Company Name: Time Warner, Inc.
Public Availability Date: February 6, 2004Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 26, 2003 VIA OVERNIGHT MAIL Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Time Warner Inc.Proposal Submitted by Trinity Health System and Others
Ladies and Gentlemen: This letter respectfully requests that the staff of the Division of Corporation
Finance (the "Staff") of the Securities and Exchange Commission (the "SEC")
advise Time Warner Inc. (the "Company") that it will not recommend any
enforcement action to the SEC if the Company omits from its proxy statement and
proxy to be filed and distributed in connection with its 2004 annual meeting of
shareholders (the "Proxy Materials") a proposal (the "Proposal") it received
from Catherine Rowan on behalf of Trinity Health System, joined by the Ursuline
Sisters of the Provincialate of the Eastern Province of the United States and
The As You Sow Foundation on behalf of Patricia Yenawine (collectively, the
"Proponents"). The Proposal would require the Company to form a new committee of
the board of directors to "review data linking tobacco use by teens with tobacco
use in our youth-rated movies." The Proponents also propose certain findings of
this committee before it is even constituted. The Company does not intend to include the Proposal in its Proxy Materials
pursuant to (i) Rule 14a-8(i)(7) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), because it relates to the Company's ordinary
business operations, (ii) Rule 14a-8(i)(1) because it is not a proper subject
for shareholder action under the laws of the state of Delaware and (iii) Rule
14a-8(i)(3) because it is false and misleading. Pursuant to Rule 14a-8(j) under the Exchange Act, we are enclosing six copies of
each of this letter and the Proposal (Exhibit A). By copy of this letter, the
Company hereby notifies each of the Proponents as required by Rule 14a-8(j) of
its intention to exclude the Proposal from its Proxy Materials.
Grounds for Omission A. The Proposal clearly relates to the Company's ordinary business operations
and, therefore, may be omitted from the Company's Proxy Materials pursuant to
Rule 14a-8(i)(7). Rule 14a-8(i)(7) permits the exclusion from the Company's Proxy Materials of
shareholder proposals relating to its "ordinary business operations." If
approved, the Proposal would (i) require the Company to form a committee of its
board of directors to "review data linking tobacco use by teens with tobacco use
in [its] youth-rated movies," and (ii) propose a series of "findings" by this
committee aimed at eliminating "smoking or tobacco promotion" in the Company's
films and television programs. This is clearly related to the general operations
of one of the Company's core businesses and, therefore, is not an appropriate
subject matter for a shareholder proposal. The Company is one of the world's largest producers and distributors of film and
television entertainment. In 2003 alone, the Company's Filmed Entertainment
divisions released dozens of original movies for viewing in theaters or on
DVD/video, and it distributed television programming in more than 175 countries
and in more than 40 languages. The distribution library owned or managed by the
Company currently has more than 6,500 feature films and approximately 38,000
television titles. The determinations of the content of those products,
including whether or how tobacco products are used in the Company's film or
television catalogue, represent just a part of the many decisions made on a
daily basis by the persons charged with operating these divisions. These
operations involve the nature, presentation and content of the Company's
products, are matters integrally related to the Company's ordinary business
affairs, and should not be made a subject of shareholder review. The Proposals
would strip the managers in charge of these operations of important creative and
decision-making power and instead vest it in the Company's shareholders.
The Staff has consistently recognized that shareholder proposals seeking to
regulate the content, sale, distribution or manner of presentation of tobacco
products involve "ordinary business operations" within the meaning of Rule
14a-8(i)(7). See e.g., The Walt Disney Company (November 10, 1997) (proposal for
a "thorough and independent review" of the "ways tobacco is portrayed in the
company's films and programs produced for television" and "what, if any,
influence such [portrayals] have on youth attitudes and behaviors related to
smoking" could be omitted as related to ordinary business); Time Warner Inc.
(January 18, 1996) (proposal that the company voluntarily implement a government
proposal regarding cigarette advertising could be omitted as relating to
ordinary business); Times Mirror Company (January 16, 1996) (proposal that the
company adopt certain policies with respect to cigarette advertising in its
publications); Gannett Co., Inc. (March 18, 1993) (proposal for a report
researching consumer perceptions of cigarette advertisements placed on the
company's billboards and newspapers could be omitted as related to ordinary
business). The report mandated by the Proposal is very similar in nature to the
one addressed in the above-referenced Disney letter. In that situation, the
staff concluded that the report related to matters of ordinary business
operations, specifically "the nature, presentation and content of programming
and film production." Here, the Proponents go one step further by setting out
the findings and recommendations of the very study it seeks to mandate. These
findings range from requiring the company to end "tobacco promotion" in its film
and television programming to "encouraging" the Motion Picture Association of
America to modify its rating system so that future movies showing tobacco are
rated "R." If the report itself infringes on the Company's ordinary business
operations, then surely the Proponents' suggested findings of such a report are
excludable as well. In light of the well-established precedent on this specific
topic, the Company believes that the Proposal is properly excludable under Rule
14a-8(i)(7). The positions taken by the Staff are not limited to matters explicitly involving
tobacco. As a general rule, shareholder proposals that seek to require a
corporation to change or abandon certain media products are regularly excluded
from proxy materials under Rule 14a-8(i)(7). See e.g., Time Warner Inc.
(February 24, 1997) (proposal that the company research the effect that certain
cartoon characters have on encouraging the teasing and bullying of children);
Time Warner Inc. (February 19, 1993) (proposal to establish a lyric review
committee relating to the content of the company's music recordings); General
Electric Company (February 2, 1993) (proposal that the company review its
television broadcast standards from the perspective of the role models they
create for young children); Walt Disney Productions (November 19, 1984)
(proposal that the company cease the distribution of the movie "Splash" because
it eroded basic moral values). The principle behind these no-action letters is
that the nature and presentation of products by media companies lies squarely
within the realm of ordinary business operations. The ordinary business of the Company includes the selection of the content and
presentation of its film and television products, which may, from time to time,
appeal in different ways to its many different audiences. The Company believes
that it responds responsibly to these varying tastes and audiences. To allow
shareholder resolutions to address individual product issues would subject each
of the Company's many ordinary, day-to-day business decisions to scrutiny and
veto by any person whose special interests or viewpoints, whether personal,
financial or otherwise, were touched by a product resulting from that decision.
The Company respectfully believes that its management team, not its
shareholders, are the best equipped to handle the various content decisions that
are an integral part of the daily operations of its business.
For these reasons, the Company respectfully submits that the Proposal may
properly be excluded from its Proxy Materials under Rule 14a-8(i)(7).
B. The Proposal is phrased in mandatory terms and, therefore, may be omitted
from the Company's Proxy Materials pursuant to Rule 14a-8(i)(1).
Rule 14a-8(i)(1) permits the exclusion of a shareholder proposal if it is not a
proper subject for shareholders action under applicable state law. The Division
of Corporation Finance: Staff Legal Bulletin No. 14 (July 13, 2001), explains
that: "1. When drafting a proposal, shareholders should consider whether the proposal,
if approved by shareholders, would be binding on the company. In our experience,
we have found that proposals that are binding on the company face a much greater
likelihood of being improper under state law and, therefore, excludable under
Rule 14a-8(i)(1)." The Company is incorporated in the state of Delaware. Section 141(a) of the
Delaware General Corporation Law (the "DGCL") provides that the business of the
Company "shall be managed by or under the direction of a board of directors,
except as may be otherwise provided in this [Chapter 1] or in its certificate of
incorporation." The Staff has consistently recognized that a shareholder
proposal mandating or directing a company's board of directors to take certain
action within the province of the board is inconsistent with the discretionary
authority granted to that board under state law and therefore violates Rule
14a-8(i)(1). See, e.g., American Electric Power Company, Inc. (January 16,
2002); Alaska Air Group, Inc. (March 26, 2000); Bangor Hydro-Electric (March 13,
2000); UST Inc. (March 13, 2000). The Proposal, as drafted, requires the Company's board of directors to organize
a committee of outside directors, and further requires that committee to review
data linking tobacco use by teens with tobacco use in youth-rated movies. Under
Delaware law, these powers and actions are reserved to the judgment of the
Company's board of the directors, and neither Chapter 1 of the DGCL nor the
Company's Certificate of Incorporation restricts the Company's board in a way
relevant to the requirements of the Proposal. The Proposal further proposes
findings of this committee before it is even constituted. This would clearly
violate the committee's powers should it be created, and it begs the question of
why a review should be conducted at all if the findings have been pre-ordained
by the Proponents. Since the Proposal is phrased in mandatory rather than precatory terms, the
Company respectfully submits that it may be excluded from the Company's Proxy
Materials under Rule 14a-8(i)(1). C. The Proposal contains numerous false and misleading statements and,
therefore, may be omitted from the Company's Proxy Materials pursuant to Rule
14a-8(i)(3) and Rule 14a-9. Rule 14a-8(i)(3) permits the omission of a proposal or any statement in support
thereof that is contrary to any proxy rule or regulation, including Rule 14a-9,
which prohibits materially false or misleading statements in proxy soliciting
material. The Company believes that the Proposal and the supporting statement
contain many conclusory statements without substantiation about the content and
impact of the Company's films that are vague or misleading within the scope of
Rule 14a-9 and, therefore, the Proposal may be excluded from the Proxy Materials
or, in the alternative, the Proponents should be required to remove or modify
such statements from the Proposal. Among these statements are the following:
The first paragraph states "tobacco promotion in major motion pictures has
doubled in ten years." The Proponents provide no citation or factual support for
this statement. It is, therefore, misleading because shareholders would be
unable to assess its source, validity and/or context. Also, the term "tobacco
promotion" is vague and entirely subjective. Reasonable people can disagree, for
example, about whether a movie "promotes tobacco" if it features a scene that
takes place in a smoky bar or a convenience store that sells tobacco products or
features a main character rejecting proffers of cigarettes. Finally, the
statement may mislead stockholders by implying without support or detail that
"tobacco promotion" in the Company's major motion pictures has increased over
time. The Proponents fail to mention that the Massachusetts Public Research
Group report cited in the supporting statement used a relatively small sample
size (20 films), many of which were not produced or distributed by the Company,
and that the average amount of "tobacco promotion" in the films was less than 90
seconds. These details would certainly make the supporting statement less
misleading.
The sixth and seventh paragraphs once again provide certain statistical and
conclusory information without discussion of the basis for the conclusions. For
example, the sixth paragraph states "in 2002, 69% of [the Company's] live-action
movies, including over half of its youth-rated ones, included smoking,
trademarked tobacco brands or collateral in a way that will increase tobacco
addiction, disease and death." This statement is vague and potentially
misleading. First, like "tobacco promotion," the term "tobacco collateral" is
vague, has no objective meaning and may be susceptible to different
interpretations. Second, as with assertions throughout the Proposal, the
Proponents provide no factual support for the statistic so that the Company can
verify the basis of the Proponents' assertion. They fail to identify which or
even how many of the Company's films were included in this analysis, nor do they
explain whether all portrayals of tobacco use, even if shown in a negative way,
are included in the tally. Finally, the statement implies that the Company uses
tobacco products in its film projects with the intent of increasing tobacco use
and its negative effects. This implication, while probably not intentional, is
clearly false.
Finally, the ninth paragraph states that the Company's continued use of
tobacco products in its films "increases its exposure to consumer opprobrium and
to potential legal liability." While the Company acknowledges the Proponents'
strong feelings on this subject, it does not agree with the generalization that
its consumer base generally finds its presentation of tobacco use in its
youth-rated movies objectionable, irresponsible or morally repugnant. Also, the
Company is not aware of any current or pending legal proceedings against it
related to the issues raised in the Proposal. The proposed action requested by the Proposal itself also contains several
statements that are so vague as to be misleading. The Staff has found that a
proposal is misleading if shareholders would not be able to determine with any
reasonable certainty exactly what actions or measures would be taken in the
event the proposal were adopted and, as a related matter, if the board of
directors or management of a company would not have a clear idea as to what
exactly it should do to effectuate the proposal. See Philadelphia Electric Co.
(July 30, 1992) (proposal relating to the election of a committee of small
shareholders to present plans "that will ... equate with the gratuities bestowed
on management, directors and other employees" properly excluded as vague and
indefinite). As previously discussed, the Proposal contains a list of actions
the Company should implement following its report to shareholders. In many
instances, it is unclear what actions would satisfy the Proponents' intent. For
example, item one uses the term "tobacco promotion," which is too vague and
subjective to be understood. It would seem that even the negative portrayal of
tobacco use would be prohibited under the terms of the Proposal. Item two would
require the Company to "encourage" the Motion Picture Association of America to
modify its ratings system. This is so vague that it would be difficult to
implement. Item three would require the Company to run anti-smoking
advertisements before any movie portraying "tobacco use." It is unclear how the
term in quotes is different from the term "tobacco promotion" or "tobacco
collateral," both of which are used elsewhere in the Proposal. Finally, item
five would require the Company to certify that "nothing of any value" has been
exchanged for the appearance of tobacco use or brands in its future films. This
is so broad, and the term "tobacco use" is so vague, that management would have
no clear idea what they would be certifying. For these reasons, the Company respectfully submits that the Proposal may be
excluded in its entirety from the Proxy Materials pursuant to Rule 14a-8(i)(3)
or, in the alternative, the Proponents be required to remove or revise the many
misleading and vague statements. * * * * *
For the foregoing reasons, the Company respectfully requests that the Staff
confirm that it would not recommend enforcement action if the Company omits the
Proposal from its Proxy Materials. If you have any questions or if the Staff is
unable to concur with our conclusions without additional information or
discussions, we respectfully request the opportunity to confer with members of
the Staff prior to issuance of any written response to this letter. Please do
not hesitate to call the undersigned at (212) 484-7350. Please acknowledge receipt of this letter and its attachments by date-stamping
the enclosed copy of the first page of this letter and returning it in the
self-addressed stamped envelope provided for your convenience.
Very truly yours, /s/
Susan A. Waxenberg Assistant General Counsel and Assistant Secretary
Attachment cc: Catherine Rowan
766 Brady Avenue, Apt. 635
Bronx, NY 10462 Conrad B. MacKerron
As You Sow
311 California Street, Suite 510
San Francisco, CA 94104 Mary Sullivan, OSU
Corporate Responsibility Representative
Ursuline Provincialate of the Eastern
Province of the United States
323 East 198thStreet
Bronx, NY 10458-3105 [APPENDIX]
TIME WARNER/WARNER BROTHERS Address Problems Related to Affect on Teens of Movie Tobacco Use
WHEREAS tobacco promotion in major motion pictures has doubled in ten years;
Despite an expected fall in tobacco use in films following the 1998 Master
Settlement Agreement between tobacco firms and forty-six states, it soon climbed
by 50% in the most popular youth-rated films (Massachusetts Public Research
Group, 2000 "Tobacco at the Movies," at (www.toughontobacco.org);
Twenty-seven state Attorneys General have asked Hollywood to reduce teen
exposure to smoking on screen (8/26/03); An American Journal of Preventive Medicine article associates viewing tobacco
use in movies with positive attitudes toward smoking among children who had
never smoked (AJPM 22/3, 2003, 137-145); A two-year study in The Lancet (6/9/03) revealed teens most exposed to smoking
in movies are three times more likely to start smoking than ones seeing the
least. The study's co-author, Madeline Dalton, Dartmouth Medical School, calls
the findings "the strongest evidence to date that smoking in movies encourages
adolescents to start smoking." (Washington Post, 6/10/03, A7);
The Lancet said tobacco use in U.S. movies daily recruits more than 1,000 kids
under eighteen, more than half of all new adolescent smokers;
In 2002 69% of this Corporation's live-action moves, including over half of its
youth-rated ones, included smoking, trademarked tobacco brands or collateral in
a way that will increase tobacco addiction, disease and death;
Removing tobacco images from youth-rated (G, PG, PG-13) movies would reduce the
number of U.S. children who will ultimately die from tobacco-related disease by
50%; The World Health Organization, American Medical Association, American Academy of
Pediatrics and other health experts have urged Hollywood to adopt voluntary
measures curtailing youth exposure to smoking on screen; As public awareness and research evidence grows, this corporation's continued,
knowing inclusion of smoking in youth-rated films increases its exposure to
consumer opprobrium and to potential legal liability; RESOLVED: A committee representing the outside directors of the company be
formed to review data linking tobacco use by teens with tobacco use in our
youth-rated movies. If it finds no fundamental laws, the Committee shall make
appropriate recommendations to the Board, to be reported to requesting
shareholders by Jan. 1, 2005. This resolution's filers propose the Committee's
findings recommend that: 1) no smoking or other tobacco promotion be included in any future youth-rated
film or TV program this corporation produces or distributes;
2) the Motion Picture Association of America be encouraged to modify its rating
system so that future movies showing tobacco are rated "R;"
3) no brands of any tobacco product be displayed in any future film this
corporation produces or distributes; 4) anti-smoking advertisements approved by U.S. Centers for Disease Control be
run before any movie portraying tobacco use that this corporation produces,
distributes or licenses to download, on-demand or recorded video media, and this
corporation make every effort that the same be done before all theatrical
showings; and 5) certification be made that nothing of any value has been exchanged related to
the appearance of tobacco use, brands or collateral in any future film produced
or distributed by this corporation. [INQUIRY LETTER]
November 19, 2003 Mr. Richard D. Parsons,
Chief Executive Officer
Time Warner
75 Rockefeller Plaza
New York, NY 10019 Dear Mr. Parsons,
Trinity Health, with an investment position of 176,094 shares of common stock in
AOL Time Warner, looks for social and environmental as well as financial
accountability in its investments. Proof of ownership of common stock in Time Warner is enclosed. Trinity Health
has continuously held stock in Time Warner for over one year and intends to
retain the requisite number of shares through the date of the Annual Meeting.
Every year the hospitals and clinics of Trinity Health treat thousands of
patients with tobacco-related illnesses, particularly emphysema, heart disease
and cancer. At the same time, the health care system offers patients, employees
and the general public assistance in understanding the hazards of smoking and
support in their efforts to quit smoking. We are concerned about out recent studies that show that the more smoking
adolescents see in movies, the more likely they are to start smoking. Over half
of the movies made by our company's studios in 2002 had smoking scenes or scenes
with images of tobacco brands. We believe that our company, as a good corporate
citizen, must assume its responsibility in seeing how its movies may impact the
health of children and youth. Acting on behalf of Trinity Health, I am authorized to notify you of Trinity
Health's intention to present the enclosed proposal for consideration and action
by the stockholders at the next annual meeting, and I hereby submit it for
inclusion in the proxy statement in accordance with Rule 14-a-8 of the General
Rules and Regulations of the Securities Exchange Act of 1934.
It is my understanding that the Ursuline Sisters and other investors also will
file this resolution. Trinity Health is not submitting a separate proposal but
is co-sponsoring the resolution with this group. The undersigned representative
of Trinity Health has been designated the lead filer and primary contact on this
matter. Please address any correspondence on this issue to me.
We look forward to discussing the issues surrounding at your earliest
convenience. Sincerely, /s/
Catherine Rowan, representing Trinity Health
Corporate Responsibility Consultant enc.
[STAFF REPLY LETTER]
February 6, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Time Warner, Inc. Incoming letter dated December 26, 2003
The proposal requires the formation of a committee to review data linking
tobacco use by teens with tobacco use in youth-rated movies.
There appears to be some basis for your view that Time Warner may exclude the
proposal under rule 14a-8(i)(7) as relating to Time Warner's ordinary business
operations (i.e., the nature, presentation and content of programming and film
production). Accordingly, the Division will not recommend enforcement action to
the Commission if Time Warner omits the proposal from its proxy materials in
reliance on rule 14a-8(i)(7). In reaching this conclusion, we have not found it
necessary to address the alternative bases for omission upon which Time Warner
relies. Sincerely, /s/
Keir Gumbs
Special Counsel |
