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: Jim Hamilton's World of Securities Regulation

By Jim Hamilton

SEC Staff Legal Bulletin Discusess Shareholder Proxy Proposal Rule 14a-8

In its continuing effort to identify and provide guidance on issues that commonly arise under the shareholder proposal rule, Rule 14a-8, the Division of Corporation Finance issued Staff Legal Bulletin No. 14D. The bulletin contains information on shareholder proposals that request or require a board of directors to unilaterally amend the company?s articles or certificate of incorporation. It also details a new e-mail address established for the receipt of Rule 14a-8 no-action requests and related correspondence. The bulletin also examines the issue of whether a company must send a notice of defect if the company?s records indicate that the proponent has not owned the minimum amount of securities for the required period of time as set forth in Rule 14a-8(b). Finally, the bulletin examines the requirement that a proponent send copies of correspondence to the company, as well as the manner in which the company and a proponent should provide additional correspondence to the SEC and to each other. Exchange Act Rule 14a-8 provides a channel of communication between companies and their shareholders and then regulates it.

If a proposal requests or requires the board to amend the company?s charter, said the staff, there may be some basis for the company to omit the proposal in reliance on Rule 14a-8(i)(1) as being an improper subject for shareholder action under state law, Rule 14a-8(i)(2) as being in violation of a state or federal law, or Rule 14a-8(i)(6) as being outside the company?s power to implement, if the company meets its burden of establishing that applicable state law requires any such amendment to be initiated by the board and then approved by shareholders in order for the charter to be amended.

In accordance with longstanding staff practice, however, the SEC may permit the proponent to revise the proposal to provide that the board of directors take the steps necessary to amend the company?s charter. If the proponent revises the proposal in this manner within the time frame specified in the SEC response letter, the staff does not believe there would be a basis for the company to exclude the proposal under Rule 14a-8(i)(1), Rule 14a-8(i)(2), or Rule 14a-8(i)(6).

Companies and shareholders may e-mail Rule 14a-8 no-action requests and related correspondence to the SEC using a new e-mail address for the receipt of no-action requests and correspondence related to the shareholder proposal rule. Companies and proponents may submit requests for no-action relief under Rule 14a-8 and related correspondence to the SEC at shareholderproposals@sec.gov. The staff cautioned that this mailbox should not be used to submit other types of no-action requests or correspondence; and that the e-mail is not confidential.

The staff also said that, if a proponent is listed in a company?s records as a registered holder, and the records indicate that the proponent has not owned the minimum amount of securities for the required period of time as set forth in Rule 14a-8(b), the company must send the proponent a notice of defect if it wishes to exclude the proposal on eligibility grounds.

In addition, the SEC staff indicated that Rule 14a-8 requires proponents to provide companies with any correspondence they send to the Commission. Rule 14a-8(k) requires a proponent to provide the company with a copy of any correspondence submitted in response to the company?s no-action request. In addition, both the company and the proponent should promptly forward to each other copies of all correspondence provided to the SEC in connection with Rule 14a-8 no-action requests. The staff encourages companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to the SEC. For example, if a company transmits correspondence to the SEC via overnight mail, the company should transmit a copy to the proponent via overnight mail as well.

Full post as published by Jim Hamilton's World of Securities Regulation on November 10, 2008 (boomark / email).