Company Name: USEC Inc.
Public Availability Date: January 14, 2004Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY 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 Mark Latham (the "Proponent") 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 Proponent's letter dated October 20, 2003 transmitting the Proposal
(the "Proponent's Letter"). In accordance with Rule 14a-8(j), a copy of this
submission is being sent simultaneously to the Proponent. I. Introduction
The text of the resolution presented by the Proposal is as follows:
THEREFORE BE IT RESOLVED that USEC Inc. shareowners request the Board of
Directors to hire a proxy advisory firm for one year, to be chosen by shareowner
vote. Shareowners request the Board to take all necessary steps to enact this
resolution in time to hold the vote at the year-2005 shareowner meeting, with
the following features:
To insulate advisor selection from influence by Company management, any proxy
advisory firm could put itself on the ballot by paying an entry fee, declaring
the price (no more than $8000) for advisory services for the coming year, and
providing the address of a website describing their proposed services and
qualifications.
The winning candidate would be paid its declared price by the Company, and
make advice freely available to all Company shareowners for the subsequent year,
on all matters put to shareowner vote except director elections. (Advice on
director elections is excluded to satisfy SEC rule 14a-8(i)(8).)
Performance of the advisory firm would not be policed by Company management,
but rather by gain or loss of the advisor's reputation and future business.
Brief summary advice could be included in the Company proxy, with references
to a website and/or toll-free phone number for more detail.
The decision of whether to hire proxy advisory firms in later years would be
left open. The full text of the Proposal, including the supporting statement, is enclosed
as Attachment A. 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: (a) pursuant to Rule 14a-8(i)(2), implementation of the
Proposal would cause the Company to violate federal law, (b) pursuant to Rule
14a-8(i)(3), the Proposal violates Rule 14a-9 of the Commission's proxy rules,
and (c) pursuant to Rule 14a-8(i)(7), the Proposal deals with a matter relating
to the Company's ordinary business operations. II. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(2) Because, If
Implemented, It Would Cause the Company to Violate Federal Law
Rule 14a-8(i)(2) provides for the exclusion of a shareholder proposal where the
proposal, if implemented, would "cause the company to violate any state,
federal, or foreign law to which it is subject." See, e.g. Mattel, Inc. (January
10, 2003); Central Fidelity Banks, Inc. (January 20, 1995). The Proposal, if
implemented in the manner described by the Proponent, would require the Company
to undertake a proxy solicitation process that is in violation of the system
established by the Exchange Act and the rules promulgated thereunder, and would
cause the Company to violate federal law because the Company's shareholders
would be voting on a proposal without sufficient information to make an informed
voting decision. The information provided to shareholders by self-styled "proxy
advisory" firms may very well be false, misleading, inadequate and incomplete.
It is well-established that a proxy statement must disclose sufficient
information "for the reasonable shareholder to make informed, rational choices."
Robinson v. Penn Central Company, 336 F. Supp 655, 658 (E.D. Pa. 1971). The
Proposal provides that "any proxy advisory firm could put itself on the ballot
by paying an entry fee ... and providing the address of a website describing
their proposed services and qualifications." The Proposal contemplates that the
Company would mail a proxy statement to its shareholders that would include an
item on the ballot where a list of any number of self-styled "proxy advisory"
firms would appear. In the proxy statement itself, where shareholders expect to
be provided the material information necessary to inform their decision-making
process, the Company would simply include the list of candidates and a reference
to each candidate's website. Despite the growing presence of, and access to,
computer and Internet technology, it is still the case that disclosure on a
website is not a substitute for disclosure in a proxy statement. Additionally,
as the United States Court of Appeals for the Third Circuit concluded in a
recent case challenging the disclosure in a proxy statement, "[t]hat an investor
could hypothetically conduct research to clarify ambiguities and discover
omissions in the proxy statement does not relieve the Board of its obligations
under Rule 14a-9. ... A proxy statement should inform, not challenge a
shareholder's critical wits." Shaev v. Saper, 320 F.3d 373, 381-82 (3d Cir.
2003) (citing Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1097
(1991)). The Company would be faced with two equally untenable alternatives in
implementing this Proposal. First, the Company could implement the Proposal as
contemplated and mail its shareholders a proxy statement that violated federal
law by failing to provide sufficient information for the shareholders to make an
informed, rational choice. Alternatively, the Company could attempt to provide
the requisite information by presenting the qualifications of the many
alternative choices, either as drafted by the Company based on information
obtained from the proxy advisory firms' websites or by soliciting the
descriptive information from the firms directly. In doing so, however, the
Company would potentially subject itself to liability by including the firms'
assertions with respect to their qualifications without independent
investigation and confirmation of these qualifications. Rule 14a-9 provides that
no solicitation "shall be made by means of any proxy statement ... containing
any statement which, at the time and in the light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the statements
therein not false or misleading...." The Company could be deemed to have
violated Rule 14a-9 by inclusion of false or misleading information provided by
the proxy advisors. This scenario would be further complicated if the Company had knowledge or
experience regarding any of the firms on the ballot that caused the Company to
form the good faith judgment that the firm lacked the necessary qualifications
to take on the task of providing voting advice, or perhaps had a conflict of
interest. The Proposal does not contemplate that the Company could take any
action to inform the shareholders of this opinion. However, it seems clear that
any such information would be deemed material with respect to the election of a
proxy advisory firm because such information would be viewed by a reasonable
investor as having significantly altered the "total mix" of information made
available. See TSC Industries, Inc. v. Northway,
426 U.S. 438 (1976). If the
Company implemented the Proposal as contemplated by the Proponent, the Company
would violate federal law under these circumstances by not including this
information regarding the unqualified proxy advisory firm.
Additionally, the Proposal, if implemented, would subject the Company to
potential liability with respect to any information provided by the proxy
advisory firm candidates for inclusion in the Company's proxy statement as well
as the voting advice of the winning proxy advisory firm to be included in the
following year's proxy statement because the federal securities laws do not
create any "safe harbor" from liability for the Company to include such
information or advice. The proxy rules currently provide only one way for a
third party (a shareholder) to gain access to the Company's proxy statement to
advise shareholders how to vote on a particular matter, which is through the
process presented in Rule 14a-8 regarding shareholder proposals. A second means
for providing shareholder access to a company's proxy statement is under
consideration, in the form of the Proposed Rule on Security Holder Director
Nominations, Release No. 34-48626 (the "Proposed Shareholder Access Rules").
Unlike the access established by Rule 14a-8 and the access contemplated by the
Proposed Shareholder Access Rules, the access contemplated by this Proposal is
wholly unregulated and without precedent. Under Rule 14a-8, a shareholder whose proposal is included in a company's proxy
statement may submit a statement in support of its proposal that the company
must include in its proxy statement, assuming such statement meets the legal
requirements established in Rule 14a-8. One such requirement is that the
supporting statement, together with the proposed resolution, not exceed 500
words. Rule 14a-8(1)(2) specifically provides that "[t]he company is not
responsible for the contents of [the shareholder's] proposal or supporting
statement." Similarly, in the Proposed Shareholder Access Rules, the Commission
specifically states that: "It is our intent that the nominating security holder or nominating security
holder group be liable for any false or misleading statements included in the
notice provided to the company by the nominating security holder or nominating
security holder group. The proposed rules contain express language, modeled on
Exchange Act Rule 14a-8(1)(2), providing that the company would not be
responsible for that disclosure." (footnotes omitted).
This "safe harbor" provided by Rule 14a-8(1)(2) and by the Proposed Shareholder
Access Rules is not applicable to any information the proxy advisory firm
candidates may provide for inclusion in the Company's proxy statement or the
proxy advisory firm's voting recommendations that the Company would be required
to include under the terms of the Proposal because this information and these
recommendations are neither a shareholder proposal governed by Rule 14a-8 nor a
director nomination governed by the Proposed Shareholder Access Rules. In
addition, the Proposal provides no mechanism for the Company to contest
inclusion of all or part of any such information or voting advice on the basis
that it is materially false or misleading. By adhering to the terms of the
Proposal and including the voting advice provided by the proxy advisory firm,
the Company would subject itself to potential liability for materially false or
misleading information included in such advice. This is a process and potential
liability that is not contemplated under the current securities regulation
disclosure system. If the Proposal were adopted, and implemented as described by the Proponent, the
Company would violate federal law because the list of potential proxy advisors
and reference to each advisor's website that the Proposal contemplates including
in the Company's proxy statement would not constitute sufficient information for
a reasonable investor to make an informed decision. In addition, the Company
would be subject to potential liability with respect to any information it did
include in the proxy statement at the direction of the proxy advisors because
the Proxy Rules offer no exemption for liability under these particular
circumstances. The Company could face the untenable choice of, on the one hand,
following the terms of the Proposal and simply including the information
provided by the advisors but potentially violating federal law by failing to
include material information regarding the advisors or the basis of their
opinions, or, on the other hand, failing to adhere to the terms of the Proposal
by specifically challenging statements by the proxy advisors that the Company
believed were false or misleading. III. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(3) Because It Is
Contrary to Rule 14a-9 A. The Proposal 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). The Proposal violates Rule 14a-9 and therefore 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 certainty what action or measures would be taken if the
proposal were implemented. In Commonwealth, the Staff concurred that a
shareholder proposal requiring the company to notify shareholders so they could
make trustee nominations and include such nominees in the company's proxy
materials was excludable because: "The proposal and supporting statement are so vague and indefinite and,
therefore, potentially misleading that neither shareholders voting on the
proposal, nor the Company, would be able to determine with any reasonable
certainty what actions or measures would be entailed in the event the proposal
were to be implemented." In A.H. Belo Corporation (January 29, 1998), a shareholder proposal mandating
that the Board of Directors sever all connections with organizations which
purport to have an anti-democratic agenda 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." A similar position was adopted by the Staff in Occidental
Petroleum Corporation (February 11, 1991), where 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." 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); 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). 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." 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"). The undefined and unstructured process contemplated by the Proposal, where a
seemingly unlimited number of self-styled proxy advisory firms need only submit
an entry fee to gain access to the Company's proxy statement, raises a host of
questions with respect to how the Proposal would be implemented by the Company.
While the Proposal purports to spell out a process for implementation, when
analyzed closely, it is clear that it raises far more questions than it answers,
and fails to provide critical guidance necessary such that the Company, the
Board, and the shareholders voting on the Proposal can understand how it would
be implemented. As a result, the Company's shareholders are being asked to
approve a Proposal that fails to provide essential guidelines and instructions
with respect to its implementation. The Proposal states that "any proxy advisory firm could put itself on the ballot
by paying an entry fee" but provides no guidance as to what, if anything, a
person or an entity might be required to do to qualify as a legitimate "proxy
advisory" firm. There is no generally accepted standard as to what would qualify
a person or an entity as a proxy advisory firm. The Proposal does not address
whether a firm would need to meet any minimal standards of qualification, and if
so, what they might be. Without some guidelines as to minimum qualifications,
the Company might find itself in the position of opening its proxy statement and
ballot up to anyone willing to pay an entry fee. The Proponent offers no
guidance as to how he intends the Company to implement the Proposal, with the
potential of dozens (or even hundreds) of entrants. Shareholders, when voting on
the Proposal, would have no insight as to what controls, if any, the Company
could or would establish to avoid this problem. If the Company were to implement the Proposal, it would be left with no guidance
as to what an appropriate entry fee would be. Clearly, the Company would have an
interest in making this fee significant enough to discourage the Company's proxy
statement from being used as a vehicle for public expression by anyone seeking
public exposure for personal or business reasons. However, the Proponent may
have intended that the fee be minimal to encourage maximum participation,
without regard to the legitimacy of a candidate. The Proposal is vague and
indefinite on this point. Shareholders voting on the Proposal and, if approved,
the Company in implementing the Proposal, might have differing views as to what
the Proponent intended. The Proposal makes no mention of what vote would be required to select the proxy
advisor from the potentially lengthy list of candidates. Is it a majority, a
plurality, or some minimum number of votes in favor of a candidate? This is a
particularly important question because a shareholder's vote on the Proposal
would likely be impacted by whether a minimum number of favorable votes were
required, such as perhaps 20%, or whether the Company could be obligated to
publish the voting advice of the firm that simply received a plurality of the
votes, even if the actual number of favorable votes were quite small.
The Proposal, if implemented, would require the Company to selectively disclose,
in advance of public disclosure, the contents of its proxy statement to a third
party that is not contemplated by the federal securities laws. In order for the
Company to include a third party's voting advice in the Company's proxy
statement, the Company would need to finalize the contents of its proxy
statement and disclose these contents to this third party well in advance of the
actual filing and mailing of the proxy statement in order for the proxy advisor
to have the time necessary to formulate its advice. In addition, as discussed in
detail above in Section II, the Company might need to ensure that any advice and
recommendation it included at the direction of the proxy advisor was not false
or misleading, since the Company would be exposed to potential liability for
false and misleading disclosure in its proxy statement. However, the Company
would not have the benefit of any established procedure for challenging or
omitting the proposed disclosure. The Proposal is entirely silent on these
matters, and accordingly, none of the Company, the Board of Directors, or the
shareholders voting on the Proposal would know with any certainty what the
Proponent intended with respect to addressing these critical questions and
therefore how the Proposal would actually be implemented. If the Proposal were adopted, none of the Company, the Board of Directors or the
shareholders could determine with any degree of certainty how the Proposal was
intended to be implemented without answers to these questions or solutions to
the problems this novel Proposal presents. Because of the Proposal's vagueness
and indefiniteness, the Company believes that the Proposal is materially false
and misleading and, therefore, may be omitted from the Proxy Materials in
reliance on Rule 14a-8(i)(3). B. The Proposal Is Materially False and Misleading in Violation of Rule 14a-9
The Proposal is contrary to Rule 14a-9, which prohibits false or misleading
statements in proxy materials, and therefore may properly be omitted from the
Proxy Materials under Rule 14a-8(i)(3). The Staff has consistently concurred
that a company may properly exclude entire shareholder proposals and supporting
statements where they contain false and misleading statements or omit material
facts necessary to make such proposals and supporting statements not false and
misleading. See The Swiss Helvetia Fund, Inc. (April 3, 2001); General Magic,
Inc. (May 1, 200); Aetna, Inc. (February 3, 1997); North Fork Bancorporation,
Incorporated (March 25, 1992); and Wellman, Inc. (March 25, 1992).
In light of the pervasive nature of the false and misleading statements included
in the Proposal, consistent with the authorities cited above, the Company
believes the entire Proposal may properly be excluded. The Company believes that
the Proposal is materially false and misleading, including in the following
respects: 1. In the first paragraph of the Proposal, the Proponent states that "many
shareowners lack the time and expertise to make the best voting decisions, yet
prefer not to always follow directors' recommendations, because of possible
conflicts of interest." The Proponent offers no factual support for this
assertion. On several recent occasions the Staff has required proponents who
submitted proposals nearly identical to the Proposal to provide factual support
for this statement or alternatively to revise the proposal to omit this
statement. See Kaufman and Broad Home Corporation (February 1, 2002) (concluding
that proponent must provide factual support for, or omit, statement that "many
shareowners lack the time and expertise to make the best voting decisions, yet
prefer not to always follow management's recommendations, because of
management's possible conflicts of interest"); The Gillette Company (February 1,
2001) (same). See also Equus II Incorporated (March 6, 2001).
2. Nowhere does the Proponent disclose that the website he references in the
last paragraph of the Proposal is his own website and that Corporate Monitoring
is a project founded by and run by the Proponent. Additionally, when one reviews
the contents of the Corporate Monitoring website, it seems apparent that the
Proponent himself has intentions of establishing a Corporate Monitoring Firm and
that such a firm can play a role in company proxy solicitations, including by
providing independent advice. The Proponent fails to disclose the fact that he
may intend to avail himself of the process he lays out in the Proposal in order
to seek compensation. These are material facts that are omitted from the
Proposal. 3. In the second paragraph of the supporting statement, the Proponent cites to a
Wall Street Journal article, which is two and one-half years old, regarding
Proxy Monitor's acquisition of Institutional Shareholder Services, suggesting
that this transaction has resulted in a "monopoly of shareholder advice." In
point of fact, such a monopoly (if it ever existed) does not exist today. As
recently reported by Morrow & Co., Inc. in their September 2003 Proxy Update,
which is attached to this letter as Attachment B, a new entity, Glass, Lewis &
Co., LLC, is now providing services as an independent adviser to institutional
shareholders on proxy and governance-related matters. The Proponent relies on an
out-of-date article to make an inflammatory and incorrect allegation, in
violation of Rule 14a-9. 4. In the third paragraph of the supporting statement, the Proponent cites a
Wall Street Journal article regarding State Street's out-sourcing of its proxy
voting operation. This statement is false and misleading for several reasons.
First, a search of relevant databases indicates no such article appeared in the
Wall Street Journal on the date referenced or, for that matter, on any other
date. The San Francisco Chronicle did publish an article on the date noted,
which included the quote referenced by the Proponent. However, the subject of
the article is the individual who votes proxies for Barclays Global Investors,
and State Street is mentioned only in passing. It is entirely unclear what
relevance this article has to the Proposal. Institutions may outsource voting
decisions for a variety of reasons, but whatever the reason, the fact that an
institution like State Street outsources its decisions bears no relevance on the
issue presented by the Proposal. Accordingly, the reference to this article is
false and misleading. 5. The fourth paragraph of the supporting statement cites a Wall Street Journal
article regarding the highly publicized action brought by the Commission against
Deutsche Asset Management Inc. in connection with the contested merger between
Hewlett-Packard Co. and Compaq Computer Corp. Deutsche Asset Management entered
into a cease and desist order and was fined $750,000. It is not at all apparent
what, if anything, this has to do with the Company. This paragraph is simply an
inflammatory, false and misleading effort to link the Company to this
well-publicized action, which is contrary to Rule 14a-9. Due to the pervasive nature of the false and misleading statements, the Company
believes that the Proposal is materially false and misleading as a whole and,
therefore, may be omitted in its entirety from the Proxy Materials in reliance
on Rule 14a-8(i)(3). However, even when the Staff has concluded that an entire
proposal is not excludable despite the presence of various false and misleading
statements, the Staff has on many occasions found that a company may properly
exclude certain portions of shareholder proposals and supporting statements from
its proxy materials where they contain false and misleading statements or omit
material facts necessary to make statements made therein not false or
misleading. See Peoples Energy Corporation (November 26, 2001); Phoenix Gold
International, Inc. (November 21, 2001); Emerson Electric Co. (October 27,
2000); Cornshare, Incorporated (August 23, 2000); National Fuel Gas Company
(November 18, 1999); CCBT Bancorp, Inc. (April 20, 1999); Chock Full O'Nuts
Corporation (October 14, 1998); Allegheny Energy, Inc. (March 5, 1998); The SBC
Communications Inc. (February 10, 1998); and Baldwin Piano and Organ Company
(February 20, 1998). At a minimum, the Company believes that the statements
identified above are false and misleading and therefore may be omitted from the
Proposal. IV. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(7) Because the
Proposal Deals with a Matter Relating to the Company's Ordinary Business
Operations Rule 14a-8(i)(7) provides that a company may omit a shareholder proposal from
its proxy statement if the proposal deals with a matter relating to the
company's ordinary business operations. The additional disclosure that the
Proposal will require in the Company's proxy statement is a matter relating to
the Company's ordinary business operations. In The Detroit Edison Company (January 10, 1980), the Staff considered a
proposal requesting that "[m]anagement and shareholder arguments for or against
a shareholder resolution should receive equal space in the proxy materials." The
Staff concurred in Detroit Edison's request for no-action on the basis of the
predecessor to Rule 14a-8(i)(7), concluding that: "In our view, a proposal that requires management, prior to the mailing of
certain correspondence to its shareholders, to take specific action relating to
the content of such correspondence involves a matter dealing with the ordinary
business operations of the Company." In 1999, the Staff clarified its position with respect to the Rule 14a-8(i)(7)
basis for omission of shareholder proposals requiring additional disclosure in a
company's reports. In Johnson Controls, Inc. (September 7, 1999), the Staff
concluded that: "[W]e have determined that proposals requesting additional disclosures in
Commission-prescribed documents should not be omitted under the `ordinary
business' exclusion solely because they relate to the preparation and content of
documents filed with or submitted to the Commission .... Beginning today, we
therefore will consider whether the subject matter of the additional disclosure
sought in a particular proposal involves a matter of ordinary business; where it
does, we believe it may be excluded under rule 14a-8(i)7)."
The Commission has taken the position that, in considering the applicability of
the "ordinary business" exception, the Staff will analyze the subject matter of
the proposal to determine if it concerns "tasks [that] are so fundamental to
management's ability to run a company on a day-to-day basis that they could not,
as a practical matter, be subject to direct shareholder oversight" and will
consider "the degree to which the proposal seeks to `micro-manage' the company
by probing too deeply into matters of a complex nature upon which shareholders,
as a group, would not be in a position to make an informed judgment." Release
No. 34-40018 (May 21, 1998). As discussed in detail above in Section II, the Company must provide its
shareholders with a proxy statement that includes sufficient information to
enable shareholders to make an informed decision and, under Rule 14a-9, unless
there is a specific rule absolving the Company from liability, the Company is
responsible for any material false or misleading statements in its Proxy
Materials. The Exchange Act provides no exception for that liability with
respect to the additional disclosures the Proposal, if implemented, would
require in terms of the list of and information about proxy advisory firms to be
included on the ballot and in the proxy statement and the winning firm's voting
recommendations to be included in the subsequent proxy statement. It is a
fundamental part of the ordinary business of management that it has control over
the Company's Exchange Act reports to ensure veracity and completeness in all
such reports. The Proposal, if implemented, would impede the Company's ability
to ensure that its Proxy Materials provide sufficient information and do not
include any materially false or misleading information, and to protect itself
from potential liability, because the Company would lack control over the
additional disclosure provided by the proxy advisory firm candidates and the
selected proxy advisory firm and yet would not have the benefit of any type of
"safe harbor" for liability with respect to this additional disclosure.
The Proposal should be excluded from the Proxy Materials on the basis of the
Rule 14a-8(i)(7) ordinary business exception because the task of ensuring that
the Company's Proxy Materials include all necessary material information for a
shareholder to make an informed decision and do not include false and misleading
information is a task so fundamental to management's ability to manage the
Company that it cannot be subject to control by shareholders.1
V. 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 under Rule 14a-8(i)(2) because the Proposal would, if
implemented, cause the Company to violate federal law, under Rule 14a-8(i)(3)
because the Proposal is vague, indefinite, false and misleading in violation of
Rule 14a-9, and under Rule 14a-8(i)(7) because the Proposal deals with matters
relating to the Company's ordinary business operations. 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: Dr. Mark Latham -----FOOTNOTES-----
1 I am aware of the Staff's position in The Gillette Company (December 20,
2000), in which the Staff considered the applicability of the 14a-8(i)(7)
ordinary business exception to a proposal regarding shareholders' selection of a
proxy advisory firm. The fact that the Staff did not concur with Gillette's
14a-8(i)(7) argument is not at all dispositive of this issue. As stated in
Section B, Question No. 6 of Staff Legal Bulletin No. 14 (July 13, 2001), the
Staff will not base its determinations solely on the subject matter of a
proposal. Instead the Staff will "consider the specific arguments asserted by
the company .... [and] may determine that company X may exclude a proposal but
company Y cannot exclude a proposal that addresses the same or similar subject
matter." While Gillette made a number of arguments with respect to the
applicability of Rule 14a-8(i)(7) with which the Staff did not concur, Gillette
did not address the fact that the proposal, if implemented, would interfere with
its ability to ensure that its proxy statement did not include materially false
and misleading information. Gillette did argue that it would be required to
"include disclosures to make clear that the analysis provided by the proxy
advisory firm is not that of management and does not constitute the
recommendation of Gillette's Board." However, this argument assumes that simply
disavowing liability would relieve a company of any liability associated such
false and misleading statements. The law does not support such an assumption
since, as discussed above in Section II, there is no specific "safe harbor" for
the disclosure contemplated by the Proposal, unlike that provided by 14a-8(1)(2)
and the Proposed Shareholder Access Rules. [APPENDIX]
PROXY ADVISOR PROPOSAL WHEREAS many shareowners lack the time and expertise to make the best voting
decisions, yet prefer not to always follow directors' recommendations, because
of possible conflicts of interest; WHEREAS shareowners have a common interest in obtaining sound independent
advice, but often insufficient private interest to justify paying for it
individually (the "free-rider" problem); THEREFORE BE IT RESOLVED that USEC Inc. shareowners request the Board of
Directors to hire a proxy advisory firm for one year, to be chosen by shareowner
vote. Shareowners request the Board to take all necessary steps to enact this
resolution in time to hold the vote at the year-2005 shareowner meeting, with
the following features:
To insulate advisor selection from influence by Company management, any proxy
advisory firm could put itself on the ballot by paying an entry fee, declaring
the price (no more than $8000) for advisory services for the coming year, and
providing the address of a website describing their proposed services and
qualifications.
The winning candidate would be paid its declared price by the Company, and
make advice freely available to all Company shareowners for the subsequent year,
on all matters put to shareowner vote except director elections. (Advice on
director elections is excluded to satisfy SEC rule 14a-8(i)(8).)
Performance of the advisory firm would not be policed by Company management,
but rather by gain or loss of the advisor's reputation and future business.
Brief summary advice could be included in the Company proxy, with references
to a website and/or a toll-free phone number for more detail.
The decision of whether to hire proxy advisory firms in later years would be
left open. Supporting Statement: The proxy advisor would be paid with Company funds to give shareowners an
independent professional opinion. Independence would be further enhanced by
having shareowners choose the proxy advisor. This could also increase
competition in the proxy advisory business, because new entrants could earn fees
on a company-by-company basis, without covering thousands of companies.
Wall Street Journal (July 26, 2001) article "After This Deal, Is Anyone Left to
Give Advice?": "... Proxy Monitor Inc. has agreed to buy Institutional
Shareholder Services... A monopoly of shareholder advice doesn't sit well with
some." Wall Street Journal (May 18, 2003) article "Battle of the Ballot": "State Street
out-sources its proxy voting operation to Institutional Shareholder Services."
Wall Street Journal (August 20, 2003) article "Deutsche Bank Unit Is Fined Over
H-P": "The SEC said Deutsche Asset Management Inc., Deutsche Bank's investment
advisory unit, should have told clients that the bank had a significant
relationship with H-P, of Palo Alto, Calif., since the investment adviser was
voting client shares in the H-P/Compaq merger." The conflicts of interest among managers, directors and shareowners are
described in Robert Monks and Nell Minow's 1996 book Watching the Watchers,
along with shareowners' "free rider" and "rational ignorance" problems.
Articles discussing the company-pay system for proxy advice are on the Corporate
Monitoring website at www.corpmon.com/publications.htm. [INQUIRY LETTER]
October 20, 2003 Secretary of the Company
USEC Inc.
Two Democracy Center
6903 Rockledge Drive
Bethesda, MD 20817
Phone: (301) 564-3327
Fax: (310) 564-3206 Dear Sir:
Enclosed is a shareowner proposal with supporting statement, which I hereby
submit for inclusion in the USEC Inc. year-2004 proxy statement. As confirmed by
the attached statement from my stock broker, I have owned at least 1400 shares
of USEC Inc. stock for at least one year, which is greater than the $2000 worth
required by SEC rules for submitting a proposal. I intend to maintain such
ownership through the date of the year-2004 annual shareowners' meeting.
For timely receipt because I may be travelling, please contact me by fax or
email with any correspondence regarding this proposal. Thank you. For your
records however, my postal address is 268 Bush Street #3934, San Francisco, CA
94104, USA. Sincerely, /s/
Mark Latham
[STAFF REPLY LETTER]
December 8, 2003 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareowner Proposal of Mark Latham to USEC Inc.
Ladies and Gentlemen: I am writing in response to the November 21, 2003 letter (the "USEC Letter")
submitted to the Commission by Mr. Timothy B. Hansen on behalf of USEC Inc.
("USEC" or the "Company"), which expresses the Company's intention to omit from
its proxy statement for the 2004 annual meeting a shareowner proposal (the
"Proposal" or my "Proposal") submitted by me. The Proposal would request the
Company's Board of Directors to hire a proxy advisory firm chosen by shareowner
vote. The USEC Letter cites Rules 14a-8(i)(2) (`violation of law'), 14a-8(i)(3)
(`violation of proxy rules') and 14a-8(i)(7) (`ordinary business') as bases for
its request for relief from enforcement action. Reasons are given below why I
believe the Proposal may not be properly omitted under Rule 14a-8.
Rule 14a-8(i)(2)`violation of law'
I agree that shareowners need sufficient information to make informed, rational
choices. That is precisely the reason for this proposal. A key weakness of our
current corporate governance system is the lack of independent advice for
shareowner voting, especially for individual investors. Currently, the only
professional advice available in the proxy is from the board of directors, whose
interests often conflict with those of shareowners. In fact, it is precisely on
those issues with conflicting interests that a shareowner vote is required by
law. Director elections provide an insufficient link between shareowner and
director interests. There is no practical way to provide sufficient information
about individual director candidates. No disclosure rule can fill this gap. The
information needed is too complex and subjective, so can not be sufficiently
well regulated or monitored by our legal system. Instead, brand reputation of organizations that each monitor many corporate
clients for many years can fill some of this information gap. For example, it is
difficult for a consumer to judge the quality of a single computer of unknown
brand; but once the brand is known, the consumer can use the wealth of
information that the entire computer community has summarized in that brand's
reputation. If you buy a Dell computer, you can have considerable confidence in
its quality. It is a well established common practice to call for a shareowner vote based on
an organization's brand reputation, without presenting in the proxy detailed
information on the organization's qualifications. For example, in the Company's
proxy statement of March 12, 2003, no details of PricewaterhouseCoopers'
qualifications were given to help shareowners decide how to vote on ratification
of the auditor's appointment. After implementation of this proposal, shareowners would be able to use brand
reputation to choose a good proxy advisor. In the following year, shareowners
would be able to use that advisor's advice to make more informed, rational
choices when voting on other matters. Thus implementing this proposal would
bring the Company into better compliance with federal law.
The Proposal calls for a vote in the proxy to choose a proxy advisor for the
following year. As with all other voting items, the Company's Board can make
their recommendation to shareowners on which way to vote, and can give their
reasons. Thus no violation of federal law need occur regarding omitting material
information. The USEC Letter states that "the access contemplated by this Proposal is wholly
unregulated and without precedent." Implementing the Proposal would create a
precedent, leading to an appropriate regulatory response. Rule 14a-8(i)(3)`violation of proxy rules'
A 500-word proposal can not spell out every step a board of directors should
take for its implementation. My Proposal requests the Board to hire a proxy
advisory firm, and reasonably leaves some implementation decisions to the
Board's judgement. The USEC Letter points out several such decisions, involving
qualifications of a proxy advisory firm, level of entry fee, ballot counting
method, and coordinating with the advisor. A competent board is capable of
making these decisions within the spirit of the Proposal. Indeed, SEC Release
No. 34-40018 (May 21, 1998) indicates that proposals seeking to impose specific
methods for implementing complex policies could be deemed in violation of the
"ordinary business" rule. Regarding points raised on pages 10 and 11 of the USEC Letter:
1. In all three precedents cited (Kaufman and Broad Home, Gillette, and Equus
II), the similar proposal was amended to include support of the assertion that
"many shareowners lack the time and expertise to make the best voting decisions,
yet prefer not to always follow directors' recommendations, because of possible
conflicts of interest." The amended proposals were then included in all three
proxies. My Proposal here includes the same supporting statement for that
assertion: `The conflicts of interest among managers, directors and shareowners
are described in Robert Monks and Nell Minow's 1996 book Watching the Watchers,
along with shareowners' "free rider" and "rational ignorance" problems.'
2. The Corporate Monitoring website shows clearly in many places that the
project is founded and run by me. For example the "Contact Us" link, prominent
on many of the site's pages, leads to this page: www.corpmon.com/CMP.htm,
showing me as founder and coordinator, with links to my resume and disclosure of
commercial interests. 3. I agree with the USEC Letter that the recent entry of Glass Lewis into proxy
advising has improved competition in that field. For competition, two is
certainly better than one, but still a rather small number. The Proposal could
significantly increase competition. If the Commission staff considers the
Proposal materially misleading on this point, I would suggest inserting a
reference to Glass Lewis. Microsoft Word shows the Proposal to contain 497
words, so such a reference could be made as follows: Wall Street Journal (July 26, 2001) article "After This Deal, Is Anyone Left to
Give Advice?": "... Proxy Monitor Inc. has agreed to buy Institutional
Shareholder Services ... A monopoly of shareholder advice doesn't sit well with
some." (See however www.glasslewis.com.) 4. I apologize for my citation error, and suggest correcting it to become:
San Francisco Chronicle (May 18, 2003) article "Battle of the Ballot": "State
Street out-sources its proxy voting operation to Institutional Shareholder
Services." 4. and 5. The relevance to this Proposal of the May 18 and August 20 articles
cited is that limited competition in proxy advising, combined with potential
conflicts of interest in stock voting by agents, is bad for corporate
governance. The Proposal is designed to alleviate such problems by increasing
competition. Rule 14a-8(i)(7)`ordinary business'
In the above discussion of Rule 14a-8(i)(2), I explained how brand reputation
can greatly reduce the amount of disclosure necessary in the proxy. My comments
in that section apply here also, including the point that the board can give its
recommendations for how to vote on choosing a proxy advisor, as well as its
reasons for those recommendations. Therefore this Proposal can be implemented
without infringing on ordinary business matters. Conclusion
Based on the foregoing, I request that the Commission staff not concur with the
views expressed in the USEC Letter regarding exclusion of the Proposal from the
USEC proxy statement. For timely receipt because I may be traveling, please
contact me by email or fax with any correspondence regarding this submission.
Thank you. For your records however, my postal address is 177 Telegraph Road
#302, Bellingham, WA 98226, USA. (I recently moved from San Francisco.)
Very truly yours, /s/
Mark Latham cc: Mr. Timothy B. Hansen
[STAFF REPLY LETTER]
January 14, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: USEC Inc.
Incoming letter dated November 21, 2003 The proposal requests that the board of directors hire a proxy advisory firm,
chosen by shareholder vote, to give voting advice to shareholders.
We are unable to concur in your view that USEC may exclude the proposal under
rule 14a-8(i)(2). Accordingly, we do not believe that USEC may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(2). We are unable to concur in your view that USEC may exclude the entire proposal
under rule 14a-8(i)(3). However, there appears to be some basis for your view
that portions of the supporting statement may be materially false or misleading
under rule 14a-9. In our view, the proponent must:
provide factual support for the Whereas clause that begins "Whereas many
shareowners ..." and ends "... conflicts of interest";
revise the statement that begins "Wall Street Journal (May 18 ..." and ends
"... to Institutional Shareholder Services" to provide a citation to the correct
source; and
delete the statement that begins "Wall Street Journal (August 20 ..." and ends
"... H-P/Compaq merger". Accordingly, unless the proponent provides USEC with a proposal and supporting
statement revised in this manner, within seven calendar days after receiving
this letter, we will not recommend enforcement action to the Commission if USEC
omits only these portions of the supporting statement from its proxy materials
in reliance on rule 14a-8(i)(3). We are unable to concur in your view that USEC may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that USEC may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(7). Sincerely,
/s/ Keir D. Gumbs
Special Counsel
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