Release No. 34-16356

November 21, 1979

SHAREHOLDER COMMUNICATIONS, SHAREHOLDER PARTICIPATION IN THE CORPORATE ELECTORAL PROCESS AND CORPORATE GOVERNANCE GENERALLY

ACTION: Final rules.

SUMMARY: The Commission announces the adoption of rule and schedule amendments which are intended to provide greater opportunities for shareholders to exercise their right of suffrage and to obtain information and advice with respect to matters on which they vote. The amendments require that shareholders be provided with a form of proxy which (a) indicates whether the proxy is solicited on behalf of the issuers board of directors, (b) permits shareholders to withhold authority to vote for each nominee for election as a director, and (c) provides a means by which shareholders are afforded an opportunity to abstain from matters referred to in the proxy card as to which shareholders have an opportunity to vote, other than elections to office. The Commission also is adopting a rule requiring that shareholders be provided, under certain circumstances, with information concerning the votes cast for and withheld from incumbent directors. Other rule amendments exempt from the informational and filing requirements of the proxy rules the furnishing of proxy voting advice by financial advisors, under certain limited circumstances. Such activities, however, as well as non-issuer solicitations made to ten or fewer persons, are subject to the proxy rule prohibition against false or misleading statements. Additionally, the Commission is adopting a rule which requires disclosure of the date by which shareholder proposals must be received in order to be included in the issuers proxy statement.

EFFECTIVE DATE: The amendments to Regulation 14A and Schedule 14A are effective for all issuers for filings made on or after December 31, 1979.

FOR FURTHER INFORMATION CONTACT: Amy L. Goodman (202) 272-2597, G. Michael Stakias (202) 272-2589 or Gregory H. Mathews (202) 272-2644, Division of Corporation Finance, Securities and Exchange Commission, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission today adopted amendments to Regulation 14A (17 CFR 240.14a-1 et seq.) and Schedule 14A (17 CFR 240.14a-101) under the Securities Exchange Act of 1934 15 U.S.C. 78a, et seq., as amended by Pub. L. No. 94-29 (June 4, 1975). The amendments are part of the Commissions continuing consideration of issues which have been raised in its reexamination of rules relating to shareholder communications, shareholder participation in the corporate electoral process and corporate governance generally.

Table of Contents

I. Background

In April 1977, the Commission authorized its staff to institute a broad re-examination of its rules relating to shareholder communications, shareholder participation in the corporate electoral process and corporate governance generally. ¹ Public hearings were held in the fall of 1977 on a number of issues, including the adequacy of existing avenues of communications between shareholders and corporations and the role of shareholders in the corporate electoral process.

In light of the complexity and variety of issues under consideration, the Commission determined to proceed in stages. In July 1978, the Commission published for comment rulemaking proposals intended to provide shareholders with information to facilitate their assessment of the structure, composition and functioning of issuers boards of directors. ² The adoption of these proposals for the 1979 proxy season was announced in Securities Exchange Act Release No. 15384 (December 6, 1978), 43 FR 58522 (December 14, 1978). At that time, the Commission indicated that additional stages of its response to the issues raised in the proceeding would consist of possible rulemaking proposals or recommendations for legislation and the publication of a staff report on other important questions under consideration.

On August 13, 1979, the Commission proposed certain amendments to its proxy rules. ³ The proposals were designed, among other things, to provide an opportunity for more meaningful shareholder participation in the corporate electoral and decision-making process. More than 600 individuals and organizations submitted letters in response to the Commissions request for comments. While most of the commentators were sympathetic to the Commissions goals, they raised concerns about the costs and difficulties of implementing the proposed amendments at this time, particularly those amendments which would permit shareholders to vote against individual directors and would eliminate authority of the proxy holder to vote the shares of any shareholder who failed to provide instructions.

Many commentators asserted that since few, if any, shareholders dissent from proposed corporate transactions or otherwise express their dissatisfaction to the company, no change is necessary or desirable-the system seems to be working. The Commission believes, however, that infrequent dissent or the absence of pervasive complaints by shareholders does not necessarily mean that the system of shareholder participation is functioning adequately or could not be improved without imposing excessive costs. In fact, some commentators noted that reduced levels of participation may be attributable to lack of meaningful ways to have ones voice heard.

The Commissions decision in 1977 to undertake a broad examination of its proxy rules relating to shareholder participation included a commitment to consider amending the existing proxy rules in ways that could increase the opportunities for shareholders to participate meaningfully in corporate governance, particularly where the burdens of change would be minimal. The Commission continues to believe that corporate accountability can be significantly enhanced if shareholders are actively involved in selecting directors, whether through the functioning of nominating committees or otherwise. Thus, the Commission believes that the rules it is adopting today are a step toward increasing the necessary shareholder participation, while at the same time not entailing significant costs.

The rules adopted today take into account the principal objections submitted by the commentators. The revisions in the proposals are discussed below.

II. Voting on Individual Nominees for Director-Rule 14a-4(b)(2)

Rule 14a-4(b)(2), as proposed, would have required that a form of proxy relating to the election of directors list the nominees individually. It also would have permitted shareholders to vote for or against each nominee, individually, by marking a box or by other similar means. A mechanism for shareholders to vote in favor of the entire slate of nominees by marking a single box, rather than by marking boxes for each of the nominees, also would have been permitted provided that there was a similar means for the security holder to vote against the entire slate.

In the release announcing publication of the proposal, the Commission expressed the view that "corporations should explore further the possibility that shareholder participation, quantitatively and qualitatively, might increase if the opportunities for such participation were made more meaningful." The Commission also expressed its belief that presently the act of shareholder voting is virtually pro forma and that "shareholders ought to have an opportunity for more meaningful participation in the director selection process." This desire to provide shareholders with a means to vote with respect to individual nominees was tempered, however, by recognition of the fact that the continued use by issuers of data processing techniques to tabulate votes might become difficult and substantially more expensive under the proposed amendments. Accordingly, the Commission specifically requested suggestions for accomplishing the proposed changes in the proxy card in a manner which would permit the continued use of existing tabulating techniques.

Almost all of the comment letters contained an assessment of proposed rule 14a-4(b)(2), and, in fact, a large number dealt only with this issue and that of discretionary voting, pursuant to proposed rule 14a-4(b)(3). Many commentators believed that rulemaking in the area of corporate accountability should focus on strengthening the independent role of the board, as well as the structure of the board and its committee system, rather than unduly politicizing the corporate electoral process through a provision for individual voting. Others commented that when shareholders vote for directors, they are voting for or against the board as a cohesive managing body and have little interest in individual nominees. Conversely, some commentators expressed the opinion that such a requirement was long overdue and that, in light of the recent amendments to the proxy rules regarding disclosure of certain personal and economic relationships between directors and the issuer or management, it seemed particularly important to allow shareholders the opportunity to express individual preferences. Similarly, there was some expression of support for the principle of individual voting, but disagreement with the proposal in light of he practical problems and costs which would result from implementation.

Virtually all of the commentators addressed themselves to questions concerning the feasibility of structuring a proxy card to allow individual voting and the costs necessary for implementation. The corporate commentators generally expressed opposition to the proposal based on cost estimates included in their comments. Most of these commentators, including corporate transfer agents, asserted that this proposal would make the current vote tabulation system obsolete, thereby requiring new data handling systems in order to tabulate the expanded number of proposals. It was further argued that the proposal would not only reduce the accuracy and efficiency of the tabulation process, but also would overly complicate the process of voting on a proxy card, thereby fostering shareholder disinterest and confusion.

A number of legal commentators questioned the treatment of an "against" vote under state law, most arguing that it normally would have no effect in an election. They also expressed the concern that shareholders might be misled into thinking that their against votes would have an effect when, as a matter of substantive law, such is not the case since such votes are treated simply as abstentions.

The Commission recognized that proposed rule 14a-4(b)(2) might create practical tabulating difficulties as well as increase the basic costs of the proxy solicitation process. As noted above, in an attempt to be sensitive to these problems, the Commission specifically requested information on the estimated additional costs of the rules, as well as information on the practical difficulties which could be encountered. A number of commentators suggested less costly means of permitting shareholders to vote for nominees individually. Some proposed providing a blank space for shareholders to write in the names of those from whom they would like their votes withheld, while others suggested the same result could be accomplished by allowing shareholders to strike the names of those listed nominees from whom they wished to withhold their votes.

The Commission has carefully considered the comments and recognizes that, given the present state of proxy tabulation procedures, the rule, as proposed, could be burdensome to some companies and that there may be other ways to achieve similar benefits without the economic and practical difficulties presented by the proposed rule. Therefore, as adopted, rule 14a-4(b)(2) has been revised to delete the specific requirement of a for and against vote for individual nominees. Instead, the rule provides that the form of proxy shall clearly provide one of several designated methods for security holders to withhold authority to vote for each nominee. It is contemplated that the rule will allow issuers to provide shareholders the opportunity to express themselves in the most economic and practical manner. The Commission intends to monitor the workings of the rule and will consider appropriate revisions as deemed necessary to facilitate shareholder participation in the corporate electoral process.

Rule 14a-4(b)(2), as revised, requires that the names of the persons nominated to the board shall be set forth on the form of proxy. This requirement will provide shareholders with the readily accessible information upon which to withhold authority from individual nominees if such is their desire. It is contemplated that a horizontal listing of the nominees could be set forth in the space available on the form of proxy. ⁴

The form of proxy also may provide for a security holder to grant authority to vote for nominees set forth as a group, provided that there is a similar means to withhold such authority. With respect to a security holders ability to vote for or against an individual nominee, the Commission acknowledges that an "against" vote may have questionable legal effect and therefore could be confusing and misleading to shareholders. Accordingly, the term "withhold authority" has been substituted in the rule. The Commission notes, however, that certain jurisdictions may give legal effect to votes cast against a nominee. Accordingly, an instruction to rule 14a-4(b)(2) indicates that in such situations issuers should provide a means for or security holders to vote against nominees in lieu of, or in addition to, providing them with a means to withhold authority to vote. ⁵

The form of proxy would be required to provide one of the following means for security holders to withhold authority for each nominee: ⁶

(i) a box opposite the name of each nominee which may be marked to indicate that authority to vote for such nominee is withheld; ⁷ or

(ii) an instruction in bold-face type which indicates that the security holder may withhold authority to vote for any nominee by lining through or otherwise striking out the name of any nominee; or

(iii) designated blank spaces in which the shareholder may enter the names of nominees with respect to whom the shareholder chooses to withhold authority to vote; or

(iv) any other similar means, provided that clear instructions are furnished indicating how the shareholder may withhold authority to vote for any nominee. ⁸

As proposed, rule 14a-4(b)(2) provided that, if security holders have cumulative voting rights, the form of proxy may provide a means for the security holder to grant discretionary authority to have ones shares cumulated and voted for any nominees other than nominees the security holder has voted against. This part of rule 14a-4(b)(2) has been eliminated. As the commentators correctly pointed out, this aspect of the rule was permissive in nature, and issuers presently can provide for such authority on the form of proxy if they desire to do so.

III. Disclosure of Votes Cast For and Against Individual Directors-Proposed Item 6(g)

Proposed item 6(g) of Schedule 14A required disclosure, with respect to those classes of voting stock which participated in the election of directors at the most recent annual meeting, of the percentage of shares present at the meeting and voting in the election of directors. It also would have required disclosure, in tabular format, of the percentage of those shares voting in the election of each nominee which was voted for and against each nominee. An instruction to the proposed item provided that disclosure would be required only if 5% or more of the shares voting were voted against any incumbent director. If, however, one or more incumbent directors received a negative vote of that size, disclosure would be required as to all directors.

A majority of commentators opposed requiring disclosure of this type. Many specifically opposed the imposition of any negative vote threshold for disclosure of votes cast for an against individual directors. Others argued that negative votes bear no relationship to a directors credentials and would provide no guidance as to what qualities are desired by shareholders. A significant number of comments indicated that the basic intent of the proposals-the disclosure of voting results to shareholders-was sound. However, some of these commentators did suggest that the threshold for disclosure be raised significantly.

A considerable number of commentators also argued that disclosing voting results could tend to deter some qualified persons from serving on boards of directors. Some expressed concern that negative votes would be cast not on the basis of a nominees qualifications as a director, but on his or her ethnic, racial or sexual classification, or perceived political affiliation.

The Commission is aware of the possibility that some shareholders may be motivated by bias or prejudice in electing to withhold authority for certain nominees. It believes, however, that incidences of such voting would be an exception to the rule. ⁹ In addition, the Commission is not persuaded that disclosure of the voting results of individual nominees would discourage qualified persons from serving on boards of directors. The Commission has urged companies to closely examine the composition of their boards and does not want to discourage initiatives in this regard. At the same time, however, the Commission is concerned that shareholders have an important role to play in this process. In this regard, it is important that shareholders understand the nominating process and have access to the views of other shareholders concerning those on the board. Moreover, the Commission believes that disclosure of the voting results would be useful to shareholders and facilitate their participation in the director electoral process.

Accordingly, item 6(g), as adopted, requires disclosure of the number of shares present at the meeting and voting or withholding authority to vote in the election of directors, as well as disclosure in tabular format of the percentage of total shares cast for and withheld from the vote for or, where applicable, voted against, each nominee. ¹⁰ In response to comments concerning "against" votes, item 6(g) reflects the change to "votes withheld" from individual nominees, except where state law gives legal effect to an against vote. The 5% threshold is retained, however, because the Commission believes it represents a significant number of votes which should be disclosed. In instances where an issuer elects less than the entire board of directors annually, disclosure would be required as to all directors where any director received a 5% or greater withhold or negative vote when most recently elected.

While the Commission has determined to adopt item 6(g), it is persuaded that no information need be given in the proxy statement for the next annual meeting if the issuer has previously furnished to its security holders a post-meeting report which includes the information required by instruction 4 to item 6(g). A small, but nonetheless significant, number of issuers have adopted the practice of mailing to shareholders brief descriptions of their annual meetings and the results of the voting with respect to the various matters submitted for shareholder vote. As noted in the proposing release, the Commission favors such reports.

In view of the fact that this item calls for disclosure of information to be generated by newly adopted rule 14a-4(b)(2), compliance with the item will not be required for the initial proxy season which follows the effective date of rule 14a-4(b)(2).

IV. Unsolicited Voting Advice Furnished by Financial Advisors-Rule 14a-2(a)(2)

Proposed rule 14a-2(b)(2) provided that rules 14a-3 through 14a-8 and 14a-10 through 14a-12 would not apply to the furnishing of proxy voting advice by any person (the "advisor") to any other person with whom the advisor had a business relationship. The proposed rule was designed to remove an impediment to the flow of information to shareholders from professional financial advisors who may be especially familiar with the affairs of issuers.

The majority of those commenting upon this proposal supported it. Generally, this group of commentators indicated that financial advisors could provide valuable voting information, the availability of which would improve the participation of shareholders in the voting process. Those opposing the proposal were fearful that the Commission might be acting precipitously without full knowledge of the effects of the proposed exemption.

Most of the negative comments focused on possible definitional or interpretative problems. The proposed rule defined an "advisor" as one who "renders financial advice in the ordinary course of his business." The release announcing the proposal indicated that the term "advisor" would normally include financial analysts, investment advisors and broker-dealers. A few commentators believed that this term should be defined more broadly to cover any person who renders financial, business or legal advice in the ordinary course of his or her business. ¹¹ Others thought the definition should be narrowed to include only registered investment advisors and registered broker-dealers. The Commission is retaining the definition of advisor as proposed. The definition focuses on persons with financial expertise and who are likely to be particularly familiar with information about corporate affairs which may be pertinent to voting decisions.

A proposed further condition to the availability of the exemption was that the advisor "disclose any significant relationship with the issuer and any material interest in any matter on which advice is given." Several commentators stated that the existence of other relationships also could have an effect upon the value of the advice. Therefore, the final rule requires the advisor to disclose to the recipient of the advice any significant relationship with the issuer or any of its affiliates or with a shareholder proponent of the matter on which advice is given, in addition to disclosing any material interest of the advisor in the matter to which the advice relates.

The release specifically requested comment on whether the proposed exemption should be available in election contest situations. Most commentators who addressed this issue believed that voting advice could be particularly helpful in the context of an election contest. However, to clarify that the advisor cannot furnish advice on behalf of any interested party in an election contest, the rule states that the exemption will not be available for proxy voting advice furnished on behalf of any person soliciting proxies or on behalf of a participant in an election contest subject to the provisions of rule 14a-11.

V. Voting of Unmarked Proxies-Rule 14a-4(b)(3)

Rule 14a-4(b)(3), as proposed, would have prohibited a form of proxy from conferring discretionary authority to vote with respect to any matter as to which the security holder is afforded an opportunity to specify a choice and no specification has been made. The proposed rule, however, permitted a form of proxy to provide a means, by ballot, for security holders to grant to the proxy holder discretionary authority to vote for any matter, other than elections to office, as to which the security holder has been afforded an opportunity to specify a choice.

In the release announcing the proposed amendments, the Commission expressed concern that shareholders may choose to abstain on matters by not marking certain of the boxes provided, yet under the present proxy rules such unmarked proxies will be voted in favor of managements positions. The Commission observed that "such a result may not be consistent with the intent of shareholders and could dilute the meaning of the vote conveyed to the issuers board of directors."

The vast majority of the over 400 commentators that addressed proposed rule 14a-4(b)(3) opposed it. Many of these commentators believed that shareholders currently have adequate opportunities to abstain from voting. Several corporations commented that any shareholder who wishes to abstain on all matters can do so simply by not returning a proxy to the issuer. In addition, it was reported that proxies with "abstain" written beside an item or with a line drawn through the item typically are treated as an abstention when tabulating the votes cast for or against that item. On the other hand, a few commentators asserted that a security holder who wishes to participate in the electoral process should be expected to vote on every matter put to a vote of security holders.

Most commentators who opposed the proposed rule asserted that a significant number of proxies are returned each year signed but unmarked and believed that there is little reason to doubt that shareholders intend an unmarked proxy to be voted for managements positions. ¹² These commentators, noting that shareholders are advised as to how unmarked proxies will be voted, stated that the acts of signing, dating and returning a proxy signified that the executing shareholder desired management to have full voting authority over the shares represented by the proxy. Others had different interpretations of the meaning of a signed, but unmarked proxy. One shareholder contended that an unmarked proxy evidenced a desire to have the security holders vote counted only for purposes of achieving a quorum at the meeting of security holders. Shareholder intentions are unclear, according to another commentator, because some companies "attempt to make return of a signed and dated proxy card as automatic and unthinking a process as possible."

Commentators foresaw numerous problems if the rule were adopted as proposed. Chief among their concerns was the fear that shareholders would continue to return unmarked proxies intending to grant voting authority to the proxy. In the opinion of many commentators, extensive re-education efforts would be needed to alter this traditional mode of shareholder response. Others argued that if unmarked proxies could not be voted on the matters to be considered at the meeting, it could become extremely difficult to attain the specified level of votes required for approval of certain measures deemed critical to the orderly functioning of issuers. A few corporations also were concerned that disregarding unmarked proxies would tend to increase artificially the percentage of votes cast in favor of shareholder proposals, which might result in adoption of special interest proposals not supported by security holders on the whole.

The Commission is sensitive to the possibility that adoption of the rule, as proposed, could impede attainment of a specified percentage of votes needed to adopt measures important to issuers operations. The Commission is concerned, however, that there be adequate opportunities for security holders to use the proxy form to clearly convey their voting instructions to the issuer. Therefore, rule 14a-4(b)(1) has been revised to require that the form of proxy provide a means for the person solicited to specify, by boxes, a choice to abstain with respect to each matter to be acted upon, as well as to approve or disapprove each matter, other than elections to office. The help minimize the number of abstentions when significant proposals recommended by the board of directors are voted upon and to clarify the meaning of signed but unmarked proxies, the Commission requests issuers to make greater efforts to encourage security holders to vote on the matters to be considered at the meeting. ¹³

Rule 14a-4(b)(1), as amended, will continue to permit a proxy to confer discretionary authority with respect to matters as to which a choice is not specified, provided that the form of proxy states in bold-face type how it will be voted as to each matter. Rule 14a-4(b)(2), as amended, provides that such authority also exists with respect to the election of directors.

VI. Identification of Persons on Whose Behalf Proxies are Solicited - Rule 14a-4(a)

Proposed rule 14a-4(a) would require that the proxy card, if provided by the issuer, indicate in bold-face type whether or not the proxy is solicited on behalf of the issuers board of directors. If the proxy card is provided other than by a majority of the board of directors, the card would identify in bold-face type the person on whose behalf the proxy is solicited.

Commentators who opposed the proposal indicated that, in their view, the distinction between management and the board of directors was not significant. Some asserted that a distinction between management and the board is contrary to state law, because, under most state laws, the business and affairs of the corporation are either managed by the board of directors or under the direction of the board of directors. Other commentators were concerned that changing "management" to "board of directors" might produce legal consequences and implications that have not been sufficiently considered. In addition, a number of commentators were concerned that dropping the label of "managements proxy" would create confusion because it was well understood by shareholders.

A number of commentators, however, supported this proposal. These commentators asserted that the proposal would strengthen corporate accountability because the board of directors and not management has the responsibility to nominate directors, and the board of directors is legally responsible for the contents of the proxy statement.

The Commission notes that commentators did not specifically identify any undesirable legal consequences or complications from adopting the rule as proposed. Further, the Commission believes that this change will reduce the possibility of confusion by clarifying the persons on whose behalf the proxy is solicited. The Commission agrees with those commentators who suggested that this proposal will strengthen corporate accountability. Accordingly, the final rule requires identification of the persons on whose behalf the proxy is solicited, whether it is the board of directors or persons opposing the issuers solicitation. Certain commentators were concerned with references in other parts of the proxy rules to "managementss proxy materials." The Commission concurrently is adopting technical amendments to its rules to delete or modify such references as is appropriate. ¹⁴

VII. Limiting The Exemption From The Proxy Rules For Certain Non-Issuer Solicitations - Rule 14a-2(b)(4)

Proposed rule 14a-2(b)(1) would subject non-issuer solicitations made to ten or fewer persons to rule 14a-9. This proposal was the subject of little commentary. The Commission believes that the application of rule 14a-9 to all solicitations is a necessary means of assuring that communications which may influence shareholder voting decisions are not materially false or misleading. Accordingly, the rule as adopted extends the prohibitions of rule 14a-9 to non-issuer solicitations made to ten or fewer persons.

VIII. Disclosure of the Date For Receipt of Shareholder Proposals - Rule 14a-5(f)

Proposed rule 14a-5(f) would require an issuers proxy statement to disclose, under an appropriate caption, the date by which shareholder proposals must be received by the issuer for inclusion in the proxy materials relating to the next annual meeting. This date would be calculated according to the provisions of rule 14a-8(a)(3)(i). The proposed rule further provides that, if the date of the next annual meeting is subsequently advanced by more than 30 calendar days or delayed by more than 90 calendar days from the date of the annual meeting to which the proxy statement relates, the issuer shall promptly inform shareholders of the change by any means reasonable calculated to so inform them.

Some commentators were concerned that the rule would facilitate the flow of frivolous and spurious shareholder proposals which have little shareholder support. In addition, a number of commentators were concerned with the provision in the rule requiring notice to shareholders if the next annual meeting is advanced by more than 30 calendar days or delayed by more than 90 calendar days. These commentators suggested that a separate mailing would be costly and that routine or regular reports to shareholders would provide a reasonable alternative provided that these alternative mailings would reach shareholders in a reasonable time for a "shareholder proposal" to be submitted under the revised schedule.

Other commentators were concerned that (1) notice far in advance of the deadline may be quickly forgotten, (2) disclosing the change in the meeting date would elevate the cut-off date for shareholder submissions to an unrealistic level of importance, (3) issuers time to analyze and respond to shareholder proposals would be diminished; therefore, the deadline should be expanded to 120 days to allow adequate time for issuer analysis and response, and (4) shareholders seriously interested in a proposal are sufficiently familiar with the proxy rules to learn the requirements of rule 14a-8 and submit such proposals on a timely basis without disclosure in the proxy statement.

The staffs experience in rendering informal advisory assistance with respect to the operation of the shareholder proposal rule indicates that many shareholder proponents fail to meet the burden of submitting proposals on a timely basis. By requiring disclosure of the deadline for submission of proposals, the final rule may increase the certainty of meeting the filing requirements under rule 14a-8 and minimize inadvertent timing errors in the submission of proposals. In the Commissions view, this rule will help eliminate confusion and misunderstanding, thereby enhancing the opportunity for shareholders to participate in the corporate governance process.

The Commission is persuaded that the concerns expressed with regard to costly separate mailings are valid. Accordingly, the Commission has changed the requirement that "the issuer shall promptly inform security holders" to "the issuer shall, in a timely manner, inform security holders." Therefore, routine or regular mailings may be used to inform shareholders of changes in the meeting date and the new deadline for submission of "shareholder proposals." However, shareholders must have a reasonable time after receipt of these alternative mailings to submit a "shareholder proposal."

Technical amendments have been made in rule 14a-8(a)(3)(i) in order to conform it to the revisions made by these amendments.

IX. Disclosure of Cumulative Voting Rights - Item 5(c)

Proposed item 5(c) of schedule 14A would add to the present provisions a requirement that cumulative voting rights be briefly described and also require disclosure of the effect on the election of directors of casting votes against nominees. Further, if discretionary authority to cumulate votes is solicited pursuant to the provisions of proposed rule 14-4(b)(2), the proxy statement would be required to indicate whether votes will be cast for any nominee or nominees in preference to others and, if so, in what manner.

The Commission believes that a brief description of cumulative voting rights will provide useful information to shareholders and will facilitate and promote informed voting decisions in the corporate electoral process. Accordingly, the requirement that cumulative voting rights be described has been retained.

Many commentators were opposed to disclosing the effect on the election of directors of casting votes against nominees. These commentators asserted that the proposal was confusing because state law either does not extend a right to vote against directors or does not recognize a vote cast against directors. Other commentators were concerned that the proposal would raise unwarranted expectations as to the significance of votes cast against directors. A small number of commentators asserted that this requirement would lend itself to self-serving, boiler-plate statements. The Commission agrees with these arguments and, accordingly, has deleted the requirement that the effect on the election of directors of casting votes against nominees be disclosed.

Many commentators opposed the requirement that the proxy statement indicate whether votes will be cast for any nominees in preference to others and, if so, the manner of casting these votes, if discretionary authority to cumulate votes was solicited. These commentators were concerned that requiring an advance determination of exactly how shares will be cumulatively voted would unduly restrict managements effectiveness and its ability to act at the meeting. Further, they stated this would not be in keeping with the express authority granted to management by shareholders. Some commentators also expressed concern that predetermining how shares will be cumulated would be needlessly divisive and of questionable relevance. Others believed that requiring a prior commitment to vote discretionary proxies in a particular order of preference might make it impossible to cumulate votes in the most efficient manner. Several commentators suggested that managements discretionary authority to cumulate votes for a nominee or nominees in preference to others could be a violation of state law.

The Commission recognizes that this requirement may present numerous problems. Accordingly, the revision of this proposed rule reflects elimination of the requirement that, where discretionary authority to cumulate votes is solicited, any preference among nominees be disclosed. The revised rule simply requires that, if discretionary authority to cumulate votes is solicited, that fact should be indicated. The Commission notes that, if an issuer should desire to disclose preferences among nominees, such disclosure may be voluntarily undertaken.

X. Certain Findings

As required by section 23(a)(2) of the Exchange Act, the Commission has specifically considered the impact which the amendments adopted herein would have on competition and has concluded that they impose no significant burden on competition. In any event, the Commission has determined that any possible burden will be outweighed by, and is necessary and appropriate to achieve, the benefits of these amendments to investors and registrants.

TEXT OF AMENDMENTS

PART 240 GENERAL RULES AND REGULATIONS SECURITIES EXCHANGE ACT of 1934

17 CFR Part 240 is amended as follows:

I. §240.14a-2 is revised to read as follows:

§240.14a-2 Solicitations to which §240.14a-3 to §240.14a-12 apply.

Sections 240.14a-3 to §240.14a-12 apply to every solicitation of a proxy with respect to securities registered pursuant to section 12 of the Act, whether or not trading in such securities has been suspended, except that:

(a) Sections 240.14a-3 to 240.14a-12 do not apply to the following:

(1) Any solicitation by a person in respect to securities carried in his name or in the name of his nominee (otherwise than as voting trustee) or held in his custody, if such person-

(i) Receives no commission or remuneration for such solicitation, directly or indirectly, other than reimbursement of reasonable expenses,

(ii) Furnishes promptly to the person solicited a copy of all soliciting material with respect to the same subject matter or meeting received from all persons who shall furnish copies thereof for such purpose and who shall, if requested, defray the reasonable expenses to be incurred in forwarding such material, and

(iii) In addition, does no more than impartially instruct the person solicited to forward a proxy to the person, if any, to whom the person solicited desires to give a proxy, or impartially request from the person solicited instructions as to the authority to be conferred by the proxy and state that a proxy will be given if no instructions are received by a certain date.

(2) Any solicitation by a person in respect of securities of which he is the beneficial owner;

(3) Any solicitation involved in the offer and sale of securities registered under the Securities Act of 1933:

Provided, That this paragraph shall not apply to securities to be issued in any transaction of the character specified in paragraph (a) of Rule 145 under that Act;

(4) Any solicitation with respect to a plan of reorganization under Chapter X of the Bankruptcy Act, as amended, if made after the entry of an order approving such plan pursuant to section 174 of said Act and after, or concurrently with, the transmittal of information concerning such plan as required by section 175 of said Act;

(5) Any solicitation which is subject to Rule 62 under the Public Utility Holding Company Act of 1935; and

(6) Any solicitation through the medium of a newspaper advertisement which informs security holders of a source from which they may obtain copies of a proxy statement, form of proxy and any other soliciting material and does no more than (i) name the issuer, (ii) state the reason for the advertisement, and (iii) identify the proposal or proposals to be acted upon by security holders.

(b) Sections 240.14a-3 to 240.14a-8 and 240.14a-10 to 240.14a-12 do not apply to the following:

(1) Any solicitation made otherwise than on behalf of the issuer where the total number of persons solicited is not more than ten; and

(2) The furnishing of proxy voting advice by any person (the "advisor") to any other person with whom the advisor has a business relationship, if:

(i) The advisor renders financial advice in the ordinary course of his business;

(ii) The advisor discloses to the recipient of the advice any significant relationship with the issuer or any of its affiliates, or a shareholder proponent of the matter on which advice is given, as well as any material interest of the advisor in such matter;

(iii) The advisor receives no special commission or remuneration for furnishing the proxy voting advice from any person other than a recipient of the advice and other persons who receive similar advice under this subsection; and

(iv) The proxy voting advice is not furnished on behalf of any person soliciting proxies or on behalf of a participant in an election subject to the provisions of Rule 14a-11.

II. Paragraphs (a) and (b) of §240.14a-4 are amended to read as follows:

§240.14a-4 Requirements as to proxy.

(a) The form of proxy (1) shall indicate in boldface whether or not the proxy is solicited on behalf of the issuers board of directors or, if provided other than by a majority of the board of directors, shall indicate in bold-face type the identity of the persons on whose behalf the solicitation is made; (2) shall provide a specifically designated blank space for dating the proxy card; and (3) shall identify clearly and impartially each matter or group of related matters intended to be acted upon, whether proposed by the issuer or by security holders. No reference need be made, however, to proposals as to which discretionary authority is conferred pursuant to paragraph (c) of this section.

(b)(1) Means shall be provided in the form of proxy whereby the person solicited is afforded an opportunity to specify by boxes a choice between approval or disapproval of, or abstention with respect to, each matter or group of related matters referred to therein as intended to be acted upon, other than elections to office. A proxy may confer discretionary authority with respect to matters as to which a choice is not specified by the security holder provided that the form of proxy states in bold-face type how it is intended to vote the shares represented by the proxy in each such case.

(b)(2) A form of proxy which provides for the election of directors shall set forth the names of persons nominated for election as directors. Such form of proxy shall clearly provide any of the following means for security holders to withhold authority to vote for each nominee:

(i) a box opposite the name of each nominee which may be marked to indicate that authority to vote for such nominee is withheld; or

(ii) an instruction in bold-face type which indicates that the security holder may withhold authority to vote for any nominee by lining through or otherwise striking out the name of any nominee; or

(iii) designated blank spaces in which the shareholder may enter the names of nominees with respect to whom the shareholder chooses to withhold authority to vote; or

(iv) any other similar means, provided that clear instructions are furnished indicating how the shareholder may withhold authority to vote for any nominee.

Such form of proxy also may provide a means for the security holder to grant authority to vote for the nominees set forth, as a group, provided that there is a similar means for the security holder to withhold authority to vote for such group of nominees. Any such form of proxy which is executed by the security holder in such manner as not to withhold authority to vote for the election of any nominee shall be deemed to grant such authority, provided that the form of proxy so states in bold-face type.

Instructions. 1. Paragraph (2) does not apply in the case of a merger, consolidation or other plan if the election of directors is an integral part of the plan.

2. If applicable state law gives legal effect to votes cast against a nominee, then in lieu of, or in addition to, providing a means for security holders to withhold authority to vote, the issuer should provide a similar means for security holders to vote against each nominee.

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III. Section 240.14a-5 is amended by adding paragraph (f) to read as follows:

§240.124a-5 Presentation of information in proxy statement.

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(f) All proxy statements shall disclose, under an appropriate caption, the date by which proposals of security holders intended to be presented at the next annual meeting must be received by the issuer for inclusion in the issuers proxy statement and form of proxy relating to that meeting, such date to be calculated in accordance with the provisions of rule 14a.8(a)(3)(i). If the date of the next annual meeting is subsequently advanced by more than 30 calendar days or delayed by more than 90 calendar days from the date of the annual meeting to which the proxy statement relates, the issuer shall, in a timely manner, inform security holders of such change, and the date by which proposals of security holders must be received, by any means reasonable calculated to so inform them.

IV. Paragraph (a)(3)(i) of §240.14a-8 is amended to read as follows:

§240.14a-8 Proposals of security holders

* * * * *

(a)* * *

(b)* * *

(i) Annual Meetings. A proposal to be presented at an annual meeting shall be received at the issuers principal executive offices not less than 90 days in advance of the date of the issuers proxy statement released to security holders in connection with the previous years annual meeting of security holders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous years proxy statement, a proposal shall be received by the issuer a reasonable time before the solicitation is made.

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V. Item 5(c) of §240.14a-101 is amended and paragraph (g) added to Item 6 thereof to read as follows:

§240.14a-101 Schedule 14A. Information required in proxy statement.

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Item 5. Voting securities and principal holders thereof.

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(c) If action is to be taken with respect to the election of directors and if the persons solicited have cumulative voting rights: (1) make a statement that they have such rights, (2) briefly describe such rights, (3) state briefly the conditions precedent to the exercise thereof, and (4) if discretionary authority to cumulate votes is solicited, so indicate.

* * * * *

Item 6. Directors and executive officers

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(g) With respect to those classes of voting stock which participated in the election of directors at the most recent meeting at which directors were elected:

(1) State in an introductory paragraph the percentage of shares present at the meeting and voting or withholding authority to vote in the election of directors; and (2) disclose in tabular format, following such introductory paragraph, the percentage of total shares cast for and withheld from the vote for or, where applicable, cast against, each nominee, which, respectively, were voted for and withheld from the vote for, or voted against, such nominee. When groups of classes or series of classes vote together in the election of a director or directors, they shall be treated as a single class for the purpose of the preceding sentence.

Instructions. 1. Calculate the percentage of shares present at the meeting and voting or withholding authority to vote in the election of directors, referred to in paragraph g(1), by dividing the total shares cast for and withheld from the vote for or, where applicable, voted against, the director in respect of whom the highest aggregate number of shares was cast by the total number of shares outstanding which were eligible to vote as of the record date for the meeting.

2. No information need be given in response to item 6(g) unless, with respect to any class of voting stock (or group of classes which voted together), 5% or more of the total shares cast for and withheld from the vote for or, where applicable, cast against any nominee were withheld from the vote for or cast against such nominee.

3. If an issuer elects less than the entire board of directors annually, disclosure is required as to all directors if 5% or more of the total shares cast for and withheld from, the vote for, or, where applicable, cast against any incumbent director were withheld from, or cast against the vote for such director at the meeting at which he was most recently elected.

4. No information need be given in response to item 6(g) if the issuer has previously furnished to its security holders a report of the results of the most recent meeting of security holders at which directors were elected which includes: (1) a description of each matter voted upon at the meeting and a statement of the percentage of the shares voting which were voted for and against each such matter; and (2) the information which would be called for by this item 6(g). If an issuer has previously furnished such results to its security holders, this fact should be set forth in the issuers cover letter accompanying the filing of preliminary proxy materials with the Commission.

Secs. 12, 13, 14, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs, 1, 3, 8, 49 Stat. 1375, 1377, 1379; sec 203(a), 49 Stat. 704; sec 202, 68 Stat. 686; secs. 3, 4, 5, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 3, 82 Stat. 454, 455, secs 28(c), 1, 2, 3-5, 84 Stat. 1435, 1497; secs. 10, 18, 89 Stat. 119, 155; sec 308(b), 90 Stat. 57; sec. 204, 91 Stat. 1500; 15 U.S.C. 781, 78m, 78n, 78o(d), 78w(a)

The Commission finds that any changes in the amended rules and schedule adopted from those published in Securities Exchange Act Release No. 16104 have already been generally subject to comment and are either technical in nature or less burdensome than previous requirements so that further notice and rulemaking procedures pursuant to the Administrative Procedure Act (5 U.S.C. 553) are not necessary.

By the Commission.

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See pages 1010, 1011 and 1012 for Exhibits.

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