Opposition Brief — Grimes v. Ohio Edison Co.

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No. 93-254 ‘ * < 1893

In The ——_

Suprene Court of the United States

October Term, 1993

C.L. GRIMES,

Petitioner,

OHIO EDISON COMPANY,

Respondent.

On Petition for a Writ of Certiorari to the United States Court

of Appeals for the Second Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

THOMAS F. CLAUSS, JR.

FREDERICK A. BRODIE*

* Counsel of Record

WINTHROP, STIMSON, PUTNAM

& ROBERTS

Attorneys for Respondent

One Battery Park Plaza

New York, New York 10004-1490

(212) 858-1000

be late és (800) 3 APPEAL * (800) 5 APPEAL « (800) BRIEF 21

QUESTION PRESENTED

Did the Court of Appeals properly hold that a proposal

requiring shareholder approval of every capital expenditure,

regardless of size, once a spending threshold was reached, could be

excluded from proxy materials pursuant to the Securities and

Exchange Commission exemption for proposals “relating to the

conduct of the ordinary business operations of the registrant’?

RULE 29.1 STATEMENT

Respondent Ohio Edison Company is a publicly held

corporation which has no parent corporation and three subsidiaries.

Of these subsidiaries, Ohio Edison owns all of the outstanding stock

of two and all of the outstanding common stock of the third. The

third subsidiary, Pennsylvania Power Company, has outstanding

preferred stock which is publicly held.

lil

TABLE OF CONTENTS

Page

Question Presented ............................... 1

Rule 29.1 Statement .............................. li

TableofContents ................................ lil

Table of Citations ...........0.00..0.............. iv

Statement ofthe Case ............................. 2

Summary ofArgument ............................ 6

Reasons for Denying the Writ ...................... 6

I. This Court Has Already Denied Certiorari To The

Same Shareholder In An Identical Context. ..... 6

II. ThereIs No Conflict Among The Circuits. ...... 7

III. Grimes’ Proposals Fall Squarely Within The

Ordinary Business Operations Exception To The

Proxy Rules, And Well-Established Adn inistrative

Precedent Supports Their Exclusion. .......... 7

A. The SEC’s Proxy Rules Authorize The Result

Reached Below. ....................... 7

B. Administrative Precedent Uniformly

Supports The Decision Below. ........... 8

C. Grimes’ Petition Does Not Raise Issues Of

Corporate Governance Reform. .......... 1]

Contents

Page

IV. The Writ Should Be Denied Because Alternative

Grounds Exist For Affirming The Judgment

WS Gh vdavcages ASN areusuae ave eeee ae ss 12

| A. TheAmended Proposal Was Untimely. ..... 12

| B. Grimes’ Proposals, If Adopted, Would Bring

| About Violations Of State Law. ........... 13

C. Grimes’ Proposals Are Excludable Because

They Relate To Specific Amounts Of

NUS. Sh dob svastiutnsckeeebes bien 15

ee ere er Pree err ee Per ree rere 17

TABLE OF CITATIONS

Cases Cited:

Bowles v. Seminole Rock and Sand Co., 325 U.S. 410

CEES 6 db reais sie SAUNAS CEO R EES STORES SEN ONS 10

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (1980). . 10

Grimes v. Centerior Energy Corp., No. 89-0386 JGP

Ce oe SOE 6 ctr anes tasaaetaenteues 16

Grimes v. Centerior Energy Corp., 909 F.2d 529 (D.C. Cir.

1990), cert. denied, 498 U.S. 10739(1991) .......... passim

Lyne v. Payne, AIG US PLOCISOO) 6 cc cacccewescavens 10

——————

Contents

Page

Martin v. Occupational Health & Safety Review Comm'n,

OFF as SORRY iso Sc vee ee. 10

Office of Consumers’ Counsel v. Public Utils. Comm Re,

423 N.E.2d 820 (Sup. Ct.Ohio 1981) .............. 14

Reves v. Ernst & Young, ___ US. ue b12 SAN. 1163

ED rs oo ces cw eee oe eee 1]

Roosevelt v. E.1. Du Pont de Nemours & Co., 958 F.2d 416

PARA SORES Vivi vnwc ia or eee 1]

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 4 | ee 1]

United States v. Larionoff, 431 U.S. 864(1977) ........ 10

Statutes Cited:

Ohio Rev. Code Ann. § 4905.22 .................... 9,14, 15

Ohio Rev. Code Ann. § 4905.38 ..................... Z

66 Pa. Cons. Stat. Ann. § 1501 te | ree 2,9,14

Regulations and Administrative Materials Cited:

17 C.F.R. § 240.14a-8(a)(3) (1993) .................. 12,13

17 C.F.R. § 240. 14a-8(a)(3)(i) (1993) ................ 13

17 C.F.R. § 240.14a-8(a)(4) (1993) 2200... 13

Contents

: Page

Pe Ges Pe DCEO). kiss at cade cean eke S74, 44

EP Mrs © Bs PMC LCT See) ac wcecoavctasvcaee passim

LT esis es ORE CIS a) nia cis sccwanceupaen passim

EF CPs Be ESRC TAG Sa? hock ise eee een passim

eee eee Sf Peet Serre pre 4, 12,135,146

Adoption of Amendments Relating to Proposals by

Security Holders, Exchange Act Release No. 12999, 10

SEC Docket 1006, 41 Fed. Reg. 52,994 (Nov. 22,

SOTO) ci 0s eennets cbbdes bse et bee eee 8,9

Amendments Relating to Proposals by Security Holders,

Exchange Act Release No. 20091, [1983-84 Transfer

Binder] Fed. Sec. L. Rep. (CCH) ¥ 83,417 (Aug. 16,

SOROR ak s0a 45 aas cu 8c cheers eee eee 1, 2

In the Matter of Regulation of the Elec. Fuel Component

Contained within the Rate of Schedules of the Ohio

Edison and Related Matters, No. 82-164-EL-EFC, 1983

CAO PUA, LABMEO PO. 5 oie vty sen dea bn eeereweEs 14

Notice of Proposed Amendments to Proxy Rules,

Exchange Act Release No. 4950, 1953 SEC LEXIS 146

CEE. DGGE) okie o i 0ccnS dienes conse coe reees 8

Proposed Amendments to Rule 14a-8, Exchange Act

Release No. 19135, [1982 Transfer Binder] Fed. Sec. L.

Rep. (CLM) 963,262 (Oct. 16, 1982): oes cccs css 8

Vii

Contents

No-Action Letters Cited:

Chrysler Corp., SEC No-Action Letter, 1985 SEC No-Act.

LEXIS 1977 (Mar. 28, 1985) .....................

Florida Power & Light Co., SEC No-Action Letter, 1983

SEC No-Act. LEXIS 1693 (Jan. 18,1983) ..........

Gabelli Equity Trust, Inc., SEC No-Action Letter, 1990

SEC No-Act. LEXIS 431 (Feb. 23, POO eu ciccdy nis

General Pub. Utils. Corp., SEC No-Action Letter, 1980

SEC No-Act. LEXIS 2967 (Feb. 21, 3 eepon alee ee

General Pub. Utils. Corp., SEC No-Action Letter, 1988

SEC No-Act. LEXIS 480 (Apr. 13, 1988) ...........

Harmonia Bancorp, Inc., SEC No-Action Letter, 199]

SEC No-Act. LEXIS 433 (Mar.8,1991) ...........

International Gen. Indus., Inc., SEC No-Action Letter,

1979 SEC No-Act. LEXIS 3832 (Nov. 28,1979) .....

Middle S. Utils. Corp., SEC No-Action Letter, 1981 SEC

No-Act. LEXIS 3164 (Feb. 24,1981) ..............

Network Sys. Corp., SEC No-Action Letter, 1991 SEC No-

Act. LEXIS 455 (Jan.21,1991) ...................

The New York Times Co., SEC No-Action Letter, 1991 SEC

No-Act. LEXIS 19 (Jan. 4, ee ene ee ee

Page

vil

Contents

Ohio Edison Co., SEC No-Action Letter, 1993 SEC No-

Act, LBrke 2d Ce. 1B, TRS) nn vic cc rcasicuscas

Ohio Edison Co., SEC No-Action Letter, 1992 SEC No-

Act. LEXIS 339 (Mar. 10,1992) .........ccccceees

Ohio Edison Co., SEC No-Action Letter, 1991 SEC No-

pv eB ei TE Re) | ra

Ohio Edison Co., SEC No-Action Letter, 1991 SEC No-

Rk, Lee eet CO ED sive chs ec eawenery ds

St. Jude Medical, Inc., SEC No-Action Letter, 1992 SEC

No-Act. LEXIS 399 (Mar. 23, 1992) ...............

Tandy Corp./Radio Shack, SEC No-Action Letter, 1984

SEC No-Act. LEXIS 2515 (Aug. 16,1984) .........

Thetford Corp., SEC No-Action Letter, 1985 SEC No-Act

Bisa 8 2. a By Me). } a

Union Pac. Corp., SEC No-Action Letter, 1990 SEC No-

PGE, Cee Cee IRD 6 ck ke Chee eon ees

Zions Coop. Mercantile Inst., SEC No-Action Letter, 1990

SEC No-Act. LEXIS 509 (Mar. 20, 1990) ...........

Page

Contents

APPENDIX

Appendix A — C.L. Grimes’ Supporting Statement Dated

SPOUT 2, BI oe oid b's 058 ho oc eh baw cee ie:

Appendix B — Ohio Edison’s Letter to the Securities and

Exchange Commission, Office of Chief Counsel,

Division of Corporate Finance, Dated December 18,

Kod MOTT TEER ET Per ree Pere nae

Appendix C — Ohio Edison’s Statement of Intent to Omit

Shareholder Proposal ........................-.

Appendix D — Opinion of the District Court in Grimes v.

Centerior Energy Corp., Civil Action No. 89-0386 JGP

(D.D.C. Marcln2, 1989) .... 0. ccc cn cucceccees

Appendix E — Opinions of Counsel Submitted by Ohio

Edison to the Securities and Exchange Commission

Office of Chief Counsel, Division of Corporate Finance

Dated December 18,1990 .......................

Appendix F — Response of the Office of Chief Counsel,

Securities and Exchange Commission, Division of

Corporation Finance, Dated February 8,1991 .......

Appendix G —Letter to Securities and Exchange

Commission, Office of Chief Counsel, Division of

Corporation Finance, from Counsel to C.L Grimes,

Dated February 19,1991 ........00... 0... c eee,

Page

22a

26a

28a

Contents

Appendix H — Letter to William H. Carter, Esq., Special

Counsel, Office of Chief Counsel, Division of

Corporation Finance, Securities and Exchange

Commission from Counsel to Ohio Edison Dated

go 3 ee | re ere eee eer re ee re eee

Appendix I — Letter to Thaddeus Holt, Esq. from William

H. Carter, Special Counsel, Securities and Exchange

ER erro n eee eee) See RT e eer ee

Appendix J — Order Filed June 7, 1993 Denying C.L.

Grimes’ Petition for Rehearing ...................

Page

3la

No. 93-254

In The

Supreme Court of the United States

——

October Term, 1993

C.L.GRIMES,

Petitioner,

VS.

OHIO EDISON COMPANY,

Respondent.

On Petition for a Writ of Certiorari to the United States Court of

Appeals for the Second Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

Respondent Ohio Edison Company (“Ohio Edison’’)

respectfully submits this brief in response to the Petition filed by

C.L. Grimes (“Grimes”) for a writ of certiorari to the United States

Court of Appeals for the Second Circuit.' In an opinion issued on

1. Grimes’ Petition for a Writ of Certiorari will be cited as “Pet.” The

Appendix to Grimes’ Petition for a Writ of Certiorari will be cited as “Pet. App.”

Portions of the record below cited herein, if not appended to the Petition for

Certiorari, are annexed in an Appendix hereto, which is cited as “R. App.”

Emphasis in passages quoted herein is ours unless otherwise indicated.

May 3, 1993, the Second Circuit affirmed an order of the United

States District Court for the Southern District of New York

(Thomas P. Griesa, J.) dismissing Grimes’ complaint against Ohio

Edison for failure to state a claim upon which relief can be granted.

The Second Circuit denied Grimes’ petition for rehearing on June

7, 1993. R. App. 35a-36a.

STATEMENT OF THE CASE

Ohio Edison is a public utility. Grimes is one of its

shareholders. Pet. App. 10a. Ohio Edison’s articles of

incorporation vest authority to make capital expenditures in its

Board of Directors. Pet. App. 3a. For the period 1980-1990, Ohio

Edison’s capital expenditures averaged $595,000,000 per year.

Pet. App. 8an.6.

Ohio Edison and its wholly-owned subsidiary Pennsylvania

Power Company are regulated by the Public Utilities Commissions

in Ohio and Pennsylvania, respectively, and must provide adequate

and necessary electrical service within their service areas. See

Ohio Rev. Code Ann. § 4905.38 (Page 1991); 66 Pa. Cons. Stat.

Ann. § 1501 (1979).

On October 23, 1990, Grimes proposed an amendment to

Ohio Edison’s articles of incorporation (the “First Proposal’)

together with a supporting statement, and requested that his

materials be included in the proxy statement that would be

distributed prior to the April 25, 1991 annual meeting of Ohio

Edison’s snareholders. The First Proposal stated:

The Company (or in the aggregate any

combination of the Company and/or its

subsidiaries) shall not without the formal prior

consent of the common shareholders in each

instance, expend in any calendar year any

monies by way of capital or construction

expenditures in excess of $300,000,000:

provided, however, that the consent of such

shareholders shall not be required unless the

amount of such expenditures exceeds the cash

amount paid to the common shareholders as

dividends in the preceding calendar year.

Pet. App. 3a (emphasis in original).

Among other things, Grimes’ supporting statement asserted

that:

* “Our dividend rate has been cut drastically and

management has offered us no assurance that it can be

reestablished at its old and proper rate.”

* “Management... continues to invest more of our money

primarily for the benefit of users of electricity. There can

be no excuse for reducing our dividends and complaining

about inadequate returns, while pouring our money into

new construction at rates inadequate to restore and

maintain our dividends.”

* “[{S]hareholders must now become directly involved in

making certain that our Company receives assurance of

adequate returns to pay our dividends before further

investments of our money are made.”

* “Requiring management to get our consent before makin g

dangerous investments is the only way to secure a fair and

predictable return.”

R. App. la-2a (emphasis in original).

Under rules issued by the Securities and Exchange

Commission (“SEC”), a public company must include properly

submitted shareholder proposals in its proxy materials unless they

fall within one of thirteen exemptions listed in subsection (c) of

Rule 14a-8, 17 C.FR. § 240.14a-8(c) (1993). Ohio Edison

determined that Grimes’ First Proposal was excludable under SEC

Rules 14a-8(c)(1), (2), (7) and (13), 17 C.F.R. §§ 240.14a-8(c)(1),

(2), (7), (13) (1993). The SEC’s Division of Corporation Finance

(the “Division’”’) agreed and issued a “no-action” letter, finding

Grimes’ proposal to be properly excludable under the ordinary

business operations exemption of Rule 14a-8(c)(7):

In arriving at our position, the staff has

particularly noted that if the proposal were

adopted and the threshold provisions were

triggered, the Company would be required to

submit each and every proposed capital or

construction expenditure to a shareholder vote,

regardless of the size or nature of the proposed

expenditure.

R. App. 26a. The Division did not reach Ohio Edison’s other bases

for excluding the proposal.

By letter dated February 19, 1991 Grimes wrote to the SEC

with a second, revised proposal (the “Amended Proposal”). R.

App. 28a. The Amended Proposal differed from the First Proposal

by requiring, among other things, that capital expenditures be

approved by a joint resolution of the common shareholders and the

board once the threshold had been passed. Pet. App. 12a.

Ohio Edison advised Grimes and the SEC that the Amended

Proposal was untimely and was also excludable for the reasons

stated in Ohio Edison’s earlier submission. R. App. 31a-32a. The

Division again agreed. R. App. 33a.

Five months later, Grimes brought suit in the United States

District Court for the Southern District of New York, seeking a

declaratory judgment that (i) both of his proposals and supporting

statements must be included in Ohio Edison’s future proxy

statements, and (ii) Ohio Edison reust disclose in future proxy

statements that Grimes intends io present his proposals at a

shareholder meeting. Grimes also demanded an award of damages

for Ohio Edison’s omission of his proposals from the previous

proxy statement.

The District Court granted Ohio Edison’s motion to dismiss

the complaint. Pet. App. 10a-16a. Holding that Grimes’ proposals

related to the conduct of Ohio Edison’s ordinary business

operations, the Court observed that, once Grimes’ threshold for

capital spending is reached, “the proposal would require

shareholder approval of all capital expenditures regardless of how

routine they might be, and even though they might be of modest

cost.” Pet. App. 15a.

The Court of Appeals for the Second Circuit unanimously

affirmed, holding that the SEC staff’s approach to determining

whether a public utility’s capital expenditures fall within the

“ordinary business operations” exception was “logical and

reasonable.” Jd. at 8a. The Court of Appeals observed:

The problem with Grimes’ proposal is that it

does not target a particular capital expenditure,

thereby precluding a determination as to

whether any expenditure subject to his

proposal has significant economic, policy or

other implications. Once Grimes’ spending

threshold of $300 million is reached, each

capital expenditure thereafter by Ohio Edison,

including such routine expenditures as the

purchase of a typewriter or a new desk, which

are clearly matters of ordinary business

operations, would require shareholder

approval.

Id. Grimes’ petition for rehearing in the Second Circuit was

unanimously denied on June 7, 1993. R. App. 36a.

SUMMARY OF ARGUMENT

None of the considerations governing certiorari support

granting the writ in this case. First, there is no conflict among the

Circuits. The Second Circuit’s decision is in complete accord with

the D.C. Circuit’s decision on identical issues raised by the same

shareholder, and every court or administrative agency to consider

Grimes’ proposals has agreed that they are properly excluded from

the proxy ballot. Second, the result reached by the Second Circuit

is fully supported by the text of Rule 14a-8(c)(7) and by a well-

established line of administrative precedent applying the

exemption. Finally, this petition raises no substantial policy

issues, involving instead the ordinary business operations of a

public utility company.

REASONS FOR DENYING THE WRIT

THIS COURT HAS ALREADY DENIED CERTIORARI

TO THE SAME SHAREHOLDER IN AN IDENTICAL

CONTEXT.

Petitioner concedes this fact. Pet. 3. On January 22, 1991, this

Court denied Grimes’ petition for certiorari to the United States

Court of Appeals for the District of Columbia Circuit in Grimes v.

Centerior Energy Corp., 909 F.2d 529 (D.C. Cir. 1990), cert.

denied, 498 U.S. 1073 (1991). In that case, Grimes had submitted

_<x«o«ax> ——™

an almost-identical proposal to another Ohio utility, Centerior

Energy Corporation.

II.

THERE IS NO CONFLICT AMONG THE CIRCUITS.

Petitioner concedes this fact. Pet. 3. The Second Circuit and

the District of Columbia Circuit are in full agreement that Grimes’

proposals may be excluded from the proxy ballot. See Pet. App. 7a-

8a; Centerior, 909 F.2d at 531-32.

Il.

GRIMES’ PROPOSALS FALL SQUARELY WITHIN

THE ORDINARY BUSINESS OPERATIONS EXCEPTION

TO THE PROXY RULES, AND WELL-ESTABLISHED

ADMINISTRATIVE PRECEDENT SUPPORTS THEIR

EXCLUSION.

The Second Circuit’s decision is amply buttressed by the plain

language of the SEC’s regulation and by a well-established line of

SEC no-action determinations.

A. The SEC’s Proxy Rules Authorize The Result Reached

Below.

Shareholder proposals may be excluded from a company’s

proxy statement if they fall within any one of the 13 exemptions in

SEC Rule 14a-8(c), 17 C.F.R. § 240.14a-8(c)(1993). Exemption

(c)(7) permits exclusion of proposals that “deal[{] with a matter

relating to the conduct of the ordinary business operations of the

registrant.” Rule 14a-8(c)(7), 17 C.F.R. § 240.14a-8(c)(7) ( 1993).

Grimes’ proposals, which require micromanagement by

shareholders of all Ohio Edison’s capital expenditures over a

specified threshold, fall within both the intent and the plain

Ren a

language of this exemption, and the Second Circuit was correct in

so holding.

The SEC enacted Rule 14a-8(c)(7) “[i]n order to relieve the

management of the necessity of including in its proxy material

security holder proposals which relate to matters falling within the

province of the management.” Notice of Proposed Amendments to

Proxy Rules, Exchange Act Release No. 4950, 1953 SEC LEXIS

146, *4 (Oct. 9, 1953). “The basic reason for [the ordinary business

operations exception] is that it is manifestly impracticable in most

cases for stockholders to decide management problems at

corporate meetings.” Proposed Amendments to Rule 14a-8,

Exchange Act Release 19135, [1982 Transfer Binder] Fed. Sec. L.

Rep. (CCH) ¥ 83,262 at 85,354 n.47 (Oct. 14, 1982) (citation

omitted). In adopting the present text of Rule 14a-8(c)(7), the SEC

heeded commentators who noted that “it would not be practicable

in most instances for stockholders to decide management problems

at corporate meetings.” Adoption of Amendments Relating to

Proposals by Security Holders, Exchange Act Release No. 12999,

10 SEC Docket 1006, 1012, 41 Fed. Reg. 52,994 (Nov. 22, 1976).

A proposal may therefore be excluded under Rule 14a-8(c)(7)

when it involves the shareholders in “minor or routine day-to-day

decisions.” Centerior, 909 F.2d at 532. Once Grimes’ spending

threshold is passed — as it has been every year — his proposals

would involve shareholders in dictating every matter requiring

capital spending, including minuscule expenditures for items such

as pencils, desks and cans of paint. Such a result unquestionably

engages shareholders in routine day-to-day matters.

B. Administrative Precedent Uniformly Supports The

Decision Below.

In a well-established line of administrative precedent, the

SEC’s Division of Corporation Finance has repeatedly held that

proposals concerning the capital spending of public utilities are

exempt from inclusion in utilities’ proxy statements because they

relate to ordinary business operations.” The Division long ago

perceived that a proposal calling for dramatic interference with a

utility’s routine capital spending is excludable under the ordinary

business operations exemption. See General Pub. Utils. Corp.,

SEC No-Action Letter, 1980 SEC No-Act. LEXIS 2967 (Feb. 21,

1980).

The Division’s position makes sense. For public utilities,

capital expenditures are part and parcel of ordinary business

operations. Utilities spend capital constantly for such matters as

plant and equipment maintenance, compliance with regulatory

directives, emergency repairs, construction of new facilities and

equipment, and the provision of service for new customers.

Indeed, Ohio Edison is required by state law to make such

expenditures as part of its statutory obligation to provide adequate

service. See Ohio Rev. Code Ann. § 4905.22 (Page 1991); 66 Pa.

Cons. Stat. Ann § 1501 (1979).

Grimes’ proposals are not directed at a particular major

capital expenditure, such as construction of a nuclear plant, which

may fall outside the ambit of ordinary business operations. Cf.

Adoption of Amendments Relating to Proposals by Security

Holders, Exchange Act Release No. 12999, 10 SEC Docket 1006,

1012, 41 Fed. Reg. 52,994, 52,998 (Nov. 22, 1976); Centerior, 909

F.2d at 532. Rather, once Grimes’ initial spending threshold has

been exceeded, all capital disbursements would be submitted to the

shareholders indiscriminately. Both the Second Circuit and the

2. See, e.g., Florida Power & Light Co., SEC No-Action Letter, 1983 SEC

No-Act. LEXIS 1693 (Jan. 18, 1983); Middle S. Utils. Corp., SEC No-Action

Letter, 1982 SEC No-Act. LEXIS 3164 (Feb. 24, 1981); General Pub. Utils.

Corp., SEC No-Action Letter, 1980 SEC No-Act. LEXIS 2967 (Feb. 21, 1980).

D.C. Circuit correctly held that Exemption (c)(7) applies to

arrangements for the unselective submission of every capital

expenditure, regardless of size or nature, to the shareholders. Pet.

App. 8a; Centerior, 909 F.2d at 532. For the same reason, the

Division has permitted Ohio Edison to exclude Grimes’ proposals

when he has submitted them, year after year, for the proxy ballot.

Ohio Edison Co., SEC No-Action Letter, 1993 No-Act. LEXIS 241

(Feb. 18, 1993); Ohio Edison Co., SEC No-Action Letter, 1992

SEC No-Act. LEXIS 339 (Mar. 10, 1992); Ohio Edison Co., SEC

No-Action Letter, 1991 SEC No-Act. LEXIS 585 (Apr. 8, 1991)

(R. App. 33a); Ohio Edison Co., SEC No-Action Letter, 1991 SEC

No-Act. LEXIS 247 (Feb. 8, 1991) (R. App. 26a).

Grimes is simply wrong to claim that the above reasoning “‘is

in no sense that of the SEC,” but rather was invented by the D.C.

Circuit in Centerior. Pet. 13 (emphasis deleted and footnote

omitted). The rule in Centerior and the Division’s practice are in

harmony; indeed, the Centerior court cited and relied upon the

Division’s longstanding treatment of run-of-the-mill capital

spending as part of acompany’s ordinary business operations. See

Centerior, 909 F.2d at 532 (citing no-action letters). The Second

Circuit similarly adopted and gave express approval to the

Division’s practice in this regard. Pet. App. 7a-8a & n.5.

Grimes’ additional (and inconsistent) suggestion that the

Court of Appeals should 1.>.t have deferred to the Division’s

determinations is contrary to this Court’s teaching that “substantial

deference” is due an agency’s construction of its own regulations.

Martin v. Occupational Health & Safety Review Comm'n, 499 U.S.

144, 150 (1991) (quoting Lyng v. Payne, 476 U.S. 926, 939

(1986)); accord Ford Motor Credit Co. v. Milhollin, 444 U.S. 555,

566 (1980); United States v. Larionoff, 431 U.S. 864, 872 (1977);

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945).

C. Grimes’ Petition Does Not Raise Issues Of Corporate

Governance Reform.

While corporate governance reform may be a topical issue,

this case does not present that issue for review. Grimes’ initiatives

bear little resemblance to the other corporate governance measures

described in his petition — cumulative voting, classified boards,

confidential proxy voting, and electoral rights for preferred

stockholders. Cf. Pet. 15. Unlike those measures, Grimes’

proposals would require that a plethora of trivial ordinary business

items be placed directly before the shareholders in the first

instance. That result is what calls the “ordinary business

operations” exception into play. Pet. App. 8a; Centerior, 909 F.2d

at 532-33.

Rule 14a-8(c)(7) exempts proposals “relating to the conduct

of [a company’s] ordinary business operations.” That phrase

encompasses any action that “has a connection with or reference

to” ordinary business operations. Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 96-97 (1983). Further, the “conduct” of ordinary business

operations is distinct from the operations themse}ves — the word

refers to “some degree of direction” over such activities. Reves v.

Ernst & Young, __U.S.__, 113 S. Ct. 1163, 1170 (1993).

Under SEC precedent, Grimes’ proposals must be judged

according to their effect, and not whether they are offered under the

rubric of corporate governance. The dispositive question is

“whether the subject matter of the [measure] involves a matter of

ordinary business.” Amendments Relating to Proposals by

Security Holders, Exchange Act Release No. 20091, [1983-84

Transfer Binder] Fed. Sec. L. Rep. (CCH) { 83,417 at 86,205 (Aug.

16, 1983); accord Roosevelt v. E.I. Du Pont de Nemours & Co., 958

F.2d 416, 428 (D.C. Cir. 1992). Grimes’ proffered amendments

would engender a multitude of proxy referenda concerning Ohio

Edison’s ordinary business operations and expenses. To take the

position that this effect does not relate tu the conduct of ordinary

business operations “raises form over substance,” and such a result

would render the provisions of Exemption (c)(7) “largely a

nullity.” Amendments Relating to Proposals by Security Holders,

Exchange Act Release No. 20091, [1983-84 Transfer Binder] Fed.

Sec. L. Rep. (CCH) { 83,417 at 86,205 (Aug. 16, 1983).

In fact, Grimes’ proposals were not conceived as corporate

governance reforms. When Grimes originally submitted his

proposals to Ohio Edison, his supporting statement said nothing

about corporate governance. That statement candidly set forth the

proposals’ true objectives: to raise the “dividend rate”; to stop

“pouring [Ohic Edison’s] money into new construction”; to

“secure a fair and predictable return” for stockholders; and to

prevent Ohio Edison from “invest[ing] more of our money

primarily for the benefit of users of electricity.” R. App. la-2a.

Those objectives are not only irrelevant to corporate governance

reform; as argued below, they also independently support

exclusion of Grimes’ proposals from the proxy ballot.

IV.

THE WRIT SHOULD BE DENIED BECAUSE

ALTERNATIVE GROUNDS EXIST FOR AFFIRMING

THE JUDGMENT BELOW.

The case at bar is inappropriate for certiorari because Grimes’

proposals were excludable for reasons not reached by the courts

below. Specifically, the Amended Proposal was untimely, and both

proposals fall within Exemptions (1), (2) and (13) of SEC Rule

14a-8(c).

A. The Amended Proposal Was Untimely.

Grimes’ Amended Proposal was submitted too late for

inclusion on the ballot under applicable SEC rules. Rule 14a-

8(a)(3) requires all shareholder proposals to be submitted 120 days

prior to the scheduled shareholder meeting. The deadline for

submission of shareholder proposals for inclusion in Ohio

Edison’s proxy materials, calculated in accordance with Rule 14a-

8(a)(3)(i), was November 21, 1990. Grimes submitted his

Amended Proposal by letter dated February 19, 1991 — less than

ninety days before Ohio Edison’s scheduled annual shareholder

meeting on April 25, 1991. R. App. 28a-30a. Ohio Edison notified

the SEC and Grimes’ counsel of this defect. R. App. 31a-32a.

Rule 14a-8(a)(4) restricts shareholders to a one-proposal

limit. If shareholders were routinely permitted to substitute

“amended” proposals after the SEC’s deadline, there would be no

end to the shareholder proposal process. The SEC has not

permitted such tactics.*

B. Grimes’ Proposals, If Adopted, Would Bring About

Violations Of State Law.

Grimes’ proposals may be excluded from Ohio Edison’s

proxy statement pursuant to SEC Rules 14a-8(c)(1) and (c)(2): the

proposals are not proper subjects for a shareholder vote because

they would, if adopted, force the company to disregard the

regulatory authority of the Ohio and Pennsylvania Public Utilities

Commissions, thereby violating Ohio and Pennsylvania law.

Ohio Edison is a regulated public utility with restrictions and

responsibilities not faced by ordinary corporations. One of Ohio

Edison’s responsibilities is an unconditional statutory obligation

to “furnish necessary and adequate service and facilities, and. . .

furnish and provide wiih respect to its business such

3. See, e.g., Harmonia Bancorp, Inc., SEC No-Action Letter, 1991 SEC

No-Act. LEXIS 433 (Mar. 8, 1991); The New York Times Co., SEC No-Action

Letter, 1991 SEC No-Act. LEXIS 19 (Jan. 4, 1991).

instrumentalities and facilities, as are adequate and in all respects

just and reasonable.” Ohio Rev. Code Ann. § 4905.22 (Page 1991);

accord 66 Pa. Cons. Stat. Ann. § 150! (1979) (“[e]very public

utility shall furnish and maintain adequate, efficient, safe, and

reasonable service and facilities’’).

Capital expenditures are essential in providing adequate

service and facilities. Ohio Edison incurs substantial capital

spending obligations to construct new generating facilities, extend

the lives of existing generating facilities, meet regulatory

requirements of the Nuclear Regulatory Commission and the

Environmental Protection Agency, and provide transmission and

distribution facilities to service the future demand for electricity.

To meet its statutory obligations, Ohio Edison’s management must

forecast customer demands many years in advance, construct the

plants and equipment required to meet those demands, and enter

into contracts that will ensure adequate facilities and service in the

future.‘

By setting up the shareholders as arbiters of Ohio Edison’s

capital spending, Grimes aimed to stop the company from

“invest[ing] more of our money primarily for the benefit of users of

electricity,” and “pouring our money into new construction at rates

inadequate to restore and maintain our dividends.” R. App. 1a-2a.

His supporting statement called upon the shareholders to defeat

capital expenditures required by regulators if the shareholders

4. See, e.g., Office of Consumers’ Counsel v. Public Utils. Comm'n, 423

N.E.2d 820, 827 (Ohio 1981) (Ohio Rev. Code Ann. § 4905.22 requires “utilities

to maintain adequate service presently and for the foreseeable future’’); Jn the

Matter of Regulation of the Elec. Fuel Component Contained within the Rate of

Schedules of the Ohio Edison and Related Matters, No. 82-164-EL-EFC, 1983

Ohio PUC LEXIS 92 (ordering Ohio Edison to enter into long-term coal supply

contracts in order to fulfill the requirement of providing adequate service and

facilities under Ohio Rev. Code Ann. § 4905.22).

believe they would not “obtain a fair return.” R. App. 2a.

Grimes’ proposals would place Ohio Edison’s management in

an impossible situation. Submitting every capital expenditure of a

major public utility to the shareholders for a vote would result in

logistical chaos. If the sharehoiders vote against approving

expenditures in excess of the Grimes’ threshold, Ohio Edison may

not be able to fulfill its duty to “furnish necessary and adequate

service” and would risk violating Ohio Rev. Code Ann. § 4905.22

and 66 Pa. Cons. Stat. Ann. § 1501.

Consequently, Grimes’ proposals are not proper subjects for

action by the shareholders and were properly excluded from the

proxy ballot under Rules 14a-8(c)(1) and (c)(2).

C. Grimes’ Proposals Are Excludable Because They Relate To

Specific Amounts Of Dividends.

SEC Rule 14a-8(c)(13) permits exclusion of proposals that

“relate[] to specific amounts of cash or stock dividends.” 17C.ER.

§ 240.14a-8(c)(13) (1993). The proposals here would establish a

direct relationship between the payment of dividends and

shareholder consent for capital expenditures. Grimes’ supporting

Statement made clear his intent to ensure that dividends are

“reestablished at [their] old and proper rate,” that is, a rate at which

total dividend payments will equal $300 million or, if larger, the

amount of Ohio Edison’s capital expenditures. R. App. la-2a.

Grimes stressed that his proposal would thereby “secure a fair and

predictable return” for shareholders. R. App. 2a.

The Division’s no-action letters demonstrate that the phrase

“specific amounts” of dividends encompasses not just dollars-and-

cents figures, but also references to well-known economic factors

such as a company’s “capital or construction expenditures.” Thus,

the Division has permitted exclusion of shareholder measures

proposing a formula for computing dividends by reference to the

company’s capital gains,’ charitable contributions,°® interest

income,’ or net earnings.®

Because Grimes’ proposals would link dividends to

anticipated capital expenditures, Ohio Edison properly excluded

them from the proxy ballot pursuant to Rule 14a-8(c)(13). Accord

Grimes v. Centerior Energy Corp., No. 89-0386 JGP(D.D.C. Mar.

2, 1989) (reprinted atR. App. 12a-21a).

5. Gabelli Equity Trust, Inc., SEC No-Action Letter, 1990 SEC No-Act.

LEXIS 431 (Feb. 23, 1990).

6. Union Pac. Corp., SEC No-Action Letter, SEC No-Act. LEXIS 181

(Feb. 6, 1990).

7. St. Jude Medical, Inc., SEC No-Action Letter, 1992 SEC No-Act.

LEXIS 399 (March 23, 1992); Network Sys. Corp., SEC No-Action Letter, 1991

SEC No-Act. LEXIS 455 (Jan. 21, 1991).

8. Zions Coop. Mercantile Inst., SEC No-Action Letter, 1990 SEC No-

Act. LEXIS 509 (Mar. 20, 1990); General Pub. Utils. Corp., SEC No-Action

Letter, 1988 SEC No-Act. LEXIS 480 (Apr. 13, 1988); Chrysler Corp., SEC No-

Action Letter, 1985 SEC No-Act. LEXIS 1977 (Mar. 28, 1985); Thetford Corp.,

SEC No-Action Letter, 1985 SEC No-Act. LEXIS 2668 (Oct. 24, 1985); Tandy

Corp./Radio Shack, SEC No-Action Letter, 1984 SEC No-Act. LEXIS 2515

(Aug. 16, 1984); International Gen. Indus., Inc., SEC No-Action Letter, 1979

SEC No-Act. LEXIS 3832 (Nov. 28, 1979).

CONCLUSION

For the reasons set forth above, the writ of certiorari should be

denied.

Respectfully submitted,

FREDERICK A. BRODIE

Counsel of Record

WINTHROP, STIMSON, PUTNAM

& ROBERTS

Attorneys for Respondent

One Battery Park Plaza

New York, New York 10004-1490

(212) 858-1000

THOMAS F.CLAUSS, JR.

Of Counsel

Dated: New York, New York

October 22, 1993

APPENDIX A—C.L. GRIMES’ SUPPORTING

STATEMENT DATED OCTOBER 23, 1990

C.L.GRIMES

October 23, 1990

Mr. H. Peter Burg

Ohio Edison Company

76 South Main Street

_ Akron, Ohio 44308

Dear Pete:

I hereby propose that Ohio Edison’s Amended Articles of

Incorporation be further amended by inclusion of the following

language:

“The Company (or in the aggregate any combination of the

Company and/or its subsidiaries) shall not without the formal prior

consent of the common shareholders in each instance, expend in

any calender year any monies by way of capital or construction

expenditures in excess of $300,000,000; provided, however, that

the consent of such shareholders shall not be required unless the

amount of such expenditures exceeds the cash amount paid to the

common shareholders as dividends in the preceding calender

year.”

I hereby formally request that this proposal be included in the next

proxy statement for action at the next regular or special meeting of

the common shareholders of the Company. I also request that the

following statement in support of my proposal be inciuded:

“Our dividend rate has been cut drastically and management has

offered us no assurance that it can be reestablished at its old and

Appendix A

proper rate. Management seeks to blame regulatory action for our

dividend reduction and complains that the company receives an

inadequate overall return on our investments, yet continues to

invest more of our money primarily for the benefit of users of

electricity.

“There can be no excuse for reducing our dividends and

complaining about inadequate returns, while pouring our money

into new construction at rates inadequate to restore and maintain

our dividends. We shareholders must now become directly

involved in making certain that our Company receives assurance

of adequate returns to pay our dividends before further investments

of our money are made. Neither management nor any Ohio

regulator can complain that requiring us to approve a capital

expenditure at the shareholder level is too expensive or

cumbersome, because it is our money which will be spent seeking

to obtain our approval.

“If our management cannot obtain a fair return from the Ohio

regulators, our monies simply should not be invested in Ohio. If

our money is not able to be safely and profitably invested in an

Ohio savings bank or utility, management should not invest it

there, any more than they would invest it in a South American or

Communist government loan. Requiring management to get our

consent before making dangerous investments is the only way to

secure a fair and predictable return. The Company and all of its

assets belong to us, not to management or the Ohio regulators.”

At the present time I am the owner of 100 shares of the Company

and you should note that in your proxy in support of my proposal.

Thank you for your attention to the foregoing,

Very truly yours,

C.L. Grimes

APPENDIX B — OHIO EDISON’S LETTER TO THE

SECURITIES AND EXCHANGE COMMISSION, OFFICE

OF CHIEF COUNSEL, DIVISION OF CORPORATE

FINANCE, DATED DECEMBER 18, 1990

OHIO EDISON

Gregory F. LaFlame

Secretary

December 18, 1990

RE: Ohio Edison Company-Shareholder Proposal

of C.L. Grimes

Securities and Exchange Commission

Office of Chief Counsel

Division of Corporate Finance

Mail Stop 3-1

450 Fifth Street

Washington, D.C. 20549

Dear Mr. Morley: _—-

Pursuant to Rule 14a-&({d) of the rules and regulations

promulgated under the Securities Exchange Act of 1934, as

amended, enclosed herewith for filing are six copies of a

shareholder proposal and supporting statement submitted by Mr.

C.L. Grimes under date of October 23, 1990 (received October 29,

1990) for inclusion “in the next proxy statement for action at the

regular or special meeting of the common shareholders” of Ohio

Edison Company (the “Company”).

Also enclosed for filing are six copies of a statement

indicating the reasons why the Company deems the omission of

Mr. Grimes’ proposal from its proxy statement to be proper under

paragraphs (1), (2), (7) and (13) of Rule 14a-8(c). Finally, to the

: Appendix B

extent the Company’s reasons for omitting Mr. Grimes’ proposal

are based on matters of law, there are enclosed the supporting

opinions of Anthony J. Alexander, Esq. (with respect to Ohio law)

and of Stephen L. Feld, Esq. (with respect to Pennsylvania law).

Based on the foregoing, the Company intends to omit Mr. Grimes’

proposal from its proxy statement relating to the annual meeting of

its shareholders scheduled to be held April 25, 1991.

By copy of this letter and the enclosed material, the Company

is notifying Mr. Grimes of its intention to omit his proposal from

the Company’s proxy statement. The Company plans to mail

definitive proxy materials to the Commission for filing on or about

March 11, 1991.

If the staff determines that it disagrees with the Company’s

position, we respectfully request that you contact me at (216) 384-

5500 or John H. Byington, Jr. at (212) 858-1102 prior to your

transmittal of a written response, so that we may have an

opportunity to respond to the staff’s concerns.

In any case, please return the enclosed duplicate original of

this letter, stamped to indicate the date of filing of this material, to

me in the enclosed self-addressed, stamped envelope. If you have

any comments or questions concerning this matter, please contact

either me or Mr. Byington at the telephone numbers listed above.

Sincerely,

s/ G. F. LaFlame

cag

cc: C. L. Grimes

APPENDIX C— OHIO EDISON’S STATEMENT OF

INTENT TO OMIT SHAREHOLDER PROPOSAL

Ohio Edison Company, an Ohio corporation (the

“Company”), intends to omit the shareholder proposal and

supporting statement dated October 23, 1990 submitted by C.L.

Grimes (the “Proposal”) for inclusion in its next proxy statement.

The Proposal proposes an amendment to the Company’s Articles

of Incorporation to provide that:

“[t]he Company (or in the aggregate any

combination of the Company and/or its

subsidiaries) shall not without the formal prior

consent of the common shareholders in each

instance, expend in any calendar year any

monies by way of capital or construction

expenditures in excess of $300,000,000:

provided, however, that the consent of such

shareholders shall not be required unless the

amount of such expenditures exceeds the cash

amount paid to the common shareholders as

dividends in the preceding calendar year”.

The Proposal is similar to a proposal submitted by Mr. Grimes to

Centerior Energy Corporation in 1988 for inclusion in Centerior’s

proxy statement for its 1989 Annual Meeting. Centerior omitted

that proposal from its proxy statement for that Meeting on the

strength of the staff’s indication that the Division of Corporate

Finance would not recommend enforcement action if it did so (see

letter re Centerior Energy Corporation dated January10, 1989,

incoming letter dated December 1, 1988). The staff based its

decision on the conclusion that the proposal, if implemented, may

require Centerior to violate state law. Mr. Grimes then took the

matter to the U.S. District Court for the District of Columbia. That

Court denied Mr. Grimes any relief but concluded that his proposal

Appendix C

was properly omitted not because its implementation may require

Centerior to violate state law (the Court said the test was whether

implementation would require a violation of state law and not

whether implementation may require a violation of state law) but

both because the proposal dealt with a matter relating to the

conduct of the ordinary business operations of Centerior and

because the proposal related to specific amounts of cash or stock

dividends. (This decision is unreported but a copy is attached for

the convenience of the staff.) Mr. Grimes then appealed to the U.S.

Court of Appeals for the District of Columbia. That Court affirmed

the District Court on the basis of conduct of ordinary business

operations but did not reach the specific amount of cash or stock

dividends point. (This decision is reported at 909 F.2d 529 and Fed.

Sec. L. Rep. (CCH) para. 95,391 and a copy is attached for the

convenience of the staff.) Mr. Grimes has filed and now has

pending a petition for a writ of certiorari with the United States

Supreme Court.

The Company believes the Proposal may be omitted from its

next proxy statement, namely the proxy statement relating to its

1991 Annual Meeting of Shareholders, on the basis of four of the

thirteen circumstancs listed in Rule 14a-8(c) as permitting such

omission.

The first of these circumstances is that under the law of Ohio

where the Company is domiciled, the Proposal is not a proper

subject for action by security holders. (See Rule 14a-8(c)(1).) The

Proposal mandates that capital or construction expenditures in

excess of a certain amount can be made in any given year only if

cash dividends paid in the previous year exceed the amount of the

proposed expenditures or the prior consent of the common

shareholders is obtained. However, under Ohio law the Company

has an unconditional obligation to provide adequate service and

a |

Appendix C

facilities. Section 4905.22 of Page’s Ohio Revised Code states that

“[e]very public utility shall furnish necessary and adequate service

and facilities, and every public utility shall furnish and provide

with respect to its business such instrumentalities and facilities, as

are adequate and in all respects just and reasonable”. If a public

utility fails to fulfill this obligation, it may be ordered to do so by

the Public Utilities Commission of Ohio (§ 4905.38 of Page’s Ohio

Revised Code). Obviously capital expenditures go to the heart of

providing adequate service and facilities and indeed the statement

that Mr. Grimes asks to have included with the Proposal clearly

indicates that it is directed at expenditures made “primarily for the

benefit of users of electricity”. However, the Company does not

have achoice as to whether or not it will provide adequate electric

service nor do the shareholders. Any proposal that is put before the

shareholders that has the effect or creating for them such a choice

(one which is legally improper for them to have) must necessarily

be one that is not a proper subject for action by them and thus

properly excludable from the Company’s proxy statement.

The next circumstance that permits the omission of the

Proposal relates to Rule 14a-8(c)(2). This section of the rule

permits a shareholder proposal to be omitted from a registrant’s

proxy statement if the proposal, if implemented, would require the

registrant to violate any state or federal law. The Proposal in this

case addresses the combined capital or construction expenditures

of the Company and its subsidiaries. In this case, one of the

Company’s subsidiaries is Pennsylvania Power Company (“Penn

Power”), a Pennsylvania corporation and a regulated public utility

in the Commonwealth of Pennsylvania. Under § 2101 of Title 66 of

Purdon’s Pennsylvania Consolidated Statutes, the Company, as the

owner of all of the voting securities of Penn Power, is an“affiliated

interest” with respect to Penn Power. Arrangements between

affiliated interests and Pennsylvania public utilities are governed

Appev.-: C

by statute and under § 2102 of Title 66 any arrangement for the

furnishing of any right to a public utility by an affiliated interest

can not become valid or effective, and thus be implemented, prior

to the written approval of the Pennsylvania Public Utility

Commission of such arrangement. In this case, the Proposal, if

implemented, would result in an arrangement under which the

Company would necessarily be put in the position of furnishing a

right to Penn Power, namely, the right to incur capital or

construction expenditures. Based on the level of the Company’s

own expenditures and the level of its common stock dividend, the

Company would be forced to control Penn Power’s expenditures

(even if the Company reduced its expenditures to zero the right of

Penn Power to incur expenditures in excess of $300 million would

depend on the level of the Company’s common stock dividends).~

The exercise of such control would amount to furnishing to Penn

Power the right to make expenditures and in the absence of

approval by the Pennsylvania Public Utility Commission of this

arrangement (a circumstance not contemplated by the Proposal

and in any event unlikely to ever occur even if requested), would

violate Pennsylvania law.

The third circumstance that permits the omission of the

Proposal involves the ordinary business operations standard set

forth in Rule 14a-8(c)(7). The attached opinion of the Court of

Appeals for the District of Columbia affirming the appropriateness

of excluding Mr. Grimes’ proposal to Centerior Energy

Corporation succinctly describes the application of the ordinary

business operations standard in the case of a public utility (see part

II. A., p. 5a-8a) and is applicable here. Mr. Grimes has amended his

Centerior Energy proposal in the present case by including a $300

million threshold. This is apparently an attempt to place the

Proposal outside the application of the ordinary business

operations standards but as noted in the Court of Appeals opinion,

Appendix C

the District Court did not agree that size alone would govern

whether or not expenditures are in the course of ordinary business

operations (see attached District Court Opinion at page 19a) and

the Court of Appeals, while not necessarily agreeing with the

District Court’s analysis, did not specifically disagree. However,

the question of whether an expenditure of $300 million is too large

to be considered normal business operations does not arise in the

case of the Proposal. Mr. Grimes has not zeroed in on large

projects. Instead the Proposal applies to all capital and

construction expenditures whether they involve a meter hookup or

a new chair for an employee. The size of the threshold level of $300

million makes it likely that some number of substantial projects

will be involved before that threshold level it reached but how

substantial each will be will depend entirely on the number

involved. For example there could be one hundred $3 million

projects involved (certainly not a beyond the realm of possibility

for an electric system serving 1,030,994 customers in a territory of

9,000 square miles) and if that were the case it would be hard to say,

for a Company with $7,801,446,000 in consolidated assets and

$2,201,131,000 in consolidated annual operating revenues, that

any of those projects was not in the course of ordinary business

operations. Of course, once the $300 million level was reached,

any further expenditures could be subject to stockholder action.

The Court of Appeals opinion in the Centerior case applies here

almost literally and with very little paraphrase. The Court said:

“Under Grimes’s [sic] proposal, whether

shareholder approval is required for the current

year’s capital expenditures depends on the

level of the previous year’s dividends. Thus the

proposal is not limited in reach to those capital

expenditure decisions involving substantial

policy considerations or very large sums, but

10a

Appendix C

potentially extends to capital expenditures of

any kind. For example, if in a given year...

dividends [of less than $300 million] were

paid, all capital expenditure decisions for the

following year [in excess of $300,000,000] no

matter how small, would have to be made by

shareholders. In such circumstances Grimes’s

[sic] proposal would involve them in such

minor or routine day-to-day decisions as the

purchase of typewriters or the replacement of

worn-out machinery. Such decisions would

clearly be matters of ordinary business

operations.” (pp 7a-8a of the attached Court of

Appeals opinion-emphasis added.)

The final circumstance dictating the omission of the Proposal

from the Company’s 1991 proxy statement is that the Proposal

relates to specific amounts of cash dividends. (See Rule 14a-

8(c)(13).) The Court of Appeals did not reach this question in its

opinion but the District Court did and held that Mr. Grimes’

proposal in Centerior was excludable on that basis. For purposes of

applying Rule i4a-8(c)(13), Mr. Grimes’ proposal in Centerior is

no different than the Proposal and thus is excludable on those

grounds. Such a result is entirely consistent with previous

positions the staff has taken in this area. The staff has consistently

allowed for the omission of shareholder proposals that would

establish formulas linking dividends with some other parameter.

See General Public Utilities, Corp., SEC No-Action Letter, April

13, 1988 (proposal to have the company pay a dividend of at least

50% of net earnings based upon the preceding year’s earnings);

Chrysler Corporation, SEC No-Action Letter, March 28, 1985

(proposal that dividends be a minimum of 30% of the earnings of

the preceding year if that amount is not less than 30% of the present

lla

Appendix C

year’s earnings); Thetford Corp., SEC No-Action Letter, October

24, 1985 (proposal that dividends shall be 40% of net earnings);

Tandy Corp./Radio Shack, SEC No-Action Letter, August 16, 1984

(proposal to fix a dividend equal to 40% of the Company’s net

earnings for the fiscal year); International General Indus., Inc.,

SEC No-Action Letter, November 28, 1979 (proposal that

dividends be between 30% and 50% of net earnings).

Again to quote from courts that have already considered Mr.

Grimes’ proposals:

“The proposal refers to specific amounts of

cash in that it would establish a formula which

may come into play depending upon the

circumstances. For example, if the Company

projected capital expenditures for 1990 in an

amount of 500 million dollars, then under the

proposal, in order to ensure funds to make

those capital outlays, the directors would be

required to pay cash dividends in 1988 [sic] in

an amount equal to or greater than the proposed

capital expenditure. Under these

circumstances, the proposed amendment

relates to specific amount(s] of cash or stock

dividends.” (p. 20a of the attached District

Court opinion.)

As stated above, the Company believes any and all of the

circumstances enumerated above permit it to properly omit the

Proposal from proxy statement for its 1991 Annual Meeting of

Shareholders.

12a

APPENDIX D — OPINION OF THE DISTRICT COURT

IN GRIMES v. CENTERIOR ENERGY CORP., CIVIL

ACTION NO. 89-0386 JGP (D.D.C. MARCH 2, 1989)

(Minor Typographical Errors Corrected)

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 89-0386 JGP

C.L.GRIMES,

Plaintiff

CENTERIOR ENERGY CORPORATION,

Defendant

FILED

MAR 2 1989

CLERK, U.S. DISTRICT COURT

DISTRICT OF COLUMBIA

MEMORANDUM

In this action, the plaintiff, an individual stockholder in the

defendant corporation, “seeks to require defendant to comply with

the law and the rules of the Securities and Exchange Commission

[SEC] by including, in a forthcoming proxy statement with

respect to the defendant’s annual meeting, information with

respect to an amendment to the defendant’s articles of

incorporation proposed by plaintiff.” Complaint par. 1. Plaintiff

contends that this court has jurisdiction over this proceeding

pursuant to §27 of the Securities Exchange Act of 1934, 15 U.S.C.

§78aa, “in that it is based upon a violation of the Act and rules

aforesaid, and more particularly upon violations of §14(a) of the

said Act, 15 U.S.C. §§78n, and SEC Rule 14a-8 and 14a-9, 17

C.F.R. §§240.14a-8 and 240.14a-9.” Complaint par. 2.

13a

Appendix D

The case is now before the Court on plaintiff's motion for a

preliminary injunction and defendant’s motion to dismiss, or in the

alternative, to transfer to the United States District Court for the

Northern District of Ohio. With respect to the plaintiff’s motion,

the parties have agreed that the hearing on the motion for a

preliminary injunction may be consolidated with a ‘rial on the

merits. See Fed. R. Civ. P. 65(a)(2). The parties also agree that there

are no factual issues. The Court heard the motion on February 27,

1989,

After giving careful consideration to the motions, the Court

concludes that plaintiff’s motion for a preliminary injunction

should be denied and that this case should be dismissed.

The subject proxy materials are to be mailed to the

stockholders on or about March 13, 1989, and the annual

stockholders’ meeting will be held on April 25, 1989. In view of

those time constraints, the Court will briefly set forth the

underlying facts and the basis for its ruling.

The material facts are as follows: The plaintiff is a holder of

300,000 shares of common stock in the defendant having a market

value in excess of 4.8 million dollars as the close of business

February 10, 1989. Complaint par. 4. Defendant is a holding

company whose subsidiaries are engaged in the generation,

transmission and distribution of electric power. It is organized and

existing under the laws of the state of Ohio and is subject to the

securities laws of the United States and to regulation by, and the

rules of, the Securities and Exchange Commission (SEC). The

defendant is a “registrant” within the meaning of 17 C.F.R.

l4a

Appendix D

§240.14a-8', and the issuance and distribution of the proxy

materials involved in this action are subject to those laws,

regulations and rules. Compiaint par. 5.

Under defendant’s articles of incorporation and by-laws, the

authority to make capital expenditures is vested solely in the board

of directors (and in the executive committee thereof under certain

circumstances). Complaint par. 6.

By letter dated October 5, 1988, plaintiff sent to defendant a

proposed amendment to defendant’s articles of incorporation

pursuant to which such expenditures in excess of a defined amount

would require the approval of stockholders, and requested that the

proposal and a statement in support thereof be included in a proxy

materials for the next regular or special meeting of the

stockholders of the corporation. Complaint par. 7 and Exhibit 1

thereto. The proposed amendment provided:

The Corporation (or in the aggregate any

combination of the Corporation and/or its

subsidiaries) shall not expend in any calendar

year any monies by way of capital or

construction expenditures in excess of the cash

amount paid to the common shareholders as

dividends in the preceding calendar year,

without the formal prior consent of the

common shareholders in each instance.

Complaint Exhibit 1. By letter dated December 1, 1988, to the

Office of Chief Counsel, Division of Corporate Finance of the

SEC, situated in this district, with a copy to plaintiff, defendant

advised the SEC and plaintiff of its intention to omit plaintiff’s

proposal from its proxy statement relating to the annual

1. “The term ‘registrant’ means the issuer of the securities in respect of which

proxies are to solicited.” 17 C.F.R.240.a-1(h) -

——eSSs ree

1Sa

Appendix D

stockholders’ meeting scheduled to be held on April 25, 1989.

Complaint par. 12. In that letter the defendant stated its intention to

deliver preliminary proxy materials to the SEC on or before

February 2, 1989, and to mail the proxy materials to the

stockholders on or about March 13, 1989. Jd. The defendant

attached to its letter a “Statement of Intent to Omit Shareholder

Proposal” (Statement) in which it outlined the reasons for its

decision to omit the plaintiff’s proposal from the proxy material.

Complaint Exhibit 3.

In its Statement, the defendant noted three reasons in support

of its decision. First, the defendant contended that the proposed

amendment would require the defendant’s subsidiaries to violate

the state law of Ohio. See 17 C.F.R. §240.14a-8(c)(2). Second, the

defendant contended that the proposed amendment deals with a

matter relating to the conduct of ordinary business of the defendant

and its subsidiaries. See 17 C.F.R. §240.14a-8(c)(7). Finally, the

defendant contended that the proposed amendment relates to

specific amounts of cash or stock dividends. See i7 CR.

§240.14a-8(c)(13). On the same date, defendant submitted the

legal opinion of its Assistant General Counsel to the SEC.

Complaint par. 13 and Exhibit 4 thereto.

In a letter dated January 10, 1989, the SEC responded to

defendant, with a copy to plaintiff. Complaint Exhibit 5. Enclosed

with the letter was a “Response of the Office of Chief Counsel

Division of Corporation Finance” (Response). Complaint Exhibit

6. The Response provides in part:

The proposal relates to the amount of

capital expenditures that can be made in

relation to the amount of dividends that are

declared.

16a

Appendix D

There appears to be some basis for your

opinion that to the extent that the proposal links

the amount of capital expenditures to dividend

payments it may be omitted pursuant to Rule

14a-8(c)(2) since it may result in a violation of

the Ohio Revised Code (“ORC”) provisions

regulating the activities of the Company. In

arriving at our position, the staff has

particularly noted that ORC section 4905.22

requires the Company to make such

expenditures as are necessary to “furnish

necessary and adequate (public utility) service

and facilities” and that ORC section 1701.33

provides that the Company may pay dividends

only out of its surplus.

Id. (emphasis the Court’s).

By a letter dated January 25, 1989, the plaintiff requested the

full SEC to review the above determination by the staff. Complaint

par. 16 and Exhibit 8 thereto. The SEC declined to do so. Plaintiff’s

Exhibit 1?

In view of the time constraints, the Court will address only

those issues which are pertinent to its decision in this case.

Defendant seeks to have the Court dismiss the case for lack of

jurisdiction or lack of waiver, or in the alternative to transfer the

case to the United States District Court for the Northern District of

2. Plaintiff's Exhibit 1 was filed in Court at the time of the hearing.

LL ee

l7a

Appendix D

Ohio. Although time does not permit a extensive examination of

the question of jurisdiction the Court concludes that it does have

jurisdiction over this matter and that venue is proper. See, Hodgdon

v. Needham-Skyles Oil Co., 556 F.Supp. 75 (D.D.C. 1982). See

also, Hirt v. UM Leasing Corp., 614 F.Supp. 1066, 1069 (D.Neb.

1985). Moreover, in view of the short time before the mailing of the

proxy statements, the Court will not transfer this action.

As was noted above, although this comes before the Court on

the plaintiff's motion for a preliminary injunction and the

defendant’s motion to dismiss or transfer, the parties have agreed

that the plaintiff’s motion may be consolidated with a hearing on

the merits. Since there is not a factual dispute, the Court may

address the case without the need for testimony or other evidence.

Normally, when a stockholder of the registrant seeks to

present a proposal, or in this case, a proposed amendment of the

articles of incorporation or by-laws, the registrant is required to set

forth the proposal in its proxy statement to the other stockholders,

provided that the proponent has met all requirements. 17 C.F.R.

§240.14a-8. The Court assumes, based upon the present record and

the arguments of counsel, that the plaintiff has satisfied the

necessary requirements and that the proposed amendment was

properly before the registrant. The rules provided that a registrant

may omit a proposal and any statement in support thereof under

several circumstances, three of which are raised in this case. 17

C.F.R. §240.14a-8(c).

First, defendant contends that the proposal need not be

included in the proxy statement because it would require the

registrant to violate the Ohio law. The Division of Corporate

Finance, SEC, advised that it would not recommend any

enforcement action requiring defendant to include the proposal

18a

Appendix D

amendment in the proxy statement because it concluded that the

proposal amendment, if adopted, may result in a violation of state

law. The rules provide, in part, that the proposal need not be

included: “If the proposal, if implemented, would require the

registrant to violate any state law.” 17 C.F.R. §240.14a-8(c)(2)

(emphasis the Court’s). Defendant argues that management cannot

satisfy their statutory obligations under Ohio law unless

management retains the freedom to set and adjust the level of

capital expenditures.

There is no question but that this argument has some merit.

Defendant’s subsidiaries are electric power companies which are

regulated by the state. It could be that under the law, the company

would be required to make certain capital expenditures in a given

year that are in excess of the amount of the case dividends paid

during the previous year. That would raise a need for stockholder

action which would in turn raise other questions concerning the

timeliness of any action by the stockholders. In this connection,

defendant noted in its Statement that the amount of capital

expenditures for the years 1985, 1986 and 1987 far exceeded the

amount of cash dividends paid to the stockholders in the preceding

years. For example, the company paid out cash dividends in 1984

in the amount of 245 million dollars while in the following year it

expended 984 million dollars for construction. In 1984 it paid out

cash dividends in the amount of 268 million dollars but spent over

one billion dollars for capital expenditures.

There seems to be little doubt that the plaintiff’s proposed

amendment is directed at this imbalance. In his letter proposing the

amendment he complains about dividends “hav[ing] been cut

drastically”. Complaint Exhibit 1. He notes that:

There can be no excuse for reducing our

19a

Appendix D

dividends and complaining about inadequate

returns, while pouring our money into new

construction. Neither management nor any

Ohio regulator can complain that requiring us

to approve a capital expenditure at the

shareholder level is too expensive or

cumbersome, because it is our money which

will be spent seeking to obtain our approval.

Id. (bold supplied by the Court). He then states that if management

cannot receive a fair return, perhaps the monies should be invested

elsewhere. Id.

While it is clear why the plaintiff has made his proposal, he

apparently seeks to have the defendant or its subsidiary companies

cut back on the amount of capital expenditures, passage of the

proposed amendment, would not insure that result. If the

amendment was passed, any request for capital expenditures in

excess of the prior year’s cash dividends would be submitted to the

stockholders, but that does not mean that the stockholders would

vote to violate the state law, or that the defendant company would

ultimately violate the state law. Nevertheless, the potential is

present and that appears to be exactly what the plaintiff seeks. This

much is made clear by his letter, Complaint Exhibit b, and by the

past history of the company in which the amount of capital

expenditures have exceeded the previous year’s cash dividends for

the past three years-up to 1987. The returns are not in for the capital

expenditures for 1988.

The proposed amendment may make the company violate a

state law, but the rule speaks in terms of requiring the regiStrant to

violate the state law. Apparently SEC has read this case situation as

falling within Section 240.14a-8(c)(2). Based upon the present

20a

Appendix D

record, this Court cannot conclude that the proposal will require

the registrant to violate state law, notwithstanding that such a result

may be intended by the plaintiff; accordingly, the Court concludes

that Section 240.14a-8(c)(2) standing alone is not a sufficient

reason for defendant to refuse to send the proposed amendment to

the stockholders.

The second argument made by the defendant is that the

proposed amendment may be omitted from the proxy statement

because it relates to the conduct of the ordinary business operations

of the company. 17 C.F.R. §240.14a-8(c)(7). Here again it is

questionable whether the expenditure of huge sums of money falls

within the term “conduct of ordinary business operations.” That

term usually refers to the day-to-day operations where the

management must have freedom to operate and of course would

not extend to broad policy matters. It would seem in this case,

however, that the term might encompass a requirement under state

law that management make certain capital expenditures in order to

bring or keep the utility in compliance with state law. For example,

the utility must furnish electricity, and if the product cannot be

furnished without a capital expenditure, then the directors are

required to make that expenditure. This appears to relate to the

conduct of ordinary business.

Finally, the proposed amendment is not required if the

proposal relates to specific amounts of cash or stock dividends. 17

C.F.R. §240.14a-8(c)(13). The proposal refers to specific amounts

of cash in that it would establish a formula which may come into

play depending upon the circumstances. For example, if the

company projected capital expenditures for 1990 in an amount of

500 million dollars, then under the proposal, in order to insure

funds to make those capital outlays, the directors would be

required to pay cash dividends in 1988 in an amount equal to or

2la

Appendix D

greater than the proposed capital expenditure. Under these

circumstances, the proposed amendment relates to specific amount

of cash or stock dividends.

Under these circumstances, the Court concludes that the

defendant is not required to include the proposal in the proxy

statement. Having reached this result, it follows that plaintiff is not

entitled to preliminary injunction and this case must be dismissed.

An appropriate order has been entered.

March 2, 1989

/s/ John Garrett Penn

JOHN GARRETT PENN

United States District Judge

22a

APPENDIX E — OPINIONS OF COUNSEL SUBMITTED

—_>—_BY—_OHIO EDISON TO THE SECURITIES AND

EXCHANGE COMMISSION, OFFICE OF CHIEF

COUNSEL, DIVISION OF CORPORATE FINANCE

DATED DECEMBER 18, 1990

OHIO EDISON

Anthony J. Alexander

Vice President

and General Counsel

December 18, 1990

RE: Ohio Edison Company-Shareholder Proposal

of C.L. Grimes

Securities and Exchange Commission

Office of Chief Counsel

Division of Corporate Finance

Mail Stop 3-1

450 Fifth Street

Washington, D.C. 20549

Gentlemen:

In accordance with Rule 14a-8(d), this opinion is being

provided by the undersigned in support of the position of Ohio

Edison Company (the “Company”) that the shareholder proposal

submitted by C. L. Grimes (the “Proposal’’) for inclusion in the

Company’s next proxy statement may be omitted from such proxy

statement pursuant to Rule 14a-8(c)(1) because under Ohio law

Mr. Grimes’ proposal is not a proper subject for action by the

Company’s common stockholders.

The Company is a public utility providing electric service to

23a

Appendix E

customers in the State of Ohio and as such is subject to the

requirements of Ohio law as it applies to public utilities. Under

Ohio law public utilities are required to furnish necessary and

adequate service and to provide adequate facilities for this

purpose. In my opinion, this obligation to provide adequate

services and facilities is not subject in any way to the approval or

consent of the shareholders of the public utility and the failure of a

public utility to provide necessary and adequate service and

facilities would violate Ohio law even if such failure was the result

of the refusal of the public utility’s shareholders to allow the

necessary capital expenditures to be made. Since Ohio law gives

no right to the shareholders of a public utility to prevent that utility

from making capital expenditures to provide necessary and

adequate service and facilities and in fact, implicitly forbids them

from doing so, it is my further opinion that under Ohio law any

proposal that purports to bestow that right on shareholders is not a

proper subject for action by security holders.

Very truly yours,

s/ Anthony J. Alexander

24a

Appendix E

Pennsylvania Power Company

Stephen L. Feld

Attorney

December 18, 1990

Securities and Exchange Commission

Office of Chief Counsel

Division of Corporate Finance

450 Fifth Street, N.W.

Washington, DC 20549

Re: Ohio Edison Company — Shareholder Proposal of C. L. Grimes

Gentlemen:

In accordance with Rule 14a-8(d), this opinion is being

provided by the undersigned in support of the position of Ohio

Edison Company (the “Company”) that the shareholder proposal

submitted by C. L. Grimes (the “Proposal”) for inclusion in the

Company’s next proxy statement may be omitted from such proxy

statement pursuant to Rule 14a-8(c)(2) because the Proposal, if

implemented, would require the Company to violate the law of

Pennsylvania.

The Company owns all of the outstanding common stock of

Pennsylvania Power Company (“Penn Power”), a public utility

company providing electric service to customers in the

Commonwealth of Pennsylvania. Under Pennsylvania law, the

relationship of Penn Power and the Company is regulated by

statute and the Company as an “affiliated interest” may not

effectuate any arrangement with Penn Power to furnish any

service, property, right or other thing without the prior written

25a

Appendix E

approval of the Pennsylvania Public Utility Commission. In my

opinion, an arrangement that contemplates the Company having

the right to give or withhold approval for Penn Power to make

capital expenditures would fall within the scope of Section 2102 of

Title 66 of Purdon’s Pennsylvania Consolidated Statutes, and

would require the approval of the Pennsylvania Public Utility

Commission before it can be implemented. Consequently, itis my

further opinion that the Proposal (not being conditioned on any

prior approval of the Pennsylvania Public Utility Commission), if

implemented, would require the Company to violate the law of the

Commonwealth of Pennsylvania.

Very truly yours,

s/ Stephen Feld

26a

APPENDIX F — RESPONSE OF THE OFFICE OF

CHIEF COUNSEL, SECURITIES AND EXCHANGE

COMMISSION, DIVISION OF CORPORATION FINANCE,

DATED FEBRUARY 8, 1991

FEB 8, 1991

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Ohio Edison Company (the “Company”’)

Incoming letter dated December 18, 1990

The proposal requests an amendment to the Company’s

articles of incorporation under which prior consent of the common

shareholders would be required for any and all capital or

construction expenditures by the Company in a particular year

once a threshold of $300,000,000 in capital and construction

expenditures by the company had been exceeded in that calendar

year. Provided, however, that the approval by shareholders would

not be required if the aggregate amount of such expenditures did

not exceed the aggregate amount of cash dividends paid to the

common shareholders in the preceding calendar year.

There appears to be some basis for your opinion that the

proposal may be omitted from the Company’s proxy material

under Rule 14a-8(c)(7), since it appears to deal with a matter

relating to the conduct of the Company’s ordinary business

operations. In arriving at our position, the staff has particularly

noted that if the proposal were adopted and the threshold

provisions were triggered, the Company would be required to

submit each and every proposed capital or construction

expenditure to a shareholder vote, regardless of the size or nature

of the proposed expenditure. Accordingly, this Division will not

recommend any enforcement action to the Commission if the

27a

Appendix F

Company omits the proposal from its proxy materials. In reaching

a position, the staff has not found it necessary to address the

alternative bases for omission upon which the Company relies.

Sincerely,

s/ William H. Carter

William H. Carter

Special Counsel

28a

APPENDIX G — LETTER TO SECURITIES AND

EXCHANGE CQMMISSION, OFFICE OF CHIEF

COUNSEL, DIVISION OF CORPORATION FINANCE,

FROM COUNSEL TO C.L. GRIMES, DATED

FEBRUARY 19, 1991

THADDEUS HOLT

Counselor at Law

Suite 400

910 16th Street N.W.

Washington, D.C. 20006

(202) 223-9010

February 19, 1991

VIA FAX

Securities and Exchange Commission

Office of Chief Counsel

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549-1004

Re: Ohio Edison Company — Stockholder Proposal

of C.L. Grimes

Gentlemen:

I represent C.L. Grimes, a stockholder in Ohio Edison

Company, who has notified management that he intends to

propose an amendment to the company’s articles of incorporation

at the forthcoming annual meeting and has requested inclusion of

the proposal and a supporting statement in the proxy materials to

be distributed for that meeting, pursuant to Rule 14a-8.

Management has opposed inclusion of such proposal and

29a

Appendix G

supporting statement. By communication dated February 8, 1991,

the staff has suggested that there may be some warrant for

management’s position.

Mr. Grimes believes management’s position to be wholly

without justification; does not waive his contention that Rule 14a-

8 requires management to include in proxy materials his proposal

and supporting statement as originally presented; and reserves the

right to assert that position in litigation. However, in order to meet

the staff’s concerns and resolve the matter promptly as far as the

1991 annual meeting is concerned, Mr. Grimes is willing to amend

his proposal with respect to that meeting so as to read as follows:

“Subject to applicable law, the power to

authorize the Company (or in the aggregate any

combination of the company and/or its

subsidiaries) to make total capital and

construction expenditures in any calendar year

in excess of $300,000,000 or the cash amount

paid to the common shareholders as dividends

in the preceding calendar year, whichever shall

be greater, shall be vested in the board of

directors and the common shareholders jointly,

and not in the board of directors acting alone.

Any such authorization shall be made by joint

resolution of the board and the common

shareholders adopted in advance of making

any excess expenditure authorized thereby, and

shall be for a sum certain with resepct to a

specific year (which may in case of need be

increased by a subsequent joint resolution or

resolutions adopted in advance of making any

additional excess expenditure).”

30a

Appendix G

I believe that this revision will accomplish important goals of

Mr. Grimes’s proposal, while meeting the concerns expressed by

the staff.

Mr. Grimes and I will appreciate hearing from you and

management promptly with respect to this matter. Through

Thursday, February 21, I can be reached at 205-990-8006, fax no.

205-928-1149 (please request on the cover sheet of any fax that I be

notified at 990-8006). Thereafter I can be reached at the number

and address on the above letterhead.

Sincerely,

Thaddeus Holt

cc: Anthony J. Alexander, Esq.

Vice President and General Counsel

Ohio Edison Company

76 South Main Street

Akron, Ohio 44308

Fax 216-384-3875

3la

APPENDIX H — LETTER TO WILLIAM H. CARTER,

ESQ., SPECIAL COUNSEL, OFFICE OF CHIEF

COUNSEL, DIVISION OF CORPORATION FINANCE,

SECURITIES AND EXCHANGE COMMISSION FROM

COUNSEL TO OHIO EDISON DATED

FEBRUARY 22, 1991

WINTHROP, STIMSON, PUTNAM & ROBERTS

One Battery Park Plaza

New York, NY 10004-1490

February 22, 1991

Re: | Ohio Edison Company-Shareholder Proposal

of C.L. Grimes

William H. Carter, Esq.

Special Counsel

Office of Chief Counsel

Division of Corporation Finance

Securities and Exchange Commission

Mail Stop 3-3

450 Fifth Street

Washington, D.C. 20549-1004

Dear Mr. Carter:

Thank you for returning my call to you relating to the letter

submitted to the Office of Chief counsel on behalf of Mr. Grimes

by Thaddeus Holt, Esq. on February 19, 1991. As I stated to you on

the telephone, we represent Ohio Edison Company in this matter

and wanted you to be aware that we believe Mr. Grimes’ revised

proposal is untimely and, in any event, violates the Division of

Corporation Finance’s Informal Procedures Regarding

Shareholder Proposals. More basically, however, the revised

rll lee

32a

Appendix H

proposal does not at all change the fact that if the proposal were

adopted and the threshold provisions were triggered, Ohio Edison

Company would be required to submit all other capital or

construction expenditures toa shareholder vote, regardless of the

size or nature of the proposed expenditures. Mr. Holt makes

explicit what was implicit in the original proposal, namely that

authorization from the shareholders for expenditures above the

threshold level may be an aggregate amount, but it is still true that

this authorization would be needed if the threshold level is

exceeded by any amount, no matter how small.

I note in passing that the operation of the revised proposal is

made subject to applicable law. In light of the position expressed

by Ohio Edison Company in its December 18, 1990 submission to

the Staff as to the implications under both Ohio and Pennsylvania

law of the original proposal, the revised proposal could also be

subject to attack under paragraph (3) of Rule 14a-8(c) and Rule

14a-9.

If you desire anything further from us or Ohio Edison Company

please let me know. Obviously, if you disagree with my assessment

of Mr. Grimes’ revised proposal, I would appreciate a chance to

discuss the matter with you further.

Sincerely,

s/ J.H.B

John H. Byington, Jr.

cc: Anthony J. Alexander, Esq.

Thaddeus Holt, Esq.

33a

APPENDIX I — LETTER TO THADDEUS HOLT, ESQ.

FROM WILLIAM H. CARTER, SPECIAL COUNSEL,

SECURITIES AND EXCHANGE COMMISSION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

April 8, 1991

Thaddeus Holt, Esq.

Suite 400

| 910 16th Street, NW

| Washington, D.C. 20006

Re: Ohio Edison Company (the “Company’)

Shareholder proposal of C.L. Grimes

Dear Mr. Holt:

This is in response to your letter of February 19, 1991

concerning the shareholder proposal submitted by Mr. C.L. Grimes

to the Ohio Edison Company. The staff has considered the revised

proposal of Mr. Grimes, as contained in your February 19th letter,

and is of the view that the revised proposal, like its predecessor,

would be omissible from Ohio Edison’s materials under Rule 14a-

8(c)(7) in that it also would require the Company, once the

threshold was exceeded, to submit proposed capital or

construction expenditures to a shareholder vote, regardless of the

size or nature of the proposal expenditure. In reaching this

position, the staff has not found it necessary to address any

alternative bases for omitting the revised proposal.

Sincerely,

s/ William H. Carter

William H. Carter

Special Counsel

——

34a

Appendix I

Enclosure

ce: Mr. Gregory F. LaFlame

Secretary

Ohio Edison Company

76 South Main Street

Akron, OH 44308

35a

APPENDIX J — ORDER FILED JUNE 7, 1993 DENYING

C.L. GRIMES’ PETITION FOR REHEARING

UNITED STATES COURT OF APPEALS

FOR THE

SECOND CIRCUIT

Ata stated Term of the United States Court of Appeals for the

Second Circuit, held at the United States Courthouse in the City of

New York, on the 7 day of June one thousand nine hundred and

ninety-three.

Present:

Hon. George C. Pratt,

Hon. J. Daniel Mahoney, C.JJ

Hon. Robert C. Zampano, D.J.

CIRCUIT JUDGES,

C.L. GRIMES,

Plaintiff-Appellant,

oms* Docket No. 92-7812

OHIO EDISON COMPANY

Defendant-Appellee.

36a

Appendix J

A petition for rehearing having been filed herein by

Appellant C.L. GRIMES

Upon consideration thereof, it is

Ordered that said petition be and it hereby is DENIED.

SO ORDERED:

FOR THE COURT,

Elaine B. Goldsmith, Clerk

By:s/ Kathy Brouwer

Kathy Brouwer, Operations Mgr.

6-7-93

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.