Amendments To Rules On Shareholder Proposals

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-40018; IC-23200; File No. S7-25-97]

RIN 3235-AH20

Amendments To Rules On Shareholder Proposals

AGENCY: Securities and Exchange Commission.

ACTION: Final Rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``we'' or

``Commission'') is adopting amendments to its rules on shareholder

proposals. The amendments recast rule 14a-8 into a Question & Answer

Format that both shareholders and companies should find easier to

follow, and make other modifications to existing interpretations of the

rule. We are also amending rule 14a-4 to provide clearer ground rules

for companies' exercise of discretionary voting authority, and making

related amendments to rule 14a-5.

EFFECTIVE DATE: The amendments are effective June 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Frank G. Zarb, Jr., of Sanjay M. Shirodkar, Division of Corporation

Finance, (202) 942-2900, or Doretha M. VanSlyke, Division of Investment

Management, at (202) 942-0721, Securities and Exchange Commission, 450

Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to

rules 14a-8,\1\ 14a-4,\2\ and 14a-5 \3\ under the Securities Exchange

Act of 1934 (the ``Exchange Act'').\4\

---------------------------------------------------------------------------

\1\ 17 CFR 240.14a-8.

\2\ 17 CFR 240.14a-4.

\3\ 17 CFR 240.14a-5.

\4\ 15 U.S.C. 78a et seq.

---------------------------------------------------------------------------

I. Executive Summary

With modifications, we are adopting some of the amendments to our

rules on shareholder proposals that we initially proposed on September

18, 1997.\5\ As explained more fully in this release, we modified our

original proposals based on our consideration of the more than 2,000

comment letters we received from the public.\6\

---------------------------------------------------------------------------

\5\ See our Proposing Release, Exchange Act Release No. 29093

(Sept. 18, 1997) [62 Fed. Reg. 50682].

\6\ The comment letters are available for inspection and copying

in the Commission's Public Reference Room in file number S7-25-97.

Comments that were submitted electronically are available on the

Commission's website (www.sec.gov).

---------------------------------------------------------------------------

Our proposed changes evoked considerable public controversy, as

have our earlier efforts to reform these rules. Some shareholders and

companies expressed overall support for our proposals.\7\ Certain of

our proposals, however, were viewed as especially controversial, and

generated strong comments in favor, as well as heavy opposition.\8\

---------------------------------------------------------------------------

\7\ See, e.g., Comment Letters From Teachers Insurance and

Annuity Assoc./College Retirement Equities Fund, Nov. 19, 1997

(``TIAA-CREF Letter''); California Public Employees' Retirement

System, Nov. 10, 1997 (``CALPERS Letter''); American Society of

Corporate Secretaries, Dec. 8, 1997 (``ASCS Letter''); the Business

Roundtable, Dec. 9, 1997 (``BRT Letter''); Barclays Global

Investors, Dec. 4, 1997; Georgeson & Company Inc., Dec. 31, 1997

(``Georgeson Letter'').

\8\ See, e.g., New York City Employees Retirement System, Nov.

5, 1997 (``NYCERS Letter''); Interfaith Center on Corporate

Responsibility, Dec. 23, 1997 (``ICCR Letter''); American Bar Ass'n,

Dec. 23, 1997 (``ABA Letter''); Labor Policy Ass'n, Nov. 17, 1997

(``LPA Letter'').

---------------------------------------------------------------------------

The amendments adopted today:

Recast rule 14a-8 into a Question & Answer format that is

easier to read;

Reverse the Cracker Barrel no-action letter on employment-

related proposals raising social policy issues;

Adopt other less significant amendments to rule 14a-8; and

Amend rule 14a-4 to provide shareholders and companies

with clearer guidance on companies' exercise of discretionary voting

authority.

These reforms, in our view, will help to improve the operation of

the rules governing shareholder proposals and will address some of he

concerns raised by shareholders and companies over the last several

years on the operation of the proxy process.

We have decided not to adopt other elements of our original

proposals, due in part to strong concerns expressed by commenters. We

are not adopting our original proposals to increase the percentage of

the vote a proposal needs before it can be resubmitted in future years;

\9\ to streamline the exclusion for matters considered irrelevant to

corporate business;\10\ or to modify our administration of the rule

that permits companies to exclude proposals that further personal

grievances or special interests.\11\ We are also not adopting the

proposed ``override'' mechanism that would have permitted 3% of the

shareownership to override a company's decision to exclude proposals

under certain of the bases for exclusion set forth under Question 9 of

amended rule 14a-8.\12\

---------------------------------------------------------------------------

\9\ See paragraph (12) under Question 9, formerly rule 14a-

8(c)(12) [17 CFR 240.14a-8(c)(12)].

\10\ Paragraph (5) under Question 9, former rule 14a-8(c)(5)[17

CFR 240.14a-8(c)(5)].

\11\ Paragraph (4) under Question 9, former rule 14a-8(c)(4)[17

CFR 240.14a-8(c)(4)].

\12\ The mechanism had been included in Paragraph 10 of rule

14a-8 as proposed to be amended. See Proposing Release.

---------------------------------------------------------------------------

Some of the proposals we are not adopting share a common theme: to

reduce the Commission's and its staff's role in the process and to

provide shareholders and companies with a greater opportunity to decide

for themselves which proposals are sufficiently important and relevant

to the company's business to justify inclusion in its proxy materials.

However, a number of commenters resisted the idea of significantly

decreasing the role of the Commission and its staff as informal

arbiters through the administration of the no-action letter process.

Consistent with these views, commenters were equally unsupportive of

fundamental alternatives to the existing rule and process that, in

different degrees, would have decreased the Commission's overall

participation.

While we have tried to provide the most fair, predictable, and

efficient system possible, these rules, even as amended, will continue

to require us to make difficult judgments about interpretations of

proposals, the motives of those submitting them, and the policies to

which they relate. We will continue to explore ways to improve the

process as opportunities present themselves.

II. Plain-English Question & Answer Format

We had proposed to recast rule 14a-8 into a more plain-English

Question & Answer format.\13\ We are adopting that proposal, and the

amended rule will be

[[Page 29107]]

the Commission's first in question and answer format. Most commenters

who addressed this proposal expressed favorable views, believing that

it would make the rule easier for shareholders and companies to

understand and follow.\14\

---------------------------------------------------------------------------

\13\ Unless specifically indicated otherwise, none of these

revisions are intended to signal a change in our current

interpretations.

\14\ See, e.g., CALPERS Letter; State Teachers' Retirement Sys.

(California), Jan. 12, 1998; Ethics in Investment Committee of the

Sisters of Charity of Saint Elizabeth Station, Nov. 19, 1997; Mr. H.

Carl McCall, Comptroller of the State of New York, Dec. 24, 1997;

American Corporate Counsel Assoc., Dec. 31, 1997 (``ACCA Letter'');

ASCS Letter; Eastman Kodak Co., Nov. 25, 1997; Banc One Corp., Dec.

9, 1998. Some commenters, however, did not believe that the new

format would significantly improve the rule's operation. See, e.g.,

ABA Letter; New York State Bar Assoc., Dec. 10, 1997 (``New York

State Bar Letter'').

---------------------------------------------------------------------------

In addition to the other amendments described in this release, we

have made some minor revisions to the language we had proposed to

conform with the new plain English format. For example, on the proposed

revisions to paragraph (1) under Question 9, which is former rule 14a-

8(c)(1),\15\ commenters stated, and we agree, that the reference to

``the state of the company's incorporation'' may appear narrower than

the actual scope of the rule because some entities that may be subject

to the rule, such as partnerships, are not ``incorporated.'' \16\

Accordingly, the rule as adopted refers to ``the laws of the

jurisdiction of the company's organization.''

---------------------------------------------------------------------------

\15\ Rule 14-8(c)(1) [17 CFR 240.14a-8(c)(1)].

\16\ See ABA Letter; ICCR Letter; Investment Company Institute,

Dec. 30, 1997 (``ICI Letter'').

---------------------------------------------------------------------------

We are adopting minor plain--English revisions to paragraphs (2),

(3), and (4) under Question 9, former rules 14a-8(c)(2),\17\

(c)(3),\18\ and (c)(4). Because we are not adopting the proposed

substantive amendments to paragraph (5), former rule 14a-8(c)(5), we

are making only minor, non-substantive modifications to the language of

that rule so that it conforms to the new plain-English approach.

---------------------------------------------------------------------------

\17\ Rule 14a-8(c)(2) [17 CFR 240.14a-8(c)(2)].

\18\ Rule 14a-8(c)(3) [17 CFR 240.14a-8(c)(3)].

---------------------------------------------------------------------------

We are adopting the revisions to former rule 14a-8(c)(6),\19\ now

paragraph (6) under Question 9, as proposed.\20\

---------------------------------------------------------------------------

\19\ Rule 14a-8(c)(6) [17 CFR 240.14a-8(c)(6)].

\20\ One commenter thought the proposed language could be read

as precluding companies from excluding proposals that companies lack

power to implement. See ABA Letter. To the contrary, the revised

rule continues to refer to situations where a company lacks

``power'' to implement the proposal. Thus, for example, exclusion

may be justified where implementing the proposal would require

intervening actions by independent third parties. See, e.g., SCEcorp

(Dec. 20, 1995) (proposal that unaffiliated fiduciary trustees amend

voting agreements). Under current staff interpretations, however,

exclusion would not normally be justified if the proposal merely

requires the company to ask for cooperation from a third party. See,

e.g., Northeast Utilities System (Nov. 7, 1996) (proposal that the

company ask a third party to coordinate annual meetings held by

public companies).

---------------------------------------------------------------------------

While we are making minor conforming changes to the language of

paragraph (7) under Question 9, formerly rule 14a-8(c)(7),\21\ we have

decided not to adopt the proposed language changes to this rule, or the

list of illustrative examples, other than to replace the reference to

``registrant'' with ``company.'' \22\ We had proposed to revise the

rule's language because we thought that the legal term-of-art

``ordinary business'' might be confusing to some shareholders and

companies. The term refers to matters that are not necessarily

``ordinary'' in the common meaning of the word, and is rooted in the

corporate law concept providing management with flexibility in

directing certain core matters involving the company's business and

operations. Several companies and shareholders nonetheless objected to

the proposed revisions, particularly the elimination of the ``ordinary

business'' language, on the ground that most participants in the

shareholder proposal process are now so familiar with the ``ordinary

business'' language that they might misconstrue the revisions as

signaling an interpretive change.\23\ Indeed, since the meaning of the

phrase ``ordinary business'' has been developed by the courts over the

years through costly litigation and essentially has become a term-0f-

art in the proxy area, we recognize the possibility that the adoption

of a new term could inject needless costs and other inefficiencies into

the shareholder proposal process.

---------------------------------------------------------------------------

\21\ Rule 14a-8(c)(7) [17 CFR 240.14a-8(c)(7)].

\22\ Two commenters suggested that we include a non-exclusive

list of examples of matters particular to investment companies that

would be excludable per se under the ordinary business exception.

See ICI Letter; Gordon Altman Butowsky Weitzen Shalov & Wein, Dec.

16, 1997. We have not followed the suggestion. We believe that

investment companies are not sufficiently different from other types

of issuers to make it appropriate for us to designate a predefined

set of topics that would be excepted from the shareholder proposal

process established under Rule 14a-8.

\23\ See, e.g., ICCR Letter; Jessie Smith Noyes Foundation, Nov.

14, 1997 (``Jessie Smith Noyes Letter''); Long View Collective

Investment Fund, Jan. 5, 1998 (``Long View Letter''); ABA Letter;

The Chase Manhattan Corp., Jan. 14, 1998 (``Chase Manhattan

Letter'').

---------------------------------------------------------------------------

We are adopting with one modification the proposed language changes

to paragraph (8) under Question 9, formerly rule 14a-8(c)(8).\24\ The

rule as proposed would have permitted companies to exclude a proposal

that ``relates to an election for membership on the company's board of

directors.'' Based on a suggestion from one commenter, in order to

account for non-corporate entities with principal governing bodies

bearing names other than the ``board of directors,'' the rule as

adopted refers explicitly to elections to an ``analogous governing

body.'' \25\

---------------------------------------------------------------------------

\24\ Rule 14a-8(c)(8) [17 CFR 240.14a-8(c)(8)].

\25\ See ABA Letter.

---------------------------------------------------------------------------

We are adopting as proposed our revisions to paragraph (9) under

Question 9, formerly rule 14a-8(c)(9).\26\ As amended, the rule permits

a company to exclude a proposal that ``directly conflicts with one of

the company's own proposals to be submitted to shareholders at the same

meeting.'' \27\

---------------------------------------------------------------------------

\26\ Rule 14a-8(c)(9) [17 CFR 240.14a-8(c)(9)].

\27\ One commenter thought that the word ``directly'' may appear

to signal a narrowing of the exclusion. See ABA Letter. We believe

that the revisions accurately convey our current interpretations of

the rule; of course, by revising the rule we do not intend to imply

that proposals must be identical in scope or focus for the exclusion

to be available. See, e.g., SBC Communications (Feb. 2, 1996)

(shareholder proposal on calculation of non-cash compensation

directly conflicted with company's proposal on a stock and incentive

plan).

---------------------------------------------------------------------------

We are adopting as proposed the revisions to paragraphs (10) and

(11) under Question 9, formerly rules 14a-8(c)(10) \28\ and 14a-

8(c)(11).\29\ The revisions to paragraph (10) reflect an interpretation

that we adopted in 1983.\30\

---------------------------------------------------------------------------

\28\ Rule 14a-8(c)(10) [17 CFR 240.14a-8(c)(10)].

\29\ Rule 14a-8(c)(11) [17 CFR 240.14a-8(c)(11)].

\30\ In Exchange Act Release No. 20091 (Aug. 16, 1983) [48 FR

38218], we stated that a proposal may be excluded under the rule if

it has been ``substantially implemented.''

---------------------------------------------------------------------------

Although we are not adopting proposed substantive revisions to

paragraph (12), formerly rule 14a-8(c)(12),\31\ we are adopting non-

substantive revisions to conform the rule to the new plain-English

approach.

---------------------------------------------------------------------------

\31\ As explained in Section VI below, we have decided not to

modify the percentage of the shareholder vote that a proposal must

receive in order to be entitled to re-submission in future years.

---------------------------------------------------------------------------

The Commission, through the Division of Corporation Finance (the

``Division''), anticipates establishing a special electronic mailbox

only for rule 14a-8 correspondence through which both shareholders and

companies will be permitted to make electronic submissions under this

rule, including follow-up correspondence.

III. The Interpretation of Rule 14a-8(c)(7): The ``Ordinary

Business'' Exclusion

We proposed to reverse the position announced in the 1992 Cracker

Barrel no-action letter concerning the Division's approach to

employment-related shareholder proposals raising social policy

issues.\32\ In that letter, the Division announced that

\32\ See Cracker Barrel Old Country Stores, Inc. (Oct. 13,

1992).

---------------------------------------------------------------------------

The fact that a shareholder proposal concerning a company's

employment

[[Page 29108]]

policies and practices for the general workforce is tied to a social

issue will no longer be viewed as removing the proposal from the

realm of ordinary business operations of the registrant. Rather,

determinations with respect to any such proposals are properly

---------------------------------------------------------------------------

governed by the employment-based nature of the proposal.

We are adopting our proposal to reverse the Cracker Barrel

position, which provided that all employment-related shareholder

proposals raising social policy issues would be excludable under the

``ordinary business'' exclusion.\33\ The Division will return to its

case-by-case approach that prevailed prior to the Cracker Barrel no-

action letter.

---------------------------------------------------------------------------

\33\ The reversal is effective as of May 21, 1998, and will

apply to future Division no-action responses. It will apply to any

rule 14a-8 no-action submission that the Division has received

before May 21, 1998 if the Division has not issued a corresponding

no-action response by the close of business on May 20, 1998.

---------------------------------------------------------------------------

In applying the ``ordinary business'' exclusion to proposals that

raise social policy issues, the Division seeks to use the most well-

reasoned and consistent standards possible, given the inherent

complexity of the task. From time to time, in light of experience

dealing with proposals in specific subject areas, and reflecting

changing societal views, the Division adjusts its view with respect to

``social policy'' proposals involving ordinary business. Over the

years, the Division has reversed its position on the excludability of a

number of types of proposals, including plant closings,\34\ the

manufacture of tobacco products,\35\ executive compensation,\36\ and

golden parachutes.\37\

---------------------------------------------------------------------------

\34\ See Pacific Telesis Group (Feb. 2, 1989).

\35\ See Phillip Morris Companies, Inc. (Feb. 13, 1990).

\36\ See Reebok Int'l Ltd. (Mar. 16, 1992).

\37\ See Transamerica Corp. (Jan. 10, 1990).

---------------------------------------------------------------------------

We believe that reversal of the Division's Cracker Barrel no-action

letter, which the Commission had subsequently affirmed,\38\ is

warranted. Since 1992, the relative importance of certain social issues

relating to employment matters has reemerged as a consistent topic of

widespread public debate.\39\ In addition, as a result of the extensive

policy discussions that the Cracker Barrel position engendered, and

through the rulemaking notice and comment process, we have gained a

better understanding of the depth of interest among shareholders in

having an opportunity to express their views to company management on

employment-related proposals that raise sufficiently significant social

policy issues.

---------------------------------------------------------------------------

\38\ See Letter dated January 15, 1993 from Jonathan G. Katz,

Secretary to the Commission, to Sue Ellen Dodell, Deputy Counsel,

Office of Comptroller, City of New York.

\39\ See e.g., Investors Focus on Diversity at Texaco Annual

Meeting: Company Faces 94 Discrimination Filings, The Washington

Post, May 14, 1997; Shareholders Press Shoney's on Bias Issue, The

New York Times, Dec. 26, 1976).

---------------------------------------------------------------------------

Reversal of the Cracker Barrel no-action position will result in a

return to a case-by-case analytical approach. In making distinctions in

this area, the Division and the Commission will continue to apply the

applicable standard for determining when a proposal relates to

``ordinary business.'' The standard, originally articulated in the

Commission's 1976 release, provided an exception for certain proposals

that raise significant social policy issues.\40\

---------------------------------------------------------------------------

\40\ See Exchange Act Release No. 12999 (Nov. 22, 1976) [41 FR

52994].

---------------------------------------------------------------------------

While we acknowledge that there is no bright-line test to determine

when employment-related shareholder proposals raising social issues

fall within the scope of the ``ordinary business'' exclusion, the staff

will make reasoned distinctions in deciding whether to furnish ``no-

action'' relief. Although a few of the distinctions made in those cases

may be somewhat tenuous, we believe that on the whole the benefit to

shareholders and companies in providing guidance and informal

resolutions will outweigh the problematic aspects of the few decisions

in the middle ground.

Nearly all commenters from the shareholder community who addressed

the matter supported the reversal of this position.\41\ Most commenters

from the corporate community did not favor the proposal to reverse

Cracker Barrel, though many indicated that the change would be

acceptable as part of a broader set of reforms.\42\

---------------------------------------------------------------------------

\41\ See e.g., Calvert Group, Nov. 26, 1997 (``Calvert

Letter''); Center for Responsible Investing, Rec'd Nov. 3, 1997;

Captains Endowment Assoc., Rec'd Nov. 6, 1997; Social Investment

Forum, Jan. 2, 1998 (``Social Investment Forum Letter'').

\42\ See, e.g., ASCS Letter; ACCA Letter; BRT Letter;

AlliedSignal Inc., Nov. 24, 1997; Ashland Inc., Nov. 21, 1997; LPA

Letter; Sullivan & Cromwell, Dec. 29, 1997 (``Sullivan & Cromwell

Letter'').

---------------------------------------------------------------------------

Going forward, companies and shareholders should bear in mind that

the Cracker Barrel position related only to employment-related

proposals raising certain social policy issues. Reversal of the

position does not affect the Division's analysis of any other category

of proposals under the exclusion, such as proposals on general business

operations.

Finally, we believe that it would be useful to summarize the

principal considerations in the Division's application, under the

Commission's oversight, of the ``ordinary business'' exclusion. The

general underlying policy of this exclusion is consistent with the

policy of most state corporate laws: to confine the resolution of

ordinary business problems to management and the board of directors,

since it is impracticable for shareholders to decide how to solve such

problems at an annual shareholders meeting.

The policy underlying the ordinary business exclusion rests on two

central considerations. The first relates to the subject matter of the

proposal. Certain tasks are so fundamental to management's ability to

run a company on a day-to-day basis that they could not, as a practical

matter, be subject to direct shareholder oversight. Examples include

the management of the workforce, such as the hiring, promotion, and

termination of employees, decisions on production quality and quantity,

and the retention of suppliers. However, proposals relating to such

matters but focusing on sufficiently significant social policy issues

(e.g., significant discrimination matters) generally would not be

considered to be excludable, because the proposals would transcend the

day-to-day business matters and raise policy issues so significant that

it would be appropriate for a shareholder vote.\43\

---------------------------------------------------------------------------

\43\ See, e.g., Reebok Int'l Ltd. (Mar. 16, 1992) (noting that a

proposal concerning senior executive compensation could not be

excluded pursuant to rule 14a-8(c)(7)).

---------------------------------------------------------------------------

The second consideration relates to the degree to which the

proposal seeks to ``micro-manage'' the company by probing too deeply

into matters of a complex nature upon which shareholders, as a group,

would not be in a position to make an informed judgment.\44\ This

consideration may come into play in a number of circumstances, such as

where the proposal involves intricate detail, or seeks to impose

specific time-frames or methods for implementing complex policies.

---------------------------------------------------------------------------

\44\ Exchange Act Release No. 12999 (Nov. 22, 1976).

---------------------------------------------------------------------------

A similar discussion in the Proposing Release of the primary

considerations underlying our interpretation of the ``ordinary

business'' exclusion as applied to such proposals raised some questions

and concerns among some of the commenters. Because of that concern, we

are providing clarification of that position.\45\ One aspect of that

[[Page 29109]]

discussion was the basis for some commenters' concern that the reversal

of Cracker Barrel might be only a partial one. More specifically, in

the Proposing Release we explained that one of the considerations in

making the ordinary business determination was the degree to which the

proposal seeks to micro-manage the company. We cited examples such as

where the proposal seeks intricate detail, or seeks to impose specific

time-frames or to impose specific methods for implementing complex

policies. Some commenters thought that the examples cited seemed to

imply that all proposals seeking detail, or seeking to promote time-

frames or methods, necessarily amount to ``ordinary business.'' \46\ We

did not intend such an implication. Timing questions, for instance,

could involve significant policy where large differences are at stake,

and proposals may seek a reasonable level of detail without running

afoul of these considerations.\47\

---------------------------------------------------------------------------

\45\ The exclusion has been interpreted previously by the

Commission. See, e.g., Exchange Act Release No. 20091 (Aug. 16,

1983) [48 FR 38218]; Exchange Act Release No. 12999 (Nov. 22, 1976)

[41 FR 52994]; Exchange Act Release No. 4950 (Oct. 9, 1953) [18 FR

6646]. It has also been interpreted by the courts. See, e.g., Grimes

v. Ohio Edison Co., 992 F.2d 455 (2d Cir. 1993); Roosevelt v. E.I.

Du Pont De Nemours & Co., 958 F.2d 416 (D.C. Cir. 1992); Medical

Committee for Human Rights v. SEC, 432 F.2d 659 (D.C. Cir. 1970);

New York City Employee's Retirement Sys. v. SEC, 843 F. Supp. 858,

rev'd 45 F.3d 7 (2d Cir. 1995); Amalgamated Clothing and Textile

Workers Union v. Wal-Mart Stores, Inc., 821 F. Supp. 877, 891

(S.D.N.Y. 1993).

\46\ See, e.g., ICCR Letter; LongView Letter; Letter from

Professor Harvey J. Goldschmid of Columbia University School of Law,

and Ira M. Millstein, Senior Partner, Weil, Gotshal & Manges LLP,

Dec. 23, 1997 (``Goldschmid and Millstein Letter''). Compare Chase

Manhattan Letter.

\47\ See, e.g., Roosevelt v. E.I. Du Pont De Nemours & Co., 958

F.2d at 424-427 (one-year difference in timing of CFC production

phase-out does not implicate significant policy, but longer period

might implicate significant policy). In Amalgamated Clothing and

Textile Workers Union, 821 F. Supp. at 891, the court required Wal-

Mart to include a proposal in its proxy materials that sought

information on the company's affirmative action policies and

practices, although it also required the proponents to make certain

revisions designed to ensure that the proposal did not seek

excessive detail.

---------------------------------------------------------------------------

Further, in a footnote to the same sentence citing examples of

``micromanagement,'' we included a citation to Capital Cities/ABC,

Inc., (Apr. 4, 1991) involving a proposal on the company's affirmative

action policies and practices.\48\ Some commenters were concerned that

the citation might imply that proposals similar to the Capital Cities

proposal today would automatically be excludable under ``ordinary

business'' on grounds that they seek excessive detail. Such a position,

in their view, might offset the impact of reversing the Cracker Barrel

position. However, we cited Capital Cities/ABC, Inc. only to support

the general proposition that some proposals may intrude unduly on a

company's ``ordinary business'' operations by virtue of the level of

detail that they seek. We did not intend to imply that the proposal

addressed in Capital Cities, or similar proposals, would automatically

amount to ``ordinary business.'' Those determinations will be made on a

case-by-case basis, taking into account factors such as the nature of

the proposal and the circumstances of the company to which it is

directed.

---------------------------------------------------------------------------

\48\ See Proposing Release, Footnote 79.

---------------------------------------------------------------------------

IV. Rule 14a-4: Discretionary Voting Authority

We had proposed amendments to rule 14a-4, and related amendments to

rule 14a-5, to provide clearer guidelines for companies' exercise of

discretionary voting authority in connection with annual shareholder

meetings.\49\ We are adopting our proposals with some modifications.

---------------------------------------------------------------------------

\49\ Discretionary voting authority is the ability to vote

proxies that shareholders have executed and returned to the company,

on matters not specifically reflected on the proxy card, and on

which shareholders have not had an opportunity to vote by proxy.

While not necessarily limited to annual meetings involving the

election of directors, this has been the context in which companies

have expressed concerns about proponents' attempts to ``end run''

around the rule 14a-8 process.

---------------------------------------------------------------------------

As we explained in the Proposing Release, rule 14a-4 did not

clearly address the exercise of discretionary voting authority if a

shareholder proponent chooses not to use rule 14a-8's procedures for

placing his or her proposal in the company's proxy materials. This may

occur if the proponent notifies the company in advance of the meeting

of his or her intention to present the proposal from the floor of the

meeting, and commences his or her own proxy solicitation, without ever

invoking rule 14a-8's procedures. Our amendments to rule 14a-4(c)(1),

and new paragraphs 14a-4 (c)(2) and (c)(3), are designed to provide

companies with clearer guidance on the scope of permissible

discretionary voting power in the context of a non-14a-8 proposal.

A. Rule 14a-4(c)(1)

We are adopting essentially as proposed new rule 14a-4(c)(1), which

replaces a ``reasonable time'' standard with a clear date after which

notice to the company of a possible shareholder proposal would not

jeopardize a company's ability to exercise discretionary voting

authority on that new matter when and if raised at the annual meeting.

Most commenters who addressed this proposal expressed favorable

views.\50\ Amended paragraph 14a-4(c)(1) allows a company voting

discretionary authority where the company did not have notice of the

matter by a date more than 45 days before the month and day in the

current year corresponding to the date on which the company first

mailed its proxy materials for the prior year's annual meeting of the

shareholders, or by a date established by an overriding advance notice

provision.\51\

---------------------------------------------------------------------------

\50\ See, e.g., ICCR Letter; TIAA-CREF Letter; LongView Letter,

BRT Letter; ACCA Letter; Barclays Global Investors, Dec. 4, 1997;

United Brotherhood of Carpenters and Joiners of America

(``Carpenters Letter''); International Union of Operating Engineers,

Dec. 29, 1997 (``Engineers Letter''); International Brotherhood of

Teamsters, Dec. 23, 1997 (``Teamsters Letter''). A few commenters

did not favor the proposal. See e.g., Gannett Corp., Nov. 20, 1997;

CALPERS Letter; Union of Needletrades, Industrial and Textile

Employees, Jan. 2, 1998 (``UNITE Letter'').

\51\ An advance notice provision is a requirement in a company's

charter or bylaws that a shareholder proponent notify the company of

his/her intention to present a proposal a certain number of days or

weeks prior to the shareholders' meeting or the mailing of proxies.

---------------------------------------------------------------------------

As an example, assume a company mailed this year's proxy materials

on March 31, 1998 for an annual meeting on May 1, 1998. Next year, the

company also schedules an early May annual meeting. The notice date

established by new rule 14a-4(c)(1) for non-14a-8 proposals is 45 days

before March 31, or February 14. Thus February 14, 1999 would represent

the notice date for the purposes of amended rule 14a-4(c)(1) unless a

different date is established by an overriding advance notice provision

in the company's charter or bylaws.\52\

---------------------------------------------------------------------------

\52\ As amended, rule 14a-5(e) requires companies to disclose

this date in each annual meeting proxy statement or its equivalent.

See Section V below.

---------------------------------------------------------------------------

A few commenters thought that advance notice of 45 days might

provide an insufficient amount of time for some companies with longer

printing and mailing schedules.\53\ However, we do not believe that it

is necessary to extend the 45-day advance notice period, since most

companies should have some flexibility under state law to prolong the

period through advance notice provisions. We stated in the Proposing

Release that we did not intend to interfere with the operations of

state law authorized definitions of advance notice set forth in

corporate bylaws and/or articles of incorporation, and a number of

commenters supported this approach.\54\ Accordingly, an advance notice

provision would override the 45-day period under rule 14a-4, resulting

[[Page 29110]]

in a shorter \55\ or longer period.\56\ The rule continues to require

inclusion of a specific statement, in either the proxy statement or

proxy card, of an intent to exercise discretionary voting authority in

these circumstances.

---------------------------------------------------------------------------

\53\ See, e.g., ACCA Letter; Citicorp, Dec. 23, 1997 (``Citicorp

Letter'').

\54\ See, e.g., Air Products and Chemicals, Inc., Dec. 22, 1997;

NationsBank, Nov. 21, 1997; BRT Letter; Sullivan & Cromwell Letter.

Other commenters who generally supported proposed new paragraph 14a-

4(c)(1) did not note an objection to this aspect of the rules

operation. See e.g., Carpenters Letter, Longview Letter; Engineers

Letter; ICCR Letter; TIAA-CREF Letter.

\55\ A company that mails its proxy materials before the

expiration of the period established by an advance notice bylaw

would continue to be subject to the notice even though it has

already mailed its proxies.

\56\ One commenter suggested that we move the parenthetical

referring to the effect of advance notice provisions from the middle

of the first sentence of paragraph 14a-4(c)(1) as proposed to the

end of that sentence in order to clarify that an advance notice

provision would override the 45-day period established by the rule

whether the provision runs from the meeting date or from the mailing

date. See Sullivan & Cromwell Letter. We agree and have made the

revision.

---------------------------------------------------------------------------

Paragraph 14a-4(c)(1) as adopted continues to incorporate a

``reasonable time'' standard if the company did not hold an annual

meeting of shareholders during the prior year, or if the date of the

annual meeting has changed by more than 30 days from the prior year.

While one commenter suggested an alternative mechanism designed to

provide a more specific ``default'' date, we were concerned that such

an alternative approach might make the rule unjustifiable complex.\57\

---------------------------------------------------------------------------

\57\ See Sullivan & Cromwell Letter.

---------------------------------------------------------------------------

B. Rule 14a-4(c)(2)

Proposed new paragraph 14a-4(c)(2) addressed a company's ability to

exercise discretionary voting authority for an annual shareholders'

meeting notwithstanding its receipt of ``timely'' advance notice of a

non-14a-8 shareholder proposal as defined by paragraph 14a-4(c)(1).\58\

We are adopting new paragraph (c)(2), but with some modifications of

the original proposal.

---------------------------------------------------------------------------

\58\ A few commenters also thought that we should further

clarify that new paragraph 14a-4(c)(2) comes into play only if the

company receives timely notice of a non-14a-8 proposal for the

purposes of paragraph (c)(1). We added clarifying language to the

end of paragraph (c)(1) and the beginning of paragraph (c)(2) in

response to these comments.

---------------------------------------------------------------------------

As originally proposed, paragraph 14a-4(c)(2) would have permitted

the exercise of discretionary voting authority by company management if

the company's proxy materials were to include: (i) in the proxy

statement, a discussion of the nature of the matters as to which

adequate advance notice has been received, and how the company intends

to exercise its discretion to vote on each such matter should it be

presented to shareholders at the meeting, and (ii) on the proxy card, a

cross-reference to the discussion in the proxy statement and a box

allowing shareholders to withhold discretionary authority from

management to vote on the designated matter(s). The pre-conditions to

reliance on the rule are discussed below.

1. Proxy Statement Disclosure

On the first pre-condition of the proposed rule, requiring

disclosure of the nature of potential non-14a-8 shareholder proposals,

a number of commenters objected to our use of the word ``discussion.''

\59\ In their view, the word ``discussion'' appears to signal a

departure from the Division's current position expressed in its Idaho

Power and Borg-Warner no action letter responses.\60\ Under those no-

action responses, companies must only ``advise'' shareholders of,

rather than ``discuss,'' the nature of proposals that may be raised.

Because we intended no departure from the disclosure element of the

Division's no-action position, paragraph (c)(2) as adopted replaces the

word ``discussion'' with ``advice.'' We remind you that the disclosure

prescribed by amended rule 14a-4(c)(2), as with any disclosure item,

must take into account the disclosure requirements of the proxy anti-

fraud rule.\61\

---------------------------------------------------------------------------

\59\ See e.g., Chevron Corp, Nov. 25, 1997; USX Corp., Dec. 18,

1997.

\60\ Idaho Power Co. (Mar 13, 1996); Borg-Warner Security Corp.

(Mar. 14, 1996).

\61\ See rule 14a-9 [17 CFR 240.14a-9].

---------------------------------------------------------------------------

2. No Separate Voting Box

On the second pre-condition of proposed paragraph 14a-4(c)(2), a

number of commenters objected to the inclusion of a separate voting

``box'' permitting shareholders to withhold discretionary authority

from management on a non-14a-8 shareholder proposal as to which

adequate advance notice had been received in the context of an annual

meeting or its equivalent. Some stated that a voting box permitting

shareholders to withhold discretionary voting authority in some

circumstances may be confusing if shareholders are also independently

solicited by the proponent in support of the same proposal.\62\ We

agree that inclusion of the proposed box on companies' proxy cares may

be confusing in some circumstances.\63\

---------------------------------------------------------------------------

\62\ See, e.g., Georgeson Letter; ICCR Letter; UNITE Letter;

Davis, Cowell & Bowe, LLP, Jan. 2, 1998. One commenter gave the

following example. An insurgent sends out a proxy card seeking

shareholder votes on its shareholder resolution. A shareholder who

receives the insurgent's card votes in favor of the proposal, and

executes and returns the insurgent's card. But then the company

either solicits, or resolicits, the same shareholder, and includes a

``withhold'' box on management's proxy card relating to the same

non-14a-8 proposal. Since the shareholder does not wish to grant

management discretionary voting authority on the proposal, it checks

the box. But then, in the commenter's view, it may be unclear

whether the shareholder has executed a subsequent proxy that revokes

the shareholder's execution of the insurgent's card under applicable

state law. See ICCR Letter at 32-33.

\63\ A few commenters from the shareholder community suggested

that we overcome possible confusion by requiring companies to permit

shareholders to vote ``for'' or ``against'' non-14a-8 proposals.

Commenters from the corporate community that addressed the matter

opposed such an approach, and we believe that the amendments adopted

today adequately accomplish our goal of providing clearer guidelines

in this area. Contrary to the statements by some commenters, it is

not necessarily a precondition for the exercise of discretionary

voting authority under the Division's current no-action letters that

companies include an extra item on their proxy cards permitting

shareholders to vote ``for'' or ``against'' non-14a-8 proposals. See

Idaho Power and Borg-Warner.

---------------------------------------------------------------------------

Other commenters objected to the separate voting box because they

believe that the potential availability of the box would in effect

create a new system for submitting shareholder proposals without having

to comply with the restrictions under rule 14a-8.\64\ In their view,

the prospect of obtaining a voting box with a cross-reference to

disclosure of the nature of the potential proposal in the proxy

statement would encourage the submission of more shareholder proposals

outside rule 14a-8's mechanisms.

---------------------------------------------------------------------------

\64\ See, eg., BRT Letter; ASCS Letter; J.C. Penny Company, Dec.

19, 1997; Champion Int'l Corp., Dec. 18, 1997; International Paper,

Nov. 19, 1997.

---------------------------------------------------------------------------

Accordingly, we have decided not to include the new voting box as

part of new rule 14a-4(c)(2). A shareholder's execution of a proxy card

will confer discretionary voting authority if the requirements of the

rule are satisfied.

3. Percentage of Shareholders to be Solicited

Several commenters also objected to proposed new paragraph 14a-

4(c)(2) on grounds that it would permit a company to exercise

discretionary voting authority at an annual shareholders meeting even

if the shareholder proponent had independently solicited the percentage

of shareholders required to carry the proposal.\65\ These commenters

believe that a company should not be permitted to vote uninstructed

proxies if the proponent has put the proposal ``in play'' by providing

a proxy statement and form of proxy to a significant percentage of the

company's sharehownership. On this point, proposed paragraph 14a-

4(c)(2) represented a departure from the

[[Page 29111]]

``percentage of shares solicited'' standard articulated in the

Division's Idaho Power and Borg-Warner no-action positions.

---------------------------------------------------------------------------

\65\ See, e.g., Mr. Jack Sheinkman, Vice-Chair Amalgamated Bank

of New York, and President Emeritus Amalgamated Clothing and Textile

Workers Union AFL-CIO, CLC, Nov. 7, 1997; Service Employees Int'l

Union, Dec. 31, 1997; Engineers Letter; Carpenters Letter; National

Electrical Benefit Fund, Dec. 22, 1997 (``NEBF Letter'').

---------------------------------------------------------------------------

In response to these comments, and in light of our decision not to

adopt the proposal to require that the Company include an additional

box on its proxy cards for withholding discretionary voting authority,

we have decided to codify the ``percentage of shares solicited''

standard of the Division's current no-action positions. The final rule

therefore precludes a company from exercising discretionary voting

authority on matters as to which it has received adequate advance

notice if the proponent provides the company as part of that notice

with a statement that it intends to solicit the percentage of

shareholder votes required to carry the proposal, followed with

specified evidence that the stated percentage had actually been

solicited.

As we explained in the Proposing Release, this aspect of the

Division's no-action position had been the source of uncertainty for

companies. A company may not know whether a shareholder intends to

begin to solicit proxies independently, or how many shareholders will

be solicited if a solicitation is actually commenced. We understand

that in a number of instances companies were forced to guess whether

its ability to exercise discretionary authority had been restricted. A

number of commenters from both the corporate and shareholder

communities suggested that we overcome the potential for uncertainty by

requiring proponents to provide advance written notice if they intend

to deliver a proxy statement and form of proxy to holders of at least

the minimum number of the company's voting shares that is required to

carry the proposal, including measures to help ensure that such notice

is bona fide.\66\

---------------------------------------------------------------------------

\66\ See, e.g., NEBF Letter, Carpenters Letter; UNITE Letter,

Engineers Letter; Long View Letter; Citicorp Letter; Questar Corp.,

Dec. 31, 1997; Harrah's Entertainment, Inc., Dec. 31, 1997; see also

Goldschmid and Millstein Letter.

---------------------------------------------------------------------------

We have revised new paragraph (c)(2) to reflect these comments, and

the rule as adopted requires a shareholder proponent to provide the

company with written notice within the timeframe established by

paragraph 14a-4(c)(1), that is, earlier than 45 days or in compliance

with advance notice provisions. In order to help ensure that the notice

has been provided in good faith, paragraph 14a-4(c)(2) as adopted also

requires the proponent to repeat the statement (that it intends to

solicit proxies to prevail) in its proxy materials to underscore the

applicability of rule 14a-9, the anti-fraud rule. To further emphasize

this point, and to provide interested parties with the ability to

proceed against a proponent that does not fulfill its good faith

promise to solicit the required number of shareholders, the rule

requires the proponent to provide the company with a statement from the

solicitor or other person with knowledge indicating that the proponent

has taken the steps necessary to solicit the percentage of the

company's shareownership required to approve the proposal. A statement

executed by the shareholder insurgent will satisfy this requirement

only to the extent that it was actually involved in carrying out the

solicitation.

C. Rule 14a-4(c)(3)

We are also adopting a new paragraph 14a-4(c)(3) to further clarify

the rule's operation in connection with special shareholders' meetings

and other solicitations. Rules 14a-4(c)(1) and 14a-4(c)(2) as proposed

to be amended, and as adopted, establish a clearer framework for

companies' exercise of discretionary voting authority for annual

shareholder meetings or their functional equivalents. We did not intend

for that framework to apply to other solicitations, or to solicitations

by persons other than management, such as special meetings or consent

solicitations unrelated to the election of directors, which would

continue to be governed by the ``reasonable time'' standard that had

applied to all solicitations under former rule 14a-4(c)(1). Although

there does not appear to have been confusion among commenters on this

point, new paragraph (c)(3), and new introductory language to new

paragraphs (c)(1) and (c)(2), should help clarify the point.

Tracking much of the language of former paragraph 14a-4(c)(1), new

paragraph (c)(3) provides for the exercise of discretionary voting

authority ``[f]or solicitations other than for annual meetings or for

solicitations by persons other than the registrant, [on] matters which

the persons making the solicitation do not know, a reasonable time

before the solicitation, are to be presented at the meeting, if a

specific statement to that effect is made in the proxy statement or

form of proxy.'' \67\

---------------------------------------------------------------------------

\67\ See United Mine Workers versus Pittston Co., [1989-1990

Transfer Binder] Fed. Sec. L. Rep. (CCH) P 94,946 (D.D.C. Nov. 24,

1989); and Larkin versus Baltimore Bancorp, 769 F. Supp. 919 (D. Md.

1991).

---------------------------------------------------------------------------

D. Filing in Preliminary Form

Finally, in the Proposing Release, we stated that during the 1996

proxy season the Division permitted several companies to avoid filing

proxy materials in preliminary form despite receipt of adequate advance

notification of a non-14a-8 shareholder proposal, so long as these

companies disclosed in their proxy statements the nature of the

proposal and how management intended to exercise discretionary voting

authority if the proposal were actually to be presented to a vote at

the meeting. We also stated that, in light of the proposed amendments

to rule 14a-4, we might reverse that informal position, so that

companies receiving notice of a non-14a-8 proposal before the filing of

their proxy materials would be required to file their materials in

preliminary form to preserve discretionary voting authority under rule

14a-4(c)(2). A number of commenters opposed reversal of the position,

stating that in ordinary circumstances little would be gained by staff

review of this material, and that potential delays resulting from

preliminary filings could unjustifiably interfere with companies'

mailing schedules.\68\ The Division has decided not to reverse its

position at this time, but may evaluate the position again in the

future after monitoring proxy filings under the amended rules.

---------------------------------------------------------------------------

\68\ See, e.g., ABA Letter; BRT Letter; ASCS Letter; Goldschmid

and Millstein Letter. A few commenters within the shareholder

community supported reversal of the position. See, e.g., Engineers

Letter; Carpenters Letter.

---------------------------------------------------------------------------

V. Other Amendments

We are adopting other modifications to rules 14a-8 and 14a-5.

We are adopting as proposed the answer to Question 1 of the amended

rule defining a proposal as a request or requirement that the board of

directors take an action.\69\ One commenter objected to the proposal on

grounds that the definition appeared to preclude all shareholder

proposals seeking information.\70\ In formulating the definition, it

was not our intention to preclude proposals merely because they seek

information, and the fact that a proposal seeks only information will

not alone justify exclusion under the definition.

---------------------------------------------------------------------------

\69\ For favorable comments, see, e.g., TIAA-CREF Letter; ABA

Letter; GE Stockholders' Alliance, Oct. 16, 1997. But see, e.g.,

ICCR Letter.

\70\ See Calvert Letter.

---------------------------------------------------------------------------

Also as proposed, we are increasing the dollar value of a company's

voting shares that a shareholder must own in order to be eligible to

submit a shareholder proposal--from $1,000 to $2,000--to adjust for the

effects of inflation since the rule was last revised.\71\ There was

little opposition to

[[Page 29112]]

the proposed increase among commenters, although several do not believe

the increase is great enough to be meaningful, especially in light of

the overall increase in stock prices over the last few years.\72\

Nonetheless, we have decided to limit the increase to $2,000 for now,

in light of rule 14a-8's goal of providing an avenue of communication

for small investors. There was no significant support for any

modifications to the rule's other eligibility criteria, such as the

one-year continuous ownership requirement.

---------------------------------------------------------------------------

\71\ See The answer to Question 2.

\72\ See, e.g., ASCS Letter; ABA Letter; BRT Letter; see also

ICCR Letter.

---------------------------------------------------------------------------

A number of commenters supported, and few opposed, our proposal to

establish a uniform 14-day period in which shareholders would be

required to respond to a company's notification that the shareholder

has failed to comply with one or more procedures under rule 14a-8, such

as the submission deadlines and the rule's for establishing proponent

eligibility.\73\ We are adopting the 14-day period as proposed. In

response to one commenter's suggestion, we have added a sentence to the

rule clarifying that a company need not provide notice of a deficiency

that cannot be remedied. If the company intends to exclude the

proposal, it nonetheless would later have to make a submission under

rule 14a-8, and provide a copy to the proponent.\74\

---------------------------------------------------------------------------

\73\ See, e.g., ABA Letter; ASCS Letter; TIAA-CREF Letter; GE

Stockholders' Alliance, Oct. 16, 1997. But see ICCR Letter;

Carpenters Letter.

\74\ See Rule 14a-8(j)(Question10).

---------------------------------------------------------------------------

We are also adopting amendments to rule 14a-5(e), with a few

modifications from our proposals. As proposed to be amended, that rule

would require companies to disclose the date after which proposals

submitted outside the framework of rule 14a-8 are considered untimely

for the purposes of amended rule 14a-4(c)(1).\75\

---------------------------------------------------------------------------

\75\ See Section IV above. The new information, if applicable,

would be disclosed under Item 5 of Form 10-Q or 10-QSB (``Other

Information'').

---------------------------------------------------------------------------

Two commenters objected to our proposal to amend rule 14a-5(e) to

require disclosure of the date by which shareholders must notify the

company of any non-14a-8 proposals under amended rule 14a-4(c)(1).\76\

They were concerned that disclosure of the date would appear to

formalize a new system for submitting shareholder proposals in

competition with the mechanisms of rule 14a-8, and would encourage the

submission of proposals outside of that process. We do not agree that

mere disclosure of the date would likely have that effect, and we

believe that disclosure is necessary because shareholders often would

not have enough information to deduce the date reliably on their own.

We are also adopting the other proposed modifications to rule 14a-5(e)

designed to streamline the rule's operation.

---------------------------------------------------------------------------

\76\ See ABA Letter; New York State Bar Letter.

---------------------------------------------------------------------------

One commenter pointed out that it is unclear from the rule as

drafted whether the new disclosure in the company's proxy statement

should reflect the ``default'' date under amended rule 14a-4(c)(1), or

instead the date established by an overriding advance notice provision,

if any.\77\ We have revised the rule to clarify that companies should

disclose the date established by an overriding advance notice

provision, and in the absence of such a provision, the ``default'' date

for submitting non-14a-8 proposals, which normally would be 45 days

before the date the company mailed its proxy materials for the prior

year. Because the rule also requires companies to disclose the deadline

for submitting rule 14a-8 proposals, companies' disclosure should

clearly distinguish between the two dates.

---------------------------------------------------------------------------

\77\ See W.R. Grace & Co., Oct. 28, 1997.

---------------------------------------------------------------------------

Finally, in the answer to Question 8 of amended rule 14a-8, we

proposed to include an advisory that the proponent or the proponent's

representative make sure that he/she follows applicable procedures

proper under state law for appearing at the meeting and/or presenting

the proposal. Most commenters who addressed the proposal viewed the

advisory as a helpful aid.\78\ We have included the advisory as

proposed.

---------------------------------------------------------------------------

\78\ See, e.g., CALPERS Letter; ICCR Letter; ASCS Letter.

---------------------------------------------------------------------------

VI. Proposals Not Adopted

We have decided not to adopt some of our original proposals, due in

part to concerns expressed by some commenters. These proposals

generally received support from some commenters, but equally strong

opposition from others.

Personal Grievance Exclusion

Paragraph (4) under Question 9, formerly rule 14a-8(c)(4), permits

companies to exclude proposals furthering personal grievances or

special interests. We had proposed to modify the way the Division

administers the rule so that the staff would concur in the exclusion of

a proposal on this ground only if the proposal on its face were to

relate to a personal grievance or special interest. In other

circumstances, under our proposal, the Division would express ``no

view'' in its no-action response. The proposal reflected our view that

the Division's ability to make the necessary factual findings is

limited in the context of evaluating an otherwise ``facially neutral''

proposal, and that companies and shareholders themselves possess much

of the factual information relevant to the applicability of the

``personal grievance'' exclusion.

Shareholders expressed serious concerns about this proposal.\79\ A

number of commenters from the shareholder community were concerned that

companies might use the increased flexibility provided by a ``no view''

no-action response to exclude proposals that do not in actuality

further personal grievances of special interests. In their view, a

shareholder, in these circumstances, might be forced to incur the

expense of litigation to prevent exclusion of the proposal. Some

shareholders, for instance, were concerned that companies might rely on

the rule to exclude proposals focusing on social policy matters.\80\ We

agree that the proposal might increase the likelihood of disputes

between shareholders and companies. We have therefore decided not to

implement the proposal, and will continue to administer the rule

consistently with our current practice of making case-by-case

determinations on whether the rule permits exclusion of particular

proposals.

---------------------------------------------------------------------------

\79\ See e.g., ICCR Letter; Teamsters Letter; Captains Endowment

Ass'n, rec'd Nov. 6, 1997; Davis, Cowell & Bowe LLP, Jan. 2, 1998

(``Davis, Cowell & Bowe Letter'').

\80\ Social issue proposals are generally not excludable under

paragraph (4). In 1983, we amended the rule to clarify that it would

not apply, without other factors, to exclude a proposal ``relating

to an issue in which proponent was personally committed or

intellectually and emotionally interested.'' Exchange Act Release

No. 20091 (Aug. 16, 1983)[48 FR 38218].

---------------------------------------------------------------------------

Resubmission Thresholds

If a proposal fails to receive a specified level of support,

paragraph (12) under Question 9, formerly rule 14a-8(c)(12), permits a

company to exclude a proposal focusing on substantially the same

subject matter for a three-year period. In order to avoid possible

exclusion, a proposal must receive at least 3% of the vote on its first

submission, 6% on the second, and 10% on the third. We had proposed to

raise the percentage thresholds respectively to 6%, 15%, and 30%.

Many commenters from the shareholder community expressed serious

concerns about this proposal.\81\

[[Page 29113]]

We have decided not to adopt the proposal, and to leave the thresholds

at their current levels.

---------------------------------------------------------------------------

\81\ See, e.g., ICCR Letter; NYCERS Letter; Calvert Letter;

Social Investment Forum Letter; the School Sisters of Notre Dame,

Oct. 20, 1997; the Conference on Corporate Responsibility of Indiana

and Michigan, Oct. 14, 1997; CALPERS Letter (indicating that it

might support more modest increases in the thresholds); but see

TIAA-CREF Letter (supporting the increases at the levels proposed).

These commenters were concerned that the increases would operate to

exclude too great a percentage of proposals--particularly those

focusing on social policy issues which tend to receive lower

percentages of the shareholder vote.

---------------------------------------------------------------------------

Proposed Override Mechanism

We had proposed a new mechanism that would have permitted 3% of a

company's shareownership to override the ``ordinary business''

exclusion and the ``relevance'' exclusion, paragraphs (7) and (5) under

Question 9.

Several commenters opposed the proposal.\82\ Other commenters

supported the override concept as proposed, but expressed concerns

about specific aspects, including whether the proposed 3% threshold may

be too low and lead to erosion of the ``ordinary business'' and

``relevance'' exclusions that would be subject to an override.\83\ Some

shareholders thought the opposite, that 3% support of a company's

shareownership would be too difficult for a shareholder proponent to

obtain.

---------------------------------------------------------------------------

\82\ Former paragraphs (c)(7) and (c)(5) of rule 14a-8. See,

e.g., ABA Letter; ACCA Letter; LPA Letter; AT&T, Dec. 24, 1997;

Household Int'l, Inc., Jan. 6, 1998; Federal Express Corp., Jan. 2,

1998; ICI Letter (concerned that proposal if adopted might be costly

and disruptive for investment companies).

\83\ See, e.g., ASCS Letter; BRT Letter; FMC Corp., Dec. 5,

1997; Ford Motor Company, Dec. 23, 1997; New York State Bar Letter.

---------------------------------------------------------------------------

We have decided not to adopt the proposed ``override'' mechanism.

Because we are not adopting the ``override,'' we also are not adopting

ancillary amendments designed to help implement the mechanism,

including the proposed qualified exemption under the proxy rules, the

proposed safe harbor from the beneficial ownership reporting

requirements under section 13(d) of the Exchange Act, and the proposed

shortening of companies' deadlines for making their rule 14a-8 no-

action submissions to the Division.

The ``Relevance'' Exclusion

Paragraph (5) under Question 9 permits companies to exclude

proposals

Relating to operations which account for less than 5 percent of

the registrant's total assets at the end of its most recent fiscal

year, and for less than 5 percent of its net earnings and gross

sales for its most recent fiscal year, and is not otherwise

significantly related to the registrant's business.

We had proposed to revise the rule to apply a purely economic

standard. Under the proposal, the exception for proposals that are

``otherwise significantly related'' would have be deleted. A company

would have been permitted to exclude proposals relating to matters

involving the purchase or sale of services or products that represent

$10 million or less in gross revenue or total costs, whichever is

appropriate, for the company's most recently completed fiscal year.

Few commenters indicated strong support for the proposed

amendments, and we are not making any substantive changes to the rule.

Many commenters within the corporate community agreed in concept with

our proposal to base the rule on an objective economic standard, and to

eliminate the subjective ``not otherwise significantly related'' part

of the rule.\84\ But most of those commenters thought that the proposed

$10 million threshold was so low that companies would too infrequently

be in a position to rely on the exclusion. Comments from the

shareholder community were mixed.\85\ Some shareholders opposed the

elimination of the ``not otherwise significantly related'' part of the

rule, while other shareholders expressed varying degrees of support for

the approach, with some expressing concern that companies might apply

the rule to exclude proposals on subjects that are difficult to

quantify, despite the ``safeguards'' that we included as part of the

proposed amendments.

---------------------------------------------------------------------------

\84\ See, e.g., ASCS Letter; BRT Letter; Unocal Corp., Nov. 24,

1997.

\85\ See, e.g., TIAA-CREF Letter; CALPERS Letter; Carpenters

Letter; Jessie Smith Noyes Letter; NYCERS Letter; ICCR Letter.

---------------------------------------------------------------------------

Statements in Opposition: Commission Review

Finally, we had proposed eliminating rule 14a-8(e), which requires

a company to provide a proponent with an advance copy of any statement

in opposition to the proposal that it intends to include in its proxy

materials. This provision also provides a mechanism for shareholders to

bring materially false or misleading statements to the Division's

attention. A number of commenters from the shareholder community

opposed elimination of these procedures because they believed that the

potential for proponent objections deters companies from making

materially false or misleading statements, and encourages negotiation

between the company and proponent.\86\ We have decided not to adopt

that proposal, and are retaining the mechanisms of former rule 14a-8(e)

in the context of the answer to Question 13 of amended rule 14a-8.

---------------------------------------------------------------------------

\86\ See, e.g., ICCR Letter; LongView Letter. See also ICI

Letter.

---------------------------------------------------------------------------

VII. Final Regulatory Flexibility Analysis

We have prepared this Final Regulatory Flexibility Analysis under 5

U.S.C. 603 concerning the amendments to rules 14a-8, 14a-4, and 14a-5

as a follow-up to the Initial Regulatory Flexibility Analysis

(``IRFA'') that we prepared in connection with the Proposing

Release.\87\ We received few comments, and no significant empirical

data, in response to the requests for further information included in

the IRFA.

---------------------------------------------------------------------------

\87\ See Proposing Release, Section V.

---------------------------------------------------------------------------

The purpose of the amendments is to streamline the operation of the

rule, and address concerns raised by both shareholder and corporate

participants. We are adopting the amendments pursuant to Sections 14

and 23 of the Exchange Act \88\ and Section 20(a) of the Investment

Company Act of 1940 \89\ (Investment Company Act'').

---------------------------------------------------------------------------

\88\ 15 U.S.C. 78m, 78n, & 78u.

\89\ 15 U.S.C. 80a-1 et seq.

---------------------------------------------------------------------------

Specifically, we are:

Recasting rule 14a-8 into a more plain-English Question &

Answer format;

Reversing the Craker Barrel interpretive position on

employment-related proposals raising significant social policy issues;

and

Amending rule 14a-4 to provide shareholders and companies

with clearer guidance on companies' exercise of discretionary voting

authority.

We have decided not to adopt other elements of our original

proposals. We are not adopting our original proposals to:

Increase the percentage of the vote a proposal must

receive before it can be resubmitted in future years if it is not

approved;

Streamline the exclusion for matters considered irrelevant

to corporate business,\90\

---------------------------------------------------------------------------

\90\ Paragraph (5) under Question 9, former rule 14a-8(c)(5).

---------------------------------------------------------------------------

Modify our administration of the rule permitting companies

to exclude proposals furthering personal grievances of special

interests; or

Implement an ``override'' mechanism that would have

permitted 3% of the share ownership to override a company's decision to

exclude a proposal under certain of the bases for exclusion set forth

under Question 9 of amended rule 14a-8.\91\

---------------------------------------------------------------------------

\91\ Because we are not adopting the proposed ``override'', we

also are not adopting certain measures, designed to enable

shareholders to use it, including the proposed qualified exemption

from the proxy rules, and safe harbor from beneficial ownership

reporting obligations under Section 13(d) of the Exchange Act.

---------------------------------------------------------------------------

[[Page 29114]]

The amendments will affect small entities that are required to file

proxy materials under the Exchange Act or the Investment Company Act.

Exchange Act rule 0-10 defines ``small business'' as a company whose

total assets on the last day of its most recent fiscal year were $5

million or less.\92\ Investment Company Act rule 0-10 defines ``small

entity'' as an investment company with net assets of $50 million or

less as of that date.\93\ We are currently aware of approximately 1,000

reporting companies that are not investment companies with assets of $5

million or less. There are approximately 800 investment companies that

satisfy the ``small entity'' definition. Only approximately one-third

of all investment companies have shareholder meetings and file proxy

materials annually.

---------------------------------------------------------------------------

\92\ 17 CFR 240.0-10.

\93\ 17 CFR 270.0-10.

---------------------------------------------------------------------------

Therefore, we believe approximately 250 small entity investment

companies may be affected by the amendments.

Plain-English Question & Answer Format

Our revision of rule 14a-8 to create a more understandable Question

& Answer format should help decrease the time and expense incurred by

both shareholders and companies attempting to comply with its

provisions companies frequently consult with legal counsel in preparing

no-action submissions under rule 14a-8. The rule's added clarity may

obviate the need for a shareholder or company to consult with counsel,

depending on the issues raised by the submission. Under some

circumstances, however, companies' submissions must include supporting

opinions of counsel.

No comments submitted empirical data demonstrating how much it

costs companies to consider and prepare an individual no-action

submission under rule 14a-8. Question 13 of a Questionnaire that we

made available in February 1997 \94\ asked respondent companies how

much money they spend on average each year determining whether to

include or exclude shareholder proposals and following Commission

procedures in connection with any proposal that they wish to exclude

(including internal costs as well as any outside legal and other fees).

While responses may have accounted for consideration of more than one

proposal, the costs of making a determination whether to include a

proposal reported by 80 companies averaged approximately $37,000.\95\

We do not believe, however, that the cost is likely to vary depending

on the size of the company. That is, the cost to a small entity is

likely to be the same as the cost to a larger entity, depending on the

number of proposals received and how many the company seeks to exclude

under the staff no-action letter process.

---------------------------------------------------------------------------

\94\ See Proposing Release, Footnote 14.

\95\ This average is based on respondents reporting costs

greater than zero. Reported costs ranged from a low of $10 to a high

of approximately $1,200,000. The median cost was $10,000.

---------------------------------------------------------------------------

Because the rule's added clarity may make it easier for

shareholders to understand the procedures for submitting shareholder

proposals, the amendments may encourage shareholders to submit more

shareholder proposals to companies each year. In turn, companies may be

required to make more rule 14a-8 no-action submissions to the

Commission.

In the period from September 30, 1996 to September 30, 1997, we

received submissions from a total of 245 companies, and only 6 (i.e.,

2%) were ``small businesses.'' While we received no empirical data on

the number of small businesses that receive shareholder proposals each

year, one commenter with substantial experience submitting shareholder

proposals to companies reported that small companies seldom receive

shareholder proposals.\96\

---------------------------------------------------------------------------

\96\ ICCR Letter at 9.

---------------------------------------------------------------------------

We also received no empirical information in response to our

request for data on the marginal cost of including an additional

shareholder proposal in companies' proxy materials. However, the

Questionnaire asked each company respondent how much money on average

it spends in the aggregate on printing costs (plus any directly related

costs, such as additional postage and tabulation expenses) to include

shareholder proposals in its proxy materials. While individual

responses may have accounted for the printing of more than one

proposal, the average cost reported by 67 companies was approximately

$50,000.\97\ By contrast, one commenter noted that the cost for

companies, excluding the largest corporations, should average about

$10,000 per proposal.\98\ We expect that any additional printing costs

are lower for small entities, since small entities typically should

have to print fewer copies of their proxy materials because they have

fewer shareholders.

---------------------------------------------------------------------------

\97\ This average is based on respondents reporting costs

greater than zero. Reported costs ranged from a low of $200 to a

high of nearly $900,000. The median cost was $10,000.

\98\ See ICCR Letter at 9-10.

---------------------------------------------------------------------------

A company that receives a proposal has no obligation to make a

submission under rule 14a-8 unless it intends to exclude the proposal

from its proxy materials. Accordingly, any costs of including an

additional proposal should be offset, at least partially, by not having

to make a rule 14a-8 submission. No commenters responded to our request

for empirical data on the potential cost savings.

Reversal of Cracker Barrel

In the 1992 Cracker Barrel no-action letter, the Division stated

that henceforth it would concur in the exclusion of all employment-

related shareholder proposals raising social policy issues under rule

14a-8(c)(7), the ``ordinary business'' exclusion. Before the

announcement of the position, the Division analyzed employment related

proposals tied to social issues on a case-by-case basis, concurring in

the exclusion of some, but not others. Reversal of the position will

result in a return to the case-by-case analysis that prevailed before

the position was announced.

Our decision to reverse the Cracker Barrel position on employment-

related shareholder proposals may therefore result in an increase in

the number of employment-related proposals tied to social issues that

are submitted to companies each year, and that companies must include

in their proxy materials. During the 1997 proxy season, the Division

received approximately 30 submissions involving employment-related

proposals tied to social issues, none from ``small businesses.'' \99\

---------------------------------------------------------------------------

\99\ No commenters provided information on the likely impact

reversal of the position will have on the number of shareholder

proposals submitted to companies each year.

---------------------------------------------------------------------------

While it is unclear whether the number of proposals submitted to

small businesses and included in their proxy statements will increase

as a result of the reversal of Cracker Barrel, we have analyzed under

``Plain English Question & Answer Format'' above the potential costs to

companies of considering and including additional proposals in their

proxy materials.

Discretionary Voting Authority

The amendments to rule 14a-4 should favorably affect companies,

including ``small businesses,'' because they would provide clearer

ground rules as to the ability to exercise discretionary voting power

when a shareholder presents a proposal without invoking rule 14a-8. We

do not routinely record information on the number of ``small

businesses'' that receive non-rule 14a-8 proposals

[[Page 29115]]

each year, since non-14a-8 proposals do not necessarily lead to a

submission to the Commission. The Investor Responsibility Research

Center (``IRRC'') has reported to the Commission staff, however, that

it is aware of a total of 19 independent proxy solicitations during

calendar years 1996 and 1997 in support of non-14a-8 proposals, and

none appear to have involved ``small businesses.'' In addition, one

commenter indicated that, since 1991, there have been 66 independent

shareholder solicitations in support of shareholder resolutions.\110\

None of the companies subject to the 66 solicitations appear to have

been ``small businesses.''

---------------------------------------------------------------------------

\100\ UNITE Letter.

---------------------------------------------------------------------------

To the extent that ``small businesses'' receive such proposals, we

believe that the amendments to rule 14a-4 will favorably affect them by

reducing uncertainty, and decreasing the likelihood that such companies

would have to incur the delay and expense of rescheduling the

shareholders meeting, or resoliciting shareholders. Some commenters

thought that the proposal to require companies wishing to preserve

voting authority to include an extra voting box on their proxy cards

might encourage the submission of more non-14a-8 shareholder proposals.

We have decided not to adopt that aspect of our original proposal. Some

shareholders thought that the amendments as proposed might effectively

inhibit independent proxy solicitations because they would have

permitted companies to retain voting authority even if the shareholder

solicited the percentage of shareownership required to carry the

proposal. We also have decided not to adopt that aspect of our original

proposal.

Under our amendments to rule 14a-4, a company wishing to preserve

discretionary voting authority on certain proposals that might be

presented to a vote may be required to advise shareholders of the

nature of such proposals. We note, however, that this precondition is

consistent with the Division's no-action positions predating the

adoption of the amendments. No commenters provided empirical data on

incremental costs likely to result from this amendment to rule 14a-4.

Daniels Financial Printing informed the staff that in most cases adding

up to three-fourths of a page in the proxy statement would not increase

the cost to the company, and that adding more than three-fourths of a

page could increase costs by about $1,500 for an average sized company.

Under our amendments to rule 14a-4, a shareholder undertaking an

independent proxy solicitation would be required to provide a company

with advance written notice of its intention to solicit the percentage

of the company's shareownership to carry the proposal, followed by

other measures to help ensure that the notice has been provided in good

faith. These amendments would impose no additional costs on companies

receiving such notice, since no action by them is required. The

amendments should impose only de minimis additional costs on

shareholders who undertake independent proxy solicitations.\101\

---------------------------------------------------------------------------

\101\ In order to comply, an insurgent is required to send to

the company advance written notice of its intention to solicit the

percentage of a company's shareownership required to carry the

proposal, followed by evidence of the solicitation, and to include

what should in most cases amount to little more than an additional

sentence in the insurgent's proxy statement.

---------------------------------------------------------------------------

Our amendment to rule 14a-5 would require companies to disclose an

additional date in their proxy statements. Disclosure of the date

should require no more than an additional sentence, and therefore

should result in no, or negligible, additional printing costs.

We considered significant alternatives to the proposed amendments

for small entities with a class of securities registered under the

Exchange Act. We considered, for instance, exempting small businesses

from any obligation to include shareholder proposals in their proxy

materials. Such an exemption, however, would be inconsistent with the

current purpose of the proxy rules, which is to provide and regulate a

channel of communication among shareholders and public companies.

Exempting small entities would deprive their shareholders of this

channel of communication.

We also considered other alternatives identified in Section 603 of

the Regulatory Flexibility Act to minimize the economic impact of the

amendments on small entities. We considered the establishment of

different compliance requirements or timetables that take into account

the resources available to small entities. Different timetables,

however, may make it difficult for the Division to issue responses in a

timely manner, and could otherwise impede the efficient operation of

the rule.

We also considered the clarification, consolidation, or

simplification of the rule's compliance requirements for small

entities. As explained more fully in section II of this release, we are

recasting and reformatting rule 14a-8 into a more understandable,

Question & Answer format. As explained in Section IV above, we are

adopting clearer guidelines for companies' exercise of discretionary

voting authority under rule 14a-4. These modifications should simplify

and facilitate compliance by all companies, including small entities.

We do not believe that there is any appropriate way further to

facilitate compliance by small entities without compromising the

current purposes of the proxy rules.

We also considered the use of performance rather than design

standards. The rules that we are amending are not specifically designed

to achieve certain levels of performance. Rather, they are designed to

serve other policies, such as to ensure adequate disclosure of material

information, and to provide a mechanism for shareholders to present

important and relevant matters for a vote by fellow shareholders.

Performance standards accordingly would not directly serve the policies

underlying the rules. We do not believe that any current federal rules

duplicate, overlap, or conflict with the rules that we propose to

amend.

VIII. Cost-Benefit Analysis

This cost-benefit analysis follows a preliminary analysis request

for comments and empirical information included in the Proposing

Release.\102\ We received few comments and no significant empirical

data, in response to our requests for further information.

---------------------------------------------------------------------------

\102\ See Proposing Release, Section VI.

---------------------------------------------------------------------------

The amendments to the rules on shareholder proposals should improve

the efficiency of the process for determining which shareholder

proposals must be included in proxy materials distributed by companies.

They should help to make the rule understandable to the numerous

shareholders and companies that refer to the rule each year, ensure

that companies include certain employment-related proposals raising

significant social policy issues in their proxy materials, and provide

clearer guidelines for a company's exercise of discretionary voting

authority when notified that a shareholder intends to present a

proposal without invoking rule 14a-8's mechanisms.

Specifically, we are:

Recasting rule 14a-8 into a more plain-English Question &

Answer format;

Reversing the Cracker Barrel interpretive position on

employment-related proposals raising significant social policy issues;

and

Amending rule 14a-4 to provide shareholders and companies

with clearer guidance on companies' exercise of discretionary voting

authority.

[[Page 29116]]

We have decided not to adopt other elements of our original

proposals. We are not adopting our original proposals to:

Increase the percentage of the vote a proposal must

receive before it can be resubmitted in future years if it is not

approved;

Streamline the exclusion for matters considered irrelevant

to corporate business;\103\

---------------------------------------------------------------------------

\103\ Paragraph (5) under Question 9, former rule 14a-8(c)(5).

---------------------------------------------------------------------------

Modify our administration of the rule permitting companies

to exclude proposals furthering personal grievances of special

interests; or

Implement an ``override'' mechanism that would have

permitted 3% of the share ownership to override a company's decision to

exclude a proposal under certain of the bases for exclusion set forth

under Question 9 of amended rule 14a-8.\104\

---------------------------------------------------------------------------

\104\ Because we are not adopting the proposed ``override'', we

also are not adopting certain measures designed to enable

shareholders to use it, including the proposed qualified exemption

from the proxy rules, and safe harbor from beneficial ownership

reporting obligations under Section 13(d) of the Exchange Act.

---------------------------------------------------------------------------

We have considered whether the amendments we are adopting would

promote efficiency, competition and capital formation. Rule 14a-8

requires companies to include shareholder proposals in their proxy

materials, subject to specific bases for excluding them. We believe

that the rule enhances investor confidence in the securities markets by

providing a means for shareholders to communicate with management and

among themselves on significant matters.

Plain-English Question & Answer Format

Our revision of the rule to create a more understandable Question &

Answer format should help decrease the time and expense incurred by

both shareholders and companies attempting to comply with its

provisions. Companies frequently consult with legal counsel in

preparing no-action submissions under rule 14a-8. The rule's added

clarity may obviate the need for a shareholder or company to consult

with counsel, depending on the issues raised by the submission. Under

some circumstances, however, companies' submissions must include

supporting opinions of counsel.

No commenters submitted empirical data demonstrating how much it

costs companies to consider and prepare an individual no-action

submission under rule 14a-8. Question 13 of the Questionnaire asked

respondent companies how much money they spend on average each year

determining whether to include or exclude shareholder proposals and

following Commission procedures in connection with any proposal that

they wish to exclude (including internal costs as well as any outside

legal and other fees). While responses may have accounted for

consideration of more than one proposal, the costs reported by 80

companies averaged approximately $37,000.\105\

---------------------------------------------------------------------------

\105\ This average is based on respondents reporting costs

greater than zero. Reported costs ranged from a low of $10 to a high

of approximately $1,200,000. The median cost was $10,000.

---------------------------------------------------------------------------

Because the revised rule's added clarity may make it easier for

shareholders to understand the procedures for submitting shareholder

proposals, the amendments may encourage shareholders to submit more

shareholder proposals to companies each year. In turn, companies may be

required to make more rule 14a-8 no-action submissions to the

Commission. A study conducted by one commenter reports that, each year,

shareholder proposals come to a vote at 226 companies from among the

1,500 largest U.S. companies.\106\

---------------------------------------------------------------------------

\106\ See Shareholder Rights Analysis: The Impact of Proposed

SEC Rules on Resubmission of Shareholder Resolutions, Social

Investment Forum Foundation, Dec. 10, 1997.

---------------------------------------------------------------------------

We also received no information in response to our request for data

on the marginal cost of including an additional shareholder proposal in

companies' proxy materials. However, the Questionnaire asked each

company respondent how much money on average it spends in the aggregate

on printing costs (plus any directly related costs, such as additional

postage and tabulation expenses) to include shareholder proposals in

its proxy materials. While individual responses may have accounted for

the printing of more than one proposal, the average cost reported by 67

companies was approximately $50,000.\107\ By contrast, one commenter

thought that this estimate is too high, although large companies in his

view would incur relatively higher costs.\108\

---------------------------------------------------------------------------

\107\ This average is based on respondents reporting costs

greater than zero. Reported costs ranged from a low of $200 to a

high of nearly $900,000. The median cost was $10,000.

\108\ See ICCR Letter at 9-10.

---------------------------------------------------------------------------

A company that receives a proposal has no obligation to make a

submission under rule 14a-8 unless it intends to exclude the proposal

from its proxy materials.\109\ Accordingly, any costs of including an

additional proposal should be offset, at least partially, by not having

to make a rule 14a-8 submission. No commenters responded to our request

for empirical data on the potential cost savings.

---------------------------------------------------------------------------

\109\ In the period from September 30, 1996 to September 30,

1997, we received approximately 400 submissions under rule 14a-8.

---------------------------------------------------------------------------

Reversal of Cracker Barrel

In the 1992 Cracker Barrel no-action letter, the Division stated

that henceforth it would concur in the exclusion of all employment-

related shareholder proposals raising social policy issues under rule

14a-8(c)(7), the ``ordinary business'' exclusion. Before the

announcement of the position, the Division analyzed employment related

proposals tied to social issues on a case-by-case basis, concurring in

the exclusion of some, but not others. Reversal of the position will

result in a return to the case-by-case analysis that prevailed before

the position was announced.

Our decision to reverse the Cracker Barrel position on employment-

related shareholder proposals may therefore result in an increase in

the number of employment-related proposals tied to social issues that

are submitted to companies each year, and that companies must include

in their proxy materials. During the 1997 proxy season, the Division

received approximately 30 submissions involving employment-related

proposals tied to social issues.\110\

---------------------------------------------------------------------------

\110\ No commenters provided information on the likely impact

reversal of the position will have on the number of shareholder

proposals submitted to companies each year.

---------------------------------------------------------------------------

We have analyzed under ``Plain English Question & Answer Format''

above the potential costs to companies of considering and including

additional proposals in their proxy materials.

Shareholder proposals could have a positive or negative impact, or

no impact, on the price of a company's securities.\111\ Relatively few

shareholder proposals are approved by shareholders each year, and the

few that are approved typically focus on corporate governance matters

rather than social issues.\112\ Based on information provided to us by

IRRC, we understand that for calendar year 1997, 22 proposals obtained

[[Page 29117]]

shareholder approval out of a total of 376 proposals submitted to

shareholder votes. Ten were proposals to repeal classified boards

(i.e., boards with staggered terms). Ten sought redemption of

companies' shareholder rights plans. One focused on ``golden

parachute'' payments to executives (i.e., large payments typically

contingent upon corporate change of control). One sought to restrict

director pension benefits.

---------------------------------------------------------------------------

\111\ See, e.g., Michael P. Smith, Shareholder Activism by

Institutional Investors: Evidence from CalPERS, The Journal of

Finance, Vol. LI, No. 1, March 1996; Sunil Wahal, Pension Fund

Activism and Firm Peformance, Journal of Financial and Quantitative

Analysis, Vol. 31, No. 1, March 1996.

\112\ Even if a proposal does not obtain shareholder approval,

however, it may nonetheless influence management, especially if it

receives substantial shareholder support. A proposal may also

influence management even if it is not put to a shareholder vote. We

understand that in some instances management has made concessions to

shareholders in return for the withdrawal of a proposal.

---------------------------------------------------------------------------

Proposals addressing corporate governance matters tend to receive

the most substantial shareholder support and may have an identifiable

impact on shareholder wealth. Examples are proposals on voting and

nomination procedures for board members, and proposals to restrict or

eliminate companies' shareholder rights plans (i.e., ``posion pills'').

The amendments we are adopting do not focus on those type of proposals,

and should not affect shareholders' ability to include them in

companies proxy materials. Additionally, shareholder proposals on

social issues may improve investor confidence in the securities markets

by providing investors with a sense that as shareholders they have a

means to express their views to the management of the companies in

which they invest.

Discretionary Voting Authority

The amendments to rule 14a-4 should favorably affect companies

because they should provide clearer ground rules as to the ability to

exercise discretionary voting power when a shareholder presents a

proposal without invoking rule 14a-8.

We do not collect information on the number of companies that

receive non-rule 14a-8 proposals each year, since such proposals do not

necessarily lead to a submission to the Commission. However, IRRC has

reported to the Commission staff that, during the 1997 calendar year,

it is aware of only two independent solicitations in support of non-

14a-8 shareholder resolutions, down from 17 solicitations for calendar

year 1996. In addition, one commenter indicated that, since 1991, there

have been 66 independent shareholder solicitations in support of

shareholder resolutions.\113\

---------------------------------------------------------------------------

\113\ UNITE Letter.

---------------------------------------------------------------------------

To the extent ``small businesses'' receive such proposals, we

believe that the amendments to rule 14a-4 will favorably affect them by

reducing uncertainty, and decreasing the likelihood of incurring the

delay and expense of rescheduling the shareholders meeting and/or

resoliciting shareholders. Reducing the potential for uncertainty

should also help to decrease the likelihood of related litigation.

One company estimated the cost of sending supplemental proxy

material to its shareholders at about $170,000.\114\ Thus, if the

amendments permit companies to avoid resolicitations on five occasions,

the savings would amount to about $850,000.\115\

---------------------------------------------------------------------------

\114\ See Harrah's Entertainment, Inc., Dec. 31, 1997

\115\ We have no basis for estimating reliably how many

resolicitations, if any, are likely to be avoided in any given year

as a result of the amendments.

---------------------------------------------------------------------------

Another commenter submitted information on the legal costs of

representing insurgent shareholders in connection with court actions

under the proxy rules.\116\ According to that commenter, attorneys'

fees and costs incurred by the insurgent ranged from $17,517 to

$75,421. It is not clear whether these actions involved rule 14a-5 or

discretionary voting authority, and they do not include the legal costs

of other parties or any other associated expenses.

---------------------------------------------------------------------------

\116\ Davis, Cowell & Bowe Letter at 4.

---------------------------------------------------------------------------

Some commenters thought that the proposal to require companies

wishing to preserve voting authority to include an extra voting box on

their proxy cards might encourage the submission of more non-14a.8

shareholder proposals, as well as confusion among shareholders. We have

decided not to adopt that aspect of our original proposal. Other

commenters thought that the proposals might effectively inhibit

independent proxy solicitations because they would have provided

companies with a means to retain voting authority even if the

shareholder solicited the percentage of shareownership required to

carry the proposal. We also have decided not to adopt that aspect of

our original proposal.

Under our amendments to rule 14a-4, a company, wishing to preserve

discretionary voting authority on certain proposals that might be

presented to a vote, may be required to advise shareholders of the

nature of such proposals. We note, however, that this precondition is

consistent with the Division's no-action positions predating the

adoption of these amendments. No commenters provided empirical data on

incremental costs likely to result from these amendments to rule 14a-4.

Daniels Financial Printing informed the staff that is most cases adding

up to three-fourths of a page in the proxy statement would not increase

the cost to the company, and that adding more than three-fourths of a

page could increase costs by about $1,500 for an average sized company.

Under our amendments to rule 14a-4, a shareholder undertaking an

independent proxy solicitation would be required to provide a company

with advance written notice of its intention to solicit the percentage

of the company's shareownership to carry the proposal, followed by

other measures to help ensure that the notice has been provided in good

faith. These amendments would impose no additional costs on companies

receiving such notice, since no action by them is required. The

amendments should impose only de minimis additional costs on a

shareholder undertaking an independent proxy solicitation.\117\

---------------------------------------------------------------------------

\117\ In order to comply, an insurgent is required to send to

the company advance written notice of its intention to solicit the

percentage of a company's shareownership required to carry the

proposal, followed by evidence of the solicition, and to include

what should in most cases amount to little more than an additional

sentence in the insurgent's proxy statement.

---------------------------------------------------------------------------

Our amendment to rule 14a-5 would require companies to disclose an

additional data in their proxy statements. Disclosure of the date

should require no more than an additional sentence, and therefore

should result in no, or negligible, additional printing costs.

Section 23(a) of the Exchange Act \118\ requires the Commission to

consider any anti-competitive effects of any rules it adopts thereunder

and the reasons for its determination that any burden on competition

imposed by such rules is necessary or appropriate to further the

purposes of the Exchange Act. The Commission has considered the impact

this rulemaking will have on competition and believes that the

amendments will not impose a significant burden on competition.

---------------------------------------------------------------------------

\118\ 15 U.S.C. 78w(a)

---------------------------------------------------------------------------

IX. Paperwork Reduction Act

Regulation 14A \119\ and the Commission's related proxy rules,

including rules 14a-8, 14a-4, and 14a-5, were adopted pursuant to

Section 14(a) of the Exchange Act. Section 14(a) directs the Commission

to adopt rules ``as necessary or appropriate in the public interest or

for the protection of investors, to solicit or to permit the use of his

name to solicit any proxy or consent or authorization in respect of any

security (other than an exempted security) registered pursuant to

section 12 of this title.'' Schedule 14A prescribes information that a

company must include in its proxy statement to ensure that shareholders

are provided material information relating to voting decisions.

---------------------------------------------------------------------------

\119\ 17 CFR 240.14a-101.

---------------------------------------------------------------------------

[[Page 29118]]

The amendments to rules 14a-8, 14a-4(c), and 14a-5 should make it

easier for shareholder proponents to include in companies' proxy

materials employment-related shareholder proposals raising significant

social policy matters, and provide companies subject to the proxy rules

with clearer ground rules for the exercise of discretionary voting

authority. The amendments should also make rule 14a-8 easier to

understand the follow. The amendments focus primarily on rule 14a-8,

which requires companies to include shareholder proposals in their

proxy materials, subject to certain bases for excluding them. We

received no Paperwork Reduction Act comments relating to the

amendments.

As set forth in the Proposing Release,\120\ certain provisions of

rules 14a-8, 14a-4, and 14a-5 contain ``collection of information''

requirements within the meaning of the Paperwork Reduction Act of 1995

(44 U.S.C. Sec. 3501 et seq.). The Commission had submitted the

amendments to those rules to the Office of Management and Budget

(``OMB'') for review in accordance with 44 U.S.C. Sec. 3507(d) and 5

CFR. 1320.11. The title for the collection of information is

``Regulation 14A.'' Except as explained below, the amendments should

have no impact on the total estimated burden hours for Regulation

14A.\121\

---------------------------------------------------------------------------

\120\ See Proposing Release, Section VII.

\121\ 17 CFR 240.14a-101.

---------------------------------------------------------------------------

As originally proposed, amended rule 14a-4 would have in some

circumstances required companies to include an extra voting box in

their proxy cards in order to preserve discretionary voting authority.

We are not, however, adopting that requirement, which we believe would

have increased the total annual burden by only a negligible amount, or

not at all.\122\ We are adopting a requirement under rule 14a-4 that a

shareholder insurgent in some circumstances provide a company with

advance written notice of its intention to solicit the percentage of a

company's shareownership necessary to approve the proposal, followed by

evidence of the solicitation, and by negligible additional disclosures

in the insurgent's proxy statement.\123\ We estimate that these

additional requirements, in the context of other amendments adopted

today, will increase the annual burden under Regulation 14A for a

shareholder insurgent by approximately one hour per shareholder

proponent, and that approximately 10 proponents will have to comply

each year. Accordingly, we have increased our estimated total

compliance burden for Regulation 14A by a total of 10 hours, to 810,935

hours.

---------------------------------------------------------------------------

\122\ See Section IV above.

\123\ Id.

---------------------------------------------------------------------------

Providing the information required by Regulation 14A is mandatory

under Section 14(a) of the Exchange Act. The information will not be

kept confidential. Unless a currently valid OMB control number is

displayed on the Schedule 14A, the Commission may not sponsor or

conduct or require response to an information collection. The OMB

control number is 3235-0059. The collection is in accordance with 44

U.S.C. Sec. 3507.

X. Statutory Basis And Text of Amendments

We are adopting amendments to Rules 14a-8, 14a-4, and 14a-5 under

the authority set forth in Sections 13, 14 and 23 of the Securities

Exchange Act of 1943, and Section 20(a) of the Investment Company Act.

List of Subjects in 17 CFR Part 240

Reporting and recordkeeping requirements, Securities.

Text of Amendments

In accordance with the foregoing, Title 17, Chapter II of the Code

of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF

1934

1. The authority citation for part 240 continues to read, in part,

as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee,

77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k,

78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d),

78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and

80b-11, unless otherwise noted.

* * * * *

a. By amending Sec. 240.14a-4 by revising the introductory text

of paragraph (c) and paragraph (c)(1), redesignating paragraphs

(c)(2) through (c)(5) as paragraphs (c)(4) through (c)(7), and

adding new paragraphs (c)(2) and (c)(3), to read as follows:

Sec. 240.14a-4 Requirements as to proxy.

* * * * *

(c) A proxy may confer discretionary authority to vote on any of

the following matters:

(1) For an annual meeting of shareholders, if the registrant did

not have notice of the matter at least 45 days before the date on which

the registrant first mailed its proxy materials for the prior year's

annual meeting of shareholders (or date specified by an advance notice

provision), and a specific statement to that effect is made in the

proxy statement or form of proxy. If during the prior year the

registrant did not hold an annual meeting, or if the date of the

meeting has changed more than 30 days from the prior year, then notice

must not have been received a reasonable time before the registrant

mails its proxy materials for the current year.

(2) In the case in which the registrant has received timely notice

in connection with an annual meeting of shareholders (as determined

under paragraph (c)(1) of this section), if the registrant includes, in

the proxy statement, advice on the nature of the matter and how the

registrant intends to exercise its discretion to vote on each matter.

However, even if the registrant includes this information in its proxy

statement, it may not exercise discretionary voting authority on a

particular proposal if the proponent:

(i) Provides the registrant with a written statement, within the

time-frame determined under paragraph (c)(1) of this section, that the

proponent intends to deliver a proxy statement and form of proxy to

holders of at least the percentage of the company's voting shares

required under applicable law to carry the proposal;

(ii) Includes the same statement in its proxy materials filed under

Sec. 240.14a-6; and

(iii) Immediately after soliciting the percentage of shareholders

required to carry the proposal, provides the registrant with a

statement from any solicitor or other person with knowledge that the

necessary steps have been taken to deliver a proxy statement and form

of proxy to holders of at least the percentage of the company's voting

shares required under applicable law to carry out the proposal.

(3) For solicitations other than for annual meetings or for

solicitations by persons other than the registrant, matters which the

persons making the solicitation do not know, a reasonable time before

the solicitation, are to be presented at the meeting, if a specific

statement to that effect is made in the proxy statement or form of

proxy.

3. By amending Sec. 240.14a-5 by revising paragraph (e), and adding

paragraph (f), to read as follows:

Sec. 240.14a-5 Presentation of information in proxy statement.

* * * * *

(e) All proxy statements shall disclose, under an appropriate

caption, the following dates:

(1) The deadline for submitting shareholder proposals for inclusion

in the registrant's proxy statement and

[[Page 29119]]

form of proxy for the registrant's next annual meeting, calculated in

the manner provided in Sec. 240.14a-8(d)(Question 4); and

(2) The date after which notice of a shareholder proposal submitted

outside the processes of Sec. 240.14a-8 is considered untimely, either

calculated in the manner provided by Sec. 240.14a-4(c)(1) or as

established by the registrant's advance notice provision, if any,

authorized by applicable state law.

(f) If the date of the next annual meeting is subsequently advanced

or delayed by more than 30 calendar days from the date of the annual

meeting to which the proxy statement relates, the registrant shall, in

a timely manner, inform shareholders of such change, and the new dates

referred to in paragraphs (e)(1) and (e)(2) of this section, by

including a notice, under Item 5, in its earliest possible quarterly

report on Form 10-Q (Sec. 249.308a of this chapter) or Form 10-QSB

(Sec. 249.308b of this chapter), or, in the case of investment

companies, in a shareholder report under Sec. 270.30d-1 of this chapter

under the Investment Company Act of 1940, or, if impracticable, any

means reasonably calculated to inform shareholders.

4. By revising Sec. 240.14a-8 to read as follows:

Sec. 240.14a-8 Shareholder proposals.

This section addresses when a company must include a shareholder's

proposal in its proxy statement and identify the proposal in its form

of proxy when the company holds an annual or special meeting of

shareholders. In summary, in order to have your shareholder proposal

included on a company's proxy card, and included along with any

supporting statement in its proxy statement, you must be eligible and

follow certain procedures. Under a few specific circumstances, the

company is permitted to exclude your proposal, but only after

submitting its reasons to the Commission. We structured this section in

a question-and-answer format so that it is easier to understand. The

references to ``you'' are to a shareholder seeking to submit the

proposal.

(a) Question 1: What is a proposal? A shareholder proposal is your

recommendation or requirement that the company and/or its board of

directors take action, which you intend to present at a meeting of the

company's shareholders. Your proposal should state as clearly as

possible the course of action that you believe the company should

follow. If your proposal is placed on the company's proxy card, the

company must also provide in the form of proxy means for shareholders

to specify by boxes a choice between approval or disapproval, or

abstention. Unless otherwise indicated, the word ``proposal'' as used

in this section refers both to your proposal, and to your corresponding

statement in support of your proposal (if any).

(b) Question 2: Who is eligible to submit a proposal, and how do I

demonstrate to the company that I am eligible? (1) In order to be

eligible to submit a proposal, you must have continuously held at least

$2,000 in market value, or 1%, of the company's securities entitled to

be voted on the proposal at the meeting for at least one year by the

date you submit the proposal. You must continue to hold those

securities through the date of the meeting.

(2) If you are the registered holder of your securities, which

means that your name appears in the company's records as a shareholder,

the company can verify your eligibility on its own, although you will

still have to provide the company with a written statement that you

intend to continue to hold the securities through the date of the

meeting of shareholders. However, if like many shareholders you are not

a registered holder, the company likely does not know that you are a

shareholder, or how many shares you own. In this case, at the time you

submit your proposal, you must prove your eligibility to the company in

one of two ways:

(i) The first way is to submit to the company a written statement

from the ``record'' holder of your securities (usually a broker or

bank) verifying that, at the time you submitted your proposal, you

continuously held the securities for at least one year. You must also

include your own written statement that you intend to continue to hold

the securities through the date of the meeting of shareholders; or

(ii) The second way to prove ownership applies only if you have

filed a Schedule 13D (Sec. 240.13d-101), Schedule 13G (Sec. 240.13d-

102), Form 3 (Sec. 249.103 of this chapter), Form 4 (Sec. 249.104 of

this chapter) and/or Form 5 (Sec. 249.105 of this chapter), or

amendments to those documents or updated forms, reflecting your

ownership of the shares as of or before the date on which the one-year

eligibility period begins. If you have filed one of these documents

with the SEC, you may demonstrate your eligibility by submitting to the

company:

(A) A copy of the schedule and/or form, and any subsequent

amendments reporting a change in your ownership level;

(B) Your written statement that you continuously held the required

number of shares for the one-year period as of the date of the

statement; and

(C) Your written statement that you intend to continue ownership of

the shares through the date of the company's annual or special meeting.

(c) Question 3: How many proposals may I submit: Each shareholder

may submit no more than one proposal to a company for a particular

shareholders' meeting.

(d) Question 4: How long can my proposal be? The proposal,

including any accompanying supporting statement, may not exceed 500

words.

(e) Question 5: What is the deadline for submitting a proposal? (1)

If you are submitting your proposal for the company's annual meeting,

you can in most cases find the deadline in last year's proxy statement.

However, if the company did not hold an annual meeting last year, or

has changed the date of its meeting for this year more than 30 days

from last year's meeting, you can usually find the deadline in one of

the company's quarterly reports on Form 10-Q (Sec. 249.308a of this

chapter) or 10-QSB (Sec. 249.308b of this chapter), or in shareholder

reports of investment companies under Sec. 270.30d-1 of this chapter of

the Investment Company Act of 1940. In order to avoid controversy,

shareholders should submit their proposals by means, including

electronic means, that permit them to prove the date of delivery.

(2) The deadline is calculated in the following manner if the

proposal is submitted for a regularly scheduled annual meeting. The

proposal must be received at the company's principal executive offices

not less than 120 calendar days before the date of the company's proxy

statement released to shareholders in connection with the previous

year's annual meeting. However, if the company did not hold an annual

meeting the previous year, or if the date of this year's annual meeting

has been changed by more than 30 days from the date of the previous

year's meeting, then the deadline is a reasonable time before the

company begins to print and mail its proxy materials.

(3) If you are submitting your proposal for a meeting of

shareholders other than a regularly scheduled annual meeting, the

deadline is a reasonable time before the company begins to print and

mail its proxy materials.

(f) Question 6: What if I fail to follow one of the eligibility or

procedural requirements explained in answers to

[[Page 29120]]

Questions 1 through 4 of this section? (1) The company may exclude your

proposal, but only after it has notified you of the problem, and you

have failed adequately to correct it. Within 14 calendar days of

receiving your proposal, the company must notify you in writing of any

procedural or eligibility deficiencies, as well as of the time frame

for your response. Your response must be postmarked, or transmitted

electronically, no later than 14 days from the date you received the

company's notification. A company need not provide you such notice of a

deficiency if the deficiency cannot be remedied, such as if you fail to

submit a proposal by the company's properly determined deadline. If the

company intends to exclude the proposal, it will later have to make a

submission under Sec. 240.14a-8 and provide you with a copy under

Question 10 below, Sec. 240.14a-8(j).

(2) If you fail in your promise to hold the required number of

securities through the date of the meeting of shareholders, then the

company will be permitted to exclude all of your proposals from its

proxy materials for any meeting held in the following two calendar

years.

(g) Question 7: Who has the burden of persuading the Commission or

its staff that my proposal can be excluded? Except as otherwise noted,

the burden is on the company to demonstrate that it is entitled to

exclude a proposal.

(h) Question 8: Must I appear personally at the shareholders'

meeting to present the proposal? (1) Either you, or your representative

who is qualified under state law to present the proposal on your

behalf, must attend the meeting to present the proposal. Whether you

attend the meeting yourself or send a qualified representative to the

meeting in your place, you should make sure that you, or your

representative, follow the proper state law procedures for attending

the meeting and/or presenting your proposal.

(2) If the company holds it shareholder meeting in whole or in part

via electronic media, and the company permits you or your

representative to present your proposal via such media, then you may

appear through electronic media rather than traveling to the meeting to

appear in person.

(3) If you or your qualified representative fail to appear and

present the proposal, without good cause, the company will be permitted

to exclude all of your proposals from its proxy materials for any

meetings held in the following two calendar years.

(i) Question 9: If I have complied with the procedural

requirements, on what other bases may a company rely to exclude my

proposal? (1) Improper under state law: If the proposal is not a proper

subject for action by shareholders under the laws of the jurisdiction

of the company's organization;

Note to paragraph (i)(1): Depending on the subject matter, some

proposals are not considered proper under state law if they would be

binding on the company if approved by shareholders. In our

experience, most proposals that are cast as recommendations or

requests that the board of directors take specified action are

proper under state law. Accordingly, we will assume that a proposal

drafted as a recommendation or suggestion is proper unless the

company demonstrates otherwise.

(2) Violation of law: If the proposal would, if implemented, cause

the company to violate any state, federal, or foreign law to which it

is subject;

Note to paragraph (i)(2): We will not apply this basis for

exclusion to permit exclusion of a proposal on grounds that it would

violate foreign law if compliance with the foreign law could result

in a violation of any state or federal law.

(3) Violation of proxy rules: If the proposal or supporting

statement is contrary to any of the Commission's proxy rules, including

Sec. 240.14a-9, which prohibits materially false or misleading

statements in proxy soliciting materials;

(4) Personal grievance; special interest: If the proposal relates

to the redress of a personal claim or grievance against the company or

any other person, or if it is designed to result in a benefit to you,

or to further a personal interest, which is not shared by the other

shareholders at large;

(5) Relevance: If the proposal relates to operations which account

for less than 5 percent of the company's total assets at the end of its

most recent fiscal year, and for less than 5 percent of its net earning

sand gross sales for its most recent fiscal year, and is not otherwise

significantly related to the company's business;

(6) Absence of power/authority: If the company would lack the power

or authority to implement the proposal;

(7) Management functions: If the proposal deals with a matter

relating to the company's ordinary business operations;

(8) Relates to election: If the proposal relates to an election for

membership on the company's board of directors or analogous governing

body;

(9) Conflicts with company's proposal: If the proposal directly

conflicts with one of the company's own proposals to be submitted to

shareholders at the same meeting.

Note to paragraph (i)(9): A company's submission to the

Commission under this section should specify the points of conflict

with the company's proposal.

(10) Substantially implemented: If the company has already

substantially implemented the proposal;

(11) Duplication: If the proposal substantially duplicates another

proposal previously submitted to the company by another proponent that

will be included in the company's proxy materials for the same meeting;

(12) Resubmissions: If the proposal deals with substantially the

same subject matter as another proposal or proposals that has or have

been previously included in the company's proxy materials within the

preceding 5 calendar years, a company may exclude it from its proxy

materials for any meeting held within 3 calendar years of the last time

it was included if the proposal received:

(i) Less than 3% of the vote if proposed once within the preceding

5 calendar years;

(ii) Less than 6% of the vote on its last submission to

shareholders if proposed twice previously within the preceding 5

calendar years; or

(iii) Less than 10% of the vote on its last submission to

shareholders if proposed three times or more previously within the

preceding 5 calendar years; and

(13) Specific amount of dividends: If the proposal relates to

specific amounts of cash or stock dividends.

(j) Question 10: What procedures must the company follow if it

intends to exclude my proposal? (1) If the company intends to exclude a

proposal from its proxy materials, it must file its reasons with the

Commission no later than 80 calendar days before it files its

definitive proxy statement and form of proxy with the Commission. The

company must simultaneously provide you with a copy of its submission.

The Commission staff may permit the company to make its submission

later than 80 days before the company files its definitive proxy

statement and form of proxy, if the company demonstrates good cause for

missing the deadline.

(2) The company must file six paper copies of the following:

(i) The proposal;

(ii) An explanation of why the company believes that it may exclude

the proposal, which should, if possible, refer to the most recent

applicable authority, such as prior Division letters issued under the

rule; and

(iii) A supporting opinion of counsel when such reasons are based

on matters of state or foreign law.

[[Page 29121]]

(k) Question 11: May I submit my own statement to the Commission

responding to the company's arguments?

Yes, you may submit a response, but it is not required. You should

try to submit any response to us, with a copy to the company, as soon

as possible after the company makes its submission. This way, the

Commission staff will have time to consider fully your submission

before it issues its response. You should submit six paper copies of

your response.

(l) Question 12: If the company includes my shareholder proposal in

its proxy materials, what information about me must it include along

with the proposal itself?

(1) The company's proxy statement must include your name and

address, as well as the number of the company's voting securities that

you hold. However, instead of providing that information, the company

may instead include a statement that it will provide the information to

shareholders promptly upon receiving an oral or written request.

(2) The company is not responsible for the contents of your

proposal or supporting statement.

(m) Question 13: What can I do if the company includes in its proxy

statement reasons why it believes shareholders should not vote in favor

of my proposal, and I disagree with some of its statements?

(1) The company may elect to include in its proxy statement reasons

why it believes shareholders should vote against your proposal. The

company is allowed to make arguments reflecting its own point of view,

just as you may express your own point of view in your proposal's

supporting statement.

(2) However, if you believe that the company's opposition to your

proposal contains materially false or misleading statements that may

violate our anti-fraud rule, Sec. 240.142-9, you should promptly send

to the Commission staff and the company a letter explaining the reasons

for your view, along with a copy of the company's statements opposing

your proposal. To the extent possible, your letter should include

specific factual information demonstrating the inaccuracy of the

company's claims. Time permitting, you may wish to try to work out your

differences with the company by yourself before contacting the

Commission staff.

(3) We require the company to send you a copy of its statements

opposing your proposal before it mails its proxy materials, so that you

may bring to our attention any materially false or misleading

statements, under the following timeframes:

(i) If our no-action response requires that you make revisions to

your proposal or supporting statement as a condition to requiring the

company to include it in its proxy materials, then the company must

provide you with a copy of its opposition statements no later than 5

calendar days after the company receives a copy of your revised

proposal; or

(ii) In all other cases, the company must provide you with a copy

of its opposition statements no later than 30 calendar days before its

files definitive copies of its proxy statement and form of proxy under

Sec. 240.14a-6.

Dated: May 21, 1998.

By the Commission.

Margaret McFarland,

Deputy Secretary.

[FR Doc. 98-14121 Filed 5-27-98; 8:45 am]

BILLING CODE 8010-01-P