company respectfully requests that the
Staff concur in its view that it may exclude the Proposal from the Company's
Proxy Materials under Rules 14a-8(i)(7) and 14a-8(i)(1). In order to meet the
Company's timetable for preparing its Proxy Materials and distributing responses
to shareholder proposals in a timely manner pursuant to the rules of the
Commission, the Company would appreciate your response to this request by
February 1, 2004. Should you require additional information, please do not
hesitate to contact the undersigned at (212) 521-2936. Please acknowledge
receipt of this filing by date-stamping the enclosed additional copy of this
letter and returning it in the enclosed pre-addressed, stamped envelope.
Very truly yours,
/s/
Glenn P. Zarin
Enc.
cc: The Congregation of the Sisters of Charity of the Incarnate Word c/o
Province of St. Joseph of the Capuchin Order
1015 N. 9\th/ Street
Milwaukee, Wisconsin 53233
Attn: Rev. Michael Crosby
[APPENDIX]
Exhibit A
Whereas: The National Cancer Institute has concluded that the `the resultant
absence of meaningful differences in risk (from smoking light versus regular
cigarettes) makes the marketing of these cigarettes as lower-delivery and
lower-risk products deceptive for the smoker' (Monograph 13: `Risks Associated
with Smoking Cigarettes with Low Machine-Measured Yields of Tar and Nicotine').
This study involved different brands of cigarettes, including those labeled
`light,' `ultra-light,' or `mild.'
The same study concluded that "many smokers chose these products as an
alternative to cessationa change that would produce real reduction in decease
risksmaking this deception an urgent public health issue.
Commenting on this study, the Editor of a well-known magazine covering the
tobacco industry, Tobacco Reporter, wrote: "The report is likely to embolden
those looking to ban product descriptors such as `light' and `mild'. It also has
provided a boon to trial lawyersthe study has already made its way into at
least one court case as `evidence' of deceptive industry practices.' The Editor
also opined that, given the problem, tobacco companies "better not to make any
health claims at all.
One tobacco Company, Philip Morris, has been sued in the State of Illinois by a
class of smokers of Marlboro Lights. The Court has found that Philip Morris
unfairly and deceptively marketed Marlboro Lights as `safer' than regular
cigarettes. In this case the Court found such Marlboro Lights and Cambridge
Lights to be just as harmful as regular Marlboro and regular Cambridge for all
members of the Class (Illinois).
Consequently the Court ordered this Company to pay more than $12 billion in
punitive and other damages to the Class of those who smoked its Light and
Ultralight brands. In response, Philip Morris has publicly declared that the
payment of this $12 billion in damages could bankrupt the Company.
This Company is named in lawsuits in other states claiming it unfairly and
deceptively markets light and ultralight cigarettes as `safer' than regular
cigarettes.
The Canadian government has concluded the terms low tar, light and ultralight
are deceptive to the consumer. The European Union and Brazil have banned the
terms. The World Health Organization recommends banning the terms light and
ultralight as misleading.
Most smokers believe `Lights' and `Ultra Lights' are less harsh and deliver less
tar and nicotine. On average, smokers believe that Lights afford a 25% reduction
in risk, and Ultra Lights a 33% reduction in Risk (Tobacco Control 10 [2001],
i17).
RESOLVED that Loews Corporation stop all advertising, marketing and sale of
cigarettes using the terms `light,' "ultralight,' `mild' and similar words
and/or colors and images until shareholders can be assured through independent
research that light and ultralight brands actually do reduce the risk of
smoking-related diseases, including cancer and heart disease.
Supporting Statement: For every light and ultralight cigarette we advertise and
sell today, there is a very high probability that Loews Corporation may be
incurring future liability which could adversely affect the value of stock held
by shareholders. We therefore ask shareholders to vote for this resolution."
[STAFF REPLY LETTER]
February 4, 2004
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Loews Corporation Incoming letter dated December 19, 2003
The proposal requires Loews to stop using the terms "light," "ultralight,"
"mild," as well as similar words, colors and images, until shareholders can be
assured through independent research that light and ultralight brands reduce the
risk of smoking-related diseases.
There appears to be some basis for your view that Loews may exclude the proposal
under rule 14a-8(i)(1) as an improper subject for shareholder action under
applicable state law. It appears that this defect could be cured, however, if
the proposal were recast as a recommendation or request to the board of
directors. Accordingly, unless the proponent provides Loews with a proposal
revised in this manner, within seven calendar days after receiving this letter,
we will not recommend enforcement action to the Commission if Loews omits the
proposal from its proxy materials in reliance on rule 14a-8(i)(1).
We are unable to conclude that Loews has met its burden of establishing that
Loews may exclude the proposal under rule 14a-8(i)(7). Accordingly, we do not
believe that Loews may omit the proposal from its proxy materials in reliance on
rule 14a-8(i)(7).
Sincerely,
/s/
John J. Mahon
Attorney-Advisor
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