Release No. IC-9343

Release No. 35-19602

Release No. 34-12598

July 7, 1976

File No. S7-643

(Comment Period Expires September 7, 1976)
 

Proposed Amendments to Rule 14a-8 Relating to Proposals by Security Holders

The Commission today invited public comment on proposed amendments to Rule 14a-8 under Section 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"). ¹ Rule 14a-8 is the provision in the Commissions proxy rules which sets forth the requirements applicable to proposals submitted by security holders for inclusion in the proxy soliciting materials of issuers. The proxy rules are promulgated under the Exchange Act but also are applicable to the solicitation of proxies under the Public Utility Holding Company Act of 1935 and the Investment Company Act of 1940.

The amendments are being proposed because of the Commissions belief that they will assist both issuers and their security holders in understanding Rule 14a-8 and complying with its requirements. The proposed amendments, which among other things would clarify the requirements applicable to both proponents of shareholder proposals and managements, are discussed below in the order in which they appear in the rule.

Procedural Requirements for Proponents - Rule 14a-8(a)

Paragraph (a) of the existing rule is concerned primarily with the procedural requirements that must be satisfied by proponents. In its amended form, the paragraph would contain four subparagraphs, each dealing with a specific procedural requirement, as discussed below.

(1) Eligibility. Under the existing rule a proponent must be a "security holder entitled to vote at a meeting of security holders" in order to be eligible to have his proposal included in the issuers proxy materials. This basic standard of eligibility would be retained in subparagraph (a)(1) of the amended rule. Provisions would be added, however, to make clear three interpretations of the existing rule which heretofore have not been specifically stated therein:

(a) A proposal may be submitted not only by a record owner of a security of the issuer, but also by a beneficial owner as well. ² However, if a proponent claims to have a beneficial ownership interest, he must be prepared to document that interest within 10 business days after receiving a request for appropriate documentation from the management.

(b) The security owned by the proponent must be one which would enable him to vote on his proposal at the meeting of security holders. Thus, under this provision a proponent could not submit a proposal that goes beyond the scope of his voting rights. For example, a proponent who owned a security that could be voted on the election of some of the issuers directors but on no other matters, could not submit a proposal relating to the issuers business activities, since he would not be able to vote on it personally.

(c) A proponent must own a voting security at the time he submits a proposal, and he must continue to own that security through the date on which the meeting is held. In this regard, the amended rule also would provide that in the event the management included a proponents proposal in its proxy materials for a particular meeting and the proponent failed to comply with the requirement that he continuously own his security through the meeting date, the management could then exclude from its proxy materials for any meeting held in the following two calendar years any proposals submitted by that proponent. The purpose of this latter provision is to assure that the proponent will maintain an investment interest in the issuer through the meeting date.

(2) Notice. The existing rule states that the proponent must accompany his proposal with "notice of his intention to present the proposal for action at the meeting." The Commission believes the notice requirement serves a useful purpose in that it provides some degree of assurance that the proponents proposal will indeed be presented for action at the meeting. Accordingly, the Commission proposes to retain the notice requirement in substantially the same form in which it now exists.

Notwithstanding the above, the Commission recognizes that many proponents are unaware of the notice requirement when they submit their proposals and consequently do not comply with it at that time. As a result, the Commission proposes in subparagraph (a)(2) of the rule to permit a proponent who is unaware of the notice requirement at the time of submission to furnish the requisite notice within a reasonable time after being made aware of the requirement by the management.

Subparagraph (a)(2) also would make clear that a proponent who furnishes the requisite notice in good faith but subsequently determines that he will be unable to appear at the meeting, may arrange to have another security holder of the issuer present his proposal on his behalf at the meeting. This proposed revision is in accord with existing practice and is intended, again, to provide some assurance that a proponents proposal will indeed be presented for action at the meeting.

Finally, the Commission proposes to add a sentence at the end of subparagraph (a)(2) which will have essentially the same effect as subparagraph (c)(3) of the existing rule. That is, the proposed sentence provides that in the event the proponent or his proxy fails without good cause to present his proposal at the meeting, the management need not include any proposals submitted by the proponent in its proxy materials for any meeting held in the following two calendar years. This provision is in keeping with the overall purpose of the notice requirement, which is to avoid putting the issuer and its security holders to considerable expense for no valid purpose.

(3) Timeliness. Under the existing rule, a proposal to be presented at an annual meeting must be received by the management no later than 70 days in advance of the anniversary of the mailing date for the previous years proxy materials. Proposals submitted for other meetings must be received a reasonable time in advance of the mailing date. The Commission proposes to extend the timeliness deadline for annual meetings from 70 to 90 days and to leave unchanged the requirement for other meetings. The 20-day advance in the deadline for annual meetings is being proposed in conjunction with a similar 20-day advance in the deadline date under paragraph (d) of the rule for the filing by managements of the reasons why they believe specific proposals may properly be excluded from their proxy materials. Currently, paragraph (d) requires that the management file such reasons, as well as any related materials, at least 30 days prior to the filing of its preliminary proxy materials, unless the Commission permits them to be filed within a shorter period.

The two changes are being proposed because of the Commissions belief that they would benefit both managements and proponents. With respect to managements, the Commission believes that advancing the filing requirement under paragraph (d) from 30 to 50 days largely would eliminate the disruptions in the printing schedules for their proxy materials that occasionally have resulted under the existing 30-day filing requirement. Such disruptions generally have occurred when the staff of the Commission was unable, due to its workload, to express within the 30-day period its informal enforcement views on the managements reasons for omitting a proposal. Although there is no requirement that managements adhere to the staffs comments, the Commission is aware that most managements are interested in those comments and will delay their printing schedules, if necessary, in order to consider them. Based on past experience, the Commission believes the additional 20 days proposed above would eliminate almost all such delays.

Insofar as proponents are concerned, the Commission is aware that advancing the deadline for submitting proposals from 70 to 90 days may be inconvenient to some. However, it believes that the inconvenience will be minimal, and is outweighed by the fact that the new timeliness deadlines would provide an additional 20 days for proponents to explore all possible alternatives in connection with a managements intention to omit their proposals. One of these alternatives is to institute an action in a U.S. District Court to compel the management to include the proposals in the issuers proxy materials, and the change in the timeliness deadlines will provide an additional 20 days to prepare for, and institute such a suit.

The Commission also proposes to make certain minor revisions to the Note in the existing rule which suggests that proponents submit their proposals by Certified Mail - Return Receipt Requested. Although the proposed revisions would clarify the Note, they would not alter its substance.

(4) Number and Length of Proposals. The existing rule does not contain any limitation on either the number of proposals which a proponent may submit to an issuer or the length of such proposals. The Commission, however, has noted that in recent years several proponents have exceeded the bounds of reasonableness either by submitting excessive numbers of proposals to issuers (one proponent submitted 21 proposals to an issuer, and many have submitted 10 or more) or by submitting proposals that are extreme in their length (there have been two occasions in which proposals exceeding 3,000 words in length have been submitted). The Commission is concerned about such practices not only because they appear to be an unreasonable exercise of the right to submit proposals, but also because they tend to obscure other material matters in the proxy statements of issuers, thereby reducing the effectiveness of such documents. In light of these concerns, the Commission proposes to add a new subparagraph (a)(4) to the rule which would limit a proponent to a maximum of two proposals of not more than 300 words each to an issuer.

The Commission believes that the above limitations are reasonable and would serve the interests of security holders. Moreover, it appears that they would not adversely affect the vast majority of proponents. In arriving at this view, the Commission has examined data compiled on those proposals during the past three fiscal years that were objected to by managements pursuant to paragraph (d) of Rule 14a-8. This data indicates that approximately 83% of the time, a proponent submitted no more than two proposals to an issuer. The data also indicates that approximately 86% of the proposals at issue were 300 words or less in length. In light of this information, as well as the concerns expressed above, the Commission believes the limitations proposed in subparagraph (a)(4) would constitute reasonable and appropriate restraints on the right to submit proposals.

Subparagraph (a)(4) also would provide that in those instances in which a proponent fails to comply with either of the above requirements or with the 200-word limit on statements in support of a proposal, the management shall so notify the proponent and provide him with a reasonable time to reduce the items submitted by him to the limits set forth in the rule. This provision is being proposed in the interest of fairness because the Commission recognizes that many proponents, due to lack of awareness of the proposed limitations, may inadvertently exceed them at the time they submit their proposals.

Supporting Statements for Proposals - Rule 14a-8(b)

Paragraph (b) of the current rule deals with statements that may be submitted by proponents in support of their proposals. The Commission proposes to make only two changes in that paragraph, neither of which is substantive in nature.

The first change is the deletion of the following sentence now contained in the existing paragraph:

Any statements in the text of a proposal, such as a preamble or "whereas" clauses, which are in effect arguments in support of the proposal, shall be deemed part of the supporting statement and subject to the 200-word limitation thereon.

The above sentence was intended to curtail the tendency of proponents to evade the 200-word limitation on supporting statements by submitting lengthy proposals which contained supporting argumentation within the text of the proposals themselves. However, since the Commission now proposes to place a limit on the length of proposals that would encompass any introductory preambles or "whereas" clauses, there no longer seems to be any need to police the length of supporting statements in the manner envisioned by the above sentence.

The second change relates to the last two sentences of the current paragraph. These sentences, which provide that the proponent shall furnish his supporting statement to the management at the time the proposal is furnished, and that neither the management nor the issuer shall be responsible for such statement, often are overlooked by the proponents.

Accordingly, in order to highlight them, they have been combined into a single sentence and repositioned in the paragraph.

Substantive Bases for Omission of Proposals - Rule 14a-8(c)

Paragraph (c) of the current rule sets forth various grounds for excluding a proposal from an issuers proxy materials. Most of these grounds for omission are substantive in nature and have been retained in some form in the revised paragraph. In addition, the Commission proposes to include in the paragraph several other bases for omitting proposals. Many of these additional grounds for omission, however, are not new, since they reasonably may have been implied from the existing rule.

In its amended form, paragraph (c) would contain 13 separate grounds for omitting a proposal. Each of these grounds is discussed below in the order in which it appears in the revised paragraph.

(1) State Law. Subparagraph (c)(1) of the current rule presently allows the management to omit a proposal "If the proposal as submitted is, under the laws of the issuers domicile, not a proper subject for action by security holders." This provision is based on the theory that no purpose is served by including in an issuers proxy materials proposals which the issuers security holders cannot properly act upon.

Although the Commission intends to retain subparagraph (c)(1) in essentially its present form, it proposes to omit therefrom the words "as submitted." The deletion of these two words will make clear the Commissions belief that a proponent is not bound by the original text of this proposal under this provision, but may revise the proposal in those instances in which a non-substantive change (such as a change in form) will bring it into compliance with the applicable state law.

The change proposed above is in accord with the long-standing interpretative view of the Commission and its staff under subparagraph (c)(1). In this regard, it is the Commissions understanding that the laws of most states do not, for the most part, explicitly indicate those matters which are proper for security holders to act upon, but instead provide only that "the business and affairs of every corporation organized under this law shall be managed by its board of directors," or words to that effect. Under such a statute, the board may be considered to have exclusive discretion in corporate matters, absent a specific provision to the contrary in the statute itself, or the corporations charter or by-laws. Accordingly, proposals by security holders that mandate or direct the board to take certain action may constitute an unlawful intrusion on the boards discretionary authority under the typical statute. On the other hand, however, proposals that merely recommend or request that the board take certain action would not appear to be contrary to the typical state statute, since such proposals are merely advisory in nature and would not be binding on the board even if adopted by a majority of the security holders.

In recognition of the foregoing, the Commission proposes to add a Note to subparagraph (c)(1) of the rule alerting proponents to the fact that the propriety of their proposals under the applicable state law may depend upon the form in which the proposal appears. Thus, the Note states that "A proposal that may be improper under the applicable state law when framed as a mandate or directive, may be proper when framed as a recommendation or request." By so alerting proponents, the Commission believes there no longer will be a need to refer to the form of proposals in any other provision of Rule 14a-8. Accordingly, all such references, including those contained in subparagraphs (c)(2)(ii) and (c)(5) of the present rule, have been omitted from the revised rule.

(2) Federal Law. The Commission proposes to formalize in paragraph (c)(2) of the revised rule a view that its staff has expressed informally on numerous occasions in the past. That is, a proposal by a security holder that would, if implemented, be violative of a federal law of the United States may properly be excluded from an issuers proxy materials. Although this restriction on proposals reasonably may be implied from subparagraph (c)(1) of the present rule, since both federal and state law are applicable in an issuers domicile, the Commission proposes to remove all doubt in this area by promulgating a separate exclusionary provision for proposals that violate U.S. laws.

(3) Proxy Rules and Regulations. 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 issuers 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 (c)(3) to Rule 14a-8 expressly providing that a proposal or supporting statement may not be contrary to any of the Commissions 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.

(4) Personal Claim or Grievance. Subparagraph (c)(2)(i) of the current rule allows a proposal to be excluded from an issuers proxy materials if it "relates to the enforcement of a personal claim or the redress of a personal grievance against the issuer, its management, or any other person." Because the Commission does not believe an issuers proxy material are a proper forum for airing personal claims or grievances, it intends to retain this provision in its present form in subparagraph (c)(4) of the revised rule.

(5) Insignificant Matters. Subparagraph (c)(2)(ii) of the existing rule permits an issuer to omit a proposal if it "consists of a recommendation, request or mandate that action be taken with respect to any matter, including a general economic, political, racial, religious, social or similar cause, that is not significantly related to the business of the issuer..." The Commission proposes to retain the substance of this provision in subparagraph (c)(5) of the revised rule. However, the reference in the existing rule to the form in which proposals appear and the illustrative reference to various general causes have been deleted on the ground they are superfluous and unnecessary. Accordingly, the provision, as proposed to be amended, simply states that a proposal may be omitted if it "deals with a matter that is not significantly related to the issuers business."

A number of persons have expressed the view that the Commission should revise the rule to allow the omission of a proposal whenever the matter involved therein does not bear a significant economic relation to the issuers business. The Commission, however, does not believe that the insertion of the word "economic" is appropriate at this time. Its view is based on the fact that there are many instances in which the matter involved in a proposal is significant to an issuers business, even though such significance may not be apparent from an economic viewpoint. For example, proposals dealing with cumulative voting rights or the ratification of auditors may not be economically significant to an issuers business, but they nevertheless have a significance to security holders that would preclude their being omitted under this provision.

Notwithstanding the foregoing, the Commission recognizes that there are circumstances in which economic data may indicate a valid basis for omitting a proposal under this provision. The Commission wishes to emphasize, however, that the significance of a particular matter to an issuers present or prospective business depends upon that issuers individual circumstances, and that there is no specific quantitative standard that is applicable in all instances. Moreover, the burden is on the issuer to demonstrate that this provision, or any other provision of Rule 14a-8 for that matter, may properly be relied upon to omit a particular proposal.

(6) Matters Beyond Issuers Power. Subparagraph (c)(6) of the proposed amended rule provides that a proposal may be omitted from an issuers proxy materials if it deals with a matter that is "beyond the issuers power to effectuate." This provision is derived from that part of subparagraph (c)(2)(ii) of the current rule and the Note thereto that allow a proposal to be omitted if it deals with a matter that is not within the control of the issuer. In terms of scope and effect, the provision is unchanged from the current rule and Note. However, since the Note does nothing more than define the term used in the subparagraph, it has been incorporated into the subparagraph itself.

(7) Routine Matters. Subparagraph (c)(5) of the existing rule permits an issuer to omit a proposal from its proxy materials if the proposal "consists of a recommendation or request that the management take action with respect to a matter relating to the conduct of the ordinary business operations of the issuer." This provision frequently has been relied upon by issuers to exclude proposals that involve matters of considerable importance to the issuer and its security holders. As a result, the Commission is concerned that it may not be operating completely in accord with the purposes for which Section 14(a) of the Exchange Act was enacted. That Section, which provides the statutory authority for the Commissions proxy rules and regulations, of which Rule 14a-8 is a part, was enacted to promote corporate suffrage and to limit those situations in which public corporations are controlled by a small number of persons. ³ As the Court of Appeals for the D.C. Circuit pointed out, the overriding purpose of Section 14(a) "is to assure to corporate shareholders the ability to exercise their right - some would say their duty - to control the important decisions which affect them in their capacity as stockholders and owners of the corporation. ⁴

In light of the above considerations, the Commission proposes to delete subparagraph (c)(5) and replace it with a new subparagraph (c)(7). The new subparagraph would permit the omission of a proposal only if it deals with a "routine, day-to-day matter relating to the conduct of the ordinary business operations of the issuer." Because matters of the type described in the new provision generally are of little interest or importance to most security holders, the Commission believes it is appropriate to retain an exclusionary provision for proposals dealing with them. The proposed new subparagraph, however, could not be relied upon to exclude proposals involving important business matters, notwithstanding the fact that such matters generally would relate to the conduct of the issuers ordinary business operations.

With respect to the standard which would be used to distinguish between routine and important matters for purposes of the new proposed subparagraph, the Commission suggests that following for consideration and comment: Will it be necessary for the board of directors (or other governing body of the issuer, such as the board of trustees) to act on the matter involved in the proposal? Under the proposed standard, mundane matters that would be handled by management personnel without referral to the board of directors generally would be excludable under this provision, but matters that would require action by the board would not be.

Alternate to Proposed Subparagraphs (c)(5) and (c)(7)

In connection with proposed subparagraphs (c)(5) and (c)(7), the Commission also wishes to elicit comments on the following questions: (1) whether it would be more beneficial to issuers and security holders not to adopt either or both of these proposed subparagraphs, or (2) whether it would be more beneficial to replace or supplement them with a provision which would allow the omission of a proposal if it deals with a matter that the governing body of the issuer (such as the Board of Directors) is not required to act upon pursuant to the applicable State law or the issuers governing instruments (such as the Charter or By-Laws).

The proposed alternate standard described above is being put forth for comment because the Commission recognizes that proposed subparagraphs (c)(5) and (c)(7) may create interpretative difficulties that might not arise under the proposed alternative provision.

(8) Elections to Office. The last sentence of paragraph (a) of the existing rule states that Rule 14a-8 does not apply to elections to office or to counter proposals to matters to be submitted by the management. Both of the grounds for omission mentioned in that sentence are substantive in nature, and the Commission believes they more properly belong in paragraph (c) of the rule, which contains all of the substantive grounds for omitting stockholder proposals. Accordingly, they have been restated in proposed subparagraphs (c)(8) and (c)(9) of the amended rule.

Subparagraph (c)(8) states simply that a proposal can be omitted if it "relates to a corporate, political or other election to office." The words "corporate, political or other..." have been added to make clear that the proposed subparagraph would apply to a proposal relating to any type of election to office. Notwithstanding its applicability to any election to office, the principal purpose of the provision is to make clear, with respect to corporate elections, that Rule 14a-8 is not the proper means for conducting campaigns or effecting reforms in elections of that nature, since other proxy rules, including Rule 14a-11, are applicable thereto.

(9) Counter Proposals. As noted above, subparagraph (c)(9) of the revised rule would merely restate a ground for omission already set forth in the existing rule. That is, a proposal that is counter to a proposal to be presented by the management may be omitted from an issuers proxy materials.

(10) Moot Proposals. The Commission proposes to set forth in subparagraph (c)(10) of the amended rule a ground for omission that has been implied in the existing rule but not specifically stated therein. The new subparagraph would provide that a proposal which has been rendered moot by the actions of the management may be omitted from the issuers proxy materials. This provision is designed to avoid the possibility of shareholders having to consider matters which already have been favorably acted upon by the management and would be applicable, for instance, whenever the management agrees prior to a meeting of security holders to implement a proponents proposal in its entirety.

(11) Similar Proposals in Current Year. As with subparagraph (c)(10) above, subparagraph (c)(11) would formalize a ground for omission that is not mentioned in the current rule but reasonably has been implied therefrom. Specifically, the new subparagraph would provide that the management may omit a proposal that is substantially duplicative of a proposal previously submitted by another proponent which the management intends to include in its proxy materials. The purpose of the provision is to eliminate the possibility of shareholders having to consider two or more substantially identical proposals submitted to an issuer by proponents acting independently of each other.

(12) Similar Proposals in Prior Year. With one exception, subparagraph (c)(12) of the proposed rule is identical to subparagraph (c)(4) of the existing rule. The exception is set forth in the first two lines of the new provision, and it amounts to a change in the standard for applying this ground for omission.

Subparagraph (c)(4) presently states that a proposal submitted by a security holder may be omitted from an issuers proxy soliciting materials if it is "substantially the same" as a prior shareholder proposal that failed on its most recent submission to receive a specified minimum percentage of the total votes cast. The purpose of the provision is to prevent matters of little interest from consistently being placed before an issuers security holders. The Commission has observed that in recent years the provision has been effectively circumvented by some proponents who have been able to present essentially the same subject matter to a companys security holders in successive years, even though their prior proposals on the matter failed to receive the minimum percentage of votes specified in the rule. This evation of the rule has been accomplished by recasting the form of the proposal, expanding its coverage, or otherwise changing its language in a manner that precludes one from saying that it is "substantially the same" as the prior proposal.

In recognition of the foregoing, and in order to prevent further frustration of the intent of the provision discussed above, the Commission proposes to revise the rule to permit the omission of a proposal if it "deals with substantially the same subject matter as a proposal previously submitted to security holders..." The Commission believes the proposed change would effectively limit the scope of shareholder proposals submitted under Rule 14a-8 to those matters that either have not been acted upon by an issuers security holders within the period specified in the rule, or, if acted upon, have evoked a significant shareholder vote during that period.

It should be noted that the proposed change would permit a proposal to be omitted even if only part of it dealt with the same subject matter as a prior proposal. Accordingly, should the proposed new subparagraph eventually be adopted by the Commission, it would be incumbent upon proponents to delete from their proposals any material dealing with substantially the same subject matter as a prior proposal that failed to receive the minimum percentage of votes specified in this provision.

(13) Specific Dividend Amounts. In subparagraph (c)(13) of the revised rule, the Commission proposes to permit issuers to omit from their proxy materials any proposals relating to "specific amounts of cash or stock dividends." Under Rule 14a-8 as it now exists, almost all dividend proposals are excludable either on the ground that they are contrary to the applicable state law, or on the ground that they relate to the conduct of the issuers ordinary business operations. (The latter result is based on the fact that the management, as an ordinary business matter, determines not only whether any dividends should be paid, but also the amount of such dividends).

Because the Commission already has proposed herein to narrow considerably the "ordinary business" test of subparagraph (c)(5) of the current rule (see the discussion of proposed subparagraph (c)(7) relating to "routine matters"), it appears likely that many dividend proposals no longer would be excludable under that standard. The Commission does not believe this would be an unwelcome result, inasmuch as dividend matters, including an issuers dividend policy, are extremely important to most security holders. It recognizes, however, that unless some restrictions are placed on the types of dividend proposals that are submitted, issuers could be inundated with numerous proposals of a conflicting nature on such matters. For instance, the possibility would exist that several proponents independently would submit to an issuer proposals asking that differing amounts of dividends be paid. Accordingly, in order to prevent security holders from being burdened with a multitude of conflicting dividend proposals, the Commission is proposing subparagraph (c)(13) in the form described above.

In arriving at the foregoing position on dividend proposals, the Commission has given consideration to the view advanced by some managements that dividend matters are not appropriate for discussion by security holders. This view is based on the fact that decisions on dividends traditionally have been within the exclusive province of the board of directors under most state laws, and the fact that individual directors can be held personally liable under many state laws if they pay dividends in excess of accumulated earnings. The Commission, however, it not persuaded that these reasons provide a valid basis for excluding all dividend proposals. In this regard, it is noted that mandatory dividend proposals would continue to be excludable under subparagraph (c)(1) of the revised rule, to the extent that they would intrude on the boards exclusive discretionary authority under the applicable state law to make decisions on dividends. But to the extent that such proposals were advisory in nature, and therefore non-binding on the board even if adopted, the Commission is unable to agree that proponents should be denied the opportunity to present them, within the limits of this provision, to their fellow security holders for consideration.

Procedural Requirements for Managements - Rule 14a-8(d)

Paragraph (d) of the existing rule deals with the procedural requirements applicable to managements who intend to omit stockholder proposals from their proxy materials. The Commission proposes to make the following changes in that paragraph:

(1) It proposes to insert the words "for any reason" in the forepart of the paragraph to make clear that the notification and filing requirements of paragraph (d) are applicable "Whenever the management assets, for any reason,..." that it may omit a proposal and/or supporting statement from its proxy materials. The purpose of the proposed revision is to dispel the erroneous belief of some managements that they need not comply with the requirements of paragraph (d) when a proposal is clearly excludable for a procedural reason (e.g., timeliness).

(2) The Commission proposes to advance the deadline for managements to submit materials under paragraph (d) from 30 days in advance of the date on which their preliminary proxy materials will be filed to 50 days prior to such date. As previously noted in the discussion of proposed subparagraph (a)(3) relating to the timeliness requirements for proponents, this change is being proposed in conjunction with a corresponding 20-day advance in the deadline date for the submission of proposals by proponents.

(3) It proposes to revise the paragraph to state that the materials required by paragraph (d) must be submitted not later than 50 days in advance of the filing date for the issuers preliminary proxy materials, "or such shorter period prior to such date as the Commission or its staff may permit..." The addition of the words "or its staff" would make clear that the staff may act on a request for a waiver of the 50-day filing requirement without the necessity for referring the request to the full Commission.

(4) The Commission proposes to require that five copies (rather than one, as at present) of all materials required by the paragraph be filed with it. The additional copies are needed to fulfill the public availability requirements applicable to such materials and to provide the Commissions staff with an adequate number of copies for working purposes and for its files.

Text of Proposed Revised Rule 14a-8

Rule 14a-8 is proposed to be revised to read as follows:

Rule 14a-8. Proposals of Security Holders.

(a) If any security holder of an issuer notifies the management of the issuer of his intention to present a proposal for action at a forthcoming meeting of the issuers security holders, the management shall set forth the proposal in its proxy statement and identify it in its form of proxy and provide means by which security holders can make the specification required by Rule 14a-4(b). Notwithstanding the foregoing, the management shall not be required to include the proposal in its proxy statement or form of proxy unless the security holder (hereinafter, the "proponent") has complied with the requirements of this paragraph and paragraphs (b) and (c) hereof:

(1) Eligibility. At the time he submits the proposal, the proponent shall be a record or beneficial owner of a security entitled to be voted at the meeting on his proposal, and he shall continue to own such security through the date on which the meeting is held. If the management requests documentary support for a proponents claim that he is a beneficial owner of a voting security of the issuer, the proponent shall furnish appropriate documentation within 10 business days after receiving the request. In the event the management includes the proponents shall furnish appropriate documentation within 10 business days after receiving the request. In the event the management includes the proponents proposal in its proxy soliciting materials for the meeting and the proponent fails to comply with the requirement that he continuously be a voting security holder through the meeting date, the management shall not be required to include any proposals submitted by the proponent in its proxy soliciting materials for any meeting held in the following two calendar years.

(2) Notice. The proponent shall notify the management in writing of his intention to appear personally at the meeting to present his proposal for action. The proponent shall furnish the requisite notice at the time he submits the proposal, except that if he was unaware of the notice requirement at that time, he shall comply with it within a reasonable time after being informed of it by the management. If the proponent, after furnishing in good faith the notice required by this provision, subsequently determines that he will be unable to appear personally at the meeting, he shall arrange to have another security holder of the issuer present his proposal on his behalf at the meeting. In the event the proponent or his proxy fails, without good cause, to present the proposal for action at the meeting, the management shall not be required to include any proposals submitted by the proponent in its proxy soliciting materials for any meeting held in the following two calendar years.

(3) Timeliness. The proponent shall submit his proposal sufficiently far in advance of the meeting so that it is received by the management within the following time periods:

(i) Annual Meetings. A proposal to be presented at an annual meeting shall be received by the management at the issuers principal executive offices not less than 90 days in advance of a date corresponding to the date set forth on the managements proxy statement released to security holders in connection with the last annual meeting of security holders, except that if the date of the annual meeting has been changed as a result of a change in the fiscal year, a proposal shall be received by the management a reasonable time before the solicitation is made.

(ii) Other Meetings. A proposal to be presented at any meeting other than an annual meeting shall be received a reasonable time before the solicitation is made.

NOTE. In order to curtail controversy as to the date on which a proposal was received by the management, it is suggested that proponents submit their proposals by Certified Mail-Return Receipt Requested.

(4) Number and Length of Proposals. The proponent may submit a maximum of two proposals of not more than 300 words each for inclusion in the managements proxy materials for a meeting of security holders. If the proponent fails to comply with either of these requirements, or if he fails to comply with the 200-word limit on supporting statements mentioned in paragraph (b), he shall be provided the opportunity by the management to reduce, within a reasonable time, the items submitted by him to the limits required by this rule.

(b) If the management opposes any proposal received from a proponent, it shall also, at the request of the proponent, include in its proxy statement of statement of the proponent of not more than 200 words in support of the proposal, which statement shall not include the name and address of the proponent. The statement and request of the proponent shall be furnished to the management at the time that the proposal is furnished, and neither the management nor the issuer shall be responsible for such statement. The proxy statement shall also include either the name and address of the proponent or a statement that such information will be furnished by the issuer or by the Commission to any person, orally or in writing as requested, promptly upon the receipt of any oral or written request therefor. If the name and address of the proponent are omitted from the proxy statement, they shall be furnished to the Commission at the time of filing the managements preliminary proxy material pursuant to Rule 14a-6(a).

(c) The management may omit a proposal and any statement in support thereof from its proxy statement and form of proxy under any of the following circumstances:

(1) If the proposal is, under the laws of the issuers domicile, not a proper subject for action by security holders.

NOTE. A proposal that may be improper under the applicable state law when framed as a mandate or directive, may be proper when framed as a recommendation or request.

(2) If the proposal is contrary to a federal law of the United States;

(3) If the proposal or the supporting statement is contrary to any of the Commissions proxy rules and regulations, including Rule 14a-9, which prohibits false or misleading statements in proxy soliciting materials;

(4) If the proposal relates to the enforcement of a personal claim or the redress of a personal grievance against the issuer, its management, or any other person;

(5) If the proposal deals with a matter that is not significantly related to the issuers business;

(6) If the proposal deals with a matter that is beyond the issuers power to effectuate;

(7) If the proposal deals with a routine, day-to-day matter relating to the conduct of the ordinary business operations of the issuer;

(8) If the proposal relates to a corporate, political or other election to office;

(9) If the proposal is counter to a proposal to be submitted by the management at the meeting;

(10) If the proposal has been rendered moot by the actions of the management;

(11) If the proposal is substantially duplicative of a proposal previously submitted to the management by another proponent, which proposal will be included in the managements proxy material for the meeting;

(12) If the proposal deals with substantially the same subject matter as a prior proposal submitted to security holders in the managements proxy statement and form of proxy relating to any annual or special meeting of security holders held within the preceding 5 calendar years, it may be omitted from the managements proxy material relating to any meeting of security holders held within 3 calendar years after the latest such previous submission:

Provided, That-

(i) If the prior proposal was submitted at only one meeting during such preceding period, it received less than 3 percent of the total number of votes cast in regard thereto; or

(ii) If the prior proposal was submitted at only two meetings during such preceding period, it received at the time of its second submission less than 6 percent of the total number of votes cast in regard thereto; or

(iii) If the prior proposal was submitted at three or more meetings during such preceding period, it received at the time of its latest submission less than 10 percent of the total number of votes cast in regard thereto; and

(13) If the proposal relates to specific amounts of cash or stock dividends.

(d) Whenever the management assets, for any reason, that a proposal and any statement in support thereof received from a proponent may properly be omitted from its proxy statement and form of proxy, it shall file with the Commission, not later than 50 days prior to the date the preliminary copies of the proxy statement and form of proxy are filed pursuant to Rule 14a-6(a), or such shorter period prior to such date as the Commission or its staff may permit, five copies of the following items: (1) the proposal; (2) any statement in support thereof as received from the proponent; (3) a statement of the reasons why the management deems such omission to be proper in the particular case; and (4) where such reasons are based on matters of law, a supporting opinion of counsel. The management shall at the time, if it has not already done so, notify the proponent of its intention to omit the proposal from its proxy statement and form of proxy and shall forward to him a copy of the statement of reasons why the management deems the omission of the proposal to be proper and a copy of such supporting opinion of counsel.

Text of Alternative to Proposed Subparagraphs (c)(5) and (c)(7)

With the exception of the alternative provision to subparagraphs (c)(5) and (c)(7) previously discussed herein, the complete text of the proposed revised rule is set forth above. The alternative provision would, if adopted, either replace or supplement proposed subparagraphs (c)(5) and (c)(7).

The alternative provision to subparagraphs (c)(5) and (c)(7) is proposed to read as follows:

Rule 14a-8. Proposals of Security Holders.

* * * * *

(c) * * *

* * * * *

(5, 7, or 14) If the proposal deals with a matter that the governing body of the issuer (such as the Board of Directors) is not required to act upon pursuant to the applicable State law or the issuers governing instruments (such as the Charter or By-Laws).

Cost Data

In addition to seeking comments on the above proposed amendments, the Commission is interested in obtaining information about the costs to issuers of including stockholder proposals in their proxy soliciting materials. This information is being sought with respect to proposals that are included in proxy materials from the date of this release through June 30, 1977. Any issuers willing to furnish such information to the Commission are requested to indicate not only the total cost of including each proposal in their proxy materials, but also the amount of each component part of the overall cost (such as printing, postage and legal expenses). This information should be submitted to Peter J. Romeo, Special Counsel, Division of Corporation Finance, Securities and Exchange Commission, Washington, D.C. 20549.

Authority

The Commission is proposing the amendments to Rule 14a-8 that are discussed herein pursuant to Sections 14(a) and 23(a) of the Securities Exchange Act of 1934, Sections 12(e) and 20(a) of the Public Utility Holding Company Act of 1935, and Sections 20(a) and 38(a) of the Investment Company Act of 1940. To assist interested persons in comparing the proposed revised rule to the existing rule, the complete text of the existing rule appears at the end hereof.

All interested persons are invited to submit their views and comments on the proposed amendments to George A. Fitzsimmons, Secretary, Securities and Exchange Commission, Washington, D.C. 20549, on or before September 7, 1976. All such communications should refer to File No. S7-643, and will be available for public inspection.

By the Commission

George A. Fitzsimmons

Secretary

July 7, 1976

TEXT OF EXISTING RULE

Rule 14a-8. Proposals of Security Holders.

(a) If any security holder entitled to vote at a meeting of security holders of the issuer shall submit to the management of the issuer, within the time hereinafter specified, a proposal which is accompanied by notice of his intention to present the proposal for action at the meeting, the management shall set forth the proposal in its proxy statement and shall identify it in its form of proxy and provide means by which security holders can make the specification provided for by Rule 14a-4(b). The management of the issuer shall not be required by this rule to include the proposal in its proxy statement or form of proxy for an annual meeting unless the proposal is received by the management at the issuers principal executive offices not less than 70 days in advance of a date corresponding to the date set forth on the managements proxy statement released to security holders in connection with the last annual meeting of security holders, except that if the date of the annual meeting has been changed as a result of a change in the fiscal year, a proposal shall be received by the management a reasonable time before the solicitation is made. A proposal to be presented at any other meeting shall be received by the management of the issuer a reasonable time before the solicitation is made. This rule does not apply, however, to elections to office or to counter proposals to matters to be submitted by the management.

NOTE. In order to curtail controversy as to the date that a security holders proposal was received by the management, it is suggested that security holders submit their proposals by Certified Mail--Return Receipt Requested.

(b) If the management opposes any proposal received from a security holder, it shall also, at the request of the security holder, include in its proxy statement a statement of the security holder, in not more than 200 words, in support of the proposal, which statement shall not include the name and address of the security holder. Any statements in the text of a proposal, such as a preamble or "whereas" clauses, which are in effect arguments in support of the proposal, shall be deemed part of the supporting statement and subject to the 200-word limitation thereon. The proxy statement shall also include either the name and address of the security holder or a statement that such information will be furnished by the issuer or by the Commission to any person, orally, or in writing as requested, promptly upon the receipt of any oral or written request therefor. If the name and address of the security holder is omitted from the proxy statement, it shall be furnished to the Commission at the time of filing the managements preliminary proxy material pursuant to Rule 14a-6(a). The statement and request of the security holder shall be furnished to the management at the time that the proposal is furnished. Neither the management nor the issuer shall be responsible for such statement.

(c) Notwithstanding the foregoing, the management may omit a proposal and any statement in support thereof from its proxy statement and form of proxy under any of the following circumstances:

(1) If the proposal as submitted is, under the laws of the issuers domicile, not a proper subject for action by security holders; or

(2) If the proposal:

(i) relates to the enforcement of a personal claim or the redress of a personal grievance against the issuer, its management, or any other person; or

(ii) consists of a recommendation, request or mandate that action be taken with respect to any matter, including a general economic, political, racial, religious, social or similar cause, that is not significantly related to the business of the issuer or is not within the control of the issuer;

NOTE. Proposals not within an issuers control are those which are beyond its power to effectuate.

(3) If the management has at the security holders request included a proposal in its proxy statement and form of proxy relating to either the last two annual meetings of security holders or any special meeting held subsequent to the earlier of such two annual meetings and such security holder has failed without good cause to present the proposal, in person or by proxy, for action at the meeting; or

(4) If substantially the same proposal has previously been submitted to security holders in the managements proxy statement and form of proxy relating to any annual or special meeting of security holders held within the preceding 5 calendar years, it may be omitted from the managements proxy material relating to any meeting of security holders held within the 3 calendar year after the latest suchprevious submission: Provided, That-

(i) If the proposal was submitted at only one meeting during such preceding period, it received less than 3 percent of the total number of votes cast in regard thereto; or

(ii) If the proposal was submitted at only two meetings during such preceding period, it received at the time of its second submission less than 6 percent of the total number of votes cast in regard thereto; or

(iii) If the proposal was submitted at three or more meetings during such preceding period, it received at the time of its latest submission less than 10 percent of the total number of votes cast in regard thereto; or

(5) If the proposal consists of a recommendation or request the management take action with respect to a matter relating to the conduct of the ordinary business operations of the issuer.

(d) Whenever the management asserts that a proposal and any statement in support thereof received from a security holder may properly be omitted from its proxy statement and form of proxy, it shall file with the Commission, not later than 30 days prior to the date the preliminary copies of the proxy statement and form of proxy are filed pursuant to Rule 14a-6(a), or such shorter period prior to such date as the Commission may permit, a copy of the proposal and any statement in support thereof as received from the security holder, together with a statement of the reasons why the management deems such omission to be proper in the particular case, and where such reasons are based on matters of law, a supporting opinion of counsel. The management shall at the same time, if it has not already done so, notify the security holder submitting the proposal of its intention to omit the proposal from its proxy statement and form of proxy and shall forward to him a copy of the statement of reasons why the management deems the omission of the proposal to be proper and a copy of such supporting opinion of counsel.

Footnotes

¹The Commission also has issued on this day a release discussing the informal procedures applicable to the rendering of staff advice with respect to shareholder proposals. See Securities Exchange Act Release No. 12599.

²The term "beneficial owner", when used in the context of the proxy rules, and in light of the purposes of those rules, may be interpreted to have a broader meaning than it would for certain other purposes under the federal securities laws, such as reporting pursuant to the Williams Act. See, for example, proposed Rule 13d-3 of Regulation 13D, Securities Exchange Act Release No. 11616 (August 25, 1975).

³See House Report No. 1383, 73d Cong., 2nd Sess. (1934), 13-14, and Senate Report No. 792, 73d Cong., 2nd Sess. (1934), 12.

⁴Medical Committee for Human Rights v. S.E.C., 432 F.2d 659, 680-681 (1970), vacated and dismissed as moot, 404 U.S. 403 (1972).