Company Name: Reliant Resources, Inc.
Public Availability Date: March 18, 2004
Document Sections: INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
February 6, 2004 U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Reliant Resources, Inc. - Omission of Shareholder Proposal Pursuant to Rule
14a-8 Ladies and Gentlemen: We are writing on behalf of our client, Reliant Resources, Inc., a Delaware
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended, to respectfully request that the Staff of the
Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission concur with the Company's view that, for the reasons stated below,
the shareholder proposal (the "Proposal") submitted by Don D. Jordan (the
"Proponent") may properly be omitted from the proxy materials (the "Proxy
Materials") to be distributed by the Company in connection with its 2004 annual
meeting of shareholders (the "2004 Annual Meeting").
I. The Proposal Pursuant to Rule 14a-8(j)(2), the Company is enclosing six copies of each of the
following: (i) this letter (which constitutes both the required statement of
reasons and supporting opinion of counsel) and (ii) a letter dated December 23,
2003 from the Proponent to the Company, with the Proposal attached thereto
(Exhibit A). In accordance with Rule 14a-8(j)(1), a copy of this submission is
being sent simultaneously to the Proponent. The text of the resolution set forth in the Proposal is as follows:
"Resolved, that shareholders of Reliant Resources, Inc. request the Board of
Directors adopt an executive compensation policy that limits the number of
annual stock option grants to no more than 50,000 shares per individual officer
or employee and that all outstanding option grants be exercised or expire on the
date of termination from the Company." For the reasons set forth below, we respectfully request that the Staff concur
with the Company's view that the Proposal is properly excludable from the Proxy
Materials. II. Bases for Excluding the Proposal
A. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(7) Because it Relates
to the Company's Ordinary Business Operations. Rule 14a-8(i)(7) permits a company to exclude a shareholder proposal that deals
with a matter relating to the conduct of the company's "ordinary business
operations." The Staff has defined this exclusion to include proposals relating
to "general compensation issues." See Lucent Technologies Inc. (November 6,
2001). In its Staff Legal Bulletin No. 14A, the Staff drew a clear distinction
between shareholder proposals that relate only to senior executive officers and
directors, which are excludable, and shareholder proposals that relate to a
broader group of senior executive officers, directors and employees, which,
generally, are not excludable. Division of Corporation Finance: Staff Legal
Bulletin No. 14AShareholder Proposals (July 12, 2002). The Staff has also
repeatedly taken the position in no-action letters that shareholder proposals
that are not clearly directed at senior executive compensation may be properly
excluded under Rule 14a-8(i)(7). See Ascential Software Corporation (April 4,
2003) (allowing the omission of a proposal under Rule 14a-8(i)(7) that addressed
compensation policies and practices that extended beyond senior executive
compensation); Phillips Petroleum Co. (March 13, 2002) (allowing the exclusion
of a proposal under Rule 14a-8(i)(7) that references "the Chairman and other
officer" because it was not clearly directed only at executive officer
compensation); Lucent Technologies Inc. (November 6, 2001) (allowing the
exclusion of a proposal under Rule 14a-8(i)(7) that provided for the reduction
of the salaries of "all officers and directors" by 50%); Minnesota Mining and
Manufacturing Co. (March 4, 1999) (allowing the exclusion of a proposal under
Rule 14a-8(i)(7) that limited the yearly percentage increase of the top 40
executives' compensation because it related to ordinary business operations);
and Battle Mountain Gold Co. (February 13, 1992) (allowing the exclusion of a
shareholder proposal under rule 14a-8(i)(7) that related to either senior
executive or other employee compensation unless the proposal was revised to
address only senior executives). For the reasons set forth below, the Company
believes that the Proposal targets broader compensation policies and practices
than senior executive compensation and, therefore, may be excluded from the
Proxy Materials. First, the Proponent's request that the Company's Board of Directors "adopt an
executive compensation policy" (emphasis added) is overbroad since it fails to
adequately specify who is included in the term "executive" (i.e., the term may
encompass individuals who are not "senior" executives). The Company classifies
many of its employees as being within the "executive" ranks of the Company.
Commensurate with their experience and levels of responsibility, the
compensation of these individuals may be covered by a general "executive
compensation policy" even if not all such individuals are considered "senior
executive officers" of the Company. The Staff has previously decided that
shareholder proposals that are vague, overly broad, fail to adequately define
who is included in the definition of "executive" or not clearly restricted to
senior executive compensation may be excluded from proxy materials. See
Cincinnati Bell, Inc. (February 9, 2000) (allowing the omission of a shareholder
proposal that failed to identify who was included in the definition of
"executive" and therefore could be read broadly enough to include anyone in the
company's management unless the proposal was revised to indicate which employees
would be impacted by the proposal) and FPL Group (February 3, 1997) (allowing
the omission of a shareholder proposal that addressed compensation of "upper
management" and "supervisors" as being overly broad). Since the Proposal can be
read broadly enough to encompass a number of individuals who are clearly not
"senior" executive officers of the Company, the Company believes that it may be
deemed to address "general compensation matters" and, as such, is properly
excludable from the Proxy Materials. Second, although the lead-in to the Proposal requests the Company's Board of
Directors to "adopt an executive compensation policy," neither of the two
specific mandates that are detailed in the Proposal are limited to either
"senior executive officers" or "executive officers" of the Company. Instead, the
Proponent requests that (i) the number of annual stock option grants be limited
"to no more than 50,000 shares per individual officer or employee" (emphasis
added) and (ii) that "all outstanding option grants be exercised or expire on
the date of termination from the Company" (emphasis added). The Company believes
that the broad scope of the mandates indicates an intent on the part of the
Proponent to affect general employee compensation, rather than only senior
executive compensation. In addition, it appears that the Proposal merely raises
the issue of the adoption of an "executive" compensation policy in an attempt to
avoid having the Proposal excluded as dealing with "ordinary business
operations" of the Company. The Staff has previously disallowed attempts to use
the term "executive" to direct attention away from the fact that a proposal
affects general employee compensation. See El Paso Energy Corporation (March 9,
2001) (allowing the exclusion of a proposal that intertwined executive and
general compensation matters unless the proposal was revised to be limited to
address only executive compensation matters). Since the implementation of the
specific mandates set forth in the Proposal would impact the compensation of a
broader category of employees than only senior executive officers, the Company
believes that the Proposal relates to general compensation issues which are
within the scope of the Company's ordinary business operations.
When executive compensation and general compensation may be intertwined in a
proposal, the Staff has consistently determined that the proposal is not a
proper subject for shareholder action and may be excluded as relating to
ordinary business operations. See Comshare, Incorporated (September 5, 2001)
(allowing the exclusion of a proposal seeking to improve disclosure of a
company's strategy for awarding stock options to top executives and directors);
AT&T Corp. (February 29, 2000) (proposal seeking to modify a stock-based
incentive plan pursuant to which the company made stock option grants to all
employees); and BioTechnology General Corp. (April 28, 2000) (proposal excluded
because it applied to a plan in which substantially all employees were eligible
to participate). Furthermore, the Staff has consistently taken the position that
a proposal may be omitted under Rule 14a-8(i)(7) where the proposal deals with
matters relating to the conduct of the company's ordinary business, even if the
Staff concludes that certain matters covered by the proposal may be outside the
scope of ordinary business. See E*Trade Group, Inc. (October 31, 2000) (allowing
the exclusion of a proposal when two of the four means suggested to enhance
shareholder value related to ordinary business matters and two did not) and
Z-Seven Fund, Inc. (November 3, 1999) (allowing for the complete exclusion of a
proposal with the Staff "noting in particular that although part of the proposal
appears to address matters outside the scope of ordinary business, certain
matters contained in the proposal refer to ordinary business matters.")
Additionally, the Staff has a long-standing policy of not permitting proponents
to revise overly-broad shareholder proposals once it becomes apparent that they
would be excludable under Rule 14a-8(i)(7) because they address "ordinary
business operations." This policy was reaffirmed in Section E.5 of Staff Legal
Bulletin No. 14 where the Staff stated that proposals excludable under Rule
14a-8(i)(7) may only be revised "[i]f it is unclear whether the proposal focuses
on senior executive compensation or director compensation, as opposed to general
employee compensation ..." Division of Corporation Finance: Staff Legal Bulletin
No. 14Shareholder Proposals (July 13, 2001). Here, it is clear that the
specific mandates of the proposal focus on general employee compensation.
Due to the Proponent's failure to limit the Proposal to compensation of senior
executive officers and the fact that the implementation of the Proposal would
affect general employee compensation matters, the Company believes that the
Proposal relates to its ordinary business operations and may be omitted from its
Proxy Materials pursuant to Rule 14a-8(i)(7). B. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(2) Because
Implementation of the Proposal would Require the Company to Breach Legally
Binding Agreements in Violation of State Law. The Proposal requests, in part, that the Company's Board of Directors adopt an
executive compensation policy that requires that "all outstanding option grants
be exercised or expire on the date of termination from the Company." If the
Company were to implement the Proposal, it would result in a breach by the
Company of existing employment agreements and other legally binding obligations
of the Company, in violation of state law, and, therefore, the Company believes
that it is excludable under Rule 14a-8(i)(2). The Company has issued stock options to certain of its executive officers
pursuant to long-term incentive plans and/or other stock option plans approved
by its shareholders and related award agreements which, by their terms, have
various dates upon which the stock options granted pursuant thereto may be
exercised and/or expire. In addition, the Company has entered into employment
agreements with certain of its executive officers that specify, among other
things, the period of time following termination during which the executive
officer has the right to exercise any vested stock options then held by such
executive officer. If the Company were to unilaterally impose a new condition on
the exercise of outstanding stock options, the action would cause a breach of
many of the award agreements pursuant to which stock options have been granted
to its executive officers, each of which is governed by Texas law, in violation
of Texas law. In previous no-action letters, the Staff has consistently taken the position
that shareholder proposals may be excluded from a company's proxy materials
under Rule 14a-8(i)(2) if the proposal would cause the company to breach its
existing employment agreements or other contractual obligations. See Selective
Insurance Group, Inc. (March 24, 2003) (allowing the exclusion of a proposal
that would cause the company to violate employment agreements and unilaterally
impose a new condition on the exercise of outstanding stock options); The
Gillette Company (March 10, 2003) (allowing the exclusion of a proposal that
would cause the company to unilaterally change the terms of an employment
agreement to reduce or revoke the benefits granted thereunder); Liz Claiborne,
Inc. (March 18, 2002) (allowing the exclusion of a proposal that would cause the
company to breach its existing severance agreements); Equimark Corporation
(February 13, 1992) (allowing the exclusion of a proposal that would cause the
company to breach some existing employment contracts and agreements); and
NetCurrents, Inc. (June 1, 2001) (allowing the exclusion of a proposal that
would cause the company to breach existing employment agreements or other
contractual obligations). Under Texas law, the governing law of the existing
award agreements, one party cannot unilaterally modify a contract after it has
been entered into; instead, both parties to the contract must agree to its
modification. See Texas Workers' Compensation Ins. Facility v. State Bd. of
Ins., 894 S.W.2d 49, 54 (Tex. Ct. App. 1995); Mandril v. Kasishke, 620 S.W.2d
238, 244 (Tex. Civ. App.Amarillo 1981, writ ref'd n.r.e.)(citing Kitten v.
Vaughn, 397 S.W.2d 530, 533 (Tex. Civ. App.Austin 1965, no writ)); and Safeway
Managing Gen. Agency for State and County Mutual Fire Ins. Co. v. Cooper, 952
S.W.2d 861, 867 (Tex. Ct. App. 1997). Since the implementation of the Proposal would require the Company to
unilaterally modify its existing contractual obligations, in violation of Texas
law, and breach existing agreements, the Company believes that the Proposal may
be omitted from the Company's Proxy Materials pursuant to Rule 14a-8(i)(2).
C. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(6) Because
Implementation of the Proposal is Beyond the Power of the Company to Lawfully
Effectuate. The Company believes that the Proposal may also properly be omitted from the
Proxy Materials pursuant to Rule 14a-8(i)(6) because implementation of the
Proposal is beyond the power of the Company to lawfully effectuate.
Rule 14a-8(i)(6) permits a company to exclude a shareholder proposal from its
proxy materials "if the company would lack the power or authority to implement
the proposal." The Staff has previously determined that shareholder proposals,
the implementation of which would require a company to alter or breach existing
contractual obligations, may be excluded under Rule 14a-8(i)(6). See Selective
Insurance Group (March 24, 2003); The Gillette Company (March 10, 2003); Liz
Claiborne, Inc. (March 18, 2002); and NetCurrents, Inc. (June 1, 2001).
As described in Section II.B. above, the implementation of the Proposal would
cause the Company to breach its existing contractual obligations and, therefore,
is beyond the power of the Company to lawfully effectuate. Accordingly, the
Company believes that the Proposal may be omitted from the Proxy Materials
pursuant to Rule 14a-8(i)(6). D. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(3) Because it Violates
Rule 14a-9. In addition to the foregoing bases, the Company believes that the Proposal may
properly be omitted from the Proxy Materials pursuant to Rule 14a-8(i)(3). Rule
14a-8(i)(3) permits a proposal to be excluded if it is contrary to the proxy
rules, including Rule 14a-9. Rule 14a-9 prohibits false and misleading
statements in proxy material. Pursuant to this rule, the Staff has previously
required proponents to substantiate statements set forth in shareholder
proposals where opinions have been cast as facts, without providing any factual
support. See Boeing Co. (February 7, 2001) (requiring proponent to recast
numerous statements as opinions and to provide factual support for several of
its assertions). In addition, Note (b) to Rule 14a-9 provides that: "[m]aterial
which directly or indirectly impugns character, integrity or personal
reputation, or directly or indirectly makes charges concerning improper, illegal
or immoral conduct or associations, without factual foundation" may be false and
misleading and, in reliance thereon, the Staff has previously determined that
statements which impugn the character and integrity of a company's management
are per se misleading and excludable under Rules 14a-8(i)(3) and 14a-9. See POCI,
Inc. (April 7, 1992) (deciding that statements labeling directors as arrogant
and inept should be excised, since these contentions, even if cast as opinions,
violate Rule 14a-9) and Kiddie Products, Inc. (April 8, 1988) (deciding that a
statement that members of the management have "very high and ever-increasing
salaries and perks" is excludable). As described below, the Company believes
that the Proponent has made several false and misleading statements in its
supporting statement and, therefore, the Proposal is excludable under Rule
14a-8(i)(3). First, the Proponent's supporting statement includes several statements which
are false and misleading because they imply, without factual foundation, that
the grant of stock options to employees of the Company would improperly motivate
the employees and encourage them to engage in improper, illegal and/or immoral
conduct. For example, in the second paragraph of the supporting statement, the
Proponent states that "[t]he potential to become personally rich often creates
temptation, temptation turns to greed, and greed promotes shortterm,
self-serving decisions rather than those in the long-term best interest of the [C]ompany."
In the seventh paragraph of the supporting statement, the Proponent states that
"[i]t is not theory that large stock option grants alter the heart and mind of
many who receive them." Each of the sentences cited above suggest that the grant
of stock options would encourage or lead to improper, illegal or immoral
behavior on the part of the Company's employees. However, there is no factual
basis upon which to form such a conclusion or to otherwise call into question
the character, integrity and personal reputation of the Company's employees.
Second, the Proponent's supporting statement includes several statements which
should be couched as "opinions" of the Proponent rather than as statements of
fact. For example, the first paragraph of the supporting statement states that
"[l]arge option grants are a recent phenomenon designed to make individuals rich
beyond ordinary reason. They often reward executives for stock price increases
due solely to a general stock market rise, even if the company performs poorly."
In the sixth paragraph of the supporting statement, the Proponent states "[d]on't
believe that stock options are free and don't cost shareholders anything. If
exercised, the Company must service a larger number of shares outstanding or buy
them back at market price. If they are not bought back, the Company looses [sic]
the income it would have received had the same number of shares been sold ..."
Each of these sentences are conclusory statements that lack factual support,
and, at a minimum, should be recast as the Proponent's opinions.
Third, the Proponent's supporting statement includes several statements which
imply, without factual foundation, that the Company's Directors have failed to
appropriately exercise their fiduciary duties in connection with the grant of
stock options and the approval of existing employment contracts. For example, in
the third paragraph of the supporting statement, the Proponent states that
"[d]irectors sometimes do not diligently control the total number of option
grants and often continue to make large grants each year ..." In the fourth
paragraph, the Proponent states that "[d]irectors of Reliant Resources granted
the same former CEO 500,000 option shares at approximately $3.50 each on March
11, 2003, only one month prior to asking him to resign on April 11, 2003. He was
allowed to keep these options active for 3 years after his termination ... Is
this fair to the Company or shareholders?" Moreover, in the fifth paragraph, the
Proponent states that "[e]xisting employment contracts are no excuse since
Boards create the contracts." Although each of the statements imply that the
Company's Directors acted improperly, none of the aforementioned paragraphs in
the Proponent's supporting statements are supported by any evidence that any of
the Directors breached their respective fiduciary duties to the Company or the
Company's shareholders and the supporting statement fails to include material
facts (e.g., evidence of impropriety on the part of the Company's Directors)
necessary to make such statements not false and misleading.
The Staff has previously stated that in certain circumstances a company may
properly exclude entire shareholder proposals where they contain false and
misleading statements or omit material facts necessary to make such proposals
not false and misleading. See Division of Corporation Finance: Staff Legal
Bulletin No. 14Shareholder Proposals (July 13, 2001) ("[i]n drafting a proposal
and supporting statement, shareholders should avoid making unsupported
assertions of fact. To this end, shareholders should provide factual support for
statements in the proposal and supporting statement or phrase statements as
their opinion where appropriate"). In addition, when a proposal and supporting
statement "will require detailed and extensive editing in order to bring them
into compliance with the proxy rules, [the Staff] may find it appropriate for
companies to exclude the entire proposal, supporting statement, or both, as
materially false and misleading." Id. Requiring the Staff to spend an enormous
amount of time and resources reviewing proposals and supporting statements that
contain "obvious deficiencies in terms of accuracy, clarity and relevance ... is
not beneficial to participants ... and diverts resources away from analyzing
core issues under Rule 14a-8 ..." Id. As described in detail above, the
Proponent's supporting statement contains a number of "obvious deficiencies"
that would require the Staff to spend a substantive amount of time and resources
to review. Moreover, extensive editing would be required to make the supporting
statement comply with the proxy rules. In light of the false and misleading tone
and content of the Proponent's supporting statement and the unwarranted
expenditure of time and resources that would be required to bring the supporting
statement into compliance with the proxy rules, the Company believes that the
Proposal may be omitted in its entirety from the Company's Proxy Materials
pursuant to Rule 14a-8(i)(3). III. Conclusion
For the reasons and based on the authorities cited herein, the Company believes
that the Proposal may properly be omitted from its Proxy Materials (i) under
Rule 14a-8(i)(7) because the Proposal deals with a matter that relates to the
Company's ordinary business operations, (ii) under Rule 14a-8(i)(2) because the
Proposal would require the Company to breach existing agreements and contractual
obligations, (iii) under Rule 14a-8(i)(6) because the Proposal is beyond the
power and authority of the Company to lawfully effectuate, and (iv) under Rule
14a-8(i)(3) because it violates Rule 14a-9. Accordingly, the Company
respectfully requests the Staff's concurrence that the Proposal may be omitted
from the Company's Proxy Materials. Should the Staff disagree with the Company's conclusions regarding the omission
of the Proposal from the Proxy Materials, or should any additional information
be desired in support of the Company's position, we would appreciate an
opportunity to confer with the Staff concerning these matters prior to the
issuance of your response. If you should have any questions or require any further information regarding
this matter, please contact the undersigned at (202) 371-7550.
Thank you for your prompt attention to this matter.
Very truly yours, /s/
Michael P. Rogan cc: Michael L. Jines
Senior Vice President and General Counsel
Reliant Resources, Inc.
Don D. Jordan [APPENDIX 1]
EXHIBIT A December 23, 2003 Mr. Joel V. Staff
Chairman & Chief Executive Officer
Reliant Resources, Inc. P. O. Box 148
Houston, TX 77001-0148 Dear Mr. Staff:
In accordance with Rule 14a-8 of the Security and Exchange Commission, I am
submitting the attached Shareholder's Proposal for inclusion in the Reliant
Resources, Inc.'s proxy to be mailed to shareholders in 2004.
I am a qualifying shareholder holding common shares of Reliant Resources, Inc.
in the names of Don D. Jordan and DDJ Investments in excess of $2,000 in market
value for over one year, and will continue to hold these securities through the
date of the annual shareholders meeting. This resolution request is timely filed
prior to January 5, 2004 and qualifies in all other ways under the SEC rules.
All statements, dates, and numbers listed in the resolution are believed to be
correct. However, if you find any that require modification, I hereby request
your early communication in order that accuracy can be assured.
If approved, this resolution will benefit shareholders and I look forward to
presenting it at the annual shareholder's meeting. I hope the Company will
support this resolution and encourage shareholders to vote in its favor.
Sincerely, /s/
DDJ/nss Attachment
cc: Mr. Michael L. Jines
Senior Vice President & General Counsel
Reliant Resources, Inc.
P. O. Box 1384
Houston, TX 77251 [APPENDIX 2]
Reliant Resources, Inc. Shareholder Proposal Resolved, that shareholders of Reliant Resources, Inc. request the Board of
Directors adopt an executive compensation policy that limits the number of
annual stock options grants to no more than 50,000 shares per individual officer
or employee and that all outstanding option grants be exercised or expire on the
date of termination from the Company. Statement of Support: This Resolution is not offered as criticism, but to
improve future corporate performance. Recent events have proven large stock
option grants are not in the longterm best interest of the corporation or the
shareholders for the following reasons: 1. Large option grants are a recent phenomenon designed to make individuals rich
beyond ordinary reason. They often reward executives for stock price increases
due solely to a general stock market rise, even if the company performs poorly.
2. The potential to become personally rich often creates temptation, temptation
turns to greed, and greed promotes short-term, self-serving decisions rather
than those in the long-term best interest of the company. 3. Directors sometimes do not diligently control the total number of option
grants and often continue to make large grants each year. For example, the
Reliant Resources Board granted its former CEO approximately 2,050,000 option
shares from March 1, 2001 to April 1, 2003. 4. Directors of Reliant Resources granted the same former CEO 500,000 option
shares at approximately $3.50 each on March 11, 2003, only one month prior to
asking him to resign on April 11, 2003. He was allowed to keep these options
active for 3 years after his termination. Should Reliant Resources stock reach
$20 per share before April 2006, he can receive a profit of $8,250,000 on this
single grant even though he will have contributed nothing during those 3 years.
Is this fair to the Company or shareholders? 5. Existing employment contracts are no excuse since Boards create the
contracts. 6. Don't believe that stock options are free and don't cost shareholders
anything. If exercised, the Company must service a larger number of shares
outstanding or buy them back at market price. If they are not bought back, the
Company looses the income it would have received had the same number of shares
been sold. New regulations recognize this and will likely make corporations
charge earnings for future grants. 7. It is not theory that large stock option grants alter the heart and mind of
many who receive them. We have all seen it happen. Shareholders must exercise
self-help or be destined to see it happen again somewhere.
8. Adequate compensation packages can reward executive performance and competent
executives can be employed without the use of outrageous stock option grants.
One hundred years of history prior to their recent adoption proves that fact.
Shareholders must stand against corporate self-serving arguments that large
stock option grants help shareholders. They do not. Remind this Board that they
work for you and vote for this resolution. Submitted by Don D. Jordan, Retired Chairman and Chief Executive Officer of
Houston Lighting & Power Co., Houston Industries, Inc. and Reliant Energy, Inc.
[INQUIRY LETTER]
February 9, 2004 U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Reliant Resources, Inc. - Omission of Shareholder Proposal Pursuant to Rule
14a-8 Ladies and Gentlemen: On December 23, 2003, I submitted a Shareholder's Proposal to Reliant Resources,
Inc. for inclusion in the Company's Proxy to be mailed to shareholders in 2004.
Although I have owned stock in its predecessor company and also Reliant
Resources, Inc. since its inception, as well as several other public companies,
this is the first Shareholder's Proposal I have ever made. I acquired a copy of
the Security & Exchange Commissions Regulations 14A & 14C and specifically
reviewed Rule 14a-8. As indicated in the attached cover letter to my Proposal,
delivered to Reliant Resources, I believed the Proposal to be in compliance.
When submitting the Proposal to the Company on December 23, 2003, I indicated a
willingness to make any necessary modifications to assure accuracy. Although the
Company perhaps has no legal obligation to word my Proposal consistent with
tested language, it is interesting to note that I received no contact from them
at all until they spent thousands of dollars in shareholder's money to produce a
10 page argument to the SEC attempting to omit my Proposal. It is clear the
Company does not want even a partial historical record placed before the
shareholders and do not want them to have an opportunity to vote on this issue.
They seek to have the Proposal rejected by technical reading which will avoid
shareholder input. The Proposal is simple. It seeks to address excessive option share grants by
placing a limit of 50,000 shares to be granted annually for future grants and
for future option grants to be exercised or expire on the date of termination
from the Company. If the SEC has concern with any of the proposed language, I am
willing to modify the language and request the opportunity to do so.
My response to the arguments to exclude the Proposal presented by Mr. Rogan for
Reliant Resources is as follows: I. Page 2, Item II.A.
A. Ordinary Business Operations This Proposal does not limit the conduct of the Company's "Ordinary Business
Operations". It does not limit any organizational design, number of employees at
any level, the location of business activities, the products which might be
supplied, any business agreements or partnerships, indeed the total amount of
compensation which might be paid any individual in the corporate structure, or
any other business operation of the Company. Excessive stock option grants are not in the best interest of the corporation
and should be a smaller part of the overall compensation package. Management is
free to set compensation levels at any level their conscience and shareholder
tolerance will support through the use of many other devices. Therefore, the
Proposal does not reach to the argument that it addresses "general compensation
issues". B. Mr. Rogan's argument, Re: Staff Legal Bulletin No 14A seems to claim a clear
distinction exists that Shareholder Proposals relating only to senior executive
officers and directors are excludable while Shareholder Proposals that relate to
a broader group of senior executive officers, directors and employees generally
are not excludable. See lines 5-9, Page 2, II.A. By contrast, he states in lines 10-12, Page 2, II.A. that the staff has
repeatedly taken the position in no-action letters that Shareholder Proposals
that are not clearly directed at senior executive compensation may be properly
excluded under Rule 14a-8(i)(7). These statements seem to be in conflict and would allow legal argument on either
side. From a practical standpoint, the favored position by the SEC is acceptable to my
Proposal. Only senior executive officers have, in the past, been granted
excessive stock options ranging up to 1,000,000 per year. They are the only ones
likely to receive them again. Mr. Rogan gives me too much credit when he
suggests at the end of Page 3 that I manipulated the wording of the Resolution
to cover up some unworthy plan. I am willing to alter any wording requested by the SEC which addresses the issue
and is acceptable. Evidently such a revision is possible "if it is unclear
whether the Proposal focuses on senior executive compensation or director
compensation, as opposed to general employee compensation". Page 4, Line 6,
Paragraph 3. My Proposal does not address ordinary business operations as
outlined on Page 2, Item I.A. of this letter. II. Page 5, Item B.
This entire argument reaches far to conclude that the Proposal seeks to cause
the Company to breach existing employment agreements, other contractual
obligations or state law. The Statement of Support in the Proposal clearly says,
"This resolution is not offered as criticism, but to improve future corporation
performance." (emphasis added) The Resolution states that "limits the number of
annual stock option grants to no more than 50,000 shares per individual officer
or employee and that all outstanding option grants be exercised or expire on the
date of termination from the Company." All reference to the exercise or
expiration of option grants clearly refers only to the 50,000 or less granted
under this Resolution. There is no language which refers to any previous grants
and certainly nothing to encourage the violation of existing rights or state
law. Previous option grants would not be effected. III. Page 6, Item C
The Company agues that this Proposal should be omitted because "implementation
of the Proposal is beyond the power of the Company to lawfully effectuate."
This is just not correct unless the SEC believes that the Proposal directs the
Company to violate earlier agreements and violate state law. I have never been
guilty of ever recommending violation of law in my entire business life and this
Proposal likewise does not reach that point. IV. Page 7, Item D
Paragraph 1 The Company asserts that the proposal "directly or indirectly impugns character,
integrity or personal reputation or directly or indirectly makes charges
concerning improper, illegal, or immoral conduct or associations, without
factual foundation." The Proposal does not do this. It clearly states in the
Statement of Support in the first sentence, "This Resolution is not offered as
criticism, but to improve future corporate performance." The Resolution does not
fault officers or directors for any past decisions, it simply asks shareholders
to request the Board of Directors to do it differently from now on. There can be
no merit in the Company argument here. Paragraph 2 Item Labeled as First
The Company states that the Supporting Statement contains several false and
misleading statements and it suggests that the grant of stock options would
encourage or lead to improper or immoral behavior on the part of the Company's
employees. The following comments are presented for your review:
A. History has proven that the statements in the Statement of Support to be
true. The SEC has reviewed several corporate failures, including Enron, and
large stock option grants have been a common factor in many. There is not room
in a 500 word proposal to provide specific support for every item the Company
would choose to contest, so if the SEC so requires, I would be willing to make a
general statement that it is my opinion. If this Proposal is successful in being
included in the 2004 Reliant Resources Proxy, surely their statements in
opposition will be held to the same standard and they must provide specific
support for their positions. B. In no place does the Proposal imply that Reliant Resources grant of stock
options (emphasis added) result in all the bad behavior the Company claims.
Indeed the Proposal recognizes the value of stock options in the over-all
compensation package, but wants them limited to 50,000 options per person per
year. That is still a lot of options and would have seemed generous a few years
ago. The Proposal is against much larger annual grants. C. The Proposal does not specifically single out and criticize officers and
directors of Reliant Resources. The Proposal is a generic position applicable to
any large corporation in America. The Reliant Resources examples are meant to be
just that, examples of the problem. The examples used in Support Statements 3
and 4 are correct. On December 23, 2003, they were presented to Reliant
Resources with the request that they comment for accuracy. They did not reply.
Even so, this Proposal looks to the future and does not criticize prior actions.
D. Page 8, Item Labeled as Second 1. The Company argues that the first paragraph of the Supporting Statement which
states that "large option grants are a recent phenomenon designed to make
individuals rich beyond ordinary reason" is simply a personal opinion. Does
anyone believe that is not the underlying reason for their popularity and the
reason the number of grants have exploded so dramatically? The statement is
true, but can not be "proven", along with all the other issues, in 500 words.
Therefore, if the SEC requires, I will state that it is my opinion.
2. The statement that "they (stock options) often reward executives for stock
price increases due solely to a general stock market rise, even if the Company
performs poorly" is not an opinion. It is a fact and the wording was taken from
a Shareholders Proposal approved by the SEC for a 2003 Proxy. It should not have
to be qualified as opinion. 3. Supporting Statement number 6 is not an opinion, it is a fact. The Statement
is supported not only by common sense, but by accepted accounting. It states in
part "Don't believe that stock options are free and don't cost shareholder's
anything. If exercised, the Company must service a larger number of shares or
buy them back at market price. If they are not bought back, the Company looses
the income it would have received had the same number of shares been sold." This
statement should not be qualified as an opinion. E. Page 8, Paragraph 2, Item Marked Third
This paragraph addresses in part statements made in Supporting Statement 3, 4
and 5. The Company contends that these statements improperly accuse the
directors of breaching their respective fiduciary duties. This is not correct.
With the exception of the statistical numbers in Statement 4, the Statement
speaks generically of many Boards and the Reliant Resource's Board is not
accused of anything. Statement 4 is accurate, although incomplete in the Reliant
legal document sent to you, and the truth is used as an example. Again, this
Proposal looks to the future. It does not effect or criticize the past.
Statement 5 is also correct since all Boards do approve employment contracts or
change of control contracts. These statements are not false and misleading.
F. Page 8, Summary Paragraph Item D
The Company seems to argue that the Proposal would require such extensive
editing that the SEC could not justify the time necessary to make changes it
would recommend. 1. The proposal is not that complicated and should not require more time than it
deserves. Shareholders are entitled to make such proposals. Almost every one
suggested by shareholders is strongly opposed at significant expense by
companies in the normal course of "ordinary business operations".
2. This Proposal addresses a current problem in corporate America which must be
addressed by someone and shareholders should have the right to vote on this
issue. 3. I am willing to make modifications if necessary in order to get this issue
before shareholders. If I had been the calculating proponent the Company is
accusing me of being, certainly, any SEC positions not obvious from Regulation
14A would have been drafted to address any calculated charges.
In order to simplify this issue for the SEC, I suggest the following simple
modifications to the proposal: 1. In the Resolution itself:
A. Insert the word future in Line 2 before the word annual and substitute the
word future for the word outstanding in Line 3. This is consistent with the
original intent and simply clarifies what the Proposal now says.
B. The argument relative to senior officers and directors vs. officers and
employee is still not clear to me. I agree to change the wording to senior
officers and directors if it is preferable. C. The Proposal would then read as follows:
Resolved, that the shareholders of Reliant Resources, Inc. request that the
Board of Directors adopt an executive compensation policy that limits the number
of future annual stock option grants to no more that 50,000 shares per
individual (1) senior officer or director or (2) officer or employee and that
all future option grants be exercised or expire on the date of termination from
the Company. 2. In the second sentence of the Statement of Support:
A. Remove the existing second sentence
B. Substitute the following sentence:
"Based on my experience as Chairman and CEO of Reliant Resources predecessor
companies for 23 years, I believe the following statements are accurate and
support this Proposal." These changes are simple to make and should satisfy any legitimate concern of
Reliant Resources. The changes add a maximum of 4 words to the Proposal and it
still remains below the 500 word limit. In addition, the potential modifications
are timely filed and I request their favorable attention. Thank you for the opportunity to present this response to Reliant Resources'
opposition to my Shareholder's Proposal. Should the staff have any questions,
require any additional information, or disagree with my desire to have this
important issue placed before the shareholders in the 2004 Company Proxy, I
would appreciate the opportunity to confer with the staff prior to the issuance
of your decision. You may reach me at the address or telephone number printed on
this document. Very truly yours, /s/
DDJ/nss Enclosure
cc: Michael L. Jines
Senior Vice President & General Counsel
Reliant Resources, Inc. [INQUIRY LETTER]
February 20, 2004 U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Reliant Resources, Inc. - Omission of Shareholder Proposal Pursuant to Rule
14a-8 Ladies and Gentlemen: On February 6, 2004, we filed a letter (the "No-Action Request") on behalf of
our client, Reliant Resources, Inc., a Delaware corporation (the "Company"),
requesting that the Staff of the Division of Corporation Finance (the "Staff")
of the Securities and Exchange Commission (the "SEC") concur with the Company's
view that, for the reasons stated in the No-Action Request, the shareholder
proposal (the "Proposal") submitted by Don D. Jordan (the "Proponent") may
properly be omitted from the proxy materials (the "Proxy Materials") to be
distributed by the Company in connection with its 2004 annual meeting of
shareholders. On February 9, 2004, the Company received a copy of the
Proponent's letter to the Staff (the "Response Letter") in which the Proponent
sets forth his response to the No-Action Request and attempts to revise the
Proposal. As discussed below, the Company does not accept the Proponent's
revisions and hereby respectfully requests that the Staff concur that, based on
the original language set forth in the Proposal, the Proposal may be omitted in
its entirety from the Company's Proxy Materials on the bases set forth herein
and in the No-Action Request. This letter does not restate the contents of, and
should therefore be read in conjunction with, the No-Action Request.
In accordance with SEC rules, we have enclosed six copies of this letter. In
addition, a copy of this letter is being sent simultaneously to the Proponent.
I. The Company is not Required to Accept the Proponent's Revisions to the
Proposal In the Response Letter, the Proponent attempts to rectify deficiencies in the
Proposal by making certain revisions thereto. The revisions were submitted after
the deadline for submitting proposals and after we, on behalf of the Company,
submitted the No-Action Request. In Section E.3. of the Division of Corporation
Finance Staff Legal Bulletin No. 14 ("SLB 14"), the Staff confirms that a
company has the right to refuse to accept any revisions made to a proposal after
the company has submitted its no-action request. Accordingly, as permitted
pursuant to SLB 14, the Company does not accept the Proponent's revisions and
respectfully requests that the Staff base its no-action response on the Proposal
included in the No-Action Request. II. Bases for Excluding the Proposal
For the reasons and based on the authorities cited herein and in the No-Action
Request, the Company continues to believe that the Proposal, as originally
submitted by the Proponent, may properly be omitted from its Proxy Materials.
Since, as indicated above, the Company does not accept the Proponent's revisions
to the Proposal and has requested herein that the Staff base its no-action
response on the Proposal included in the No-Action Request, we do not believe
that it is necessary to respond to each of the arguments set forth in the
Response Letter. Instead, what follows is a summary of the bases upon which the
Company continues to believe that the exclusion of the Proposal from its Proxy
Materials is appropriate. We refer you to the No-Action Request for a more
detailed discussion of each of these bases. A. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(7) Because it Relates
to the Company's Ordinary Business Operations. The Proposal is not limited to matters relating to the compensation of senior
executive officers. Instead, it addresses, and the implementation of the
Proposal would affect, general compensation matters. Consequently, the Company
continues to believe, based on the authorities cited in the No-Action Request,
that the Proposal relates to its ordinary business operations and may be omitted
from its Proxy Materials pursuant to Rule 14a-8(i)(7). B. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(2) Because
Implementation of the Proposal would Require the Company to Breach Legally
Binding Agreements in Violation of State Law. The Proposal specifically requests, in part, that "all outstanding option grants
be exercised or expire on the date of termination from the Company" (emphasis
added). To implement the Proposal, the Company would have to unilaterally modify
the exercise and expiration dates of currently outstanding stock options. Each
such modification would constitute a breach of the long-term incentive plan,
stock option plan, award agreement and/or employment agreement pursuant to which
such stock options were granted, in violation of Texas law. Consequently, the
Company continues to believe, based on the authorities cited in the No-Action
Request, that the Proposal may be omitted from its Proxy Materials pursuant to
Rule 14a-8(i)(2). C. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(6) Because
Implementation of the Proposal is Beyond the Power of the Company to Lawfully
Effectuate. Since the implementation of the Proposal would require the Company to breach
certain of its existing contractual obligations, in violation of Texas law, it
is beyond the power of the Company to lawfully effectuate the Proposal.
Consequently, the Company continues to believe, based on the authorities cited
in the No-Action Request, that the Proposal may be omitted from its Proxy
Materials pursuant to Rule 14a-8(i)(6). D. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(3) Because it Violates
Rule 14a-9. Proponent's supporting statement includes a number of false and misleading
statements. In light of the false and misleading tone and content of the
supporting statement and the unwarranted expenditure of time and resources that
would be required to bring the supporting statement into compliance with the
proxy rules, the Company continues to believe, based on the authorities cited in
the No-Action Request, that the Proposal may be omitted in its entirety from its
Proxy Materials pursuant to Rule 14a-8(i)(3). We note that in the Response Letter, the Proponent suggests that
recharacterizing certain statements as his beliefs would be sufficient to
correct the false and misleading nature of the statements. Such a
recharacterization is not sufficient, however, to bring the supporting statement
into compliance with the proxy rules. Specifically, Note (b) to Rule 14a-9
provides that "[m]aterial which directly or indirectly impugns character,
integrity or personal reputation, or directly or indirectly makes charges
concerning improper, illegal or immoral conduct or associations, without factual
foundation" may be misleading. The Note does not provide that the misleading
nature of such material can be remedied by recasting it as an opinion or belief.
Furthermore, the Staff has previously determined that unfounded assertions
representing the unsubstantiated personal opinion of a proponent are per se
misleading and excludable under Rules 14a-8(i)(3) and 14a-9. See POCI, Inc.
(April 7, 1992) (deciding that statements labeling directors as arrogant and
inept should be excised, since these contentions, even if cast as opinions,
violate Rule 14a-9) (emphasis added); P&F Industries, Inc. (March 19, 1991)
(deciding that a statement referring to "management abuses" without the
inclusion of facts necessary to support the proponent's assertion, even if cast
as opinions, contravened former Rule 14a-8(c)(3)) (emphasis added); and Detroit
Edison Co. (March 4, 1983) (deciding that statements implying that the company
engaged in improper "circumvention of ... regulation" and "obstruction of
justice" without factual foundation provided a basis for excluding the proposal
under former Rule 14a-8(c)(3)). Consequently, the Proponent can not cure the
false and misleading statements that imply, without factual foundation, that the
grant of stock options to employees of the Company would improperly motivate the
employees and encourage them to engage in improper, illegal and/or immoral
conduct and that the Company's Directors have failed to appropriately exercise
their fiduciary duties in connection with the grant of stock options and
approval of existing employment contracts, by simply recasting the statements as
his beliefs. Instead, the Proponent must either provide a factual foundation for
each false and misleading statement or delete them. We also note that in the Response Letter the Proponent asserts that "[t]here is
not room in a 500 word proposal to provide specific support for every item the
Company would choose to contest, so if the SEC so requires, I would be willing
to make a general statement that it is my opinion." Notwithstanding the
challenge that compliance with the 500-word limit may present, the Staff does
not allow proponents to use the 500-word limit as an excuse for making a false
and misleading statement. See Merrill Lynch & Co., Inc. (February 6, 2004)
(requiring proponent to add a citation to the specific source of a statement in
spite of proponent's assertion that it would provide the citation if the company
agreed to waive the 500-word limitation) and Halliburton Co. (January 30, 2001)
(requiring proponent to clarify or recast several portions of its supporting
statement in spite of proponent's objection that, given the 500-word limit, it
could not address every eventuality). Since, as discussed above, simply
recasting the objectionable statements as his opinion or belief is not
sufficient to cure the false and misleading nature of such statements, the
Proponent must either provide the factual foundation for each false and
misleading statement, in compliance with the 500-word limit, or delete them.
III. Conclusion For the reasons and based on the authorities cited in the No-Action Request and
herein, the Company continues to believe that the Proposal may properly be
omitted from its Proxy Materials (i) under Rule 14a-8(i)(7) because the Proposal
deals with a matter that relates to the Company's ordinary business operations,
(ii) under Rule 14a-8(i)(2) because the Proposal would require the Company to
breach existing agreements and contractual obligations, (iii) under Rule
14a-8(i)(6) because the Proposal is beyond the power and authority of the
Company to lawfully effectuate, and (iv) under Rule 14a-8(i)(3) because it
violates Rule 14a-9. In addition, it is clear from the Response Letter and from
the discussion set forth herein and in the No-Action Request that the Proposal
and the Proponent's supporting statement would require detailed and extensive
editing in order to bring them into compliance with the proxy rules. While the
Staff often permits a proponent to revise a proposal that contains relatively
minor defects, the Staff has stated that it "may find it appropriate for
companies to exclude the entire proposal, supporting statement, or both, as
materially false or misleading" in cases where detailed and extensive editing
would be required. See Section E.1. of SLB 14. Therefore, the Company continues
to believe that it may omit the entire Proposal and the entire supporting
statement from its Proxy Materials. Should the Staff disagree with the Company's conclusions regarding the omission
of the Proposal from the Proxy Materials, or should any additional information
be desired in support of the Company's position, we would appreciate an
opportunity to confer with the Staff concerning these matters prior to the
issuance of your response. If you should have any questions or require any further information regarding
this matter, please contact the undersigned at (202) 371-7550.
Thank you for your prompt attention to this matter.
Very truly yours, /s/
Michael P. Rogan cc: Michael L. Jines
Senior Vice President and General Counsel
Reliant Resources, Inc.
Don D. Jordan [INQUIRY LETTER]
February 23, 2004 U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Reliant Resources, Inc. - Omission of Shareholder Proposal Pursuant to Rule
14a-8 Ladies and Gentlemen: On February 20, 2004, Reliant Resources, Inc. filed its second request to the
Securities & Exchange Commission seeking to have the Shareholder's Proposal
requested by me omitted from its 2004 Proxy. While much of the argument simply
repeats earlier positions by the Company, some statements require a reply.
First, I am sorry the SEC is faced with contentious issues relative to this
Proposal. Such conflict requires extra time by the Staff to review, surely more
time than a minor revision would require. Nevertheless, I am enclosing six
copies of both my original letter dated February 9, 2004, as well as this second
response to Reliant Resources' letter of February 20, 2004.
The Proposal continues to be quite simple. I do not believe huge stock option
grants are in the best interest of the shareholder and want shareholders to have
the opportunity to request the Board of Reliant Resources, Inc. to limit stock
option grants to 50,000 units per qualifying person per year. If a shareholder
cannot make this simple request without violating the Company's "ordinary
business operations", how can we ever be heard? The following comments are offered in response to the Reliant Resources'
February 20, 2004 letter. I. The Company argues it is not required to accept the Proponent's revision to
the Proposal. A. Line 1, Paragraph I, Page 2 states that the Proponent "attempts to rectify
deficiencies" by making revisions. There is no admission in Proponent's reply
that legitimate deficiencies exist. B. The Proponent's revisions submitted were simple and intended to satisfy
concerns which the Company argues the SEC should adopt. No complaint on behalf
of the Company was ever raised until their opposition was submitted to the SEC.
I received a copy of their original letter of opposition late on Friday,
February 6, 2004 and replied to the SEC on Monday, February 9, 2004. Therefore,
the revisions designed to satisfy Reliant Resources were timely. Surely if the
SEC ever allows any revisions after original documents are filed, these should
be simple enough to qualify. C. The revisions adding the word future in two places in the Proposal, as
outlined in Item C, Page 7 of my original response, was meant for clarification
only, and to address any possible concerns the Company has in one of its major
arguments. It does not change the intent of the Proposal which clearly says it
is intended to "improve future corporate performance."
D. The substitution of the second sentence of the Statement of Support was
changed to respond to Reliant Resources' request of the SEC that some statements
in the Statement of Support be qualified as Proponent's opinions (see Paragraph
1, Page 7 of Reliant's original opposition dated February 6, 2004). Although it
is clear that these support statements are factual, I agreed to state that all
were my opinion. Now the Company argues at the end of the first paragraph on
Page 4 of their February 20, 2004 letter in opposition to the Proposal, that I
should not be allowed to state that "I believe the following statements are
accurate", and that such statement is not sufficient to cure what they
wrongfully claim are false and misleading statements. It should be noted that in
opposition to Shareholder Proposals which companies routinely make in Proxy
Statements, they use the phrase "the Company believes" frequently.
II. A. The Proposal does not violate the Company's ordinary business operations.
As described earlier, "it does not limit any organizational design, number of
employees at any level, the location of business activities, the products which
might be supplied, any business agreements or partnerships, indeed the total
amount of compensation which might be paid any individual in the corporate
structure, or any other business operation of the Company." It does not effect
compensation levels. "Management is free to set compensation levels at any level
their conscience and shareholder tolerance will support through the use of many
other devices." This Proposal only wants the shareholders to be allowed to vote to request the
Reliant Board of Directors to limit the stock option portion of the total
compensation package to 50,000 shares per qualifying person per year. Surely,
this is in the spirit of what the SEC intended the Shareholder Proposals to do.
II. B & C Both these issues were argued to the SEC earlier. The following is a
brief reply which was outlined in more detail previously. 1. The statement in the Proposal which states "all outstanding option grants be
exercised or expire on the date of termination from the Company" clearly refers
to those grants made in the future after the Board, in its wisdom, adopts the
Shareholder's Proposal. 2. There is no intent or language to support that this Proposal would seek to
have the Company violate any Texas laws. 3. If the Company is only concerned that some future reading may be confusing,
the addition of the word future in two places would clarify their concerns.
II. D. To make it very clear to Reliant Resources, I believe the statements
included in the Statement of Support are neither false nor misleading. Reliant
suggested that some should be characterized as beliefs, and in order to be
responsive, I agreed to say that all were my beliefs. In addition, this Proposal does not "impugn the character, integrity or personal
reputation" of the Company or its officers. It specifically says, "This
Resolution is not offered as criticism." Please note that in every case where the word Directors or Boards are used in
the supporting document, they are always plural. They clearly refer to Directors
and Boards in general and only mention Reliant Resources as examples of the
broader problem the Proposal seeks to address Statement of Support items to note:
3. Directors sometimes do ........
5. Existing employment contracts are no excuse since Boards create the
contracts. Thank you for the opportunity to respond. My Proposal is simple and I believe,
in the best interest of the shareholder, but it has attracted extreme opposition
from Reliant Resources. It seems to me that Reliant sums up the decision facing
the SEC fairly well near the end of the first paragraph marked III Conclusion on
Page 5 of their February 20, 2004 letter when they state: "While the Staff often permits a Proponent to revise a Proposal that contains
relatively minor defects, the Staff has stated that it `may find it appropriate
for companies to exclude the entire Proposal, Supporting Statements, or both, as
materially false and misleading in cases where detailed and extensive editing
would be required"'. The minor defects claimed by the Company can be easily cured with the addition
of a total of only four words and the changing of one sentence, as outlined in
my letter of February 9, 2004. Surely this cannot rise to the level "where
detailed and extensive editing would be required." This simple Proposal is important to Reliant Resources' shareholders and I
request that it be approved either in its revised form or if you so find, it its
original form. Should the Staff have any questions, require any additional
information, or disagree with my desire to have this important issue placed
before the Reliant Resources' shareholders in the 2004 Company Proxy, I would
appreciate the opportunity to confer with the Staff prior to the issuance of
your decision. You may reach me at the address or telephone number printed on
this document or I will be available to meet with you in your offices in
Washington, D.C. at your convenience. Very truly yours,
/s/ DDJ/nss
Enclosure cc: Michael L. Jines
Senior Vice President & General Counsel
Reliant Resources, Inc.
[STAFF REPLY LETTER]
March 18, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Reliant Resources, Inc.
Incoming letter dated February 6, 2004 The proposal requests the board adopt an executive compensation policy that
limits stock option grants per individual officer or employee and requires all
outstanding option grants to be exercised or expire upon termination from the
company. There appears to be some basis for your view that Reliant may exclude the
proposal under rule 14a-8(i)(7), as relating to ordinary business operations
(i.e., general compensation matters). Accordingly, we will not recommend
enforcement action to the Commission if Reliant omits the proposal from its
proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we
have not found it necessary to address the alternative bases for omission upon
which Reliant relies. Sincerely, /s/
Lesli L. Sheppard-Warren
Attorney-Advisor
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