Company Name: Xerox Corp.
Public Availability Date: February 5, 2008
Document Sections: INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 16, 2008
By electronic mail (cfletters@sec.gov)
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, NE
Washington, DC 20549
Re: Shareholder Proposal Submitted by Lucian Bebchuk
Ladies and Gentlemen:
Xerox Corporation, a New York corporation ("Xerox" or the "Company"), hereby
requests confirmation that the staff (the "Staff") of the Division of
Corporation Finance of the U.S. Securities and Exchange Commission (the
"Commission") will not recommend enforcement action to the Commission if, in
reliance on certain provisions of rule 14a-8 under the Securities Exchange Act
of 1934, Xerox omits the enclosed shareholder proposal (the "Proposal") and
supporting statement (the "Supporting Statement") submitted by Lucian Bebchuk
(the "Proponent") from Xerox's proxy materials for its 2008 Annual Meeting of
Shareholders (the "2008 Annual Meeting"). The Proponent's letter setting forth
the Proposal and Supporting Statement is attached hereto as Exhibit A.
Pursuant to rule 14a-8(j)(2), we have enclosed six (6) copies of this letter and
the related exhibit. A copy of this letter, together with the related exhibit,
is being delivered to the Proponent to inform him of Xerox's intention to omit
the Proposal from its proxy materials.
Xerox's 2008 Annual Meeting of Shareholders is scheduled to be held on May 22,
2008. Xerox intends to file its definitive proxy materials with the Commission
on or about April 11, 2008 and to commence mailing those materials to its
shareholders on or about that date.
I. Summary of the Proposal
The Proposal recommends that Xerox's Board of Directors adopt a bylaw under
which the Company, to the extent permitted under federal and state law, shall
include in its proxy materials any "qualified proposal" for a bylaw amendment
(as well as a supporting statement related to that "qualified proposal") and
shall allow a vote of shareholders on that "qualified proposal." For purposes of
the Proposal, a "qualified proposal" would be a proposal that:
would be "legally valid" if adopted;
was submitted "by the deadline specified by the Company for shareholder
proposals";
was submitted by a proponent that owned $2,000 of the Company's common stock
for one year, as of the date of submission;
was submitted by a proponent that did not submit another proposal for
inclusion in the Company's proxy materials;
along with the supporting statement, does not "exceed 500 words";
does not "substantially duplicate" a previously submitted shareholder proposal
that will be included in the Company's proxy materials; and
is not "substantially similar" to a proposal that was voted on by shareholders
in the last three years and received less than 3% support of the votes cast in
that vote.
II. Bases for Excluding the Proposal
The Company believes that the Proposal may be properly omitted from its proxy
materials for the 2008 Annual Meeting for the following reasons:
the Proposal may be excluded in reliance on rule 14a-8(i)(3) because it is
contrary to the proxy rules, particularly rule 14a-8;
because the Proposal would create a process by which the Company would be
required to include future proposals that may be omitted in reliance on
paragraph (i) of rule 14a-8, it would merely do indirectly what a proposal could
not do directlyrequire a shareholder proposal to be included in the Company's
proxy materials even if it could be omitted in reliance on one of the
subparagraphs of paragraph (i)and, as such, the Proposal may be excluded in
reliance on rules 14a-8(i)(3), (i)(4), (i)(5), (i)(6), (i)(7), (i)(8), (i)(9), (i)(10),
and (i)(13);
the Proposal may be excluded in reliance on rule 14a-8(i)(7) because it
relates to the Company's ordinary business matters (i.e., would require
disclosure of ordinary business matters in Company filings with the Commission
beyond that which is required by Commission rules and regulations); and
the Proposal may be excluded in reliance on rule 14a-8(i)(3) because it is so
vague and indefinite that neither shareholders in voting on it, nor the Company
in implementing it, would be able to determine with any reasonable certainty
what actions are required.
Each of the bases upon which the Company believes it may properly omit the
Proposal from its proxy materials for the 2008 Annual Meeting is discussed
below.
A. The Proposal may be excluded in reliance on rule
14a-8(i)(3) because it is contrary to the proxy rules, particularly rule 14a-8.
Section 14(a) of the Exchange Act provides the Commission with broad rulemaking
authority regarding the regulation of proxy solicitations, stating that "[i]t
shall be unlawful for any person, by the use of the mails or by any means or
instrumentality of interstate commerce or of any facility of a national
securities exchange or otherwise, in contravention of such rules and regulations
as the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors, to solicit or to permit the use of
his name to solicit any proxy or consent or authorization in respect of any
security (other than an exempted security) registered pursuant to section 12 of
this title." The Commission exercised its authority under Section 14(a) to adopt
rule 14a-8. In adopting rule 14a-8 (and modifying that rule numerous times since
its original adoption), the Commission used notice and comment rulemaking to
balance the federally-imposed obligations on companies that are soliciting proxy
authority with the costs that result from those obligations.1 In connection with
the adoption of the federal proxy rules, the Commission has recognized the
interplay between state and federal law in the proxy solicitation context and
has adopted a balance between state and federal law that it believes to be
appropriate.
Rule 14a-8(i)(3) was adopted in 1976 to codify the formerly assumed ability of
companies to exclude shareholder proposals that are contrary to any of the proxy
rules. In this regard, when the Commission sought comments on its proposal of
what is now rule 14a-8(i)(3), it stated:
"The Commission is aware that on many occasions in the past proponents have
submitted proposals and/or supporting statements that contravene one or more of
its proxy rules and regulations. Most often, this situation has occurred when
proponents have submitted items that contain false or misleading statements.
Statements of that nature are prohibited from inclusion in proxy soliciting
materials by Rule 14a-9 of the proxy rules. Other rules that occasionally have
been violated are Rule 14a-4 concerning the form of an issuer's proxy card, and
Rule 14a-11 relating to contests for the election of directors.
In light of the foregoing, the Commission proposes to add a new subparagraph [(i)(3)]
to Rule 14a-8 expressly providing that a proposal or supporting statement may
not be contrary to any of the Commission's proxy rules and regulations,
including Rule 14a-9. This provision, if adopted, would simply formalize a
ground for omission that the Commission believes is inherent in the existing
rule." 2
In 1982, the Commission proposed amendments to rule 14a-8 that would have
permitted companies and their shareholders to establish a company-specific
shareholder proposal process that would have been substantially similar to that
set forth in the Proposal. In these proposed amendments, the Commission proposed
a supplemental rule ("rule 14a-8A") that would have permitted a company and its
shareholders to adopt a company-specific alternative procedure to govern the
shareholder proposal process.3
In the 1982 Proposing Release, the Commission proposed an additional alternative
approach to the rule 14a-8 process whereby all proposals that were proper under
state law and not relating to the election of directors would be included in a
company's proxy materials, subject to a numerical limitation.4 This proposed
alternative arose, in part, from the recognition that the security holder
proposal process is an important element of shareholder democracy, and a desire
to create a simpler and more predictable regulatory process.5
In the 1983 release adopting changes to rule 14a-8 based on proposals in the
1982 Proposing Release,6 the Commission elected to retain the framework of rule
14a-8, incorporating certain revisions designed principally to remove procedural
provisions that were not required to further the purpose of the rule and to
clarify and simplify the application of the rule. In taking its action in 1983,
the Commission stated:
"After review of the constructive and detailed views of the commentators and
after consideration of the issues presented in the [1982] Proposing Release, the
Commission has determined that shareholder access to issuers' proxy materials is
appropriate and that federal provision of that access is in the best interests
of shareholders and issuers alike. Moreover, based on the overwhelming support
of the commentators and the Commission's own experience, the Commission has
determined that the basic framework of current Rule 14a-8 provides a fair and
efficient mechanism for the security holder proposal process, and ... should
serve the interests of shareholders and issuers well." 7
The Commission's actions in 1983, as well as its statements explaining the bases
for those actions, clearly evidence the Commission's determination that the
Commission adopted rule 14a-8 (and subsequently modified it to include the
provisions of paragraph (i)) because the Commission believed that the "basic
framework" of the rule "provides a fair and efficient mechanism for the security
holder proposal process" and that the "federal provision of the [shareholder]
access is in the best interests of shareholders and issuers alike."
In addressing and reacting to the 2006 Second Circuit decision in AFSCME v. AIG
(discussed in greater detail in Section II.B below),8 the Commission recently
reconsidered the proper role of the Commission and rule 14a-8 in the proxy
process.9 In determining the appropriate response to the Second Circuit's
decision, the Commission again emphasized the importance of the federally
established procedures for shareholder access.10 Indeed, the 2007 release
proposing certain amendments to rule 14a-8 began by noting that Congress
intended to give the Commission power to control the conditions under which
proxies may be solicited, and that this authority encompassed "both disclosure
and mechanics." 11 The amendments to rule 14a-8(i)(8) proposed in the 2007
Proposing Release and later adopted by the Commission were intended to prevent
shareholders from usurping that authority by establishing the excludability of
shareholder proposals creating procedures that would require a company to
include certain shareholder nominees in its proxy materials.12 Making clear that
rule 14a-8(i)(8) would bar such proposals, these amendments changed the language
of the rule to include not just proposals "relat[ing] to an election for
membership on the company's board...," but also proposals relating to
"procedures" for nomination or election to the board.13 In disallowing such
proposals, the Commission discussed the "numerous protections of the federal
proxy rules," and also noted the "critical importance" of the anti-fraud
protection afforded by rule 14a-9.14 As it did in 1983, the Commission found
that circumvention of the federal proxy ruleseven by a shareholder's own
proposalwas not in the best interests of shareholders.
As noted above, the Commission adopted rule 14a-8 pursuant to its authority
under Section 14(a) of the Exchange Act and has modified that rule many times.
Rule 14a-8 specifies "when a company must include a shareholder's proposal in
its proxy statement and ... [the] few specific circumstances [under which] the
company is permitted to exclude [a] proposal, but only after submitting its
reasons to the Commission" (emphasis added).15 Under the current version of rule
14a-8, companies are required to include a shareholder proposal in their proxy
materials only if: (1) the proposal is submitted in accordance with the
procedural requirements of rule 14a-8; and (2) rule 14a-8(i) does not permit the
company to exclude the proposal. Contrary to this intended operation of rule
14a-8, the Proposal attempts to use the rule 14a-8 process, under which
companies are required to include proposals unless they are permitted to exclude
them pursuant to the terms of the rule, to require the inclusion of all
"qualified proposals" permitted by federal or state law, subject only to certain
limitations set forth in the Proposal, namely:
1. certain procedural requirements that are based on those currently set forth
paragraphs (b)-(e) of rule 14a-8; and
2. three substantive requirements that:
a. the "qualified proposal" for a bylaw amendment would be "legally valid" if
adopted;
b. the "qualified proposal" does not "substantially duplicate" another proposal
previously submitted to the Company by another proponent that will be included
in the proxy materials for the same meeting; and
c. the "qualified proposal" is not "substantially similar" to any other proposal
that was voted upon by the shareholders at any time during the preceding three
calendar years and failed to receive at least 3% of the votes cast when so
considered.
The Supporting Statement confirms the Proponent's intent that a bylaw adopted
under the Proposal would require the Company to include shareholder proposals in
its proxy materials beyond those that currently are required under rule 14a-8.
Specifically, the Supporting Statement states that "[c]urrent and future SEC
rules may in some cases allow companiesbut do not currently require themto
exclude proposals from the corporate ballot ... [and] even when SEC rules may
allow exclusion, it would be desirable for the Company to place on the corporate
ballot proposals that satisfy the requirements of the qualified proposal."
Consistent with this language, the Proposal seeks to require the Company to
include "qualified proposals" on substantive matters that far exceed the
boundaries of rule 14a-8(i). For example, the bylaw amendments that would be
permitted under the Proposal would require the Company to include any future
shareholder "qualified proposal," which would include proposed bylaw amendments
relating to:
the redress of a personal grievance against the Company (which otherwise would
be excludable in reliance on rule 14a-8(i)(4));
de minimus operations of the Company not otherwise significantly related to
the Company's business (which otherwise would be excludable in reliance on rule
14a-8(i)(5));
the Company's ordinary business operations (which otherwise would be
excludable in reliance on rule 14a-8(i)(7)); and
a nomination or an election for membership on the Company's board of directors
or analogous governing body or a procedure for such nomination or election
(which otherwise would be excludable in reliance on rule 14a-8(i)(8)).
Because the Proposal would require the Company to include bylaw amendment
proposals in its proxy materials even where the Company would be permitted to
exclude those bylaw amendment proposals in reliance on rule 14a-8, the Proposal
is contrary to the federal proxy rules. As such, Xerox believes that it may omit
the Proposal from its proxy materials in reliance on rule 14a-8(i)(3) because
the Proposal is contrary to the Commission's proxy rules, particularly rule
14a-8.
Consistent with the Company's view that it may omit the Proposal in reliance on
rule 14a-8(i)(3), the Staff expressed its view in its 2004 no-action letter to
State Street Corporation that the company was permitted to exclude, pursuant to
rule 14a-8(i)(3), a proposal seeking an amendment to a company's bylaws that
would require any future bylaw amendment proposed by stockholders to be included
in the company's proxy statement and every future change to the bylaws to be
required to be included in the company's proxy statement for stockholder
ratification or rejection.16 In reaching this position, the Staff concluded that
such a proposal, which was substantially similar to the Proposal and had the
same effect and intent as the Proposal, was contrary to the Commission's proxy
rules, including rule 14a-8.
In the State Street no-action request, the company expressed its view that "[t]he
authority to regulate what is required or permitted in a proxy statement or on a
form of proxy, however, is vested exclusively in the Commission under Section 14
of the 1934 Act and is expressed in related Rules and in Regulation 14A ... [and
the proposal's] attempt to clothe stockholders with rights of access to the
Company's proxy statement and form of proxy absent compliance with Rule 14a-8 is
flatly inconsistent with the scheme for access to the corporate electoral
machinery that the Commission has carefully crafted, including under Rule
14a-8." 17 Further, citing to Exchange Act Release No. 34-20091 (Aug. 16, 1983)
and Exchange Act Release No. 34-40018 (May 21, 1998), the company expressed its
view that the Commission's refusal to adopt rules that reduce its oversight role
in favor of more autonomous shareholders would "make no sense" if shareholders
could eliminate the Commission's oversight role through submissions such as this
proposal. The Staff concurred with the company's belief that the proposal could
be omitted from its proxy materials in reliance on rule 14a-8(i)(3), as contrary
to the Commission's proxy rules.
In the current Proposal, the Proponent is seeking to create an end run around
rule 14a-8 that is nearly identical to the proposal in State Street. The
supporting statement to the proposal in State Street stated that the power to
amend the bylaws is "a time-honored tool by which shareholders can protect their
investment," and that State Street's decisions not to include bylaw amendment
proposals on its proxy card imposed on shareholders' exercise of these rights.18
Similarly, the Proponent in his Supporting Statement opines that "the ability to
place proposals for By-law amendments on the corporate ballot could in some
circumstances be essential for shareholders' ability to use their power under
state law to initiate By-law amendments."
As noted above, the Commission has spoken clearly regarding the role of the
federal proxy rulesincluding rule 14a-8in the proxy solicitation process, as
well as the role of the Staff in the administration of those proxy rules. In
2007, the Commission reassessed the interaction of state and federal law in
connection with the solicitation of proxies and reaffirmed its view that it was
appropriate to have a nationwide standardas expressed in rule 14a-8for the
determination of those shareholder proposals that are required to be included in
a company's proxy materials. Further, in its letter to State Street, the Staff
addressed the operation of rule 14a-8 with regard to a shareholder proposal
that, like the Proposal, was intended to establish a process outside of the
federal proxy rules that would ease or more readily allow for the exercise of
shareholders' rights under state law. In its letter to State Street, consistent
with Commission's statements regarding rule 14a-8, the Staff concurred with the
view of the company that it could exclude the shareholder proposal in reliance
on rule 14a-8(i)(3) as contrary to the federal proxy rules, including rule
14a-8. Based on the Commission's longstanding position regarding the intended
operation of rule 14a-8 and its role as a uniform standard for the inclusion of
shareholder proposals in a company's proxy materials, including the Commission's
reaffirmation of that position in 2007, as well as the previously expressed
position of the Staff regarding the application of rule 14a-8 to a substantially
similar shareholder proposal, the Company believes that it may exclude the
Proposal and Supporting Statement from its proxy materials in reliance on rule
14a-8(i)(3) as contrary to the federal proxy rules, particularly rule 14a-8.
B. Because the Proposal would create a process by
which the Company would be required to include proposals that may be omitted in
reliance on paragraph (i) of rule 14a-8, it would merely do indirectly what a
proposal could not do directly require a shareholder proposal to be included in
the Company's proxy materials even if it could be omitted in reliance on a
subparagraph of paragraph (i)and, as such, the Proposal may be excluded in
reliance on each such subparagraph of paragraph (i).
In seeking to establish a process by which Xerox would be required to include
all future "qualified proposals" in its proxy materials, the Proposal would
require the Company to include shareholder proposals that could be omitted in
reliance on most, if not all, of the subparagraphs of rule 14a-8(i). We provide
a summary of these subparagraphs below. Due to the similarities among the
interaction of the Proposal and these subparagraphs of rule 14a-8(i), we have
grouped those subparagraphs for ease of discussion.
The Proposal would create a process under which a future "qualified proposal"
could establish a procedure for the nomination or election of members on Xerox's
Board of Directors and, as such, may be excluded in reliance on rule
14a-8(i)(8).
The Commission recently amended rule 14a-8(i)(8)19 in response to the 2006
decision in AFSCME v. AIGin which the Second Circuit agreed with the Staff's
view that companies were not required to include in their proxy materials any
shareholder proposals that would result in an immediate election contest, but
disagreed with the Staff's view that companies were not required to include in
their proxy materials any shareholder proposals that would establish a process
for shareholders to wage a future election contest.
In the 2007 Final Release, the Commission stated that the phrase "relates to an
election" in rule 14a-8(i)(8) cannot be read so narrowly as to refer only to a
proposal that relates to the current election, or a particular election, but
rather must be read to refer to a proposal that "relates to an election" in
subsequent years as well.20 The Commission noted, in this regard, that if one
looked only to what a proposal accomplished in the current year, and not to its
effect in subsequent years, the purpose of the exclusion could be evaded easily.
We believe that similar analysis should be applied to this Proposal.
Specifically, although the effect of inclusion of this Proposal in the Company's
proxy materials would not result in a contested election for the current
election, if the Proposal were included in the Company's proxy materials and the
board adopted the Proposal upon approval by the Company's shareholders, a
shareholder would be permitted to submit for inclusion in the Company's
materials for subsequent meetings a proposal to amend the Company's bylaws to
provide for the inclusion of shareholder nominees in the Company's proxy
materials. The Proposal seeks to establish this result, even though a
shareholder proposal that would provide for the inclusion of shareholder
nominees in the Company's proxy materials clearly would be excludable under rule
14a-8(i)(8). Therefore, based upon the interpretation and amendments to rule
14a-8(i)(8) recently established by the Commission, the Proposal is excludable
pursuant to rule 14a-8(i)(8) because it seeks to indirectly establish a process
for shareholders to wage a future election contest.
Rules 14a-8(i)(3), (i)(4), (i)(5), (i)(6), (i)(7), (i)(9), (i)(10), and (i)(13)
- The Proposal seeks to establish a procedure to evade the purpose of the
substantive exclusions in rule 14a-8(i).
The Proposal, if adopted, would require any future shareholder bylaw amendment
proposal that would be "legally valid" if adopted to be included in the
Company's proxy materials, so long as it was not substantially duplicative of
another shareholder proposal or had received less than 3% of the votes cast if
voted upon by shareholders during the preceding three years. Following the
interpretation of rule 14a-8(i)(8) set forth by the Commission in the 2007 Final
Release, the determination of whether the Proposal seeks to evade the purpose of
the substantive provisions of rule 14a-8(i) requires the consideration of the
Proposal's effect in both the current year and "in any subsequent year" to
determine whether it is seeking to evade the purpose of the substantive
exclusions under rule 14a-8(i). The effect and intent of the Proposal are to
establish a process under which, in future years, the Company would be required
to include "qualified proposals" in its proxy materials, even though rule
14a-8(i) would permit the exclusion of those future proposals from the Company's
proxy materials. As such, the Proposal would establish a procedure that would
evade most of the substantive requirements of rule 14a-8(i), including rule
14a-8(i)(3), (i)(4), (i)(5), (i)(6), (i)(7), (i)(9), (i)(10), and (i)(13). In
this regard, if the Proposal was adopted, all "qualified proposals" would be
required to be included in the Company's proxy materials. As such, under the
Proposal, the Company would be required to include any future "qualified
proposal" in its proxy materials, including any "qualified proposals" relating
to:
the redress of a personal grievance against the Company (which otherwise would
be excludable in reliance on rule 14a-8(i)(4));
de minimus operations of the Company not otherwise significantly related to
the Company's business (which otherwise would be excludable in reliance on rule
14a-8(i)(5));
a policy or requirement (e.g., requiring directors' independence without
providing a mechanism to cure) that the Company lacks the power or authority to
implement (which otherwise would be excludable in reliance on rule 14a-8(i)(6));
the Company's ordinary business operations (which otherwise would be
excludable in reliance on rule 14a-8(i)(7));
a proposal that directly conflicts with one of the Company's own proposals to
be submitted to shareholders at the same meeting (which otherwise would be
excludable in reliance on rule 14a-8(i)(9));
the policies or corporate governance matters that the Company has
substantially implemented (which otherwise would be excludable in reliance on
rule 14a-8(i)(10)); and
specific amounts of cash or stock dividends (which otherwise would be
excludable in reliance on rule 14a-8(i)(13)).
Moreover, the Proposal states that both the "qualified proposal" and any
supporting statement must be included in the Company's proxy materials. This
requirement could result in the inclusion in the Company's proxy materials of
"qualified proposals" and supporting statements containing impugning or
derogatory statements regarding the Company's officers and directors or
statements that are materially false and misleading (which otherwise would be
excludable in reliance on rule 14a-8(i)(3)).
Therefore, not only does this Proposal violate rule 14a-8(i)(8), as established
and interpreted by the Commission, but it also violates the other substantive
bases under which a "qualified proposal" would no longer be excludable by the
Company should this Proposal be implemented. Therefore, the Company believes
that the Proposal and Supporting Statement may be omitted from the proxy
materials in reliance on rules 14a-8(i)(3), (i)(4), (i)(5), (i)(6), (i)(7), (i)(8),
(i)(9), (i)(10), and (i)(13), both individually and collectively.
C. The Proposal may be excluded in reliance on rule
14a-8(i)(7) because it relates to the Company's ordinary business matters (i.e.,
the required disclosure of ordinary business matters in Company filings with the
Commission beyond that required by the Commission's rules and regulations).
The Proposal requests that the Company adopt a bylaw amendment that would
require the Company to include disclosure (i.e., "qualified proposals" and any
supporting statements) in its proxy statement beyond those required to be
disclosed/included by rule 14a-8. However, due to the minimal substantive
requirements with regard to the subject matter of a "qualified proposal," the
Proposal provides no limitation on, and almost certainly would result in the
Company being required to include in its proxy a "qualified proposal" and
supporting statement that related to the Company's ordinary business matters (as
defined under rule 14a-8(i)(7)).21
In its no-action letter to Johnson Controls (Oct. 26, 1999), the Staff expressed
its view 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," but stated that it would
"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)." 22 As mentioned above, the
Proposal would require the Company to include all future "qualified proposals"
meeting the procedural requirements, regardless of whether the subject matter of
the proposal related to ordinary business matters. As such, the Proposal
requires the inclusion of information (i.e., "qualified proposals" and any
supporting statements) in a document required by Commission rules, and such
requested information may relate to ordinary business matters that are not
required to be disclosed in the proxy under the federal proxy rules, including
rule 14a-8. Therefore, the Proposal would require the Company to include
disclosure in its proxy materials beyond that required under the Commission's
rules and that information may relate to the Company's ordinary business
matters. As such, consistent with the Staff's position in the Johnson Controls
and Exxon Mobil no-action letters, the Company believes that the Proposal may be
excluded in reliance on rule 14a-8(i)(7), as relating to the Company's ordinary
business matters.
D. The Proposal may be excluded in reliance on rule 14a-8(i)(3) because it is so
vague and indefinite that neither shareholders in voting on it, nor the Company
in implementing it (if adopted), would be able to determine with any reasonable
certainty what actions are required.
As evidenced by the rule changes proposed in 1982 that would have amended rule
14a-8 to permit companies to adopt alternative approaches to shareholder
proposals, absent amendment to that rule, companies are not permitted to "opt
out" of rule 14a-8. Given that companies may not "opt out" of rule 14a-8 and
that the Proposal would (if implemented) establish an alternative,
company-specific approach to shareholder proposals, such a company-specific
approach would appear to be intended to operate concurrently with rule 14a-8.
The dual operation of rule 14a-8 and a company-specific approach to shareholder
proposals under the Proposal raises a number of fundamental issues regarding the
operation of the Proposal that cause the proposal to be so vague and indefinite
that neither shareholders in voting on it, nor the Company in implementing it,
would be able to determine with any reasonable certainty those actions that are
required under the Proposal.
The fundamental uncertainties created by the language of the Proposal include
the following:
The Proposal contains no language indicating whether it would supersede
entirely or operate concurrently with rule 14a-8. As discussed above, it is the
Company's view that a company may not "opt out" of the federal proxy rules, even
if such an "opt out" were to be proposed by shareholders. However, such an "opt
out" may be the intended purpose of the Proposal and shareholders may understand
that to be the effect of the Proposal. Unfortunately, it is not possible to
ascertain whether the Proposal is intended to supersede rule 14a-8 in its
entirety, as neither the Proposal nor the Supporting Statement provide any
guidance to shareholders as to its effect in this regard. As such, neither the
shareholders nor the Company will be able to determine with any reasonable
certainty whether the Proposal is to supersede rule 14a-8 or operate
concurrently with that rule.
The Proposal requires that a "qualified proposal" be "legally valid." However,
the Proposal does not provide any context for the meaning of "legally valid" or
provide any guidance as to either the manner in which that term should be
interpreted or the manner in which any disagreements regarding the
implementation of that term would be resolved.23 As such, neither the
shareholders nor the Company will be able to determine with any reasonable
certainty the meaning of the primary substantive requirement of the
Proposalthat a "qualified proposal" must be "legally valid." 24
The Proposal requires that a "qualified proposal" must be submitted by "the
deadline specified by the Company for shareholder proposals for inclusion in the
proxy materials for the Annual Meeting." From this language (or any other
language in the Proposal or Supporting Statement), it is not possible to
determine whether this "deadline" refers to the deadline for shareholder
proposals that is established by rule 14a-8(e) or whether the Company would be
permitted to establish a different deadline for submitting "qualified
proposals." 25 The adoption of a submission deadline that is fundamentally
different from that in rule 14a-8 (for example, requiring "qualified proposals"
to be submitted one year before an annual meeting) would have a significant
effect on the operation of the Proposal, and neither the shareholders nor the
Company will be able to determine with any certainty the meaning of the
"deadline" that is to be established under the Proposal.
The Proposal requires that a "qualified proposal" must meet procedural
requirements that are similar to those in rule 14a-8 (for example, the proposal
may not exceed 500 words, the proponent must have owned $2000 of the company's
common stock for at least one year prior to submission of the proposal, the
proponent may not submit more than one proposal for an annual meeting, etc.).
While these procedural requirements are similar to those in rule 14a-8, they are
fundamentally different, in that the Proposal's procedural requirements do not
include the provisions in rule 14a-8(f) that require a company to provide a
timely notice of a procedural deficiency and permit an opportunity for the
proponent to remedy such a deficiency before it may exclude a proposal, and it
is not clear how these procedural requirements would interact with rule 14a-8.26
Due to this absence of guidance in the Proposal, neither the shareholders nor
the Company will be able to determine with any reasonable certainty the
operation of the procedural requirements in the Proposal.
As discussed above, the Proposal is very clear in its intention to override
rule 14a-8 with regard to the substantive bases upon which a company may exclude
a shareholder proposal. However, there is no indication as to whether or not the
procedural requirements in the definition of "qualified proposal" are intended
to similarly override those in paragraphs (b)-(e) of rule 14a-8. The override of
the procedural requirements of rule 14a-8 does not appear to be the legal effect
of the Proposal because it is likely that the rule 14a-8 procedural requirements
(including the notice and remedy provisions) would continue to apply.27 In this
regard, the language of the Proposal and the Supporting Statement is so vague
and uncertain as to the interaction between the Proposal and rule 14a-8 that
neither shareholders nor the Company will be able to determine with reasonable
certainty the effect of adoption of the Proposal on the procedural rights
provided to shareholders under rule 14a-8.
For the reasons stated above, both individually and collectively, the Company
believes that the Proposal and Supporting Statement may be properly omitted from
Xerox's proxy materials in reliance on rule 14a-8(i)(3) as they are so vague and
indefinite that neither shareholders in voting on the Proposal, nor the Company
in implementing it (if adopted), would be able to determine with any reasonable
certainty what actions are required.
III. Conclusion
On the basis of the foregoing, the Company respectfully requests the concurrence
of the Staff that the Proposal may be excluded from the Company's proxy
materials for the 2008 Annual Meeting.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact Robert Plesnarski or Rebekah Toton
of O'Melveny & Myers LLP, counsel representing the Company, at 202-383-5107 or
the undersigned at 203-849-2529. Please transmit your response by fax to the
undersigned at 203-849-5152. The fax number for the Proponent is 617-812-0554.
Please acknowledge receipt of this letter by stamping and returning the enclosed
receipt copy of this letter. Thank you for your prompt attention to this matter.
Sincerely,
/s/
DHL:eck
Attachment
cc: Lucian Bebchuk
1545 Massachusetts Avenue
Cambridge, MA 02138
Robert Plesnarski
Rebekah Toton
O'Melveny & Myers LLP
1625 Eye Street, NW
Washington, DC 20006
-----FOOTNOTES-----
1 In 1942, the Commission first addressed the issue of shareholder proposals in
a formal rulemaking. Specifically, the Commission adopted rule X-14A-7 regarding
the duty of management to set forth shareholder proposals in the company's
proxy. See Release No. 34-3347 (Dec. 18, 1942). This rule allowed that "In the
event that a qualified security holder of the issuer has given the management
reasonable notice that such security holder intends to present for action at a
meeting of security holders of the issuer a proposal which is a proper subject
for action by the security holders, the management shall set forth the proposal
and provide means by which security holders can make a specification as provided
in Rule X-14A-2" (i.e., on the proxy card). Since the adoption of this initial
rule, the Commission has addressed the proper requirements and balance of
shareholder access to management's proxy and the burden on issuers a number of
times, including the adoption of amendments to the rule in Release 34-4037 (Dec.
17, 1947), Release No. 34-4185 (Nov. 5, 1948), Release No. 34-4979 (Jan. 6,
1954), Release No. 34-12999 (Nov. 22, 1976), Release No. 34-20091 (Aug. 16,
1983), Release No. 34-40018 (May 21, 1998), and Release No. 34-56914 (Dec. 6,
2007).
2 See Exchange Act Release No. 12598 (July 7, 1976).
3 See Proposal II in "Proposed Amendments to Rule 14a-8 Under the Securities
Exchange Act of 1934 Relating to Proposals by Security Holders," Exchange Act
Release 34-19135 (October 14, 1982) (the "1982 Proposing Release").
4 See Proposal III in the 1982 Proposing Release.
5 Id.
6 See Exchange Act Release No. 34-20091 (August 16, 1983).
7 Id. at pages 6-7.
8 462 F.3d 121 (2d Cir. 2006).
9 See http://www.sec.gov/divisions/corpfin/cfroundtables.shtml for transcripts
of the May 2007 Roundtable Discussions Regarding the Proxy Process and http://www.sec.gov/news/testimony/2007/ts111407cc.htm
for a transcript of Chairman Christopher Cox's testimony before the U.S. Senate
Committee on Banking, Housing, and Urban Affairs on Nov. 14, 2007.
10 See Exchange Act Release No. 34-56914 (Dec. 6, 2007) (the "2007 Final
Release").
11 Exchange Act Release No. 34-56161 (July 27, 2007) (the "2007 Proposing
Release") at page 3 (internal quotation omitted).
12 See the 2007 Final Release at pages 16-19.
13 Id. at pages 16-17.
14 Id. at pages 2-3, 5, 22.
15 See rule 14a-8.
16 See State Street Corporation (Feb. 3, 2004) ("State Street").
17 Id.
18 Id.
19 See the 2007 Final Release. The amendments adopted in the 2007 Final Release
went into effect on January 10, 2008. While these amendments became effective
after the date the Proposal was submitted to Xerox, the proxy solicitation to
which the Proposal relates will commence after the effective date of the
amendments.
20 Moreover, the Commission stated that the purpose of rule 14a-8(i)(8), and its
interpretation of that rule, is to ensure that contests for election of
directors are not conducted without compliance with the Commission's disclosure
rules applicable to contested elections. See the 2007 Final Release at pages
2-6.
21 Under these limited substantive requirements, a "qualified proposal" must be
"legally valid," not "substantially duplicate" a previously submitted
shareholder proposal that will be included in the Company's proxy materials, and
not be "substantially similar" to any other proposal that was voted upon by the
shareholders at any time during the preceding three calendar years that failed
to receive at least 3% of the votes cast when so considered.
22 See also Exxon Mobil Corporation (Mar. 3, 2007) (omitting pursuant to rule
14a-8(i)(7) a proposal requesting the company to list all proposals, including
shareholder proposals, by title on the Notice page of the proxy statement, as
relating to ordinary business operations).
23 "Legally valid" is not a term defined in rule 14a-8; however, paragraphs (i)(1)-(i)(3)
relate to the exclusion of proposals that are improper under state law, could
cause the company to violate any state, federal, or foreign law, and/or are
contrary to the Commission's proxy rules. Presumably, "legally valid" is
intended to mean that a qualified proposal would not violate (or cause the
Company to violate) state, federal (including Commission rules and regulations),
or foreign law, thereby encompassing some or all of the substantive restrictions
in paragraphs (i)(1)-(i)(3).
24 See also Peoples Energy Corporation (Nov. 23, 2004) (proposal urging the
board of directors to take the necessary steps to amend Peoples Energy's
articles of incorporation and bylaws to provide that officers and directors
shall not be indemnified from personal liability for acts or omissions involving
gross negligence or "reckless neglect" omitted under (i)(3) because the term
"reckless neglect" was central to the purpose and intent of the resolution, but
had no common meaning and was undefined by the proposal or supporting
statement).
25 Moreover, rule 14a-5 dictates the presentation of information in a proxy
statement and paragraph (e) of that rule requires the disclosure of the
"deadline for submitting shareholder proposals for inclusion in the registrant's
proxy statement and the form of proxy for the next annual meeting calculated in
the manner provided in [rule] 14a-8(e) (Question 5)" (emphasis added).
26 See also Berkshire Hathaway Inc. (Mar. 2, 2007) (proposal seeking to restrict
Berkshire from investing in securities of any foreign corporation that engages
in activities prohibited for U.S. corporations by Executive Order of the
President of the United States omitted under (i)(3) as vague and
indefinitebecause, in part, the proposal was drafted broadly so as to encompass
all past and future Executive Orders, while the supporting statement focused
almost exclusively on Sudan). Similarly here, the Proposal tracks the language
and terminology of rule 14a-8 (giving rise to the impression that such terms and
phrases should be interpreted as they are under that rule), all the while
seeking to implement a shareholder proposal process wholly inconsistent with the
framework of the rule.
27 In this regard, rule 14a-8 specifically addresses "when a company must
include a shareholder's proposal in its proxy statement." And paragraph (a) of
rule 14a-8 defines a "proposal" as a shareholder's "recommendation or
requirements that the company and/or its board of directors take action, which
[a shareholder] intend[s] to present at a meeting of the company's
shareholders." Therefore, the Company would have to treat a "qualified proposal"
submitted by a shareholder to the Company for inclusion in the proxy, and who
intended to present it at the annual meeting, as a rule 14a-8 proposal and any
exclusion of the qualified proposal from the proxy for procedural deficiencies
would have to meet the procedural requirements of rule 14a-8.
[INQUIRY LETTER]
December 10, 2007
VIA TELECOPY AND VIA OVERNIGHT MAIL
Corporate Secretary
Xcrox Corporation
P.O Box 1600
Stamford. CT 06904
Re: Shareholder Proposal of Lueian Bebehuk
To: Corporate Secretary
I am the owner of 200 shares of common stock of Xerox Corporation (the
"Company"). which I have continuously held for more than I year as of today's
date. I intend to continue to hold these securities through the date of the
Company's 2008 annual meeting of shareholders.
Pursuant to Rule 14a-8. I enclose herewith a shareholder proposal and supporting
statement (the "Proposal") for inclusion in the Company's proxy materials and
for presentation to a vote of shareholders at the Company's 2008 annual meeting
of shareholders.
Please let me know if you would like to discuss the Proposal or if you have any
questions.
Sincerely,
/s/
Lucian Bebchuk
[APPENDIX]
RESOLVED that shareholders of Xerox Corporation recommend that the Board of
Directors adopt a By-Law provision under which the Company. to the extent
permitted under federal law and state law, shall include in its proxy materials
for an annual meeting of shareholders any qualified proposal for an amendment of
the By-Laws submitted by a proponent, as well as the proponent's supporting
statement if any and shall allow shareholders to vote with respect to such a
qualified proposal on the Company's proxy card. A qualified proposal refers in
this resolution to a proposal that satisfies the following requirements:
(a) The proposed amendment of the By-Laws would be legally valid if adopted;
(b) The proponent submitted the proposal and supporting statement to the
Company's Secretary by the deadline specified by the Company for shareholder
proposals for inclusion in the proxy materials for the Annual Meeting;
(c) The proponent beneficially owned at the time of the submission at least
$2,000 of the Company's outstanding common stock for at least one year, and did
not submit other shareholder proposals for the Annual Meeting;
(d) The proposal and its supporting statement do not exceed 500 words;
(e) The proposal does not substantially duplicate another proposal previously
submitted to the Company by another proponent that will be included in the
Company's proxy materials for the same meeting; and
(f) The proposal is not substantially similar to any other proposal that was
voted upon by the shareholders at any time during the preceding three calendar
years and failed to receive at least 3% of the votes cast when so considered.
SUPPORTING STATEMENT:
Statement of Professor Lucian Bebehuk: In my view, the ability to place
proposals for By-Law amendments on the corporate ballot could in some
circumstances be essential for shareholders' ability to use their power under
state law to initiate By-Law amendments. In the absence of ability to place such
a proposal on the corporate ballot, the costs involved in obtaining proxies from
other shareholders could deter a shareholder from initiating a proposal even if
the proposal is one that would obtain shareholder approval were it to be placed
on the corporate ballot. Current and future SEC rules may in some cases allow
companies but do not currently require them - to exclude proposals from the
corporate ballot. In my view, even when SEC rules may allow exclusion, it would
be desirable for the Company to place on the corporate ballot proposals that
satisfy the requirements of a qualified proposal. I urge even sharcholders who
believe that no changes in the Company's By-Laws are currently desirable to vote
for my proposal to facilitate shareholders' ability to initiare proposals for
By-Law amendments to be voted on by their fellow shareholders.
I urge you to vote for this proposal.
[INQUIRY LETTER]
February 4, 2008
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, NE
Washington, DC 20549
Re: Shareholder Proposal Submitted by Lucian Bebchuk
Ladies and Gentlemen:
Xerox Corporation (the "Company") hereby withdraws its request, dated January
16, 2008, for a no-action letter regarding its intention to exclude a
shareholder proposal and supporting statement submitted by Lucian Bebchuk (the
"Proponent") from the Company's proxy materials for its 2008 Annual Meeting of
Shareholders. The Proponent has withdrawn his proposal in a letter dated January
30, 2008, which is attached hereto as Attachment A. A letter from Proponent's
counsel dated January 30, 2008 confirming the withdrawal of the proposal is
attached hereto as Attachment B.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact Robert Plesnarski or Rebekah Toton
of O'Melveny & Myers LLP, counsel representing the Company, at 202-383-5107 or
the undersigned at 203-849-2529. Please transmit your acknowledgement of the
withdrawal of the Company's request by fax to the undersigned at 203-849-5152.
The fax number for the Proponent is 617-812-0554.
Sincerely,
/s/
Don H. Liu
DHL:eck
Attachments
[STAFF REPLY LETTER]
February 5, 2008
Don H. Liu
Senior Vice President,
General Counsel and Secretary
Xerox Corporation
45 Glover Avenue
Norwalk, CT 06856
Re: Xerox Corporation
Dear Mr. Liu:
This is in regard to your letter dated February 4,
2008 concerning the shareholder proposal submitted by Lucian Bebchuk for
inclusion in Xerox's proxy materials for its upcoming annual meeting of security
holders. Your letter indicates that the proponent has withdrawn the proposal,
and that Xerox therefore withdraws its January 16, 2008 request for a no-action
letter from the Division. Because the matter is now moot, we will have no
further comment.
Sincerely,
/s/
William A. Hines
Special Counsel
cc: Michael J. Barry Grant & Eisenhofer P.A. Chase Manhattan Centre 1201 North
Market Street Wilmington, DE 19801
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