Company Name: USEC Inc.
Public Availability Date: January 12, 2004Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
November 21, 2003 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549 Re: USEC Inc.Omission of Shareholder Proposal Pursuant to Rule 14a-8
Dear Sir or Madam: USEC Inc., a Delaware corporation (the "Company"), has received a shareholder
proposal (the "Proposal") submitted by William F. Jebb and Wynona B. Jebb (the
"Proponents") for inclusion in the proxy materials (the "Proxy Materials") to be
distributed by the Company in connection with its 2004 annual meeting of
shareholders. Pursuant to Rule 14a-8(j) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company respectfully requests that
the Staff of the Division of Corporation Finance (the "Staff") of the Securities
and Exchange Commission (the "Commission") concur with the Company's view that,
for the reasons stated below, the Proposal may properly be omitted from the
Proxy Materials. To the extent that the reasons supporting the omission of the
Proposal set forth herein are based on matters of law, this letter also
constitutes an opinion of counsel, as required by Rule 14a-8(j)(2)(iii).
Pursuant to Rule 14a-8(j)(2), I am enclosing six copies of (i) this letter, and
(ii) the Proponents' letter dated June 12, 2003 to the Company's Board of
Directors, which includes the Proposal (the "Proponents' Letter"). In accordance
with Rule 14a-8(j), a copy of this submission is being sent simultaneously to
the Proponents. I. Introduction The Proposal states in pertinent part "[w]here as the excessive compensation
paid to top executives is not reflective of the corporate earnings and reduces
the stockholder equity. It is recommended to the Board of Directors that the
total compensation package be limited to twenty (20) times the average pay of
non exempted employees or ten (10) times the average pay of exempted employees
which ever is less." The full text of the proposal is included in the
Proponents' Letter, a copy of which is enclosed. The Company respectfully requests that the Staff concur with the Company's view
that the Proposal may properly be omitted from the Proxy Materials because, as
discussed below, (i) pursuant to Rule 14a-8(i)(3), the Proposal violates Rule
14a-9 of the Commission's proxy rules, (ii) pursuant to Rule 14a-8(i)(2), the
Proposal, if implemented, could cause the Company to breach existing employment
contracts in violation of state law to which it is subject, and (iii) to the
extent that the Proposal, if implemented, would require the Company to violate
state law, the Company lacks the power or authority to implement the Proposal,
pursuant to Rule 14a-8(i)(6). II. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(3) Because It Is
Vague, Indefinite and, thus, Misleading in Violation of Rule 14a-9
The Staff has consistently taken the position that a company may exclude a
proposal pursuant to Rule 14a-8(i)(3) if the proposal is "vague, indefinite and,
therefore, potentially misleading." Commonwealth Energy System (February 27,
1989). Due to the fact that it is vague and indefinite and, thus, misleading,
the Proposal violates Rule 14a-9 and may properly be omitted from the Proxy
Materials pursuant to Rule 14a-8(i)(3). The Staff has taken the position that proposals that are vague and indefinite
are excludable under Rule 14a-8(i)(3) as inherently misleading because neither
the shareholders voting on the proposal nor the board of directors of the
relevant company seeking to implement the proposal would be able to determine
with any reasonable amount of certainty what action or measures would be taken
if the proposal were implemented. In General Electric Company (February 5,
2003), the Staff concurred in the omission of a proposal pursuant to Rule
14a-8(i)(3) where the proposal sought to "urge the [B]oard of Directors to seek
shareholder approval for all compensation for Senior Executives and Board
members not to exceed more than 25 times the average wage of hourly working
employees." General Electric argued that the proposal was "vague and indefinite
because neither the share owners nor the Company's Board would be able to
determine, with any reasonable amount of certainty, what action or measures
would be taken if the proposal were implemented." General Electric noted that
the proposal failed to define critical terms or otherwise provide guidance on
how it would be implemented. The Staff concluded that General Electric could
omit the proposal from its proxy materials because it was vague and indefinite.
Similarly, in Philadelphia Electric Company (June 1, 1992), the Staff concurred
in the omission of a shareholder proposal that was "so inherently vague and
indefinite that neither the shareholders voting on the proposal, nor the Company
in implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
In Occidental Petroleum Corporation (February 11, 1991), a proposal relating to
the "buyback" of shares by the company was omitted because it was "unclear what
action the Company would be required to take if the proposal were adopted."
Thus, the Staff concurred with the company that the proposal could be
"misleading because any actions ultimately taken by the [c]ompany upon
implementation of [the] proposal could be significantly different from actions
envisioned by shareholders voting on the proposal." A similar position was
adopted by the Staff in A.H. Belo Corporation (January 29, 1998), where a
shareholder proposal was excluded because "neither the shareholders voting on
the proposal, nor the Company, would be able to determine with reasonable
certainty what measures the Company would take if the proposal was approved."
See also General Electric Company (January 23, 2003) (permitting omission of a
proposal seeking "an individual cap on salaries and benefits of one million
dollars for G.E. officers and directors" where General Electric argued that the
proposal was vague and indefinite because it failed to define critical terms or
otherwise provide guidance on how it should be implemented); Commonwealth Energy
System (February 27, 1989) (permitting exclusion of a proposal requiring the
company to notify shareholders so they could make trustee nominations and
include such nominees in the company's proxy materials because "neither
shareholders voting on the proposal, nor the [c]ompany, would be able to
determine with any reasonable certainty what actions or measures would be
entailed in the event the proposal were implemented"); Gannett Co., Inc.
(February 24, 1998) (permitting exclusion of shareholder proposal because it was
"unclear what action the Company would take if the proposal were adopted");
Fuqua Industries, Incorporated (March 12, 1991) (finding that a proposal may be
excluded where "neither the shareholders voting on the proposal, nor the Company
implementing the proposal, if adopted, would be able to determine with any
reasonable certainty exactly what actions would be taken under the proposal");
Corning Incorporated (February 18, 1997); Wendy's International, Incorporated
(February 6, 1990); North Fork Bancorporation, Incorporated (March 25, 1992);
and Nynex Corporation (January 24, 1990). The Staff has consistently concluded that a proposal may be excluded where the
meaning and application of terms or the standards under the proposals "may be
subject to differing interpretations." In Hershey Foods Corporation (December
27, 1988), a shareholder proposal seeking to establish a policy restricting the
company's advertising was excluded as vague and indefinite because the
"standards under the proposal may be subject to differing interpretations." The
Staff concurred with Hershey Foods' position that the proposal's use of such
terms as "advertising" made the proposal misleading since such matters would be
subject to differing interpretations both by shareholders voting on the proposal
and the company's board of directors in implementing the proposal. The Staff
also concurred with Hershey Foods' position that the result of any action
ultimately taken by the company in connection with the proposal could be
significantly different from the action envisioned by shareholders voting on it.
See also Exxon Corporation (January 29, 1992) (permitting exclusion of a
proposal regarding board member criteria because the use of certain vague terms
made the proposal "misleading since such matters would be subject to differing
interpretations both by shareholders voting on the proposal and the [c]ompany's
Board [of Directors] in implementing the proposal, if adopted, with the result
that any action ultimately taken by the [c]ompany could be significantly
different from the action envisioned by shareholders voting on the proposals");
Fuqua Industries, Incorporated (March 12, 1991) (permitting shareholder proposal
to be excluded because terms such as "any major shareholder" "would be subject
to differing interpretations"). As in the foregoing precedents, the Proposal uses numerous terms which are
subjective and highly ambiguous, such as "excessive compensation," "top
executives," "total compensation package" and "average pay." Given that each of
these terms is so open-ended and subject to vastly different interpretations,
each is effectively rendered meaningless. Specifically, the Proposal requests
that "the total compensation package be limited to twenty (20) times the average
pay of non exempted employees or ten (10) times the average pay of exempted
employees which ever is less," but the proposal contains no definition for the
"top executives" to whom it applies, and no guidelines as to significant
interpretive questions that arise when analyzing how one determines the "total
compensation package" or "average pay." As a result, the Company's shareholders
are being asked to approve a Proposal that provides absolutely no guidelines or
instructions as to what actions the Company may be expected to take in
implementing it. If the Company were to attempt to implement the Proposal, it would be left with
no guidance as to what the Proponents intended the Company to do with respect to
establishing a cap on certain executives' compensation. Without such guidance,
the Company could potentially implement the Proposal in contravention of the
intentions of the shareholders who voted for it. Among the many uncertainties
and ambiguities are the following:
When the Proposal refers to "top executives," is that term intended to include
all executive officers within the meaning of Rule 3b-7 under the Exchange Act,
and, if so, what is the intended meaning of the word "top" which modifies the
word "executives"? Alternatively, do the Proponents intend the Proposal to apply
to the more limited category of executives who constitute "named executive
officers" under Item 402 of Regulation S-K? Is the Proposal perhaps restricted
to the very top executive officers who make quarterly certifications with
respect to the Company, or is it intended to apply to some other category of
executives entirely?
What constitutes the "total compensation package" and how are the constituent
elements, once determined, to be valued? Would the Company's annual incentive
awards, which are based on pre-established performance goals and targets
established by the Compensation Committee of the Board of Directors and granted
at the end of the year based on performance against those goals, be included in
"total compensation" in the year earned, in the later year when such awards are
paid, or, in the case of the restricted stock component of such awards, in the
still later year when the restricted stock vests? How would the restricted stock
be valued? Would the award of additional restricted stock taken in lieu of cash
be valued differently? Would the Board be forced to set goals and target awards
such that an award for the highest level of performance would not exceed the
compensation cap?
When and how are stock options to be valued? Options could be valued when
granted or when they vest, and could be valued based on the Black-Scholes model,
the spread between the exercise price and a closing price, or some other
formula. In what year of "total compensation" should they be included? Likewise,
should restricted stock units be valued in the year they are first awarded, or
not until they are paid out based on achieving performance goals?
If "top executives" elect to defer certain compensation under certain of the
Company's plans permitting deferral, when and how should such deferred
compensation be accounted for in calculating "total compensation"?
Should all benefits be included in "total compensation," and if so, how should
such benefits be valued? In particular, benefits such as the Company's Pension
Plan and Supplemental Executive Retirement Plan provide for payment to the
executive only after his or her retirement. Is any value to be attributed to
such benefit in an earlier year to determine adherence to the limitation
established by the Proponents, and if so, how is that value to be determined?
What is the meaning of "average pay" on which the cap is based? Is it the
average on an annual basis or over a longer time period? Is the average to
include all exempt or non-exempt employees, as the case may be, including those
who are not full-time employees? What is the intended distinction between "total
compensation package" and "average pay"? Do both terms include the same
constituent elements? Does "pay" include benefits? If so, how are those benefits
to be valued?
As discussed further in Section III below, the Proponents fail to provide any
guidance as to how existing contractual commitments are to be handled. Do the
Proponents intend to cause the Company to breach existing contracts with "top
executives" in order to stay within the stated limitations? Do the Proponents
intend that the Company renegotiate existing contracts? If the Proposal were adopted, neither the Company, the Board of Directors nor
the shareholders could determine with any degree of certainty how the Proposal
was intended to be implemented without answers to these questions. Because of
the Proposal's vagueness and indefiniteness, the Company believes that the
Proposal is materially misleading and, therefore, may be omitted from the Proxy
Materials in reliance on Rule 14a-8(i)(3). III. The Proposal May Be Excluded Pursuant to Rules 14a-8(i)(2) and 14a-8(i)(6)
Because It May Cause the Company to Breach an Existing Employment Agreement
A. Implementation of the Proposal Could Violate State Law
Rule 14a-8(i)(2) provides that a company may exclude a shareholder proposal from
its proxy statement "[i]f the proposal would, if implemented, cause the company
to violate any state, federal or foreign law to which it is subject." The Staff
has consistently taken the position that a company may exclude a proposal
pursuant to Rule 14a-8(i)(2) if the proposal could require the breach of
outstanding contractual obligations. Due to the fact that implementation of the
Proposal could require the Company to breach an existing employment agreement
and therefore violate state law, the Proposal may properly be omitted from the
Proxy Materials pursuant to Rule 14a-8(i)(2). In International Business Machines Corporation (February 27, 2000), the Staff
allowed IBM to exclude a shareholder proposal under Rule 14a-8(i)(2) where the
proposal sought termination and renegotiation of the CEO retirement benefits
provided in the CEO's existing employment agreement. In The Gillette Company
(March 10, 2003), the Staff concluded that Gillette could exclude a proposal
under Rules 14a-8(i)(2) and 14a-8(i)(6) (unless the proposal were revised to
state that it applies only to compensation agreements made in the future)
because the proposal requested that the board of directors adopt an executive
compensation policy that all future stock option grants to senior executives be
performance-based, and this policy would cause Gillette to breach an existing
compensation agreement. In Sensar Corporation (May 14, 2001), the Staff
permitted omission of a proposal that the company argued would require
unilateral modification of the terms of outstanding options, in violation of
Nevada law. The Staff concluded that Sensar could exclude the proposal "under
rule 14a-8(i)(2) and rule 14a-8(i)(6) because it may cause Sensar to breach its
existing contractual obligations." See also Whitman Corporation (February 15,
2000) (permitting omission of a proposal in reliance on Rules 14a-8(i)(2) and
14a-8(i)(6) where the proposal would cause the company to breach an existing
contract); Galaxy Foods Company (October 12, 1999) (same); and BankAmerica
Corporation (February 24, 1999) (same). Although the vague and indefinite wording of the Proposal makes it impossible to
determine with certainty what the ultimate cap would be, and which executives
would be subject to that cap, implementation of the Proposal could cause the
Company to breach an existing employment agreement because it would provide
limits on compensation not contemplated by this contract. The Company is a party to an employment agreement, dated as of April 28, 1999,
with the Company's CEO, William Timbers (the "Timbers Agreement"). Despite the
ambiguities in the Proposal, it seems safe to assume that the Proponents
intended the CEO to be included in the term "top executives." The Timbers
Agreement provides for a term of five years, but is also subject to an automatic
one-year extension unless either party gives six months notice that it does not
wish to extend. This notice would have been due by October 28, 2003.
Accordingly, the Timbers Agreement will be in effect until at least April 28,
2005, and may be further extended under certain circumstances. The terms of the
Timbers Agreement entitle Mr. Timbers to a base salary, certain incentive
opportunities, and certain benefits commensurate with his position, none of
which are subject to the type of restrictions suggested by the Proposal. If the
Proposal were implemented, it could impose a constraint on the potential bonus
and incentive awards that the Compensation Committee could establish for Mr.
Timbers, contrary to the broad discretion delegated to the Compensation
Committee by the terms of the Timbers Agreement. The cap could prevent Mr.
Timbers from being entitled to participate in the Company's incentive programs
at a level commensurate with his position, as is required by the terms of his
employment agreement. The Timbers Agreement is governed by Delaware law. Under Delaware law, a breach
of contract violates state law and may result in monetary damages being awarded
to the non-breaching party. See, e.g., Kenyon v. Holbrook Microfilming Service,
155 F.2d 913, 914 (2nd Cir. 1946). The term "'breach,' as applied to
contracts, is defined as a failure without legal excuse to perform any promise
which forms a whole or a part of a contract." 17A Am. Jur. 2d Contracts §716.
Furthermore, "the standard remedy for breach of contract is based upon the
reasonable expectations of the parties ex ante. This principle of expectation
damages is measured by the amount of money that would put the promisee in the
same position as if the promisor had performed the contract. Expectation damages
thus require the breaching promisor to compensate the promisee for the
promisee's reasonable expectation of the value of the breached contract, and,
hence, what the promisee lost." See, e.g., Duncan v. Theratx, Inc., 775 A.2d
1019, 1022 (Del. 2001). When an employer and employee are bound by an employment
contract, the employer must adhere to its terms absent a legal excuse, and "once
employment has begun, the employment contract represents the right of the
employee to be paid the wages agreed upon." 27 Am. Jur. 2d Employment
Relationship §53. Because the terms of the Proposal, if adopted, would impose a constraint on the
potential compensation available to Mr. Timbers that is not contemplated by his
employment agreement, the Company believes that the Proposal may properly be
omitted because its implementation could cause the Company to breach this
agreement and therefore violate state law. B. The Company Would Lack the Power and Authority to Implement the Proposal
The Staff has consistently found that where a proposal, if implemented, would
require a company to breach an existing contractual obligation, it is excludable
under Rules 14a-8(i)(2) and 14a-8(i)(6), because the company would lack the
power and authority to implement the proposal. In The Gillette Company (March
10, 2003), the Staff concluded that "Gillette may exclude the proposal under
rules 14a-8(i)(2) and 14a-8(i)(6) because [the proposal] may cause Gillette to
breach an existing compensation agreement." See also Sensar Corporation (May 14,
2001) (finding that a proposal may be excluded "under rules 14a-8(i)(2) and
14a-8(i)(6) because it may cause Sensar to breach its existing contractual
obligations."); and Whitman Corporation (February 15, 2000) (finding that a
proposal may be excluded "under rules 14a-8(i)(2) and 14a-8(i)(6) because it may
cause Whitman to breach an existing contract"). As discussed above, although the
vague terms used by the Proposal make it impossible for the Company to determine
with certainty what cap would apply to what compensation, the Company is a party
to an employment agreement that entitles an executive to salary, bonus and
incentive awards that are not limited by the cap proposed by the Proponents.
Imposing a limitation, as contemplated by the Proposal, could cause the Company
to breach this employment agreement, which constitutes a violation of Delaware
law. Accordingly, the Company would lack the power and authority to implement
the Proposal if it were approved by the Company's shareholders with respect to
this executive. IV. Conclusion For the reasons discussed in this letter, the Company requests that the Staff
concur with the Company's view that the Proposal may be properly omitted from
the Proxy Materials (A) under Rule 14a-8(i)(3) because the Proposal is vague and
indefinite and therefore misleading in violation of Rule 14a-9, (B) under Rule
14a-8(i)(2) because the Proposal could, if implemented, cause the company to
violate state law, and (C) under Rule 14a-8(i)(6) because the Company would lack
the power or authority to implement the Proposal. Should the Staff disagree with
the Company's position, or require any additional information, I would
appreciate the opportunity to confer with the Staff concerning these matters
prior to the issuance of its response. If the Staff has any questions or comments regarding the foregoing, please
contact the undersigned at (301) 564-3327. Sincerely,
/s/ Timothy B. Hansen
Senior Vice President,
General Counsel, and Secretary Enclosures
cc: William F. Jeb
Wynona B. Jebb USEC
TWO DEMOCRACY CENTER
6903 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817 June 12, 2003
BOARD OF DIRECTORS STOCKHOLDER PROPOSAL
REQUEST THE NEXT STOCK HOLDERS MEETING INCLUDE THE FOLLOWING.
WE ARE VERY CONCERNED WITH THE TOTAL COMPENSATION PACKAGE OF OUR TOP EXECUTIVES
AND THE LACK OF STOCKHOLDER INPUT TO THE PROCESS. ACCORDINGLY, WE BELIEVE THE
FOLLOWING SHOULD BE PLACED BEFORE THE STOCKHOLDERS. WHERE AS THE EXCESSIVE COMPENSATION PAID TO TOP EXECUTIVES IS NOT REFLECTIVE OF
THE CORPORATE EARNINGS AND REDUCES THE STOCKHOLDER EQUITY IT IS RECOMMENDED TO
THE BOARD OF DIRECTORS THAT THE TOTAL COMPENSATION PACKAGE BE LIMITED TO TWENTY
(20) TIMES THE AVERAGE PAY OF NON EXEMPTED EMPLOYEES OR TEN (10) TIMES THE
AVERAGE PAY OF EXEMPTED EMPLOYEES WHICH EVER IS LESS. WILLIAM F. JEBB AND WYNONA B. JEBB
2545 RAMSGATE TERRACE
COLORADO SPRINGS, CO. 80919
[STAFF REPLY LETTER]
January 12, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: USEC Inc. Incoming letter dated November 21, 2003
The proposal recommends to the board of directors that the total compensation
package to top executives be limited to twenty times the average pay of
non-exempted employees or ten times the average pay of exempted employees,
whichever is less. We are unable to conclude that USEC has met its burden of establishing that the
proposal would violate applicable state law. Accordingly, we do not believe that
USEC may omit the proposal from its proxy materials in reliance on rules
14a-8(i)(2) and 14a-8(i)(6). We are unable to concur in your view that USEC may exclude the proposal under
rule 14a-8(i)(3). Accordingly, we do not believe that USEC may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(3). Sincerely,
/s/ Anne Nguyen
Attorney-Advisor |
