Company Name: Qwest Communications Int'l. Inc. (Recon.)
Public Availability Date: March 22, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
INQUIRY LETTER [INQUIRY LETTER]
March 9, 2004 Direct Dial (202) 887-3646
Fax No. (202) 530-9589
Client No. C 93166-00069
VIA HAND DELIVERY Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Request for Reconsideration Stockholder Proposal of W. Earl Powles, Philip
M. Graham and William A. Eckhardt Securities Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen: On January 16, 2004, our client Qwest Communications International Inc. (the
"Company") requested, pursuant to Rule 14a-8(j), that the staff Division of
Corporation Finance (the "Staff") concur that it would not recommend action
against the Company as a result of the Company's determination to omit the
stockholder proposed discussed in the attached correspondence (the "Proposal")
submitted to the Company by W. Earl Powles, Philip M. Graham and William A.
Eckhardt (collectively, the "Proponents"). By letter dated February 23, 2004,
the Staff denied the Company's January 16, 2004 request. A copy of each of the
Company's request and the Staff's denial are enclosed. On behalf of our client, we respectfully request that the Staff reconsider the
position set forth in its February 23, 2003 letter to the Company and concur
that it would not recommend action against the Company as a result of the
Company's determination to omit the Proposal from the Company's 2004 proxy
materials (the "2004 Proxy Materials"). In accordance with Rule 14a-8(j), a copy
of this letter and its enclosures is being mailed on this date to the Proponents
and their counsel, informing them of the Company's request for reconsideration.
The Proposal requests that the Company include in its 2004 Proxy Materials the
name of any "Qualified Nominee" submitted by a "Qualified Shareholder." The
Company believes that the Proposal is properly excludable under Rule 14a-8(i)(8)
as relating to the election of directors because it does not meet the
requirements for a "direct access proposal" set forth in proposed Exchange Act
Rule 14a-11 ("Proposed Rule 14a-11"). Accordingly, the Proposal would create a
shareholder nomination procedure that is different from Proposed Rule 14a-11 as
described in Exchange Act Release No. 34-48626 (October 14, 2003) (the
"Proposing Release"). DISCUSSION OF BASES FOR RECONSIDERATION
I. The Proposal is Not a Proposed Rule 14a-11 "Direct Access Proposal."
The Proposal requests that the Company's Board of Directors include in the
Company's 2004 Proxy Materials the names of director candidates nominated by
certain stockholders. Specifically, the Proposal states: RESOLVED: The shareholders of Qwest hereby request the Board to include in the
Company's proxy materials the name of any Qualified Nominee for the Board of
Directors who has been nominated by a Qualified Shareholder.
For this resolution, a "Qualified Shareholder" is an individual or group holding
at least 5% of the Company's outstanding common stock for at least two years. A
"Qualified Nominee" is an individual who consents to be nominated and is
independent of the company and of the Qualified Shareholder, as provided in the
Securities and Exchange Commission's proposed Rule 14a-11, as it applies to
situations where a shareholder-nominated candidate qualifies for inclusion in a
company's proxy. This policy should be implemented in a manner that is not inconsistent with
state law, or with the procedures governing notice, disclosure, liability,
solicitation, supporting statements and limits on the number of
shareholder-nominated candidates, as provided in proposed SEC Rule 14a-11.
The Proposing Release states that Proposed Rule 14a-11 could be triggered by a
"direct access proposal" submitted pursuant to Rule 14a-8 if such proposal
satisfied several criteria, including that the proposal "was submitted for a
vote of security holders at an annual meeting of security holders held after
January 1, 2004 by a security holder or group of security holders that held more
than 1% of the company's securities entitled to vote on the proposal for one
year as of the date the proposal was submitted and provided evidence of such
holding to the company." (emphasis added). The Proposing Release continues:
"security holders and groups should be aware that in order for the adoption of
such a proposal to be a nomination procedure triggering event, should we adopt
Exchange Act Rule 14a-11 as proposed, those security holders or groups should,
using the existing Exchange Act Rule 14a-8 procedures, provide evidence that
they satisfy the more than 1% and one-year thresholds when they submit their
proposals." (emphasis added). According to the ownership information provided by
the Proponents, the Proponents own an aggregate of 3,223 shares of the Company's
common stock, far less than 1% or more of the Company's 1,768,301,330 shares
currently outstanding (based on the Company's disclosures in its most recent
Form 10-Q, which was filed on December 4, 2003). Accordingly, the Proponents are
not eligible to submit a "direct access proposal" under Proposed Rule 14a-11.
Thus, inclusion of the Proposal in the 2004 Proxy Materials would permit the
Proponents to use the process set forth in Proposed Rule 14a-11 despite their
failure to meet all of the requirements of the proposed rule. See, e.g., Verizon
Communications Inc. (avail. Jan. 28, 2004) (permitting the exclusion of a
similar stockholder proposal under Rule 14a-8(i)(8) because the proposal
differed from the eligibility standard in Proposed Rule 14a-11 and, therefore,
did not qualify as a "direct access proposal"). In addition to the Proponents being ineligible to submit a Proposed Rule 14a-11
proposal, the Proposal does not comport with other requirements of Proposed Rule
14a-11. In particular, the Proposal would allow any "Qualified Nominee" to be
included in the Company's proxy materials, as opposed to the limited number of
nominees set forth in Proposed Rule 14a-11. Moreover, we do not believe that the
this flaw is remedied by the Proposal's provision that it "should be implemented
in a manner that is not inconsistent with state law, or with the procedures
governing notice, disclosure, liability, solicitation, supporting statements and
limits on the number of shareholder-nominated candidates, as provided in
proposed SEC Rule 14a-11." (emphasis added). Accordingly, the Proposal would
create a shareholder nomination procedure that is different from the procedure
in proposed Rule 14a-11. See, e.g., Verizon Communications Inc. (avail. Jan. 28,
2004). II. The Proposal is Excludable under Rule 14a-8(i)(8) Because It Relates to the
Election of Directors. In footnote 74 of the Proposing Release, the Commission expressly states that it
is "not reviewing or revising the position taken by the Division of Corporation
Finance regarding the application of Exchange Act Rule 14a-8(i)(8) to security
holder proposals that would have the effect of creating a security holder
nomination procedure, other than a direct access proposal." (emphasis added). As
discussed in the Company's January 16, 2004 correspondence, the Staff has
historically found such proposals to be excludable pursuant to Rule 14a-8(i)(8),
which permits exclusion of a stockholder proposal from a company's proxy
materials if it "relates to an election for membership on the company's board of
directors or analogous governing body." Specifically, the Staff has found that
stockholder proposals seeking to include stockholder nominees in the company's
proxy materials may be excluded under Rule 14a-8(i)(8) (or its predecessor, Rule
14a-8(c)(8)) because such proposals "rather than establishing procedures for
nomination or qualification generally, would establish a procedure that may
result in contested elections of directors." Eastman Kodak Co. (February 28,
2003); The Bank of New York Co., Inc. (avail. Feb. 28, 2003); AOL Time Warner Inc. (February 28, 2003); and Citigroup Inc. (April 14, 2003) (all permitting
exclusion of a proposal to amend the bylaws to require that the company include
the name, along with certain disclosures and statements, of any person nominated
for election to the board by a stockholder who beneficially owns 3% of more of
the company's outstanding common stock). See also Storage Technology Corp.
(avail. Mar. 22, 2002); General Motors Corp. (avail. Mar. 22, 2001); Oxford
Health Plans, Inc., (avail. Feb. 23, 2000); The Coca-Cola Co. (avail. Jan. 24,
2000); Citigroup Inc. (avail. Jan. 21, 2000); BellSouth Corp. (avail. Feb. 4,
1998); and Unocal Corp. (avail. Feb. 8, 1991). Similarly, the Proposal, if adopted, would establish a procedure relating to the
election of directors that would result in the contested elections of directors,
and is therefore contrary to Rule 14a-8(i)(8). The Proposal's clear intent, as
stated in the Proponents' supporting statement, is to provide shareholders with
a means to create competition in director elections and "register any
dissatisfaction with the board's performance." Specifically, the Proposal
provides that "Qualified Shareholders" may nominate candidates for the Board of
Directors and that the names of such candidates must be included in the
Company's proxy materials to the same extent as the Company's nominees. Since
the Company's Board of Directors will nominate a sufficient number of candidates
for all available seats on the Board of Directors, and the Proposal urges the
Company to include in its proxy materials nominees who are not nominated by the
Board of Directors, the Proposal's implementation would necessarily result in
contested director elections. Thus, the Proposal may properly be omitted because
it seeks to establish a procedure that would result in contested elections of
directors in direct violation of Rule 14a-8(i)(8). The Proponents should not be permitted to circumvent the above-mentioned
long-standing Staff position on Rule 14a-8(i)(8) simply because the Proposal
refers to, and is couched in terms of, Proposed Rule 14a-11. In the Proposing
Release, the Commission made it clear that companies will continue to be able to
rely on Rule 14a-8(i)(8) to exclude direct access proposals that do not comply
with the various requirements of Proposed Rule 14a-11. In proposing Rule 14a-11,
the Commission clearly states that it is not reviewing or revising the Staff's
historical position on this subject, other than in the case of direct access
proposals that comply with Proposed Rule 14a-11. As set forth in the Proposing
Release, a Rule 14a-8 shareholder proposal that would subject a company to
Proposed Rule 14a-11 must be submitted "by a security holder or group of
security holders that held more than 1% of the securities entitled to vote on
that proposal for at least one year as of the date the proposal was submitted."
In this regard, the proposed instruction to Rule 14a-8(i)(11) makes clear that
only direct access proposals submitted by 1% or more shareholders must be
included. See footnote 76 to the Proposing Release. Since, as stated above, the
Proponents own less than 1% of the Company's outstanding shares, they do not
meet the ownership threshold proposed in Proposed Rule 14a-11.
* * * For the reasons set forth above, as well as in the Company's January 16, 2004
letter, the Company respectfully requests that the Staff reconsider its position
as set out in its February 5, 2003 letter and concur with the Company's decision
to omit the Proposal from the 2004 Proxy Materials. In sum, we believe the
Proposal is excludable under Rule 14a-8(i)(8) because the Proponents, as holders
of less than 1% of the Company's voting stock, are not eligible to submit a
"direct access proposal" under Proposed Rule 14a-11 and, as a result, the
Proposal would create a shareholder nomination procedure that is different from
Proposed Rule 14a-11. As the Company will begin printing its 2004 Proxy
Materials as soon as later this month, we respectfully request on behalf of the
Company that we be notified of the Staff's position at your earliest
convenience. We would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject. Should you disagree with the
conclusions set forth in this letter, we respectfully request the opportunity to
confer with you prior to the determination of the Staff's final position. Please
do not hesitate to call me at (202) 887-3646, or Stephen E. Brilz at (303)
992-6244, if we can be of any further assistance in this matter.
Sincerely, /s/
Brian J. Lane BJL/eai
Enclosures cc: Stephen E. Brilz, Esq., Qwest Communications International Inc.
Philip M. Graham
W. Earl Powles, Jr.
William A. Eckhardt
Cornish F. Hitchcock, Esq. [INQUIRY LETTER]
December 24, 2003 Richard N. Baer
Executive Vice President,
General Counsel and Corporate Secretary
Qwest Communications International, Inc.
1801 California Street, 52nd Floor
Denver, CO 80202 Dear Mr. Baer.
We hereby submit the attached stockholder proposal for inclusion in the
Company's 2004 proxy statement as provided under Securities and Exchange
Commission Rule 14a-8. Our stockholder resolution and supporting statement requests the Board of
Directors to include in Qwest's proxy materials the name of any Qualified
Nominee for the Board of Directors who has been nominated by a Qualified
Shareholder. As you likely know, in October the SEC proposed new Rule 14a-11, under which
Qwest and many other public companies may have to include in their proxy
materials a limited number of candidates for the Board of Directors who have
been nominated by shareholders. Rule 14a-11 is likely to be finalized and apply
to annual meetings held in 2004. Although we realize we do not own enough stock
to trigger the mandatory inclusion of qualified shareholder nominees under Rule
14a-11, our proposal simply suggests that the Board consider adopting this same
procedure on a voluntary basis. Each of us has continuously held the shares of common stock currently valued at
over $2,000 for more than one year. We intend to maintain our ownership position
through the date of the 2004 Annual Meeting. We plan to introduce and speak for
our resolution at the Company's 2004 Annual Meeting. We thank you in advance for including our proposal in the Company's next
definitive proxy statement. If you need any additional information please feel
free to contact us. Sincerely yours,
/s/ W. Earl Powles
/s/ Philip M. Graham
/s/ William A. Eckhardt
ENCLOSURES [APPENDIX]
STOCKHOLDER PROPOSAL ON PROXY ACCESS FOR DIRECTOR NOMINATIONS
Philip M. Graham, 1833 East Gary Street, Mesa, AZ, 85203, who owns 1,072 shares
of the Company's common stock; W. Earl Powles Jr., 1301 W. Dunlap Ave, Phoenix,
AZ 85021, who owns 1,220 shares of the Company's common stock; and William A.
Eckhardt, 16914 E. Britt Ct., Fountain Hills, AZ, 85268, who owns 931 shares of
the Company's common stock; hereby notify the Company that they intend to
present the following resolution at the 2004 Annual Meeting for action by the
stockholders. RESOLVED: The shareholders of Qwest hereby request the Board of Directors to
include in the Company's proxy materials the name of any Qualified Nominee for
the Board of Directors who has been nominated by a Qualified Shareholder.
For this resolution, a "Qualified Shareholder" is an individual or group holding
at least 5% of the Company's outstanding common stock for at least two years. A
"Qualified Nominee" is an individual who consents to be nominated and is
independent of the company and of the Qualified Shareholder, as provided in the
Securities and Exchange Commission's proposed Rule 14a-11, as it applies to
situations where a shareholder-nominated candidate qualifies for inclusion in a
company's proxy. This policy should be implemented in a manner that is not inconsistent with
state law, or with the procedures governing notice, disclosure, liability,
solicitation, supporting statements and limits on the number of
shareholder-nominated candidates, as provided in proposed SEC Rule 14a-11.
SUPPORTING STATEMENT In October 2003 the SEC proposed new Rule 14a-11, under which companies may have
to include in their proxy materials a limited number of director candidates
nominated by shareowners. The rationale, the SEC explained, is that shareholders
who are "dissatisfied with the leadership of a company generally must undertake
a proxy contest, along with its related expenses, to put nominees before the
security holders for a vote. A board's nominees, on the other hand, do not bear
the cost of their candidates, which are funded out of corporate assets."
We view the principle underlying the SEC's pending Ruleshareholder access to
the Company's proxy to nominate board candidatesas critical to accountable
corporate governance. Qwest, like most companies, does not give shareholders a
choice among competing candidates in director elections. As a result, it can be
difficult for shareholders to hold individual directors accountable or to
register dissatisfaction with the board's performance. [INQUIRY LETTER]
17 March 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549 Re: Request of Qwest Communications International Inc. for reconsideration of
Division letter regarding shareholder proposal of W. Earl Powles, Philip M.
Graham and William A. Eckhardt By courier
Dear Counsel: I have been asked by the proponents of this resolution (the "Proponents") to
respond to the letter from Qwest Communications International Inc. ("Qwest" or
the "Company") seeking reconsideration of the Division's letter of 23 February
2004 advising that the Division did not concur with the Company's arguments for
excluding the resolution. As we explain more fully below, the Company has not
carried its burden of establishing that the resolution is invalid, and
reconsideration should be denied. The points made in Qwest's latest filing are
largely answered by the Proponents' earlier letter, which is attached to Qwest's
filing and which we incorporate by reference to avoid repetition.
In brief, the resolution has its roots in the Commission's proposed Rule 14a-11,
which would create a mechanism for shareholder-nominated candidates to gain
access to company-prepared proxy materials if certain "triggers" are met. One
proposed trigger is the adoption by a company's shareholders of a resolution
allowing a "qualified shareholder" to nominate a "qualified nominee" and to have
the latter's name and related information appear in the company-prepared
statement and card. Proposed Rule 14a-11 contemplates that such an access proposal would, if
adopted, have a binding effect on the company if it is sponsored by the holder
or holders of at least one percent of a company's stock. The question presented
by the Proponents' resolution is: May holders of less than one percent of a
stock make a precatory request that their company adopt a similar access policy,
recognizing that the proposal would not be binding on the company if adopted?
Qwest correctly points out that the Division allowed exclusion of proxy access
proposals in a series of early 2003 letters that relied upon Rule 14a-8(i)(8),
which permits the exclusion of a proposal that "relates to an election for
membership on the Company's board of directors." Qwest argues, however, that
this interpretation remains unaffected by the Commission's promulgation of a
proposed proxy access rule and more recent developments. The problem with this argument is that it never comes to grips with the
following issue: Given the Commission's decision to propose a rule that would
alter the standards regarding director contests and access to company-prepared
proxy materials, how can one say that an access proposal "relates to an
election" of directors under Rule 14a-8(i)(8) if it is sponsored by holders of
less than one percent of the stock, but does not "relate [] to an election" of
directors if it is sponsored by holders of over one percent of the stock? There
is no good reason why the words of the (i)(8) exclusion require that identical
proposals be treated in opposite ways depending on the identity of the
proponent. We believe that a more fair interpretation of the Releaseas well as
a more constructive and consistent policy outcomewould be that the Commission
intends to exempt from omission under Rule 14a-8(i)(8) the narrow class of
security holder resolutions (both precatory and potentially mandatory) that
propose a direct access nomination mechanism consistent with Rule 14a-11.
The Division considered the proper scope of the (i)(8) exclusion in a July 2003
staff report that preceded issuance of proposed Rule 14a-11. One of the concerns
expressed at the time was that a more liberal interpretation of Rule 14a-8(i)(8)
might prompt a plethora of proposals for different forms of proxy access. No
such concern is raised by the Proponents' proposal, however. It tries to hew to
the contours of proposed Rule 14a-11 in terms of who is a "qualified
shareholder" and "qualified nominee." The only difference between the
Proponents' direct access resolution and one sponsored by holders of more than
one percent of the stock is that the Company would be bound by a resolution
proffered by the latter, though not the former. This appears to be the lesson from the Division's ruling here and in Verizon
Communications Inc. (28 January 2004), which permitted the exclusion of an
access proposal not because the Division agreed with the sort of (i)(8)
arguments that Qwest advances here, but because the Verizon proposal strayed
from the proposed rule's criteria for a "qualified shareholder," i.e., proposing
only a one-year holding period, rather than the two years in the proposed rule.
Thus, contrary to Qwest's arguments, the effect of the Proponents' resolution
would be that small shareholders could proffer a non-binding proposal asking
their company to adopt a nomination process of the sort that the company would
be obliged to adopt if the same proposal were offered by a larger shareholder
and adopted by the shareholders. Allowing smaller shareholders to offer
non-binding proposals that adhere to proposed Rule 14a-11 is thus a valuable way
for shareholders to register their views about a board's performance.
Qwest's recent letter focuses on footnotes 74 and 76 of the Release proposing
new Rule 14a-11. Simply put, there is no basis for Qwest's argument that these
notes demonstrate the Commission's unwillingness to modify the application of
Rule 14a-8(i)(8) to permit both potentially triggering and precatory direct
access proposals, provided that the latter requests a Company's board to
implement a nomination process substantially identical to the procedure proposed
by the Commission under Rule 14a-11. Qwest claims that footnote 74 of the
Release expressly states that only shareholder proposals sponsored by proponents
qualified to trigger the mandatory nominating procedure would be exempt from
omission under Rule 14a-8(i)(8). We believe that this argument goes too far.
Footnote 74 of the Release states that the Commission intends to amend Rule
14a-8(i)(8) to "make clear that a company may not rely on the exclusion
permitted by that paragraph (i.e., the exclusion for proposals relating to the
election of directors) to exclude a proposal that the company become subject to
the procedure in proposed Exchange Act Rule 14a-11." This cannot and should not
be read as suggesting a policy to exclude precatory proposals requesting a
company to subject itself voluntarily to the exact same procedure established by
the Commission in proposed Rule 14a-11. Rather, we interpret the final sentence
of footnote 74 as a limiting clause that is intended to clarify that shareholder
proposals related to director elections "other than a direct access proposal" of
the kind envisioned under Rule 14a-11 would continue to be subject to potential
exclusion under Rule 14a-8(i)(8). Whether such a proposal directly triggers a
mandatory nomination procedure, or instead merely urges a board to voluntarily
adopt the identical Commission-prescribed procedure, should be equally positive
outcomes from the perspective of federal securities law. With respect to footnote 76, Qwest fails to rebut the analysis in our prior
letter, which we incorporate by reference here. Footnote 76 expressly
contemplates a situation where a company receives two "direct access" proposals,
one from a small shareholder and the second from a one percent holder eligible
to trigger the mandatory nomination access procedure. In such cases, the company
may not exclude the (potentially binding) latter proposal because it had
received the precatory proposal first. The Division's ruling here simply
confirms a common sense reading of these footnotes, and Qwest's argument does
not add anything new. In short, the conclusions reached by the Division here and in Verizon combine
the twin virtues of being easy to understand and administer while simultaneously
advancing the policy goals identified by the Commission in the release proposing
a new Rule 14a-11. Qwest's argument that the (i)(8) exclusion requires otherwise
is not persuasive, and the Company's request for reconsideration should
therefore be denied. Finally, in its letter of March 9, Qwest advances a new argument based on a
claim that "the Proposal would allow any `Qualified Nominee' to be included in
the Company's 14a-11." (Qwest Letter, Page 3.) Qwest concedes that the
resolution explicitly urges Qwest's Board to implement the shareholder
nomination procedure "in a manner that is not inconsistent with state law, or
with the procedures governing notice, disclosure, liability, solicitation,
supporting statements and limits on the number of shareholder-nominated
candidates, as provided in proposed SEC Rule 14a-11." [emphasis added] Qwest
nevertheless asserts that because the procedural congruity urged by Proponents
would not be binding on Qwest's Board, it creates the possibility the Board will
choose to adopt a procedure different from the procedure in Rule 14a-11.
However, a Board's discretion to alter the procedure urged by Proponents is
common to all precatory proposals. Unlike the situation where a majority of
shares are cast in favor of a direct access proposal eligible to trigger the
mandatory nomination process, a Board faced with a precatory proposal has the
discretion to alter the procedural details of the nomination mechanism
(consistent with state law), just as it could adopt such a mechanism on its own,
even in the absence of any direct access proposal. Thank you in advance for your consideration of these views. Please do not
hesitate to contact me if there is any further information that we can provide.
Very truly yours, /s/
Cornish F. Hitchcock cc: Brian J. Lane, Esq.
Stephen E. Brilz, Esq.
Mr. W. Earl Powles
Mr. Philip M. Graham
Mr. William A. Eckhardt [INQUIRY LETTER]
Direct Dial (202) 887-3646
Client No. C 93166-00069
Fax No. (202) 530-9589 VIA HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Supplemental Correspondence Regarding Request for Reconsideration
Stockholder Proposal of W. Earl Powles, Philip M. Graham and William A. Eckhardt
Securities Exchange Act of 1934Rule 14a-8 Dear Ladies and Gentlemen:
On January 16, 2004, our client Qwest Communications International Inc. (the
"Company") requested, pursuant to Rule 14a-8(j), that the staff of the Division
of Corporation Finance (the "Staff") concur that it would not recommend action
against the Company as a result of the Company's determination to omit the
stockholder proposal discussed in the attached correspondence (the "Proposal")
submitted to the Company by W. Earl Powles, Philip M. Graham and William A.
Eckhardt (collectively, the "Proponents"). By letter dated February 23, 2004,
the Staff denied the Company's January 16, 2004 request. On March 9, 2004, the
Company submitted a letter requesting reconsideration due to the fact that the
proposal was not a "Direct Access Proposal" and that it could therefore be
excluded under Rule 14a-8(i)(8). In a letter dated March 17, 2004, the
Proponents, through counsel, responded to our request for reconsideration. This
letter is intended to respond to the letter from the Proponents' counsel. In
accordance with Rule 14a-8(j), a copy of this letter and its enclosures is being
mailed on this date to the Proponents and their counsel. The Proponents' counsel argues that the Proposal "has its roots in the
Commission's proposed Rule 14a-11." Yet, more than roots are needed to qualify
for the carve-out contained in footnote 74 to the Commission's proposing
release. See Exchange Act Release No. 34-48626 (October 14, 2003). There are
distinct differences between the Proposal and proposed Exchange Act Rule 14a-11
("Proposed Rule 14a-11"), and these differences are sufficient to render the
Commission's carve-out for "Direct Access Proposals" inapplicable to the
Proposal. As we noted in our March 9 letter, unlike Proposed Rule 14a-11, the
Proposal would permit direct access by holders of less than one percent of the
outstanding common stock. As a further example, the Proposal defines "Qualified
Shareholder" as a person holding at least 5% of the Company's outstanding stock.
In contrast, Proposed Rule 14a-11, which is based on the rules under Exchange
Act Section 13(d), would permit nominations from shareholders or groups of
shareholders who "beneficially own, either individually or in the aggregate,
more than 5% of the company's securities" (emphasis added). Accordingly, the
Proposal would permit holders of exactly 5% of the Company's outstanding
securities to use Proposed Rule 14a-11 without requiring the filing of a
Schedule 13G, the notice required under Proposed Rule 14a-11 to alert a company
that a shareholder or shareholder group satisfies the ownership threshold and
intends to nominate a direct access nominee. For these reasons, and the reasons set forth in the Company's January 16, 2004
letter and our March 9, 2004 letter, the Proposal is sufficiently different from
Proposed Rule 14a-11 that the Proposal is not a "Direct Access Proposal."
Accordingly, the Company believes that the Proposal is properly excludable under
Rule 14a-8(i)(8) as relating to the election of directors.
* * * We would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject. Should you disagree with the
conclusions set forth in this letter, we respectfully request the opportunity to
confer with you prior to the determination of the Staff's final position. Please
do not hesitate to call me at (202) 887-3646, or Stephen E. Brilz at (303)
992-6244, if we can be of any further assistance in this matter.
Sincerely, /s/
Brian J. Lane BJL/eai
Enclosures cc: Stephen E. Brilz, Esq., Qwest Communications International Inc.
Philip M. Graham
W. Earl Powles, Jr.
William A. Eckhardt
Cornish F. Hitchcock, Esq.
70279011_1_.doc [INQUIRY LETTER]
19 March 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC. 20549 Re: Request of Qwest Communications International Inc. for reconsideration of
Division letter regarding shareholder proposal of W. Earl Powles, Philip M.
Graham and William A. Eckhardt By courier and facsimile: 942-9525
Dear Counsel: I write on behalf of the proponents to respond to the letter from Qwest
Communications International Inc. ("Qwest" or the "Company") dated 18 March
2004. Although most matters have been previously addressed, Qwest raises a new
argument, namely, an allegation that the resolution is not fully aligned with
the criteria in proposed Rule 14a-11 because it states that a "qualified
shareholder" could hold "at least" five percent of the stock and not "more than"
five percent of the stock. We respond as follows. First, this is a new objection that was not raised before the 80-day deadline in
Rule 14a-8. Thus, it cannot be considered at this time, particularly when raised
in a reply memorandum urging the Division to "reconsider" a decision. Qwest
cites no authority for waiving the requirements of the Rule. Allowing
registrants to lodge such 11th-hour objections would be a bad precedent, would
add to the Division's workload and would undermine the orderly review of
contested shareholder proposals. Second, should the Division nonetheless choose to consider this out-of-time
objection, Qwest's claim that the resolution is at odds with the thrust of the
proposed rule is theoretical at best and fanciful at worst. The argument, as we
understand it, is that if Qwest's board is persuaded of the wisdom of the
proposed precatory resolution, and if the board should adopt the recommendation
word for word as company policy, such a policy would be inconsistent with
proposed Rule 14a-11 because a Qwest shareholder might try to qualify as a
"qualified shareholder" even though he or she holds "exactly" five percent of
Qwest's outstanding shares, rather than "more than" five percent of the shares.
See Qwest letter at p. 2, par. 1. In the real world, however, a holder of "at least" five percent of Qwest shares
will hold "more than" five percent because holding "exactly" five percent of
Qwest stock would require holding fractional sharesand doing so for the lengthy
qualifying period contemplated by the proposed Rule. Under proposed Rule
14a-11(b), the benchmark for measuring a five percent holding is the number of
shares outstanding on the record date; only if the number of shares outstanding
on the record date is evenly divisible by 100 would an outside shareholder own
"exactly" five percent of the shares. A review of the Company's proxy statements
indicates that this phenomenon has not yet occurred at Qwest, and the Company's
request for "reconsideration" offers no evidence to suggest that it would.
For example, although Qwest's 2003 proxy declines to identify the precise number
of outstanding shares, its 2002 proxy states that there were 1,672,354,813
shares on that year's record date.1 A holder of "exactly" five percent of those
shares would thus have to hold "exactly" 83,617,740.65 sharesnot 83,617,740.64
shares or 83,617,740.66 shares, but "exactly" 83,617,740.65 shares. Qwest has
suggested no factual basis on the level of fractional holdings by outside
investors of the sort likely to invoke procedures contemplated by proposed Rule
14a-11. Thus, at a minimum (and assuming that the Division opts to consider this
late-filed objection), Qwest has failed to meet its burden under Rule 14a-8(g).
Three, as the proponents have repeatedly stated, it is and has been their intent
to track the requirements of proposed Rule 14a-11, and they believe that they
have done so. In the interest of clarity, however, and should the Division deem
it necessary, the proponents are willing to amend the resolution to say "more
than 5%" in lieu of "at least 5%" in the last paragraph of the resolution.
Thank you in advance for your consideration of these views. Please do not
hesitate to contact me if there is any further information that we can provide.
Very truly yours, /s/
Cornish F. Hitchcock cc: Brian J. Lane, Esq.
Stephen E. Brilz, Esq.
Mr. W. Earl Powles
Mr. Philip M. Graham
Mr. William A. Eckhardt -----FOOTNOTES-----
1 The number of outstanding Qwest shares on record dates in earlier years are
similarly random: 1,649,490,762 (2001); 753,092,658 (2000); 350,423,179 (1999);
206,677,742 (1998). We note, moreover, that the record date is set after the
submission of shareholder resolutions by a would-be "qualified shareholder."
Thus, staying with the example in the text, in order to a Qwest shareholder to
hold "exactly" five percent of the outstanding shares, he or she must have
purchased exactly 83,617,740.65 sharesand done so at least two years prior to
submitting an access resolution and well before the record date is established.
We submit that the odds of this happening are substantially worse than the odds
of winning the lottery.
[STAFF REPLY LETTER]
February 23, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Qwest Communications International Inc. Incoming letter dated January 16,
2004 The proposal requests that the board include in its proxy materials the name of
any "Qualified Nominee" submitted by a "Qualified Shareholder."
We are unable to conclude that Qwest has met its burden of establishing that
Qwest may exclude the proposal under rule 14a-8(i)(8). Accordingly, we do not
believe that Qwest may omit the proposal from its proxy materials in reliance on
rule 14a-8(i)(8). Sincerely, /s/
Grace K. Lee
Special Counsel [INQUIRY LETTER]
March 22, 2004 Brian J. Lane
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5306 Re: Qwest Communications International Inc. Reconsideration request dated March
9, 2004 Dear Mr. Lane: This is in response to your letters dated March 9, 2004 and March 18, 2004
concerning the shareholder proposal submitted to Qwest by W. Earl Powles, Philip
M. Graham, and William A. Eckhardt. We also have received letters on the
proponents' behalf dated March 17, 2004 and March 19, 2004. On February 23,
2004, we issued our response expressing our informal view that Qwest could not
exclude the proposal from its proxy materials because we were unable to conclude
that Qwest had met its burden of establishing that Qwest could exclude the
proposal under rule 14a-8(i)(8). You have asked us to reconsider our position.
The Division grants the reconsideration request, as there now appears to be some
basis for your view that Qwest may exclude the proposal under rule 14a-8(i)(8).
In this regard, we note that the proposal's definition of "Qualified
Shareholder" differs from the security holder eligibility standard in paragraph
(b) of proposed Exchange Act rule 14a-11 and, therefore, the proposal would
create a security holder nomination procedure that is different from the
procedure in proposed Exchange Act rule 14a-11. Accordingly, we will not
recommend enforcement action to the Commission if Qwest omits the proposal from
its proxy materials in reliance on rule 14a-8(i)(8). Sincerely,
/s/ Martin P. Dunn
Deputy Director Enclosures cc: Cornish F. Hitchcock
5301 Wisconsin Avenue, N.W., Suite 350
Washington, DC 20015-2015
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